Tourism Companies Regulations: High
Tourism Companies Regulations: Higher Capital Requirement But No Improvement in Competitive Environment
Tourism is an economic activity governed by various laws and regulations in Egypt. One of the key pieces if legislation is the Law Governing Tourism Companies Number 38 of 1977. This Law defines and describes tourism companies, provides the conditions and procedures for their licensing and outlines some of their key obligations. The basic premise of the law has always been that companies providing services in the area of tourism must have a sufficient capital in order to meet their needs and allow them to adequately provide their services.
There are three broad categories for tourism companies under the Law:
• Companies organizing trips • Companies issuing and selling travel tickets as well as providing other tourist agency services • Companies operating land, sea, and air transport facilities Prior to the change in Law, the minimum capital requirement for the above three categories was respectively one hundred thousand, forty thousand, and twenty thousand Egyptian Pounds. It should be noted that this minimum capital requirement did not include the capital needed for purchasing certain assets, particularly buses and cars by companies under the third category. In the amendment recently issued (Law Number 125 of 2008), this minimum capital requirement has been raised to two million Egyptian Pounds for all three categories of companies, in addition to an insurance deposit to be determined by Executive Regulations that does not exceed two hundred thousand Pounds. The new amendments in the Law also raise the amount that a foreign company needs to deposit with the Ministry of Tourism from two hundred thousand to three million Egyptian Pounds. The above changes may seem like a mere increase in the capital requirement of companies, meant to safeguard both the market and tourists from ill-equipped companies. In reality, the whole approach adopted by the Law in regulating tourism companies needs revising, as it does not reflect the necessity to facilitate business and encourage competition. This is due to the following reasons:
1. The Law continues to rely on an outdated «market needs test» in determining whether a company would be licensed or not. Article (3) continues to state that the Ministry of Tour- ism may suspend the issuance of new licenses if it deemed that the country does need new companies. This is an approach that goes against the whole spirit of encouraging business and entrepreneurship, since the determination of whether or not the market needs more companies should be left to the decision of the business risk-taker.
2. Article (4) of the Law continues to impose a requirement that the director of any tour- ism company be of Egyptian nationality. This again goes against the efforts of opening up other sectors to competition in Egypt. Today neither banks nor insurance companies have this requirement, and it seems both unreasonable and anti-competitive to keep it for tourism companies.
3.The whole approach of relying on capital requirements as the means for ensuring the soundness of companies is no longer deemed appropriate. A Company’s capital does not necessarily reflect its expertise, integrity or capacity to deliver and honor obligations.
Moreover, requiring tourist transportation companies to own their cars and buses ignores the possibility that such companies may lease, rent, or otherwise have access to transportation vehicles without necessarily owning them.
The above approach in regulating tourism companies is unlikely to improve the standards of service provision and may instead stifle competition in an area where it is much needed.
In all cases, companies currently licensed are required to comply with the capital increase requirement within three years from the issuance of the amendment to the law (i.e. by June 10th, 2011) and with the insurance requirement within two years (i.e. by June 10th, 2010).
Tourism is an economic activity governed by various laws and regulations in Egypt. One of the key pieces if legislation is the Law Governing Tourism Companies Number 38 of 1977. This Law defines and describes tourism companies, provides the conditions and procedures for their licensing and outlines some of their key obligations. The basic premise of the law has always been that companies providing services in the area of tourism must have a sufficient capital in order to meet their needs and allow them to adequately provide their services.
There are three broad categories for tourism companies under the Law:
• Companies organizing trips • Companies issuing and selling travel tickets as well as providing other tourist agency services • Companies operating land, sea, and air transport facilities Prior to the change in Law, the minimum capital requirement for the above three categories was respectively one hundred thousand, forty thousand, and twenty thousand Egyptian Pounds. It should be noted that this minimum capital requirement did not include the capital needed for purchasing certain assets, particularly buses and cars by companies under the third category. In the amendment recently issued (Law Number 125 of 2008), this minimum capital requirement has been raised to two million Egyptian Pounds for all three categories of companies, in addition to an insurance deposit to be determined by Executive Regulations that does not exceed two hundred thousand Pounds. The new amendments in the Law also raise the amount that a foreign company needs to deposit with the Ministry of Tourism from two hundred thousand to three million Egyptian Pounds. The above changes may seem like a mere increase in the capital requirement of companies, meant to safeguard both the market and tourists from ill-equipped companies. In reality, the whole approach adopted by the Law in regulating tourism companies needs revising, as it does not reflect the necessity to facilitate business and encourage competition. This is due to the following reasons:
1. The Law continues to rely on an outdated «market needs test» in determining whether a company would be licensed or not. Article (3) continues to state that the Ministry of Tour- ism may suspend the issuance of new licenses if it deemed that the country does need new companies. This is an approach that goes against the whole spirit of encouraging business and entrepreneurship, since the determination of whether or not the market needs more companies should be left to the decision of the business risk-taker.
2. Article (4) of the Law continues to impose a requirement that the director of any tour- ism company be of Egyptian nationality. This again goes against the efforts of opening up other sectors to competition in Egypt. Today neither banks nor insurance companies have this requirement, and it seems both unreasonable and anti-competitive to keep it for tourism companies.
3.The whole approach of relying on capital requirements as the means for ensuring the soundness of companies is no longer deemed appropriate. A Company’s capital does not necessarily reflect its expertise, integrity or capacity to deliver and honor obligations.
Moreover, requiring tourist transportation companies to own their cars and buses ignores the possibility that such companies may lease, rent, or otherwise have access to transportation vehicles without necessarily owning them.
The above approach in regulating tourism companies is unlikely to improve the standards of service provision and may instead stifle competition in an area where it is much needed.
In all cases, companies currently licensed are required to comply with the capital increase requirement within three years from the issuance of the amendment to the law (i.e. by June 10th, 2011) and with the insurance requirement within two years (i.e. by June 10th, 2010).