Commercial deals should be free of regime change
Only then will overseas companies have confidence in retaining their investments
The Arab countries have enormous natural resources, much of which have not been tapped yet due to several obstacles, including a lack of investments, the reluctance of foreign investors because of weak guarantees and the underdeveloped legal and legislative structure, and instability.
Fears of foreign investors are based on painful experiences they been through in some Arab countries, where they suffered huge losses as a result of confiscation, corruption, bureaucracy and lack of laws and a transparent governance. For example, Australia’s Centamin, which operates in Egypt and is listed on the London and Toronto Stock Exchange, is a vivid example of the situation that has plagued some Arabic countries.
Centamin is a mineral exploration company - mainly engaged in gold mining - that currently operates the Sukari gold mine in Egypt. Centamin got the concession during the former President Hosni Mubarak’s era.
The regime change has led to a reconsidering of the concession agreement which was signed between the former Egyptian government and Centamin. Egypt’s Public Prosecution filed a lawsuit against the company, which was expecting to produce 320,000 ounces of gold this year, a 22 per cent increase, compared to last year.
The accusations by the Public Prosecution have fuelled speculations on the company’s share, which fell by 21 per cent on the last day of trading last week and by more than 60 per cent since the beginning of the crisis in November 2012. This has caused shareholders great losses and has also raised the issue of the feasibility of investing in unstable countries, particularly since the current Egyptian government had also decided to withdraw some land bought for investment by GCC investors or to renegotiate with them.
Unfortunately, there are similar events in many Arab countries, where the issue is not only related to laws that protect the rights of investors, but also to governments’ adherence by commitments regardless of government change.
In developed countries, governments are constantly changing as a result of periodic elections. Perhaps the economic and financial policies adopted by the new government are different from those adopted by the former one.
Nevertheless, the new government usually announces its full commitment to obligations by the former one, when it comes to power. This enhances trust and confidence among local and foreign investors.
In the case of Centamin, the company has not struck a deal with the government of Hosni Mubarak, but with the government of Egypt, thus constituting an obligation for any future government.
This issue, however, makes one recall the dissolution of the Soviet Union, when the Russian government in its capacity as the largest republic, pledged its full commitment to obligations by the former Soviet Union. Russia could have disclaimed the commitments because the Soviet state no longer existed. In fact, the Sukari gold mine constitutes a small part of Centamin’s businesses around the world and hence it is only the Egyptian economy which will be affected . Plus, there is the damage to the reputation of Egypt as an investment destination at a time when it is desperate to attract foreign funding and reduce the outflow of domestic capital.
It is imperative for Egypt and other Arab countries affected by rapid changes to reconsider their decisions so as to halt the deterioration in their economies and regain the trust of investors through the provision of guarantees and honouring prior commitments. Resorting to the judiciary is not enough as the legal system is already politicized there.
Yes, it is the right of all countries to review their economic and investment agreements, but this is done either with the agreement of both parties concerned or on the expiry of the agreement. Then the agreement can be either rewritten or even annulled.
Otherwise, Arab economies will see further capital outflow and declines in confidence, which will result in the loss of development projects which are much needed to create more job opportunities and increase growth rates.
