Egypt’s government has viewed attracting foreign direct investment (FDI) as a goal unto itself, rather than part of a coherent social and economic development plan, argues a new report from the Egyptian Center for Economic and Social Rights.
As a result, the report argues, multinational companies operating in Egypt have been granted numerous rights and privileges — often above local companies — without corresponding responsibilities to contribute to Egypt’s development via fair tax payments, technology transfers, job creation and respect for labor and environmental laws.
Released ahead of the Egypt Economic Development Conference scheduled for March, during which the government plans to present US$20 billion worth of projects to foreign investors, the report aims to show that investment does not automatically translate into development gains for Egypt.
Foreign investment peaked during the final years of the Mubarak regime, accounting for 8.1 percent of GDP in the 2007/8 fiscal year. During the same period, the percentage of the population living under the poverty line rose steadily, from 16.5 percent in 2000 to almost 21 percent between 2007 and 2008 and 25.2 percent in 2011.
Part of the problem, ECESR argues, is that “Egypt’s current investment framework continues to favor the interests of multinational corporations over the interests of the public.”
For example, the current investment regime does not restrict the transfer of profits offshore, or require that a percentage of profits are reinvested in the country. “In other words, foreign investors are allowed to transfer all profits incurred in Egypt outside of Egypt, often untaxed,” the report says.
Overall, excluding massive state enterprises like the Suez Canal, corporate income tax makes up around 10 percent of Egypt’s tax revenues, an amount the authors say is “a very minimal contribution compared to the subsidies received by multinational corporations in Egypt.”
Low tax revenues, in turn, restrict Egypt’s abilities to fund social services and invest in infrastructure.
In addition to local investment laws, the report points to Bilateral Investment Treaties as a source of weakness for the Egyptian government, arguing that such agreements “favor the interests of foreign investors at the expense of state sovereignty and public interest.”
Egypt is party to 100 such agreements, which define terms between the local government and foreign investors. Most of them require that disputes with foreign investors are settled through international arbitration.
This gives foreign investors the right to bypass local courts and take any disputes to international panels.
Egypt is left vulnerable when local courts try to undo deals made between corrupt officials and foreign investors. For example, East Mediterranean Gas, the beneficiary of a deal to export gas from Egypt to Israel at cut-rate prices, is using international arbitration to seek $8 billion in damages for the suspension of the deal — even though it is widely acknowledged to have been corrupt.
The wrong direction
ECESR argues that the current regime is continuing investment policies put in place under former President Hosni Mubarak, and also introducing new laws that further privilege multinational companies.
“Instead of building an anti-corruption legislative framework, successive post-revolutionary governments have amended existing legislation in a way that facilitates corruption and even oversteps the rulings of the Egyptian judiciary,” the organisation claims.
Chief among these new laws is legislation passed in 2014 that prevents workers, civil society groups and other third-parties from challenging contracts between the government and investors.
The report also cites a 2012 amendment to the law governing reconciliation with investors, that transfers responsibility for dispute settlement away from criminal courts, granting that power to the General Authority for Investment and Free Zones. This, the report says, denies Egyptian courts jurisdiction “over cases of corruption, theft and embezzlement of public funds involving anyone who carries the title ‘investor’.”
“While the goals behind the will to attract FDI are very legitimate, the vision and policies remain incoherent and continuously fail to respond and address these goals,” concludes the report.
Egypt needs to develop policies that ensure multinational companies can be held accountable for corruption, as well as violations of human and environmental rights, the report argues. It also needs to develop policies that promote domestic industry, encourage production and industrialization, and prioritize employment, rather than simply seeking to bump up its FDI figures.
Otherwise, ordinary Egyptians may not seen any more benefit from investments secured during the upcoming economic summit than they did from similar deals sealed under Mubarak.