Mada Masr
Egyptian companies trapped in limbo by investment-friendly law
Sunday, March 15, 2015
Egyptian workers have been fighting
an uphill battle against draconian privatization 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
favor 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.”
*Photo of Tanta Flax Workers outside State Council Court, by Jano Charbel
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