By Dr.Azab Alaziz Alhashemi (Investment and International Arbitration Expert and a member of the World Economic Forum, Switzerland.)
Reports issued by international rating agencies and investment companies illustrate the creditworthiness of each country in the short and long term, the stability of its political and economic conditions, and its openness to the external world. In light of this interest, the government aims to attract more foreign direct investment, and international companies seek to operate in Egypt not only as a wide market but also as an important regional and strategic hub. The previous years have witnessed the achievement of many goals for both parties, especially with the expansion of economic reforms and the increasing areas in which foreign capital can operate. However, the economic crisis resulting from the COVID-19 pandemic, the disruption of various economic sectors, the Russian-Ukrainian war, and the rise in prices of essential commodities, especially energy prices, have led to negative expectations regarding growth indicators, employment, foreign trade, and international capital flows.
This makes it necessary to reconsider the topic of foreign direct investment by examining its trends in recent years, both in general and in terms of Egypt’s position. Furthermore, it is essential to highlight the role of the expected global crisis in the need to reassess previous expectations, while also considering the quality of foreign investments that can benefit Egypt in these circumstances and how they can be subjected to transparency, governance, and social responsibility standards.
There is no doubt that the Egyptian government has an optimistic view regarding foreign investment and its importance in attracting it to Egypt to bridge the gap between national savings and the necessary investments required for economic growth. It also aims to address the gap resulting from the state’s withdrawal from direct economic activity and its limited role in supervision and regulation, while creating the necessary climate to increase both local and foreign private investments. However, there is no comprehensive document that provides detailed insight into the government’s position on this type of investment.
The importance of the free movement of money opinion for foreign investment
The objective importance of the free movement of capital depends on many indicators, the most important of which are:
Firstly: Free transfer of funds: The issue of transferring funds related to or associated with foreign investment outside the host country is one of the most significant concerns for foreign investors. For this reason, countries that are sources of capital have been committed to addressing these concerns and have sought to secure sufficient protection for their citizens by including a provision for the transfer of funds in bilateral investment agreements signed primarily with developing countries.
In this context, it is worth noting that ensuring the freedom to transfer funds related to investment is an extension of the freedom to liquidate the investment. If the contracting state commits to enabling the foreign investor to exercise their right to terminate or liquidate their investment, it is reasonable in this case to allow them the possibility to transfer their funds employed within its territory or their returns abroad.
From this perspective, the commitment of countries where financial relations abroad are subject to exchange control represents an exception necessitated by the need to protect foreign investors. This exception becomes evident when comparing it to national investors who are subject to the legislation of their respective states and are not entitled to demand the freedom to transfer their funds abroad.
Thus, ensuring the freedom of transfer is one aspect of preferential treatment for foreign investors compared to domestic investors. When studying various bilateral investment protection and promotion agreements, it becomes apparent that qualitative changes have occurred regarding this transfer provision.
Secondly: The scope of transfer freedom: Most bilateral investment agreements have included a specific provision for the transfer of funds resulting from or associated with investment without delay, using a convertible currency and at a predetermined exchange rate. This provision covers various financial returns, including:
Investment returns:
In this regard, agreements vary regarding the concept of returns. Some agreements, such as those concluded by the Swiss state, restrict the concept of returns to the net amounts resulting from the investment. Others, however, have broader definitions, as most bilateral investment agreements aimed at promoting and protecting investments include a more extensive content that includes, but is not limited to, the following funds:
- Profits, including stock profits.
- Interest, including interest derived from loans, capital gains, allowances, rewards, and currencies.
- Management fees, technical assistance fees, other fees, and more.
It is worth noting in this context that investment returns are diverse and varied, depending on the nature and components of the investment (financial, technological, etc.). In most cases, investment returns enjoy the freedom of transfer because, according to the International Monetary Fund, they are classified as current transactions in that states are not permitted to impose restrictions on their transfer, regardless of the financial and economic situation of these states.
Capital Investment
Transferring invested capital is one of the most important guarantees granted to foreign investors. Actual protection cannot be achieved if the investor is unable to transfer their funds employed within the host country’s territory. This category of funds includes all funds invested, including returns reinvested to maintain or increase the original investment, revenue generated from total or partial sales, complete or partial liquidation of the investment, and financial resources for renewing capital assets to ensure the continuity of the investment and the additional financial resources necessary for its development.
Funds related to foreign investment, including:
- Amounts related to loan repayments or similar contractual obligations.
In this context, some agreements, such as the agreement between Egypt and certain Western and Arab countries, stipulated that the transfer should include amounts related to approved loan repayments. This means that the financial authorities of the host country must approve the loan contract (usually the central bank). By imposing this condition, the state ensures the benefit to the investment through the concluded loan contract and its compliance with its financial market rules.
- Compensation
All bilateral investment agreements stipulate the transfer of compensation due to the investor, just like other funds resulting from the investment. These transfers refer to the compensation received by the foreign investor as a result of expropriation or confiscation, whether directly or indirectly. It is well established that any expropriation or confiscation is not legitimate unless it meets a set of conditions, including the payment of fair, effective, and adequate compensation. It is also established that foreign investor cannot benefit from this compensation unless they can transfer it outside the territory of the host country if they wish to do so.
Finally, it is necessary to link the benefits obtained by the foreign investor to specific standards that reflect the choices of the Egyptian economy and its developmental needs. These include accommodating and training
an increasing number of workers, utilizing untapped natural and technical resources, achieving integration with existing industries or activities, developing specific regions that require effort (such as Upper Egypt and desert governorates), or generating reductions in imports or increases in exports. Additionally, it is important to achieve technological progress that extends beyond the project’s scope and has tangible societal impacts. Naturally, all of this requires a higher degree of transparency from the government to assess the accomplishments.