Sponsored briefing: Overview of the Egyptian legal market

Badran Law Office’s Aly Hussein and Ali Kheidr on the key legal issues affecting companies intending to do business in Egypt

WHAT ARE THE EFFORTS MADE BY THE EGYPTIAN GOVERNMENT TO IMPROVE THE INVESTMENT CLIMATE IN EGYPT?

Egypt has been offering an attractive climate to foreign investors, especially throughout the past decade thanks to the major legal reforms made to ensure growth in the foreign investments sector and further to the full enhancement of governmental bodies that deal directly with investors. Government policies favour investment projects that would strengthen Egypt’s economy by reducing imports, increasing exports and encourage infrastructure and industrial investments.

Foreign investors who wish to invest in Egypt, must establish a formal legal presence through incorporating a local entity, registering a branch or representative office of a foreign company, or entering a commercial agency relationship. The Companies Law No. 159 of 1981, Investment Law No. 8 of 1997, and Capital Market Law No. 95 of 1992 govern and regulate the establishment of a legal presence in Egypt, depending on the type of activities undertaken by the investors.

The Companies Law governs joint stock companies (JSCs), limited liability companies (LLCs), and limited partnership by shares companies, as well as branches of foreign companies and representative offices registered in Egypt. The Investment Law regulates certain types of activities and provides specific investment guarantees and incentives to investors. It also regulates investment under the free zone system. The Capital Market Law is only applicable to JSCs listed and traded on the Egyptian Stock Exchange and companies carrying out securities activities, such as brokerage, asset management, and venture capital companies, which require approval from the Financial Regulatory Authority (FRA).

The Egyptian government has also recently introduced the Golden Licence. The latter is issued to large investment projects that meet certain criteria in terms of investment size, job creation, and technology transfer. It provides a range of benefits and incentives to its holder, such as tax exemption, the licence grants exemption for income tax and real estate tax, customs exemptions on imported machinery and equipment for the project as well as raw material, and expedited procedures for obtaining permits and approvals which will save time for the investors and remove any obstacle to enter the Egyptian market. This helps investors migrate the historically difficult and lengthy process to obtain the licences necessary in Egypt, which has at times, put off many investors from entering the Egyptian market.

Egypt offers several options to establish a business presence in the country, such JSC and LLC which require at least two or three shareholders, respectively. Shareholders in these capital companies have limited liability for the company’s debts and obligations.

Foreign companies can also establish branches in Egypt to carry out specific contractual activities such as construction, hotel management, commercial, financial, or industrial activities. However, branches do not have a separate legal existence from their parent companies, and establishing a foreign company means full liability for all the branch’s obligations and liabilities. While there is no minimum legal capital required for establishing branches, in practice, a minimum amount of EGP 5,000 must be transferred in foreign currency to a bank account in Egypt as the branch’s capital. For hotel management activities, the required capital is EGP 30,000.

Egyptian law generally allows foreign shareholders to own 100% of an Egyptian company’s capital without limitation. However, certain sectors have foreign ownership restrictions, including importation which must be done by companies with 51% Egyptian shareholders and all-Egyptian managers, commercial agencies which must be 100% owned by Egyptians (up to the grandparent level), and civil aviation which requires 60% Egyptian shareholder ownership and at least 51% Egyptian board members. Land ownership in the Sinai Peninsula is restricted to companies owned 100% by Egyptians. Companies operating in the Sinai Peninsula’s comprehensive development area must be a JSC with 55% Egyptian shareholder ownership and can only undertake integrated projects with state-level infrastructure.

HOW IS THE EGYPTIAN GOVERNMENT TACKLING THE CORRUPTION FILE?

The Egyptian government has taken a number of steps to tackle bribery and corruption in the country, as outlined in the Penal Code. According to the law, bribery is a criminal offence and is punishable by imprisonment and fines. The law does not differentiate between the benefit obtained by the public official for themselves or another person, and the crime of bribery is the request for the gift, payment, or benefit, regardless of the recipient. The law also stipulates that any benefit obtained by the bribe recipient, or any person designated for that purpose, whether tangible or intangible, shall be deemed as a promise or donation.

The penalties for bribery are severe, with life imprisonment and fines imposed on the bribe recipient, the briber, and the mediator. Additionally, any person who offers a bribe and is not accepted is also penalised with imprisonment and fines. Confiscation of payments made by the briber, or the mediator is also ordered by the court.

It is worth noting that the Penal Code also provides immunity to the briber or mediator if they report the crime or admit to it. Furthermore, the law penalises board members, managers, and employees of joint-stock companies who demand or accept bribes for themselves or others.

One of the major methods in which Egypt is trying to tackle corruption is through the implementation of various automation projects to decrease the occurrence of corruption in the country. Here are some examples: the Egyptian government has digitalised many of its services, such as issuing licences and permits, paying taxes, and obtaining official documents. This reduces direct contact between citizens and government officials, which in turn, reduces opportunities for bribery. The Egyptian government has also encouraged the use of cashless payments, such as electronic transfers and credit/debit cards. This has made it more difficult for individuals to engage in corruption by accepting cash bribes or engaging in money laundering.

These automation projects have the potential to significantly decrease corruption in Egypt by creating a more transparent and accountable government.

WHAT IS THE EVOLUTION FORESEEN IN THE M&A SECTOR IN EGYPT?

Mergers and acquisitions (M&A) activity in Egypt has been on the rise in recent years, particularly in the financial services, energy, and telecommunications sectors. One of the major evolutions foreseen in the M&A sector, will be the requirement to notify the Egyptian Competition Authority (ECA) prior to completing the said M&A transaction. At the moment, the ECA requires any transaction meeting certain criteria to be notified to them within 30 days of completing the deal. This requirement has been amended by the 2022 Law no. 175 to the 2005 Competition Law No. 3 but is yet to come into force as of the date of this article. Upon its implementation, the approval of the ECA will be required prior to completing any transaction which fits their criteria. However, the pre-merger form shall be submitted to the ECA whether the concentration was made directly or indirectly, which means the transfer of shares or the transfer of assets.

Moreover, the Egyptian government is planning to sell state shares in 32 companies, in the coming year as part of the International Monetary Fund (IMF) programme framework. The government targets around US$2.5bn in the first phase of the pre-IPO stake sales by June, with RFPs for advisory roles already issued. While previous privatisation programmes have yielded decent results, with an average of US$1.4bn in proceeds over five years. Furthermore, the success of the asset sales will depend on the ability of the authorities to execute transactions in a timely manner, attract investors with attractive valuations, and maintain majority control.

In 2017, a British private equity firm acquired a majority stake in an Egyptian snack food for US$42m. This investment in Egypt was seen as a sign of the growing interest in the country’s consumer goods sector.

Another notable M&A deal involving British investors was the acquisition of an Egyptian IT company by a UK-based private equity firm in 2018. The deal was valued at US$127m.

On 27 April 2023, a British private equity announced a US$165m equity investment in a large discount retailer in Egypt. This investment highlights the confidence in the Egyptian economy and has a positive futuristic vision over Egypt’s business plans.

In addition to these high-profile deals, there has been a steady stream of smaller M&A transactions involving British investors in Egypt in recent years. These deals have primarily been focused on the consumer goods, healthcare, and education sectors.

In terms of recent M&A activity involving British investors, there have been several notable deals in 2022 in the fintech sector. These deals highlight the continued interest of British investors in Egypt’s economy and M&A market, particularly in the consumer goods and technology sectors. Despite ongoing challenges related to political instability in the region, Egypt remains an attractive destination for foreign investment, and British investors are likely to remain active in the country’s M&A market in the coming years.

WHAT ARE THE LATEST RISING SECTORS IN EGYPT?

The fintech sector is one of the rising sectors in the Egyptian economy as of late. Fintech, or financial technology, is a rapidly growing industry in Egypt. The country’s large and youthful population, coupled with the increasing adoption of mobile devices and digital technologies, has created a favourable environment for fintech startups to thrive.

WHAT ARE THE ACTUAL STEPS THAT THE EGYPTIAN GOVERNMENT HAS TAKEN IN THE FINTECH SECTOR?

Egypt’s government has been supportive of the fintech industry, implementing policies and initiatives to promote innovation and entrepreneurship. In 2018, the Central Bank of Egypt (CBE) launched the Regulatory Sandbox, a platform that allows fintech companies to test their products and services in a controlled environment before launching them to the public. The CBE has also established a dedicated unit for fintech, which is responsible for promoting and regulating the industry.

8 February marked the issuance of the fintech law in Egypt Law No.5 of 2022, which regulates the development and use of financial technologies in the non-banking financial sector (the FinTech Law).

Furthermore, the Fintech Law regulates the incorporation of Fintech companies, licensing requirements, sandbox for the new startups, data protection and penalties. One of the main areas of focus for fintech in Egypt is mobile payments. According to a report by the CBE, mobile payment transactions in Egypt increased by 250% in 2020, as more people turned to digital payments amid the Covid-19 pandemic. The volume of electronic transactions in the Egyptian market increased to more than 6.4trn EGP in 2022, up from 4.2trn EGP in 2020.

Also, the volume of e-commerce in Egypt has reached US$6bn via payment cards, whether credit or debit cards, according to the Internal Trade Development Authority, and this percentage is expected to double in the next few years. Other areas of fintech innovation in Egypt include digital lending, investment and wealth management, insurance technology and digital marketplaces.

Overall, fintech is set to play a significant role in Egypt’s economic development, as it presents opportunities for financial inclusion, job creation, and innovation. With a supportive government, a growing startup ecosystem, and a large and digitally savvy population, Egypt’s fintech industry is set to continue its upward trajectory.

WHAT ARE THE DIFFERENT TYPES OF EMPLOYMENT CONTRACTS RECOGNISED BY THE EGYPTIAN LABOUR LAW, AND WHAT ARE THE KEY ELEMENTS THAT SHOULD BE INCLUDED IN A WRITTEN EMPLOYMENT CONTRACT ACCORDING TO THE EMPLOYMENT LAW?

Under the 2003 Egyptian Labour Law No. 12, employers are required to enter into written employment contracts in Arabic with their employees, which must include specific details such as the name of the employer and employee, job description, salary, and probation period if any. An employment contract is defined as an agreement in which an employee undertakes to perform their job duties under the supervision and subordination of the employer in exchange for a salary. To determine if a person is an employee or an independent contractor, the factual background of each case is examined to see if a subordination relationship exists between the company and the worker. Elements of subordination may include receiving a fixed salary, being subject to the company’s internal policies, and adhering to working hours and annual leave rules. The Labour Law recognises various types of employment contracts, including temporary work, casual work, and seasonal work, and contracts may be for a definite or indefinite period or for accomplishing a specific work/project. Definite period employment contracts expire automatically upon the lapse of its duration(s) but can be renewed upon agreement of both parties. Employment contracts for accomplishing specific work or projects terminate upon completion of the work, while indefinite period employment contracts cannot be terminated unless for a just cause.

HOW DOES THE EGYPTIAN LAW PROTECT INTELLECTUAL PROPERTY RIGHTS?

Egypt has a well-developed legal framework for intellectual property protection. The country is a member of the World Intellectual Property Organization (WIPO) and has signed a number of international treaties and agreements related to intellectual property rights.

The registration process for patents, trade marks, and copyrights is straightforward and can be completed through either the Egyptian Trademark Office or the Egyptian Patent Office. The offices are responsible for the examination, registration, and maintenance of intellectual property rights in Egypt.

In recent years, Egypt has implemented a number of reforms to strengthen its intellectual property protection regime. The country has introduced new laws and regulations that provide greater protection for intellectual property rights holders, including increased penalties for infringement.

HOW IS EGYPT IMPROVING ITS INFRASTRUCTURE?

Egypt is investing heavily in its infrastructure, particularly in the areas of energy and water. The government has launched a number of initiatives to increase access to clean water and to improve the efficiency of the country’s energy infrastructure. In addition, the country is investing in renewable energy sources, such as wind and solar power, in order to reduce its reliance on fossil fuels. The green hydrogen project uses renewable energy sources, such as the wind and solar power. The project aims to position Egypt as hub for green hydrogen production and export to Europe and other regions. Egypt has set a target of generating 42% of its electricity from renewable sources by 2035 and has already started construction on several large-scale solar and wind projects.

In addition, Egypt in set to invest in the development of a new city in north Sinai which is intended to serve as a hub for trade and investment. The city is part of the government’s border plan to develop the northern region of Sinai. The government is set to invest US$40bn, aiming to create a sustainable, modern city that can accommodate up to two million residents.

This new city has two significant meanings; firstly, it is an advertisement that the Egyptian armed forces has defeated the terrorism in north of Sinai. This means, the government is now promoting the security and the stability of this area. Secondly, the development of this new city is set to have a positive economic impact on the region, creating new jobs and attracting investment from national and foreign sources.

Moreover, the environmental, social, and governance (ESG) developments are also taking a high turn and with the new government regulations, several sectors offer a lot of opportunities to invest in Egypt. In recent years, the Egyptian government has introduced multiple initiatives aimed at promoting sustainable development and reducing the country’s carbon footprint.

In 2019, the Ministry of Environment launched a new strategy aimed at reducing greenhouse gas emissions by 50% by 2050. The strategy includes measures such as promoting renewable energy, improving energy efficiency in buildings, and promoting sustainable transportation.

Egypt is investing heavily in its transportation infrastructure to address issues such as congestion and accessibility. The government is expanding its public transportation systems, such as the Cairo Metro and the Alexandria Tram. April 2023, Egypt has recently taken a loan from Agence Française de Dévelopement (AFD) worth €250m to invest in the Alexandrian tram system.

The country has also established the first train service that connects the Red Sea coast and the new Alamein in collaboration with a Spanish investor Talgo. This project is expected to have a positive economic implication, both in terms of job creation as well as energy efficiency and environmental impact.

The monorail project is a large-scale transportation infrastructure initiative aimed at providing an efficient yet modern transportation system for the country capital and the surrounding areas. The project aims to reduce traffic congestion, reduce the carbon footprint, and improve the overall transportation system and enhance connectivity in Egypt.

The New Administrative Capital project, which is being built east of Cairo, is expected to be a hub for transportation and logistics, with a new airport, a high-speed railway, monorail, and a network of highways and roads connecting it to other parts of the country.

In addition, the Egyptian government is investing in the development of the Suez Canal Economic Zone and offers several incentives to the investors who are looking for attiring opportunities, which includes the construction of a new seaport, an industrial park, and a logistics hub, all of which will enhance the country’s role as a regional transportation and trade hub.

CONCLUSION:

Overall, Egypt presents a range of opportunities and challenges for investors looking to do business in the region. The country’s strategic location, large population, and well-educated workforce make it an attractive destination for investment and trade. Egypt remains a complex but promising market for investors, and the potential rewards are significant for those willing to invest the time and resources needed to succeed.

What is Badran Law Office and what are its areas of expertise?

Badran Law Office is one of the leading arbitration and litigation law firms in Egypt which was established in 1995 by the visionary founder the late Dr Mohamed Badran, who had a clear vision of providing high-quality, efficient, and effective legal services to individuals and businesses in Egypt. Initially, the firm focused on arbitration and litigation cases only, but with the evolving needs of clients and market dynamics, the firm became a full-service law firm in 2021, catering to all your legal needs. Today, Badran Law Office enjoys the reputation of being a trusted legal partner to individuals and businesses in Egypt and beyond.

The firm’s mission is to offer complete legal solutions to clients by providing well-researched and practical advice in a timely and cost-effective manner. Badran Law Office is not just a legal adviser but also a team player that understands the client’s business objectives and aligns legal strategies accordingly. The firm’s legal expertise covers various areas of law, including arbitration, litigation, corporate law, mergers and acquisitions, capital markets, intellectual property, real estate law, and employment law.

Some of the main areas of expertise are as follows:

Arbitration:

Arbitration is a crucial area of expertise for Badran Law Office. The firm has a highly experienced team of arbitrators who have represented clients in various arbitration cases, including commercial, construction, and investment disputes. The team is equipped with the necessary knowledge and skills to provide comprehensive legal services, from drafting arbitration agreements to representing clients in arbitration proceedings.

Litigation:

Litigation is the firm’s core expertise, and Badran Law Office has a highly skilled team of litigators who have represented clients in various courts across Egypt. The team has an excellent track record of advocating for clients’ rights and interests and ensuring that justice is served.

Corporate law:

Corporate law is one of the firm’s most thriving practice areas. The firm offers a wide range of services to businesses, including company registration, drafting and reviewing contracts, negotiating and closing deals, and providing general corporate advice. The firm’s corporate practice is focused on serving domestic and international clients and has a reputation for being innovative, responsive, and cost-effective.

Mergers and acquisitions:

Badran Law Office has a team of specialists in mergers and acquisitions who offer advice on all aspects of the transaction, including due diligence, drafting and reviewing transaction documents, regulatory compliance, and transaction structuring. The firm’s team has experience in handling complex M&A transactions, including cross-border deals, and has advised clients across a wide range of industries.

Capital markets:

Badran Law Office’s capital markets practice focuses on providing legal advice to businesses on capital markets transactions, including initial public offerings (IPOs), secondary offerings, and private placements. The team has advised both domestic and international clients on regulatory compliance, due diligence, and transaction structuring, among other areas.

Intellectual property:

Badran Law Office’s intellectual property practice offers advice on all aspects of intellectual property, including trade marks, patents, and copyright. The team provides clients with tailored solutions, including registration, protection of rights, and enforcement of infringements.

Real estate law:

The firm’s real estate practice advises clients on a wide range of real estate transactions, including buying, selling, leasing, and development. The team assists clients in drafting and reviewing real estate agreements, regulatory compliance, and resolving disputes.

Employment law:

Badran Law Office’s employment law practice offers advice to both employers and employees on all aspects of employment law, including employment contracts, compliance, and dispute resolution. The firm’s team is experienced in handling all types of employment law disputes, including wrongful dismissal, discrimination claims, and workplace harassment.

In conclusion, Badran Law Office has established itself as one of the leading providers of legal services in Egypt. The firm’s reputation for providing high-quality, efficient, and effective legal services has made it a trusted legal partner to its clients.

AREAS OF EXPERTISE AND SPECIALITY

Badran Law office has extensive experience in a diverse range of practice areas, including but not limited to oil and gas, energy, aviation, real estate, engineering and infrastructure projects, mining, construction, hospitality, pharmaceutical, education, financial institutions, telecommunications, sports, media and entertainment, engineering and construction projects, transport and logistics, life science and healthcare, consumer goods and retail, and employment. Our specialised team of lawyers are committed to providing high-quality legal advice and tailored solutions to meet the specific needs of our clients in each of these areas. We stay up to date on the latest developments and trends in each industry to provide our clients with practical and effective legal advice.

Furthermore, we will continue to foster outstanding relationships with our clients, ensuring that we remain fully dedicated to their satisfaction and success. Our office is committed to providing unparalleled transparency and communication throughout every stage of our client’s legal journey, ensuring that they have full visibility into our processes and the actions we take on their behalf. With this commitment to excellence, we are confident in our ability to deliver the highest quality of legal services to our clients and continue to build our reputation in the legal industry.

OUR CLIENTS:

Badran Law Office has represented and advised many national and international companies. Some of these companies are: El Bareeq Capital; Metito Egypt; H.A for Construction (Hassan Allam Sons); SPE Capital Egypt; The Gulf of Suez Development Company (GSDC); Solmax Geosynthetics SAE; Dar for Trading & Contracting (Detac); El Sewedy Electric; Zaher Mining Group; Atlas NRG tech SL.

MAIN CONTACTS:

• Samer Badran, principal partner, sam.badran@badranlegal.com , +201225196527
• Ahmed Ismail, partner and head of dispute resolution, ahmed.ismail@badranlegal.com, +201116005069
• Aly Hussein, partner and head of corporate & M&A, aly.hussein@badranlegal.com, +201277333160
• Abdellatif Hamdy, counsel and head of capital market team, abdellatif.hamdy@badranlegal.com, +201221293756
• Shaymaa Abdelkhalk, counsel and head of litigation, shaymaa.abdelkhalk@badranlegal.com, +201110207096
• Sabah Elroby, administration and office manager, sabah.elroby@badranlegal.com, +201110207095