Key Regulatory Changes

The World's Top Reformer

EGYPT HAS TAKEN bold steps during the past tour years to slash red tape and make one of the world's oldest economies also one of the easi­est in which to do business. These mea­sures have included tax cuts, customs cuts, reform of the customs bureaucra­cy, streamlined procedures for foreign and domestic investors and, of course, the creation of the nation's first Minis­try of Investment.

Created in July 2004, the Ministry of Investment has a mandate to promote the private sector's role in the economy. As part of the transformation, the Min­istry has turned the General Authority for Investment and Free Zones (GAIT) from a regulatory institution into a pro­active investment promotion agency. On the other front, the Ministry has also launched fast-track dispute-resolu­tion services for all investors.

The regulatory and institutional frameworks governing investment in Egypt have changed significantly in the past three years. Key objectives of the process were to enhance transparen­cy, protect property rights and entrench the principle of non-discrimination as the core principles of investment poli­cy in Egypt. Today, GAFI's much-lauded One-Stop Shops have made starting a business significantly easier. The One Stop Shops are home to staff fromevery agency that an investor needs to visit in order to open a new business, obtain permits and receive regulatory approvals. From the Tax Authority to Customs, everyone is here, cutting the time it takes to establish a business to anywhere from 14-140 days to just three days.

At the nation's Customs Authority, reforms in the second hall of 2004 slashed customs — and cut the number of tariff cat­egories to six from 27 while reducing the number of articles covered under the Customs Act by more than half. Overnight, those changes eliminated trade distortions.

On the taxation front the government eliminated tax holi­days and exemptions in favor of a streamlined tax law intro­duced in 2005. The new tax code slashed corporate and per­sonal income tax rates — which had previously ranged from 32-40% — to a uniform 20%. (The exception to the rule is the oil and gas sector, where the old rate of 40.55% still applies.)

Tax cuts have allowed investors to operate on a level play­ing field, reducing confusion, moving to a random-sample au­dit procedure and almost completely eliminating bureaucratic subjectivity in tax assessments. (Exceptions still apply in free 

zones.) Today, the Ministry of Finance is working with parlia­mentarians to lay the groundwork for the next round of tax re­forms, which will streamline the nation's sales tax and real es­tate tax regimes.

Meanwhile, the new Unified Labor Law of 2003 gave in­vestors new flexibility with regard to the hiring and lay-off of workers, while the new competition law (passed in January 2004 and promulgated in June 2005) has created a world-class anti-monopoly and fair competition agency, the Egyptian Com­petition Authority. The government has also taken steps to safe­guard the economic rights of citizens through the new Consum­er Protection Agency.

The impact of these measures has been sharp. Domestic in­vestment is soaring, and inflows of foreign direct investment have skyrocketed from a mere USS 407 million in 2003/04 to USS 11 billion in 2006/07 and USS 7.8 billion in the first half of 2007/08.