Vital foreign investment into Egypt dries up

6 April 2012

Egypt’s struggling investment climate is having a major impact on the economy

A lack of clear political leadership, an uncertain business environment and a struggling economy mean that firms are thinking twice before investing in Egypt.

The uncertainty of the business environment has been thrown into sharp relief in recent weeks by the lack of progress in resolving two disputes over contracts signed by foreign companies during the Hosni Mubarak era and cancelled by the new regime.

In documents seen by MEED, Noubaria Seed Production Company and Tanta Flax & Oil Company (Tantaflax) have both written to the government to announce their intention to launch international arbitration proceedings in the absence of progress towards addressing their concerns.

Legal claims

Noubaria, which was privatised in 1997, was seized by the state in October 2011. The government failed to respond to an end of February deadline to meet with Noubaria to discuss the matter. The company is now proceeding with a formal arbitration claim worth approximately $250m.

The privatisation of Tantaflax in 2005 was annulled in September 2011 by an administrative court, which returned control of the Saudi-owned company to the Egyptian government. After the government failed to respond to a similar deadline for talks, the investors are moving forward with a legal claim that they believe to be worth several hundred million dollars.

The government has belatedly agreed to talks with Tantaflax, but the company is sceptical that anything will come of them. “We are delighted to have discussions, but the investors are only going to leave it a relatively short period of time before they move forward with other channels,” says Ben Knowles, a partner at UK law firm Clyde & Co, which is representing the investors. “They are a bit concerned about it being talked into the middle distance.”

In both cases, there is confusion over why the contracts have been cancelled and who has the authority to deal with any appeals. “It’s not exactly clear what the lines of authority are,” says Knowles. In the case of Tantaflax, the government itself has appealed the court ruling. “They don’t want the company back,” says Knowles. “They can’t afford to pay the employees.”

Noubaria and Tantaflax are not the only companies to have been affected by the political situation. Activity in the real estate sector has all but ground to a halt as several of the country’s major property developers are investigated for deals with the Mubarak government under which land was allegedly acquired at preferential rates.

This article was published in MEED on 6 April 2012. To view the article in full, please visit the MEED website.

Leave a Reply

Richard Nield is a freelance journalist, photographer and filmmaker covering the Middle East and Africa. In 10 years covering the region, he has been published and broadcast by clients including the BBC, Reuters, Al Jazeera, The Economist, The Financial Times, The Independent and Foreign Policy magazine. He has reported from throughout the region, including Algeria, Egypt, Libya, Morocco, Tunisia, South Sudan, Jordan, Lebanon, Syria, Kuwait and Saudi Arabia.