Egyptian companies trapped in limbo by investment-friendly law

Egyptian workers have been fighting an uphill battle against draconian privatisation measures for decades, but a 2014 presidential decree and the government’s current concerted push for economic investment has completely sidelined workers in the name of investor confidence.  

Issued by Egypt’s Interim President Adly Mansour, Presidential Decree 32/2014 (Arabic/English translation) pulled the rug from under public sector workers, stripping them (and any civilian) of the right to make legal plaints against the sale of their companies – or any public property, leaving several companies in a legal quagmire and the future of their workforces precarious.

The law was issued following a string of court verdicts, which nullified the sale and privatization contracts of seven companies, owing to faulty contracts with the state.

From September 2011 to March 2014, administrative courts issued verdicts in favour of workers who had appealed against the privatization of these seven companies, ruling they had been sold-off for far less than their real market value.

Accordingly the courts ruled that these companies were to be returned to the state’s ownership. Most of these companies, however, remain in a state of legal limbo.

One of these seven companies, the Nubariya Seeds Production Company was returned to the ownership of Saudi investor Abdel Ellah al-Kaaki in late 2014, after the state largely settled its contractual difficulties and despite the fact that the Administrative Court verdicts had nullified its sale.

A key stipulation of the law means that it works retroactively, halting all ongoing appeals against contracts prior to the law’s issuance. However, the law also stipulates that court verdicts should not be affected.

Kaaki also purchased another one of the seven companies, Tanta Flax and Oils Company, in 2005, but this company also remains in a legal and financial state of limbo.

“We’ve already received our court verdicts which are supposed to return our company to the state,” argues Hisham al-Oql, a Tanta Flax worker, hoping that the retroactive clause cannot affect his company.

For Oql, it boils down to the Egyptian state being “eager to resolve contractual problems with investors – especially Saudi investors these days – because these contracts are worth billions of pounds, but it’s not nearly as eager to resolve our unemployment problems.”

For the more than 20 other companies (including Cemex Assiut, and Al-Arabiya Exports Company,) which were in the process of having their privatization contracts reviewed by the State Council Court (SCC), the future is far more tenuous.

Despite these difficulties, Egypt’s mainstream media has been praising Decree 32. In a statement published in the state-owned Middle East News Agency on May 11, 2014, Minister of Trade and Investment Mounir Fakhry Abdel Nour spoke very favorably of the law. 

“This law takes into account the delicate balance between many of the most important considerations required to maintain the stability of contracts,” Abdel Nour stated.

He added that the law “promotes confidence in the ability of the state and its legal system to safeguard contracts in which it is a party, and promotes the appropriate climate to encourage investment and create economic activity.”

While its media spokesperson could not be reached for further questions regarding Decree 32, in February the Ministry of Trade and Investment announced that it is working with other Egyptian authorities towards resolving commercial disputes with Saudi and other Gulf investors before the international economic investment summit in Sharm al-Sheikh. 

On January 20, Ahmed Darwish, secretary general of the Saudi-Egyptian Businessmen Association, told state-media that authorities recently resolved nearly 85 percent of the disputes and obstacles facing Saudi-owned companies operating in Egypt.

The return of the Nubariya Seeds Company to the Saudi investor, whose initial contract was ruled to be null and void, has spurred the Egyptian Center for Economic and Social Rights (ECESR) into action. On July 8 2014, the rights group filed a lawsuit before the SCC, contesting the constitutionality of the decree and have since drawn negative media attention from the mainstream media, who suggest that such actions deter both foreign and domestic capital from investing in Egypt.

The executive editor of the privately-owned Al-Wafd newspaper, Wagdy Zein Eddin, praised the 2014 decree in an op-ed published on May 7, 2014, for “attracting investment and cracking down on corruption mafias that challenge the state’s contracts, and result in capital flight from the country.”

Zein Eddin added that these “corruption mafias” along with “people looking for their own interests ahead of the state’s interests” are responsible for creating a climate of uncertainty among investors.

Finally, Zein Eddin claims that Law 32 will ensure that investors will not have to resort to international arbitration – or seek financial settlements amounting to several billion dollars in order to resolve their disputes with the Egyptian state.

“This law limits legal disputes to only two parties: the governmental authorities involved, and the investor.”

But this key law, an apparent linchpin for Egypt’s economic ambitions, does little more, according to an ECESR statement than “further squander state assets and natural resources” by providing “immunity for previous state contracts” while facilitating the signing of similarly flawed and corrupt contracts in the future.

The rights group argues that Egyptians should have the right to oversee and safeguard their country’s wealth and public funds, but the government has “decided to seize this right from the hands of citizens and judicial authorities, particularly the administrative courts.”

ECESR further argue that Mansour’s overlapping roles as lawmaker and judge, violate norms of impartiality and impinge on the separation of state powers.

“The judiciary and executive branches have both been intertwined in the person of Judge Mansour,” argues Mohamed Adel, a lawyer at the ECESR, adding that, in light of Article 94, this judge should “either put into early retirement, or be reassigned to another court.”

Yet until the legality of the decree is resolved, the court cases dealing with the more than 20 other companies, according to Adel, will remain frozen and courts cannot accept further appeals against the sales of these companies.

In the case of the Tanta Flax Company, it has been reinstated under the umbrella of the state’s Holding Company for Chemical Industries, but according to Oql only one of Tanta Flax’s production lines is partially back operating “with minimal production, and a skeleton crew of workers operating it.”

“This boils down to whether or not the state is genuinely willing to invest in them or re-operate them,” Adel says.

On the process of appealing against Law 32, Adel commented, “We’re waiting for the issuance of the advisory judicial report from the SCC before we are allowed to make our case in front of the court. This process may take two months, or two years.”

The ECESR is putting together a case that cites the law’s violation of nine (32, 33, 34, 53, 94, 97, 100, 190, and 225) constitutional articles.

But these efforts could drag on for years, and until then, Decree 32, a bedrock of sorts for the economic vision being pushed at investors during the March economic conference, will only have the effect of threatening the sovereignty of Egypt’s law, argues Adel.

“The sovereignty of the law should serve to root-out corruption, not protect it,” he states, adding that the state, by standing in violation of its own laws, is the real cause of poor investor confidence.

“Government officials who arrange and draft corrupt contracts are the real causes of both financial and legal instability in Egypt. Their actions hurt the economy, investors’ confidence, and they squander the country’s public assets.”

Jano Charbel 

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