In 2011-12 the EBRD conducted an assessment of Egypt’s commercial laws, with a focus on key areas relevant to “Infrastructure and energy” (concessions/PPPs, energy regulation, telecommunications and public procurement) and to “Private sector development” (corporate governance, insolvency, judicial capacity and secured transactions). In a number of these areas, the EBRD’s assessment combines two approaches in order to evaluate the state of legal reform in the provided key sectors. The tools assess both the quality of the laws formally adopted (extensiveness) and the actual level of implementation of these laws as well as the framework they underpin (effectiveness). Combining the results of these analytical tools shows not only how advanced the system is compared with international benchmarks, but it also shows how effective the legal system is in a given field in practice, and points to the areas where further reform may be required.
- Access to finance
- Contract Enforcement and Judicial Capacity
- Corporate governance
- Debt Restructuring and Bankruptcy
- Electronic Communications
- Energy Regulation
- Public Procurement
At present the legal regime for secured transactions in Egypt is too limited in terms of the type of collateral that borrowers can offer. The EBRD’s assessment of the secured lending framework highlighted challenges in relation to the registration and enforcement of collateral. Reform is particularly needed with respect to the land registration system where it appears that most real estate property is not duly registered. In addition, the current regime for the grant of security over movable assets has been found to be significantly restrictive. A key drawback of the overall framework is that the enforcement of security can only be achieved through a heavily supervised, lengthy and costly court procedure.
The assessment of the court systems in Egypt revealed low efficiency and a lack of resources, in addition to lengthy procedures. Furthermore, a complex and costly enforcement system compounds the situation. Although there have been initiatives for the training of judges and court personnel on commercial law matters, these have not been applied on a wide enough scale yet. Independence of the judiciary is a matter that is under scrutiny in Egypt at the moment.
Egyptian legislation was found to be in “medium compliance” with internationally recognised corporate governance principles. A voluntary corporate governance code was adopted in 2005. Its effectiveness would be greatly improved if its application were required for listed companies on a “comply-or-explain” basis. Legal reform would be welcomed in the areas of minority shareholders’ rights, concentration of ownership and director liability. In addition there are concerns regarding non-financial disclosure and transparency, especially with respect to conflict of interest situations and related-party transactions. Difficulties in enforcement and problems with the institutional environment point to low corporate governance effectiveness in practice.
Cumbersome court procedures render the liquidation of unviable businesses a lengthy and complex process. An assessment of the law on the books showed no real means for effective reorganisation of viable businesses owing to the inability of the existing compromise procedures to bind secured creditors.
The EBRD’s assessment of the overall legal and regulatory risks regarding the country’s communications sector shows that Egypt is in the “high risk category” from the standpoint of investors. Despite attempts to introduce reforms and modernise the economy by emphasising important sectors, such as infrastructure and communications, the fixed market in Egypt remains dominated by one state-owned infrastructure licence holder. There are imbalances in mobile spectrum allocations that have contributed to the restricted development of fully competitive conditions in the mobile market, and major concerns remain with respect to regulator independence and the authorisation and licensing regime. Nevertheless, there seems to be good investment potential with strong demand for fixed and mobile broadband services in particular.
The assessment placed Egypt in the “high risk category” when measured against international energy regulation principles from the standpoint of investors. This is largely due to the energy sector being mainly state-dominated, despite the formal unbundling of the vertically integrated electricity utility. A draft Electricity Law pending in parliament, if approved, is expected to introduce gradual competition to the market. In the gas sector, no attempts have been made to open up the market to competition and no regulator exists. The lack of certainty on the policy and regulatory sides, in addition to low energy pricing structures that are not reflective of costs, are major hurdles to the development of sustainable energy in the country.
Assessment tesults revealed that the law on the books in Egypt are in “high compliance” with internationally recognised standards (UNCITRAL Principles), mainly because of modern legislation which was adopted in 2010 to uniformly govern all large PPP projects. In measuring the effectiveness of the law in practice, Egypt was found to be in “medium compliance” with international best practices. This is mainly attributable to a lack of clarity with respect to PPP policies, and unclear thresholds regarding the application in practice of old concessions and public utility legislation to concessions and PPP projects.
The Egyptian public procurement framework was found to be in “low to medium compliance” with internationally recognised standards. Overall, the legislative framework is outdated, and the public procurement process overregulated and bureaucratic. Open tenders are the default procurement method, which is a positive feature. However, the extensive use of direct contracting negates efforts to achieve competition in public tenders and works against efficient public spending. Enhancing the institutional framework for regulating the public procurement sector would require making it more attractive to investors and increasing transparency with respect to the review and remedies processes.