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German Legal Expertise in the Middle East since 1981

Consequences of Changes of Egypt Government in the field of Legislation

Guiding Principle

Like other countries of the Arab Spring, the Egyptian revolution led the Islamist movements to the power. This had its clear impacts on legislations in the country. In this article, we present a quick review on the most important legislation enacted or still under the enacting process since the revolution.

I. Introduction

Two years after the fall of President Mubarak, Egypt has now a new Constitution if also controversial. The Constitution draft has been approved by a majority of 63.8 %. However, it is only 33 % of the 52 million Egyptians eligible who took part in the referendum. The Shura Council (the second Chamber of the Parliament), will adopt laws so long until a new Parliament is elected. With the new Constitution, also the way for parliamentary elections is clear. This should take place within the next two months.[1]

The Constitution gives the Islamic forces more influence in the future and therefore is criticized by Liberals, Leftists and Christians. The opposition fears a stricter interpretation of Islamic law (the Sharia), which remains the main source of legislation. They see themselves not represented in the Constitution. Therefore there had been repeatedly violent protests and sometimes deadly riots over the past few weeks.[2] The German foreign minister Mr. Guido Westerwelle called President Mursi again after the referendum to a dialogue with the opposition. President Mursi must “go on all social forces and find the political compromises that can incorporate all Egyptians and take on this path, Mr. Westerwelle declared on 26th December 2012”. The High Representative for foreign and security policy, Catherine Ashton, urged all forces in Egypt to dialog as well.[3]

II. Economic Situation and Egyptian Government’s Policy

The new Government is facing the challenge to lead the necessary structural change in the right way. The future political decisions will be decisive for the economic development of the country. It remains – with international support – the prospect of a positive economic perspective of the biggest and important country in the Arab World with more than 90 million inhabitants.[4]

The Egyptian economy suffers now since two years as a result of the political crisis that started with the fall of Husni Mubarak. Now the constantly burgeoning unrest is increasingly putting off the investors and tourists. The foreign exchange reserves of the country are therefore gradually running out.[5] In order to be able to absorb the mentioned effects, Egypt requires urgent financial support from abroad in line with economic reforms. However a 4.8 billion dollar heavy credit of the International Monetary Fund was delayed. Although it was already basically agreed in November[6], it didn’t come to the final signing so far because of the fear of social protests.[7]

III. Government Shuffled

With Egypt’s economy going steeply downhill, it is also the lack of political stability, which has deterrent effect on investors.[8]

That is why Egypt’s President Mohammed Mursi is now serious (with a cabinet reshuffle) to fight the economic crisis and at the same time placate the anger of the population.[9] Among other things, finance, interior and transport ministers have been replaced.[10]

1. Mediation Law Drafted

The Ministry of Justice is in the process of drafting a new law for mediation. The purpose of the law is to settle civil and commercial disputes with a value exceeding 100,000 EGP. The process of settling the dispute is supposed to start by choosing a mediator to settle the dispute amicably. In case such process was not successful, the dispute is raised to the Department of Judicial Mediation at the Elementary or Economic Court.[11]

2.  Government Approved Islamic Bonds (Sukuk)

On 19.12.2013 the Egyptian Cabinet approved in its meeting in principle a draft law on using Islamic bonds. Sukuk is the Arabic name for financial certificates, but commonly refers to the Islamic equivalent of bonds. Since fixed income, interest bearing bonds are not permissible in Islam, Sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.[12]

The proposed law regulates provisions and measures of issuing such kind of bonds (finance, rental and investment bonds) and organizes the authority to be in charge of issuing and managing these bonds, and registering them in the stock exchange. The law Draft suggests the establishment of a fund called Investment Risks Fund which is financed by the owners of these bonds.[13]

After weeks of discussion and preparation of a new Sukuk, or Islamic Bonds Law, the Islamic Supreme Scholars Association of Al-Azhar has refused the draft law on Sukuk. The decision was later supported by the Shura Council’s Economic Committee, which has also refused the law Draft because its not conform to the Sharia (Islamic law).[14] In addition to the considerations relating to sovereignty and the foreign ownership of Egyptian assets and the length of financing by up to 60 years.[15]

Meanwhile, there is another draft law prepared by the Egyptian Financial Supervisory Authority that regulates Sukuk offered by private companies and banks. The idea of two separate Sukuk laws proposed by the government was rejected by the Nour Party and the Freedom & Justice Party.

Several Egyptian parties have voiced their reservations about the law Draft to be considered. However, it has been declared by representatives of these parties that the government ignored all their remarks and presented the draft without any amendments. The negotiations are still ongoing until now.[16]

3.  Land Ownership Law of Sinai

In September 2012, Egyptian Prime Minister Hisham Kandil issued Decree No. 959/2012, containing executive regulations on the comprehensive development of the Sinai Peninsula. Article 8 of the Decree stipulates that any Egyptian with dual nationality must, within six months of implementation of the executive regulations, sell his property, whether land or buildings, in Sinai to Egyptians who hold only Egyptian nationality and whose parents are both Egyptian. Moreover, the law prohibits Egyptian investors married to non-Egyptian spouses from owning properties in Sinai as well.[17]

The article adds: “If the six months pass and the property was not sold, the ownership will revolve to the state in return for payment of equivalent price to the owner. The price will be decided by a committee of experts formed by a decision from the Minister of Justice.”
Some of the local investors have pointed out that such law would certainly hinder investment in Sinai, because it would discourage Egyptians with dual nationality from investing in the Peninsula.

Some of the experts consider that the law would hamper investment in Sinai and add to the already tense situation in the Peninsula. However, foreigners and Egyptians, according to the same law, can own entities without owning the land on which they are built through submitting a petition to the National Authority for the Development of Sinai. The authority could then accept or reject the petition within 90 days of its submission.

Experts claim that the law comes with the purpose of controlling land ownership in Sinai for fear it could be sold to foreigners. Legal tricks are practiced in Sinai to sell foreigners the land in the Peninsula with legal and registered contracts.

Some of the experts pointed out that the law could be judged unconstitutional because it contradicts with the notion of citizenship on the grounds that it discriminates between Egyptians. Furthermore, this law could mean confiscating lands without a court ruling, which is unconstitutional.
For security reasons, land ownership in Sinai is firmly controlled, even for Egyptians. Egyptian investors with a non-Egyptian parent, for example, cannot own land but can obtain concession contracts in the Peninsula.

Until recently, foreigners were banned from owning property in Sinai. However, the Egyptian government agreed last September to allow foreigners to invest in Sinai with a maximum stake of 45 % in any Sinai-based project, while Egyptian capital in any project should not be less than 55 %. Foreigners can run or manage their ventures through concession contracts from the government.[18]

[11] Al-Ahram Newspaper dated 17.01.2013.

January, 2013 Amir El Shamy
Meyer-Reumann & Partners, Alexandria Office
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