Interviste
Riforme e Sostenibilità degli Investimenti in Egitto: Intervista a Ziad Bahaa-Eldin
Ziad Bahaa-Eldin is the managing partner at the Bonelli Erede office in Cairo, Egypt. Prior to being managing partner at the Italian law firm’s Egyptian office, he served in both government positions and in the private sector. Some of his most notable achievements were marked by his activity as a member of government, as Chairman of the Investment Authority, and during his time as Deputy Prime Minister and Minister of International Cooperation. Although his undergraduate education in Cairo revolved around banking and finance, he later specialized in law at top ranking institutions such as King’s College London and LSE.
He is joined in this interview by Rana El Kahwagy, associate at Bonelli Erede Cairo.
Eldin:
Egypt is one of the few countries that, over the past century, has adopted the continental European civil law system. It is often said that Egypt’s choice was inspired by the French legal system, but that is not entirely accurate. While many of our legislative decisions were indeed influenced by the French system, the historical foundation of this choice lies in the adoption of the legal system enforced by the Ottoman Empire, under whose rule Egypt remained until the early 19th century. Around 1820, Egypt became somewhat independent from the Empire and, from that point onward, began sending numerous envoys abroad to study law, particularly in France. As a result, the French system was later adopted. Egypt is not the only Arab country to have embraced the continental civil law system, but it was the first. In fact, the Egyptian legal system was a trailblazer, shaping the legal frameworks adopted by the rest of the Arab world.
The corporate law system in Egypt dates back to 1981 and consists of a very comprehensive collection of “company law” legislation. The earliest examples of company law, as we know it today, date back to 1954. Before the predecessor of the current system, the drafts of the oldest Egyptian company law can be dated back to 1882. Therefore, corporate law in Egypt has deep historical roots and is quite an old phenomenon. It follows the typical structure of continental European legal systems, with one notable distinction: the body of corporate law is considered somewhat incomplete and must always be read in conjunction with a secondary collection of laws, namely the capital markets law. This body of law primarily focuses on shares, bonds, securities, and, of course, the listing of companies on the stock market. Furthermore, an up-to-date understanding of bankruptcy law is also essential, as it must be applied in conjunction with company law.
Egypt has introduced several reforms to attract foreign investment, yet many international companies still report bureaucratic hurdles and regulatory uncertainty. In your opinion, what are the key areas where Egypt’s regulatory framework could be improved to foster a more business-friendly environment, particularly for international investors? Furthermore, which sectors are usually more appealing to foreign investors?
Eldin:
Aside from corporate law in the traditional sense, since 1971, Egypt has always had an investment law. This is not unique to Egypt. Indeed, many countries in the 1960s and 1970s, particularly those transitioning to an open-market economy, started issuing special legislation which provides incentives, guarantees, and tax breaks to attract foreign investment. The first Egyptian law of this kind was issued in 1971, followed by successive legislation in 1974, 1978, and 1981, all aimed at providing benefits and privileges to certain sectors. For a while - roughly 20 to 30 years - this worked well. However, over the past 10 to 15 years, Egypt has struggled to attract foreign investment. The reason is not just bureaucracy; rather, in my view, the very approach to investment law is no longer effective. The logic behind investment law has traditionally been to grant investors specific benefits, tax incentives, protections. Today, however, investors are less interested in isolated privileges and more focused on the overall business environment. They prioritize economic stability, inflation rates, employment conditions, security, and political stability. Therefore, it is crucial for a country like Egypt to adopt new legislative and regulatory frameworks and move away from the traditional concept of investment law. Political stability, economic stability, and monetary policies are now considered much more important than the law itself. As for investment sectors, Egypt has a key advantage over some of its wealthier regional counterparts: it is not dependent on a single industry (not completely dependent on oil/gas or minerals). No single sector takes up more than 15% of the country’s GDP, making Egypt’s economy highly diversified and open for investment to be made into a plethora of different sectors. Over the next two years, I believe the focus should be on services, particularly tourism, tech services, and back-office operations, as these are going to be the fastest-growing sectors.
Starting from June 1, 2024, the Egyptian Competition Authority (ECA) has implemented a new merger control regime. This aims to ensure fair competition and prevent monopolistic practices in the Egyptian market. In your opinion, how effective will the ECA be in monitoring and enforcing the new merger control guidelines? How will the recent reform affect the operations of local companies and foreign investors in Egypt?
Eldin:
This is a very relevant question. Egypt has had competition law for about 20 years, and it has been effective in addressing major monopolistic tendencies, leading to successful prosecutions. The recent amendments to competition law have introduced some novelties. While in the past, there was no obligation to report or seek approval before completing a merger, the current system imposes a legal duty to apply for authorization when two entities merge, under certain conditions. Additionally, the new set of laws closed a legislative gap in the area of international mergers: any international merger must now be reported in Egypt to obtain approval from the national competition authority.
El Kahwagy:
I would add that, according to the new competition rules, the threshold is very low if compared to what other competition authorities are requiring. Moreover, the focus is now solely on the target company, rather than on all the parties involved in the transaction.
Eldin:
Since this is an interview and not a formal legal opinion, I can speak a bit more freely. I believe that the whole world is heading toward a reassessment of competition restrictions. Mario Draghi recently wrote an important report for the European Commission in which he highlighted what a lot of people have been complaining about: competition rules can sometimes get out of hand, to the point of harming the growth of local companies. Mr. Draghi said that, in Europe, competition regulations have become so strict that European companies struggle to compete with their Chinese or American counterparts. And if that is true for Europe, imagine what it means for a country like Egypt which is much smaller. Therefore, I believe that excessive competition rules should be scaled back slightly to allow local companies to grow. This reflects the ongoing tension between maintaining a regulated competitive environment at the national level and ensuring that domestic businesses have the ability to grow and compete internationally. I think that Mario Draghi’s report is indicative of all the imminent changes in global competition law.
The introduction of the tax dispute resolution law is seen as a step forward for better management of tax disputes. Do you believe this reform will reduce uncertainty for foreign investors? Additionally, what measures would further enhance the predictability and stability of Egypt’s tax system to make it more attractive to international companies?
Eldin:
The new tax changes are very important. The newly appointed finance Minister has been in office for just five to six months, and he has promised many tax reforms - this is one of them. The main emphasis of the new changes is more so on small enterprises. The problem in Egypt is that many small enterprises are informal. They are not “official.” Some people call them “black” or “gray” markets, but I think “informal” is the best term for them. These companies exist, the people are in business, but they do not report anything on their activity. There are no papers, no tax cards, there is nothing at all. Therefore, the main reason for the introduction of these changes is to encourage their formalization. In other words, to get the small enterprises to not be afraid of the tax authority and declare their business through the appropriate legal channels.
There is a large economic argument behind the formalization because it benefits the economy to have these companies grow legally rather than remain small illegally. I don't believe that this will be enough. I think this change is a suitable first step, but taxation is not about rules. It’s about trust. Law is one way to build trust, but a great responsibility also falls on the tax authority itself and its behaviour towards these enterprises. The law can be changed in one day, but it takes years to change the attitudes of both the business community and the tax authorities. In 2005 we had the biggest tax reform in Egypt which gradually generated a lot of trust, but it did so slowly. After the collapse of the regimes and changes of government, that trust was unfortunately completely lost. Now, I look at the new laws and the reforms not just as legal change, but, more importantly, as steps to rebuild that trust.
What is the key advantage of working for an Italian international law firm overseas? How does it differ from a traditional Egyptian commercial law firm? Does it mainly handle transactions for Italian clients in Egypt, or does the Bonelli Erede brand also appeal to local clients?
Eldin:
There are two types of local representation of a foreign law office. Sometimes a law firm will go to other countries in order to serve its own companies and existing clients. The other type, which we have adopted, is to not only serve the standing list of clients, but to serve both international companies and local ones. In this case, the Bonelli Erede Cairo is an Egyptian law office that is part of the Bonelli Erede network and not just a simple branch or extension of the Italian office. Each model has an advantage, but because Egypt is a big country with a sizable population, a lot of business and many qualified lawyers, the choice to make the office a full fledged Egyptian law firm was the most appropriate. There are also a number of advantages we get for being part of Bonelli Erede. The key in one is that Bonelli Erede is a huge law firm (over 700 lawyers and 120 partners). As such, the Egyptian firm does not need to be very large as we can always use the resources provided by Bonelli Erede and its network. Of course, we get a lot of connections and contacts from Italy and get to be part of a quality control system, and that’s very important. When you’re part of a big system, there is a system for conflict check, to ensure compliance with certain regulations (money-laundering compliance, ethical professional standards checks). All of this is very useful, thus, in my view, our choice of model is the best.
In 2024, the Egyptian government presented a draft law to Parliament to establish a committee tasked with promoting integrity, transparency, and excellence within companies. What challenges do you foresee in the practical implementation of the new corporate governance and anti-corruption law in Egypt?
El Kahwagy:
There are many different sectors that make up the Egyptian economy, but in this context, the focus is on companies regulated under the financial regulatory system (which insures companies). One of the main challenges of the application of ECG requirements within these companies is that these goals are not yet embedded in their corporate culture and they are willing to adjust their internal functioning merely to comply with legal obligations, rather than as a genuine commitment. It is mostly companies that deal with foreign customers and suppliers that particularly need to seek, study and understand the best expertise from advisors to build a transparent environment and ensure efficient governance. Thus, they are more willing to implement internal change. On the other hand, businesses that only have a local presence in Egypt and are not involved in the international market are not very keen on changing their internal bureau regulations as complying with environmental requirements and additional governance policies involves additional costs. I believe that awareness and policy-building capacities are the main challenges the corporate world faces in order to achieve a full implementation of the ambitious aspirations of improving governance and internal transparency.
Partecipanti
Rana El Kahwagy
Carlotta Caromani
Grace Haruni
Umberto Lorenzo Ciolino
Alessandro Tarducci
Carlo Matarazzo