Egypt's new investment law and corruption: what do they have in common?

Published May 11th, 2014 - 04:50 GMT

Twenty lawsuits against government contracts are set to be rendered invalid for claims of corruption, following interim President Adly Mansour’s approval of amendments to the Investment Law affecting litigation rights.

The law is to be applied retroactively and thus affect existing cases; the government claims the law will revive investment, but its critics state that it will foster corruption.

Article 2 of the law regulating appeal proceedings for state contracts stipulates: “The court shall not entertain existing cases regarding breached government contracts raised by an entity that is not party to the contract,” the government and the investor, “effective prior to the date of this law.” The last clause signifies that it will apply retroactively.

Shehata Mohamed Shehata, executive director of the Center for Egyptian Transparency, said the new legislation will invalidate nearly 20 lawsuits against government contracts. The Daily News Egypt acquired the contracts, most notable of which concerned are the Bank of Alexandria, the National Bank for Development, Banque Misr, Palm Hills, Glass and Crystal Company, Dawn Development and Housing, Porto Sukhna, Crescent, Golden Star, Sulaymaniyah Land, and Misr Cotton Ginning Company.

Shehata believes that the new legislation violates the constitution and entrenches corruption by preventing any citizen from appealing against government contracts, and will lead to the loss of millions of pounds because of the law being applied retroactively.

Article 97 of the 2014 Constitution states that “all administrative decisions [must be] be subject to judiciary power.”

The government pushed through this legislation after the Supreme Administrative Court issued 11 final rulings during the past two years that invalidated the privatisation of companies including Misr Cotton Ginning, Arab Company for Foreign Trade, Omar Effendi, Tanta Flax, Steam Boilers, and Madinaty Land Project. Most of these will not fall under the scope of the new legislation, and thus the state must adhere to the rulings. This led to disputes between the government and the investors, some of whom resorted to international arbitration.

The government has said it believes the law has been long-awaited by businessmen and investors, and that it will revive investment, which has been suffering in the last few years’ political turmoil.

Dr Hany Sireddine, president of the Sireddine Centre for Legal Counsel said that the new law will be enforced “immediately” and not “retro-actively” as is being rumoured. This will write off the cases that are currently pending as “not acceptable” for they had not had a ruling rendered before the issuance of the new law.

Sireddine told The Daily News Egypt that the law would nullify the cases that have been raised against contracts. These include the cases involving the sale of Palm Hills Company’s land and the sale of Bank of Alexandria to Italian bank San Paolo. This is mainly because these cases were not raised by those with direct personal interests.

Sireddine said the law allows for those with an invested stake to appeal in contract disputes. These include the lending bank to the company being sold because the bank has a stake in the company. Likewise a citizen who owns stock or real estate in the property sold by a company also has a stake and may appeal.

He feels that the new law protects the contracts and ensures the stability of the main financial and judicial centres. In accordance with the new law, any citizen may appeal to the general prosecutor regarding misuse of public moneys and corruption and be subjected to criminal prosecution. The law only bars cases against breached contracts, not if there is a suspicion of foul play, but rather for structural or administrative issues.

Sireddine said that the new law opens the door for investors to re-evaluate all of the cases raised against the government that are currently under international arbitration for those that have not yet had a verdict rendered.

However, Hamdi Al-Fakhrani, the plaintiff in the contract breach for Madinaty, said the case would cause the state to lose EGP 500m. He also confirmed that he is raising suit against Mansour in order to repeal this law.

Fakhrani added that the law came about following a campaign by Saudi investors that pressured the authorities to provide more assurances that their money would be safe in Egypt.

The government is striving to protect and insure new sources of funding after the decline in foreign investment to $3bn last year. Foreign reserves declined to $18bn and the economy grew only slightly, by 2.1% year on year.

Nadim Amin, director of the Media Unit at the Egyptian Centre for Social and Economic Rights, believes that the new law will strengthen past state contracts and threatens to create an environment in which contracting becomes “too easy”. This, he said, would deplete the assets and natural resources of the country, which “ultimately undermine the only true stakeholder: the Egyptian citizen”. The law would strip the Egyptian citizen, the judiciary, and especially the Administrative Courts, of their powers, he added.

“The state’s complete disregard for the rights of its citizens destroy its economic resources and will drag the country into instability and confusion,” Amin said. “It will push the dreams of building a democratic, just, law-abiding country further away than ever before.”

The centre has called on Mansour to repeal “the unconstitutional law that revokes the right of a citizen to appeal and entrenches the corrupt contracts through retroactive application.”

“This law allows for corrupt practices to negate the rulings of Egyptian courts which had originally uncovered corruption in a number of privatisation and land sale schemes,” the centre said. “The law has shut the door on local courts entirely, which threatens increased corruption and criminal activity that will threaten the Egyptian economy.”

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© 2022 Daily News Egypt.

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