A New Law for the Industrial Develo

One year after the issuance of Industrial Licensing Law No. 15 of 2017 (“Law 15/2017”),[1] which designated the Industrial Development Authority (“IDA”) as a one-stop-shop for industrial development and all industrial related permits, a new law – No. 95 of 2018 (the “Law”)[2] – was issued to regulate the operations of the IDA. The Law provides detailed rules on IDA’s tasks, responsibilities, its board, and it greatly expands its powers. IDA is reiterated as an economic public body, with a new provision allowing it to retain any surpluses it makes on its accounts and carry said surpluses forward for the following fiscal year. This grants the authority greater financial power to achieve its purposes. Also in the line of expanding IDA powers, the latter has been granted greater authority in real estate allocation for investors that match the General Authority for Free Zones and Investment (“GAFI”)’s newly defined powers under Investment Law No. 72 of 2017 with respect to real estate allocation, and offers definitions for some relevant terms such as Industrial Projects, and Industrial Zones. Finally, the Law states that its executive regulations are to be issued by the Minister of Trade and Industry within six months from the date of the Law’s coming into effect.

Background

Originally, the IDA was formed pursuant to Presidential Decree No. 350 of 2005 (“Decree 350/2005”) establishing the Industrial Development Authority[3] as an economic public entity that is subordinate to the Minister of Trade and Industry. Under its establishing decree, IDA was tasked with enforcing industrial policy, laying out industrial land development strategy, and facilitating licensing procedure. This included laying out the conditions and requirements for industrial permits; issuing industrial registration certificates; delegating other governmental authorities to issue permits and licenses; issuing licenses and permits for industrial projects established outside of industrial zones; and following up and evaluating industrial projects in coordination with other government agencies to ensure compliance with laws and regulations. The IDA’s role as the go-to entity for industrial licencing was reinforced by recent legislative amendments, the most important of which is the issuance of the new Industrial Licensing Law 15/2017 that was passed in May of last year. In addition to introducing a simpler and clearer process for industrial licensing in general, and designing a licensing-by-notice track for low risk industries, the Law defined the IDA as the one-stop-shop responsible for license issuing. IDA was 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. Stemming from the Law, an Industrial Licensing Requirements Committee was formed^[4] to issue standardized requirements for the granting of all industrial licenses. The Committee is headed by the IDA Chairman and is comprised of IDA Vice President for Licensing and Industrial Services, two representatives from the Licensing and Industrial Services Department at IDA, two representatives from the Federation of Egyptian Industries, and two specialized experts in the fields of Civil Defence, and Industrial Security and Professional Health and Safety.

The New IDA Law

• Overview and Purpose

The first thing that is noticeable in the new IDA Law is that it makes no mention of the IDA’s establishing Decree 350/2005. It does not explicitly repeal the decree, although it does state that any rules under any other legislation that contradict the provisions of the IDA Law are repealed. The Law also greatly expands IDA’s powers as a public entity. It states that IDA may enter into contracts to achieve its purposes, request the designation of State land for its purposes, and make use of local and international expertise. In carrying out the aforementioned, the Law explicitly exempts the IDA from complying with government rules in financial and administrative aspects. Similarly, the Law exempts IDA’s Board from complying with government rules and regulations – including maximum wages in government positions – when designing IDA’s organizational structure, and internal HR, financial and administrative policies. IDA Board decisions are only enforceable upon ratification by the relevant minister, or within two weeks from notifying the minister given that no objection is made.

• IDA Responsibilities

The Law provides a list of responsibilities for the IDA that is similar to its tasks as defined under Decree 350/2005 with some variation. IDA’s general responsibility can be branched under four main tasks that are (i) regulating industrial activity in Egypt, (ii) implementing ministerial industrial policies, (iii) laying out and enforcing industrial land development policies with an aim of making said land available for investment, and (iv) facilitating industrial licensing processes. The Law defines the IDA as the administrative entity in charge of planning and regulation under the Construction Law with respect to industrial buildings within or outside of industrial zones. IDA determines activities, products, and related services in industrial zones, in coordination with other governmental bodies, and defines industrial activity that may not be undertaken except under special conditions, as well as prohibited activities. This is all with a carve out of Free Zones, Investment Zones, and Technological Zones that are regulated under the new Investment Law. The IDA has also been put in charge of providing information - including data, statistics, studies and maps - for project owners and other interested parties against a fee. The most notable change in IDA responsibilities when compared with Decree 350/2005 is new wording concerning working with the private sector for the development of industrial zones, and the stress on IDA’s role as the one-stop-shop for real estate allocation.

• IDA Budget and Financial Resources

The Law has expanded IDA’s financial resources. Similar to what was provided under Decree 350/2005, these resources include government designated funds, fees in exchange of IDA services to private sector and other government bodies, licensing fees, grants and loans, and investment returns. The new Law adds to the list of resources (i) return from managing and transacting real estate that is designated for industrial use and placed under IDA’s jurisdiction; and (ii) any other resources determined by IDA Board once ratified. The stipulation that IDA funds are public funds is reiterated under the new Law with a stipulation that IDA funds may not be used outside of the scope of the authority’s purposes. The rules concerning IDA’s preparation of budget and use of its funds have been amended. According to the new provision, IDA prepares a separate budget as an economic public body. IDA resources are deposited in a special account at the Central Bank of Egypt, or a licensed bank upon obtaining Ministry of Finance approval. The main distinction between the new provision and that under Decree 350/2005 is that the IDA Law explicitly states that any budget surpluses made on IDA’s account are carried forward to the following fiscal year. This gives the authority greater financial independence.

• Real Estate Allocation

Of the significant expansions in IDA role is its new land allocation powers. The Law carves out real estate located in any geographical areas that are subject to special regulation. It provides that IDA has the power to contract real estate that is privately owned by the State for industrial project purposes. Furthermore, other government bodies with jurisdiction over real estate may delegate IDA to contract said real estate for the purpose of industrial projects, as long as IDA then remits any funds it receives from said contracts to the body with original jurisdiction. Similar to provisions that were introduced under the new Investment Law with respect to GAFI, the IDA Law states that government bodies with jurisdiction over real estate is to provide IDA with detailed maps that indicate real estate that is owned by said jurisdiction bodies and that is available for industrial projects. These maps are to be accompanied with data on surface areas, heights, estimated prices, and suitable industrial projects for said real estate. Jurisdiction bodies are to periodically review said data and inform IDA of any changes. In addition – and also similar to Investment Law provisions – the IDA Law states that the President may upon Cabinet approval transfer real estate ownership or jurisdiction to IDA from other government bodies. Notably, real estate allocation under IDA Law provisions is exempt from the application of the Bids and Tenders Law for government contracts. The Law states that IDA offers information and promotion for land that is available for industrial use. Investors may submit requests specifying the type of real estate they desire, the required surface area, and location for their investment project; and IDA can offer real estate that it owns directly or that is owned by another government body. The Law also provides that jurisdiction bodies may use real estate that they own as an in-kind contribution to capital in private sector investments (following Cabinet approval), and that real estate may be offered free of charge based on a determination of geographical areas and for industrial development purposes as decreed by the President with Cabinet approval. This is given that the investor makes a security deposit of 5% of investment costs that is maintained for three years following commencement of operations. Where real estate is allocated by way of right of use (usufruct), such may not exceed 50 years that may be renewed with no cap explicitly placed on renewal. Where real estate allocation is by way of sale, title is not transferred except after payment by the investor of the full price, and upon commencement of operation. Furthermore, the investor must maintain the original purpose for which the real estate was allocated, and may not change that purpose except with written approval from IDA, and only if the location and nature of the real estate allows it. IDA is mandated by Law to respond to a request to change purpose within 30 days from the date of that request being made. Moreover, IDA has the power to revoke a real estate contract if any of the conditions set out in the Law are violated by the investor. Further details on said violations will be provided under the executive regulations. In line with recent legislative tradition, the IDA Law provides for the establishment of one or more petition committees at IDA to look into challenges against IDA decisions concerning real estate allocation and valuation.

• Real Estate Valuation

The valuation of real estate will be determined through a committee to be formed by IDA Chairman. The committee will be comprised of members with previous experience in real estate valuation committees. In determining the price of real estate, the valuation committee must take into consideration certain criteria, including: the price of neighbouring land, the cost of preparation of the real estate, available utilities, infrastructure and basic services, the nature of the desired activity, certified real estate valuation standards, and other technical elements which IDA determines based on the nature of the project. The valuation committee must conclude its estimate within 30 days from the date of the application.

• Industrial Zones Support Fund

This section used to be one provision under Decree 350/2005 and it was expanded under the IDA Law. It states that the “Industrial Zones Support Fund” is an independent legal entity that is run by a board of directors headed by IDA Chairman. The Fund is tasked with implementing the ministry’s industrial development policy in industrial zones. It particularly (i) supports the construction, development and utilization of industrial zones in Egypt, (ii) subsidizes land and related industrial activity (production or services) in accordance with IDA rules, and (iii) supports industrial promotion policies in order to attract investment and improve competition locally and internationally. Fund resources include percentages that are allocated to it by IDA from its surpluses, government designations, and grants. Its money is public money that may only be used for the Fund’s purposes, and any surpluses are carried forward to the following fiscal year.

Conclusion                                                                                             

The Law really unleashes IDA power to achieve its purposes as part of the recent reform to the legal framework governing industrial operations in Egypt. It designates IDA as the sole entity in charge of issuing industrial permits, and allocating and utilizing real estate for industrial use, including a reregulation of the industrial zones regime. It also allows the authority to benefit from high calibre professionals and offer them competitive salaries as it provides for exemptions from government hiring rules, and other administrative restrictions. Furthermore, IDA has been granted wider discretion in the administration of its financial resources within the bounds of its purposes as defined in the Law. The main question thus remains with regards to the application of the rules concerning real estate allocation in practice. This is a comment that might be applicable to a recent trend in legislative interventions which promise one-stop-shops for land allocation and management, and grants authorities the power to administer real estate under their own jurisdiction, as well as real estate that is subject to the jurisdiction of other governmental bodies. Given the current state of real estate registration and management in Egypt, all of these legislative promises of facilitation of real estate allocation must pass the test of practical implementation.   [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. 95/2018 on the Industrial Development Authority, Official Gazette, Issue No.23 (bis) (a), 11 June 2018. [3] Presidential Decree No. 350/2005 establishing the Industrial Development Authority, Official Gazette, Issue No. 42 (cont.), 22 October 2005. [4] Minister of Trade and Industry Decision No. 1135/2017 forming the Licensing Requirements Committee, Egyptian Gazette, Issue No. 209, 17 September 2017.