Investors hoping to set up shop in Egypt run into red tape wrangles

The one-stop shop continues to be in vogue in Egypt, but investors wanting to set up a factory in the country should not expect quick results.

Although it is now relatively easy to establish a company, getting a licence to operate a factory is almost as cumbersome as it was before the General Authority for Investment and Free Zones (Gafi) set up a single window for investors more than a decade ago.

Before even applying for a licence, investors must typically locate a piece of land, establish a company and get an environmental assessment and a building permit from the local authorities.

Depending on the type of activity, the licence then requires a long list of often hard-to-obtain approvals from a whole array of authorities that can include environment, antiquities, civil aviation (for height of structures), civil defence (in case of fires), the military, irrigation and many others.

They must also get industrial registration, initially only good for one year, from the Industrial Development Authority (Ida).

Depending on the type of industry, a host of other special licences from separate authorities are also needed. For example, if a company wants to install boilers in its factory, it needs a separate licence for each.

A factory to make drinking glasses causes ionisation. To get an operating licence, investors will need the approval of the health ministry, says Ahmed Darwish, a former minister of state for administration development.

This means that they have to go to the ministry, which sets up a committee, which then needs to visit the factory, all at the investors’ expense in a process that can take months. Committee members will also probably get a few gifts.

In most other countries, investors are merely required to sign forms agreeing to adhere to standards, with the authorities making the occasional random and periodic inspection.

There are so many laws and so many authorities, even the government itself sometimes does not know how many approvals are needed.

An extremely lucky investor might finish the process in six months, but it could run into years.

Many laws are still in place that nobody knows about. Sometimes a law may say a certain licence is required, but in reality no government body has actually ever issued that licence, say lawyers. Laws will say one thing, but the reality is something else.

If the activity involves industry, the investor must first find land. Some land is controlled by the New Urban Communities Authority (Nuca), some by Gafi and others by Ida.

The jurisdiction and competencies of these authorities sometimes overlap, as do the laws governing them.

Finding the land is often one of the most complicated tasks. Nuca affiliated to the housing ministry, Ida is under control of the trade and industry ministry, and Gafi is under the prime minister’s office.

These authorities must typically form committees to visit the factory site, issue a report, make their recommendations and give their approvals.

The jurisdiction and competencies of the three authorities sometimes overlap, as do the laws governing them, and there are often complications involved in the type of title after the land is allocated.

A major part of the problem is that over the years the government has been adding new layers and fixes to the system, but not grappling with the problem as a whole. It is forever creating new laws without abolishing the old.

Some laws date from the monarchy, including the Egyptian Civil Code, and have remained largely untouched. Others were issued in the 1960s and 1970s when the economy was mainly state-owned. Yet others were added when it began to be liberalised again. These different layers have yet to be combined into coherent framework.

In recent decades Egypt’s elite began sending its children to study more in the US and Great Britain than in France, and as a result in the 1990s the country began shifting its orientation towards Anglo-Saxon law. There remains a conflict between the two systems.

According to a 1954 law, local government units are responsible for issuing operating licences.

Gafi was established in 1970, when virtually all industry was owned by the state, Nuca in 1979 specifically to develop new cities, which now number about two dozen, and Ida in 2005 to help private investors.

All these dinosaur authorities are fighting internal battles with one another.

The solution is for the government to re-evaluate and combine all the industrial and investment laws and to combine all the authorities under a single overriding authority. This, say lawyers, would solve perhaps about half the problems faced by investors.

Patrick Werr has worked as a financial writer in Egypt for 25 years

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