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RETURN ON INVESTMENT
After three years as head of the nation’s
investment authority, Ziad Bahaa El-Din, chairman of the General
Authority for Investment & Free Zones (GAFI), is returning to
the private sector. As he prepares to leave office, he reflects
on the sweeping reforms that have taken place at GAFI during his
term, and its transformation from investor foe to friend.
BY REHAB EL BAKRY
Ziad Bahaa El-Din rode in on the wave of optimism that followed
the appointment of the Nazif government in the summer of 2004. By
tapping an outsider to head the nation’s investment authority,
investment minister Mahmoud Mohieldin was sending a clear message
that substance outranked seniority. Any career bureaucrat could
manage the authority. But Bahaa El-Din’s dual specialization
in law and economics, and his practitioner’s experience in
both Egypt and the US, represented an opportunity to infuse the
authority with fresh ideas and effective solutions.
An overachiever by nature, Bahaa El-Din completed an economics degree
at the American University in Cairo while simultaneously finishing
a law degree at Cairo University. The dual major, he says, aimed
at helping him better understand the immutable connection between
economics and law. He went on to earn a Master’s degree in
business law from King’s College in the UK, and a Ph.D. in
banking law from the prestigious London School of Economics.
Upon graduating, Bahaa El-Din practiced corporate and commercial
law in the US and Egypt. In 1997, his work caught the eye of then
minister of economy Youssef Boutros-Ghali, who recruited him as
an adviser. After three years, he returned to private practice,
establishing his own private law firm. Now, after three years at
the helm of the General Authority for Investment & Free Zones
(GAFI), he is once again returning to private practice – this
time with a deep sense of satisfaction that he has helped create
a better investment climate.
Upon taking the helm of GAFI in September 2004, Bahaa El-Din set
about reassessing the authority’s role. “For me, where
to start in the investment authority was crystal clear; you start
by re-identifying the role of your organization and its procedures,”
he explains. “This comes naturally after you’ve determined
what is wrong with your perception of your own role.”
Somewhat ironically, given his history as a chronic multi-tasker,
Bahaa El-Din identified that GAFI’s chief problem lay in the
fact that it was trying to be all things at once. He recognized
that GAFI’s effectiveness lay not in its role as an investment
regulator, but as an investment facilitator. “If you say that
GAFI is a regulator of investment, that immediately implies and
entails certain functions. But if you [consider instead that GAFI]
is not supposed to be a regulator, it is supposed to be a facilitator,
things fall into place. You immediately begin to look at things
very differently.”
Bahaa El-Din says GAFI’s preoccupation with regulating investment
made it adversarial to investors and reduced it to a bureaucratic
sand trap. He says investors were being asked to supply 10 different
copies of 10 different documents to GAFI just to open a small business.
GAFI should not have been asking for these documents in the first
place, he contends. “One of the reasons why it took months
to establish a company [in Egypt], whereas now it takes three days
maximum, had to do with GAFI requiring certain documents which would
be natural if it were a regulator. For example, investors were requested
to submit feasibility studies of their projects. As a facilitator,
[however,] it is none of my business to look at the investor’s
feasibility study. This is someone who is risking his own money
in a project; if he doesn’t bother doing the right study,
he will face the consequences.”
He concluded that GAFI could be more effective by focusing on its
role as an investment facilitator and promoter, and leaving the
role of regulator to the investment ministry and other agencies.
His first order of business was to purge the agency of its regulator
legacy. Bahaa El-Din and his team spent months reviewing every procedure,
required approval and detail, asking themselves how each requirement
fitted into GAFI’s role as a facilitator and promoter. If
it did not, then it was either adjusted or dropped.
The authority established a new relation with the Ministry of Investment.
The ministry develops the policies for investment; GAFI finds ways
to facilitate their implementation. And because it deals directly
with investors, the authority also received feedback on the consequences
of investment policy, which it relayed to the ministry.
One benefit of this relationship, confesses Bahaa El-Din, is that
it frees GAFI from the political repercussions of investment policy.
That responsibility now sat squarely on the minister’s shoulders.
“The key role of a minister is that he is the political front;
he’s the one who bears the responsibility, he’s the
one who goes and defends his work in parliament and coordinates
with other ministers,” he explains.
Cutting the red tape
Reflecting on his three years in office, Bahaa El-Din says GAFI
has played a key role in the sharp increase in foreign direct investment
(FDI) during the past three years. Egypt’s total FDI in the
first three quarters of this year reached $9 billion, compared to
$6.1 billion in all of 2006 and $3.9 billion in 2004.
But one achievement he is particularly proud of is the launch of
the One-Stop Shop (OSS) for investors at GAFI’s headquarters
in Nasr City. Opened in early 2005, the OSS brings representatives
from various government agencies under one roof so that new investors
can quickly obtain all the permits, licenses and information they
need to start a business. While the OSS has significantly reduced
the time it takes to open a business – down from six to eight
months in 2003 to three days today – Bahaa El-Din acknowledges
that it is not a panacea for the country’s investor problems.
“To be perfectly honest, the problem with one-stop shops is
that there’s always a tendency to exaggerate what they can
do. I’m very careful not to project it as doing more than
it actually does, which is to bring together various government
agencies in the same place in order to try and reduce the time spent
by investors.”
Previously, he says, investors were required to visit at least seven
different agencies in different parts of the city just to register
their business. GAFI has cut through the red tape of the procedure,
reducing it to a single visit to the OSS. In most cases, the investors
deal only with GAFI representatives. “So as far as you’re
concerned, you’re actually dealing with two or three people
at the most and you don’t see the back office,” he says.
“Our guy takes the papers from you and finishes them with
the lawyers’ syndicate and then with the commercial registration
and then with the chamber of commerce... so you don’t feel
what is happening.”
Bahaa El-Din cautions, however, that while the OSS has obviated
much of the run-around, it is often oversimplified. While some investors
may be able to complete all their forms in one visit at one window,
GAFI representatives cannot handle every aspect of business registration.
Many investors will still need to visit representatives of various
ministries and government authorities. The good news, he says, is
that many of these agencies now have representatives in the same
building.
In certain cases, particularly where safety testing is involved,
the ministries and authorities have insisted to retain control over
the licensing process, in which case investors will need to visit
their physical office. “This is not necessarily a bad thing,”
he insists. “It is just that some services and licenses cannot
be issued without reference to the original body. For example, you
cannot have someone sitting in the OSS issue a license for a new
pharmaceutical product because you cannot expect someone sitting
here, without access to a laboratory, to approve a [drug].”
This is a logical limitation, he stresses, and one that is not likely
to change. He points out that the OSS was never intended to replace
all government bodies, but rather to facilitate interaction with
them. “The [OSS] is not a solution [in itself], it is a great
facilitating tool, but this has to go hand in hand with the continuous
attempt to review the actual policies of the authorities and the
actual law; it doesn’t [work] alone. It’s not a solution
in itself, but it does help a lot.”
Narrowing the field
GAFI’s transformation into an investment promotion authority
is in line with Bahaa El-Din’s personal conviction that Egypt
cannot simply sit back and wait for investors to come knocking;
it must proactively seek them out. “There’s no doubt
that we have managed initially to establish ourselves as facilitators
– someone comes to us with a problem and we try to help out.
The next step is to do general promotion, which means promoting
Egypt internationally from a macro point of view,” he says.
He says that with investor-friendly policies in place, the natural
progression was for GAFI to inform potential investors of the changes
that have taken place in the country since 2004. Among these activities
was a campaign launched to coincide with the World Economic Forum’s
meeting held in Sharm Al Sheikh in May 2006, with the tagline “Egypt:
Open for Business.” The investment promotion campaign, which
highlighted the economic reforms implemented by the Nazif government,
was carried overseas by high-profile trade missions. Delegates discussed
the country’s improved macroeconomic indicators, bureaucratic
reforms, tax and customs reform, and strategic bilateral and multilateral
trade agreements.
While general promotion of Egypt’s investment opportunities
is important, Bahaa El-Din says the future lies in targeted investment
promotion. He explains that instead of going to various countries
and telling them come to Egypt, promoters identify 10 multinationals
and take tailored presentations to them. “It’s like
the difference between shooting with a machine gun, and a sniper
rifle. You fire a machine gun if you’re just trying to get
anyone’s attention, but after a while, you need to know you’re
actually [hitting the right target],” he says.
In narrowing down its targets, GAFI’s team identified which
sectors had the most potential for investment then created a shortlist
of multinationals in these sectors that would conceivably benefit
from operations in Egypt. The team identified what factors would
appeal to these firms – such as Egypt’s low energy costs
and pool of cheap, skilled labor – and tailored each pitch
to suit the targeted company.
Investing in itself
Bahaa El-Din says he is immensely proud of GAFI’s work so
far, particularly the fact that this new thinking is coming from
an old team, dispelling the myth that government employees cannot
be efficient workers. He points out that of GAFI’s 2,400 employees,
less than 30, and just two managers, were brought in from outside
the organization as part of its transformation.
The biggest problem he found upon taking the helm of the authority
was that in many cases the staff were working in roles for which
they were neither suited nor trained. And yet they were being held
accountable. “I think that, for the most part, when government
employees fail, it is not their failure. It is the failure of their
bosses,” he says. “We had people in places who weren’t
given enough training or manuals to work by. [They believe that]
if anyone makes a mistake, they would end up in jail. And then you
expect them to have initiative?”
He says a full review was made of all GAFI positions and procedure
manuals were created for all functions. Staff were reassigned according
to their skills and given both the tools and the training to complete
their assignments. A new working protocol aimed at ending the aversion
staff had of making decisions for fear of being hung out to dry
over simple errors.
Now that he looks back on it, Bahaa El-Din believes that the changes
that have taken place in GAFI over the past few years have benefited
investors, particularly medium-sized firms. “Large enterprises
have always had enough power, money to spend, capacity to hire the
best lawyers and accountants, so they have always had a better chance
of getting the best help. But when you improve the regulatory environment,
the ones who benefit the most are the medium enterprises, because
they are the ones that really feel the difference the reforms have
made.”
As he prepares to leave office, Bahaa El-Din says he will continue
to be involved with GAFI as head of its newly formed board of trustees.
He hopes that the authority will continue to introduce positive
changes to Egypt’s investment climate, and reinforce its role
as a friend to investors. “Three days after I joined GAFI...
an old friend told me that if I wanted to do something helpful,
please make GAFI disappear. Now, I can tell him that I haven’t
made GAFI disappear, but I’m confident that the reasons why
he wanted it to disappear have disappeared.”
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