A New Law for the Facilitation of I

A new law on the facilitation of the issuance of industrial licenses has been issued in response to the continuous criticism of the licensing issuance process in Egypt. The new law introduces a simple and clear process for obtaining industrial licenses. It defines the Industrial Development Agency as the one-stop-shop authority responsible for license issuing. The Agency is also required under the new law to review all existing licensing conditions and make them available to the public. New controls have been put in place for the licensing process. These include clear timelines for decision-making, an obligation to issue reasoning for decisions, and penalties for civil servants who fail to comply. Overall the law is very promising. It is however likely to face challenges from government officials who lose major parts of their competencies and discretion as a result.

Background

On the 3 May 2017, the President ratified Law No. 15 of 2017 on the Facilitation of the Process for Licensing Industrial Facilities (“ILL”).^[1] This has been a long-awaited measure that is needed to remove the many complications which mar the licensing process in Egypt. Namely, a lack of transparency and clarity, lengthy procedures, and wide discretion that is given to government officials in application, which often lead to corruption. Prior to the ILL, the issuance of operational licenses for industrial and commercial facilities was governed primarily by Law No. 453 of 1954 on the Licensing of Commercial and Industrial Facilities,[2] which applies to all sorts of commercial and industrial establishments starting from small shops and ending with heavy industries. Several other laws and regulations also impact the licensing process, requiring that additional approvals be obtained, such as civil defence approvals, environmental approvals, traffic approvals, sanitary approvals, etc. This regulatory system suffers from multiple problems, the most important of which are:

1. The licensing process is governed by a great number of laws and decrees and it has always been a challenge to have complete knowledge of them.
2. The administration of the process is specific to each governorate or authority at the urban community level. Each has its own discretion in applying the relevant laws and decrees, including determining the payable fees.
3. The licensed entity is subject to inspection from several authorities, each within its own area of competence.

These issues combined have made licensing one of the main areas of concern for any investor. Highlights of the New Industrial Licenses Law

• Scope of Application

The ILL, as its name indicates, is only relevant to industrial facilities to the exclusion of commercial facilities. Licensing of commercial facilities will continue to be bound by Law No. 453 of 1954. Industrial facilities addressed by the ILL include those established inside or outside industrial zones and those established in free zones and investment zones.

• IDA as a One-Stop-Shop

The ILL defines the Industrial Development Authority (“IDA”) as the entity responsible for issuing all licenses. It is to act as a one-stop shop for the purposes of issuing licenses for industrial facilities.

• Duration of Licenses

All licenses issued in accordance with the ILL shall be permanent except in specific cases that will be determined in the executive regulations.

• Licensing Conditions

The ILL provides for the establishment of a Licensing Conditions Committee (“LCC”) responsible for determining all conditions required to obtain a license, including approvals for civil defence, environment, industrial safety, and professional health and safety. The LCC is required to categorize these conditions on the basis of the risk level imposed by the different industrial activities. This task must be completed within three months from the date of the enactment of the ILL, and its outcome must be made available to the public. In order to assist the Committee with this task, all entities currently responsible for issuing approvals and licenses are required to provide the it with their currently applicable conditions. This is a material advancement towards unifying licensing terms and ensuring transparency, it can be considered a breakthrough.

• Two New Licensing Systems

The ILL outlines two main systems for obtaining licenses: license by notice, and prior licensing.

• Licensing by notice

Under this system, the ILL allows those wishing to establish or manage an industrial establishment that does not impose high risks to notify the IDA. The notice must be made on a special form which the IDA is to produce, and must be accompanied with documents evidencing compliance with Licensing Conditions (the “Notice”). The IDA must receive the Notice on the same day and provide the notifying entity with a document confirming receipt. This document is deemed in itself a license. The IDA must then inspect the industrial facility for compliance with the Licensing Conditions within the following 90 days. If found non-compliant, the industrial facility is given 180 days to comply. This period could be renewed for a similar period. If the industrial facility still fails to comply, the IDA is required to send a warning of closure.

• Prior Licensing

Industrial facilities that impose high risks (which will be determined in the executive regulations), and those in specific geographical locations to be determined by the prime minister, may not be established, managed or operated unless by way of a prior license. Upon submission of the licensing request accompanied with documents evidencing compliance with the Licensing Conditions, the IDA has 14 days to determine whether the request is missing any further documents. If the request is complete, IDA is required to reach a decision on the license within 30 days from the date of submission of the request. If the request is missing certain documents, the IDA is required to notify the person submitting the request of the missing documents within seven days. Upon submission of the missing documents, the IDA has 14 days to reach a decision on the licensing. If the request is denied, the IDA is required to notify the person submitting the request of the reasons for denial within 14 days from the date of issuing its decision. If the IDA does not honour these deadlines, the person submitting the request will be entitled to submit a complaint to a complaints committee formed under the ILL.

• License Fees

The fees for obtaining a prior license is EGP 20,000 and those for license by notice is EGP 5,000. The same fees are payable in cases of amending or transferring the license. These fees may be increased by 5% following a decision from the competent minister (the Minister of Trade and Industry).

• Industrial Zones

The ILL provides that industrial zones may be established by a decree from the Prime Minister, and managed by a board to be formed by a decision of the competent minister. The board may choose to license a private sector company to construct, develop, manage or promote the industrial zone. The IDA may elect to apply the licensing by notice system to the industrial facilities in these industrial zones, provided that the conditions stated in the executive regulations for planning and construction are observed.

• Licensing for Heavy Industries

The ILL authorizes the Cabinet to determine specific heavy industries and other industrial licenses that may be offered to qualified investors under certain rules. In the event that more than one qualified investor is interested, the Minister of Trade and Industry may make a decision between the projects from an economic perspective. The Cabinet then ratifies that decision and sets the consideration for the license.

• Micro, Small and Medium Enterprises

MSMEs are given special attention in the ILL. For instance, the Minister of Trade and Industry must issue a definition of micro, small and medium enterprises (“MSMEs”) that is to be applied in connection to this law. In addition, the Licensing Conditions Committee is required to determine special conditions that are suitable for MSMEs. In cases of Licensing by Notice, MSMEs have longer durations to comply with the Licensing Conditions, and they are required to pay less licensing fees than those paid by other establishments.

• Certification Offices

The ILL allows for the establishment of offices with the purpose of certifying the extent to which an industrial facility is compliant with the Licensing Conditions. Certificates issued by the certification offices must be accepted at IDA. Certification offices are to be licensed by the IDA to provide this service, and they must obtain an insurance policy to cover the related risks. The IDA may suspend the license of a certification office for a period not exceeding three years in the event of a violation, and can revoke the license completely in the event of a repeated breach.

• Inspection

One of the ambitious rules provided under the ILL is related to inspectors. The ILL effectively revokes the power of all currently authorized inspectors belonging to all authorities currently giving approvals and licenses. It states the Ministry of Justice is to issue a decree, upon consulting with the Minister of Trade and Industry, which determines the names of officials who are authorized to inspect industrial facilities. This decree will also determine the limits of the officials’ interactions with the industrial facilities and the procedures for investigating breaches.

• Revocation of Licenses

The ILL sets an exhaustive list of reasons for the revocation of licenses. There are nine reasons for revocation, which include suspension of operations for two years without acceptable cause, undertaking a material amendment to the facility without obtaining a license, delays in construction, operating or expanding the facility, and failure to renew the license within two months from the date of its expiration. In all cases, a decision by the IDA to revoke a license must state its reasons, and it may not be implemented except after the lapse of 14 days during which the licensee is given an opportunity to rectify the breach, or at least commence rectification procedures. In addition, the licensee may during this period submit a complaint to the complaints committee.

• Penalties

The ILL sets out penalties applicable on industrial facilities as well as civil servants who fail to comply with the provisions of the law. Any person who establishes or manages an unlicensed industrial facility that is required to have obtained a prior license will be liable to pay a fine ranging from EGP 100,000 to 5,000,000 and/or imprisonment for one year. If the facility is required to be licensed by notice, the penalty is only a fine ranging from EGP 10,000 to 200,000. Civil servants who fail to provide a receipt for the licensing notice will be liable to pay a fine ranging from EGP 5,000 to 50,000. Further, employees who intentionally prevent or hinder the industrial facility from carrying out its business or conduct inspections of the facility without following inspection procedure will also be liable to pay a fine that ranges between EGP 5,000 and 100,000. This fine is decreased by half if the acts of the civil servant were due to negligence. The ILL allows the competent minister to reach a settlement with respect to the violations stated therein provided that the violator rectifies the causes of breach.

• Transitional Provisions

Non-licensed industrial facilities are now required to comply with the soon-to-be-issued Licensing Conditions and to obtain a license through one of the mechanisms stated in the ILL. However, the ILL does not provide for a specific duration during which non-licensed industrial entities will be required to comply. Instead, it refers to the executive regulations for determining these time periods and procedures. The IDA may issue permits for periods of one renewable year until an industrial establishment successfully complies with the new Licensing Conditions. The ILL states that the executive regulations will be issued within three months from the date that it has become effective (which is 4 May 2017).

Conclusion

The ILL is a very promising law that aims at rectifying many of the problems that exist under the current regulatory system. It is in that sense one of the most important economic legislations that were enacted recently, and is likely to generate positive effects, if applied correctly. The executive regulations and decisions necessary for its implementation are therefore of utmost significance. Also to be followed closely, is the extent of compliance of governmental authorities with the provisions of this law. However all in all, the ILL provides a new and positive legal framework to deal with one of the most important and biggest obstacles to investment in Egypt.   ^[1] Law No. 15/2017 on the Facilitation of Granting Licenses to Industrial Facilities, Official Gazette, Issue No. 17 (bis) (d), 3 May 2017. ^[2] Law No. 453 of 1954 on the Industrial and Commercial Facilities and other Establishments Causing Nuisance and Health Hazards, Egyptian Gazette, Issue No. 67 (bis) “irregular”, 26 August 1954.