New investment law leaves the door wide open for corruption
Read Tom Rollins and Does Vandousselaere's on corruption and investment legislation - Courtesy: Shutterstock

“I just decided…I wanted to bring these oil companies down,” says Mamdouh Hamza, stabbing his finger on the desk to illustrate the point.

He intermittently picks up the phone and shouts a bit, returning to the conversation until the next time the phone rings minutes later. On the other side of the room hangs a gold-plated portrait of Gamal Abdel Nasser.

Hamza, the man behind Cairo-based engineering consultancy firm Hamza Associates and the construction of the $200-million Alexandria Library, says he is taking the fight to the petroleum sector. That means tackling what he sees as insufficient revenues put back into the national economy and exploitation of Egyptian resources by foreign companies. The ultimate aim? “Renationalization,” comes the stolid reply.

The architect has recently filed legal complaints against the government, the usual route through which citizens challenge contracts between the state and foreign investors. One deals with a concession for an oil field north of Alexandria signed between the Egyptian government and British Petroleum (BP).

BP managed to negotiate a vast share of the concession profits, above the 50-50 ratio customary to most petroleum agreements, citing the complexities and depth of extraction in that particular patch of the Mediterranean Sea.

But new draft amendments to Egypt’s investment law, drawn up by the Ministry of Investment, could stop Hamza and others like him from filing complaints against government contracts in the future. The updated law would block so-called third parties from challenging contracts between the Egyptian government and foreign or national investors.

“[BP] still does have to pay royalties and taxes,” explains Mika Minio-Paluello, a Cairo-based activist and researcher at Platform London who has followed Hamza’s cases. “It’s not walking away with all the money. However, it is walking away with significantly more of the money than in the usual model.”

According to a recent report by the Egyptian Initiative for Personal Rights (EIPR) which Minio-Paluello co-authored, poor negotiation and corruption cost Egypt US$10 billion in lost revenue between 2005 and 2011.

Unnecessary claims?

The draft states that complaints can be filed by “parties of [these] contracts and no one else.”

“The court will automatically refuse any challenge against contracts that come from elsewhere,” the draft reads. The ultimate decision is left with Egypt’s investment minister, Mounir Fakhry Abdel-Nour, who served as the industry minister in the interim Cabinet but was given the investment portfolio in the recent shuffle.

According to the law, “The [investment] minister is the only one who can file a case or request an investigation.”

While the amendments are marketed as an attempt to attract much-needed investment into the ailing economy by “protecting investors,” others are warning that this could create an all-new cover for opaque, unaccountable business practices. That wouldn’t simply mean disputes over revenue levels in a particular contract, but more so, it would create a framework for systematic corruption.

The investment law is not the sort of news that will grip conversation in the same way that a power cut or a complete cure for HIV might. But, tucked away somewhere amongst all the business economics and dry legalese is an issue which has the potential to affect everyone’s lives.

“The government is trying to encourage investments and avoid unnecessary claims,” explains lawyer Sameh Khodeir from Zaki Hashem & Co, a high-end corporate law firm based in downtown Cairo. “It is a matter of preventing a third party from filing a court case…to prevent complications for investors,” he says.

“Protecting investors’ rights is crucial for business in Egypt especially with long-term investors,” said Saudi-based businessman Meshal Alkadeeb, vice president for strategy and business development at Aujan Coca Cola Beverages Company, as quoted by Reuters in late February.

“We have witnessed that the authorities in Egypt are being very flexible when it comes to bringing in investors to the country. They’re trying to set up a one-stop shop for investors and introducing these new regulations does help greatly,” he added.

The draft has been interpreted as a move to block lawsuits calling for the renationalization of previously privatized public companies.

Since the 2011 revolution, at least 11 cases have been issued to reverse deals signed under Hosni Mubarak’s regime, including department store Omar Effendi, Mexican cement company Cementin and Tanta Flax and Oils Company. A successful third party appeal secured the renationalization of Tanta Flax although that ruling is yet to be implemented.

On March 8, Tanta protesters joined workers from five other companies to demand the government renationalize and reopen their factories, in an escalation of the ongoing wave of industrial action and strikes by medical professionals.

“Invest in Egypt”

The message from the previous interim government and the current Cabinet has been clear: “Invest in Egypt.”

Meanwhile, tourism revenues have dwindled, the energy crisis is resulting in new repercussions, and more and more workers are taking action for a growing list of industrial demands, with the only saving grace to the state’s coffers being an influx of financial support from Gulf states.

Egypt’s business establishment is looking to re-market the country. The government and its corporate backers claim that after the overthrow of former President Mohamed Morsi last July, Egypt — which has already seen the worst violence in its memory — is in fact a land of opportunity.

A series of new laws aim to free up the way business is done here and attract a steadier flow of investment, as well as stopping the extent to which “outsiders” can “interfere” in the whole process. This isn’t Egypt after the revolution, so the new narrative goes, it’s Egypt before the gold rush.

“The law puts the door wide open for corruption, because it means that only the minister of investment can legally dispute a contract in the case of a violation of law,” claims Mohamed Nagi, executive director of the Habi Center for Environmental Rights and a lawyer specialized in corporate accountability.

“It means that not even the prosecutor general…can open an investigation to dispute a contract,” he adds.

Abdelghany ElSayed, lawyer at the Sheraa Independent Association for Legal Support, says, “The people that wrote these amendments hope they will close the door in the face of any third party.”

The case of Madinaty

In 2006, lawyers from the Egyptian Center for Economic and Social Rights (ECESR) challenged the direct contract used by the Mubarak regime to sell agricultural land to Hisham Talaat Mostafa, a real estate tycoon and parliamentarian from the then-ruling National Democratic Party (NDP).

Mostafa’s property development company, Talaat Moustafa Group (TMG), was using the land to construct a gated community of luxury apartments and retail property, selling them at a significant markup. The land was sold to the company well below market price through “direct order,” a system by which government bodies can independently set a price for public assets (land, property, enterprise) without opening it up to public auction (or “tender”).

ECESR filed an appeal, and the deal was eventually annulled in 2010. Talaat Mostafa is now serving time in jail for another case, the murder of Lebanese singer Suzanne Tamim, but Madinaty forms another chapter in the legacy of corruption that Mubarak-era Egypt left in its wake.

“Third parties are key,” claims researcher and deputy director of ECESR, Heba Khalil. “If you have two parties [in a contract] and there’s corruption going on, they both know about it,” she adds, pointing to Madinaty as an example.

“You had an investor who knows he’s not allowed to use this land because it’s designated for agricultural use, and then a state that knows it has an investor that will use it for housing. They know,” she says.

Now another legal amendment means that practices like those seen at Madinaty could continue, this time without oversight from civil society. Direct orders allow government bodies to independently define the prices for public assets, but amendments decreed by interim President Adly Mansour in September mean that the amounts government officials can use for direct order before opening up to auction are far higher.

This essentially means the government has much bigger pots of public money that it can use however it sees fit. According to state-owned daily Al-Ahram, the value of movables and services allocated by ministers went from LE100,000 to LE5 million, and jobs contracted out from LE300,000 to LE10 million. That system has already been used by the Egyptian government to offer up around $1 billion in contracts to the army, reportedly through direct orders, for construction, housing and development projects in the Sinai.

“The amendment also added a clause stipulating that the law only applies to government bodies that are not subject to special laws or regulations,” Al-Ahram reported. “This explicitly exempts many government bodies from the necessity of holding public auctions in certain cases, including selling publicly-owned land.”

Colliding interests

Khodeir maintains this is a positive step because the people filing third party lawsuits “misunderstand and misinterpret” the system, a reference to the unruly bunch of activists, lawyers and citizen-vigilantes who have complicated investors’ lives in the past.

The new law is intended to rule these “irrelevant” third parties out of the equation. “We think about what can secure stability for investments and what cannot. This is what is in the best interests of the country,” he claims.

But there are fears that what is being defended as Egypt’s “best interests” could also be a shield for old-style corrupt practices which, activists claim, may be in the best interests of the people running the country rather than the country itself.

“In [petroleum] contracts which last for 20-30 years, cover massive wealth and ultimately are about natural resources, there needs to be a level of accountability,” Minio-Paluello stresses. “It’s not just about challenging corruption, it should also be about challenging these contracts when they are not in the interests of Egypt.”

The EIPR report co-authored by Minio-Paluello highlights the kind of deals that Mamdouh Hamza wants to make a thing of the past. 

“I’ve analyzed oil and gas contracts from Uganda, Kazakhstan and Congo, and I’ve never seen a country ripped off this badly,” Minio-Paluello said in an accompanying press release. “The Egyptian people are paying for elite corruption with blackouts, black-market fuel and a collapsing economy.”

Khalil adds: “Nobody in Egypt has ever seen corruption being exposed by the government or by an investor. It’s always been a third party, because they have no interest in keeping a corrupt contract in place.”

Lawyers are now debating whether this new law is unconstitutional, but even that could take years of legal wrangling before the law can be challenged in the courts.

Until then, it seems, Egypt’s economic turnaround could come at a heavy price.

Does Vandousselaere