Mother of the World, as old as the Pyramids, Cairo is a thriving metropolis of 16 million people advancing resolutely into the modern commercial era. However, as the Egyptian economy was brought under centralised control in the 1950s and 1960s, the activities of the private sector were restricted and foreign investment declined. This situation began to change with President Sadat's Open Door policy in the mid-1970s, although moves towards a more market-based economy only gained momentum in the early-1990s when a reform and incentive programme targeted at boosting the private sector and encouraging foreign investment was put into operation.

This included a commitment to privatisation which, coupled with incentives and changes to foreign exchange regulations, have encouraged domestic and foreign investment. These forms of encouragement include protections of the Investment Law and establishment of Free Zones, industrial estates and “new cities” set aside for residential purposes to relieve Cairo of its enormous population burden and for commercial and sector-specific purposes, such as “Hollywood on the Nile” and the new technology city.

The Investment Law of 1997, as amended, was passed to encourage foreign investment in Egypt, and provides a package of tax breaks and deregulation for foreign companies seeking to invest in Egypt. The privileges available under the Investment Law include tax holidays, reduced customs duties, guarantees against expropriation and sequestration, and guarantees regarding foreign exchange and reparation of capital and profit. The sectors covered include manufacturing, tourism, infrastructure projects, animal production and agriculture and land reclamation, oil exploration, aviation and transport, financial leasing and underwriting securities, IT, venture capital projects and media and medical projects.

The cabinet reshuffle in October 1999 signaled a further commitment, not only to a more market-based economy, but also to one seeking to establish regional leadership in IT and telecommunications. But it is not all sunshine and Stella beer. Progress is still hampered by certain obstacles, such as vested interests, the need for further transparency in procedures and decision-making, and bureaucracy. It is often said that Egypt is the birthplace of bureaucracy and has been perfecting its technique for 7,000 years.

Dollar liquidity is also a problem which stems from various sources, including binge purchases of commodities and goods from the Far East during that region's economic difficulties, the impact on tourism caused by the Luxor tragedy, and the price of oil. The value of the Egyptian pound and tough WTO negotiations are causing the government serious concern.

Although establishing a company in Egypt is relatively easy, negotiating and transacting deals can be confusing to the foreign lawyer without local expertise. Most Middle East countries' laws derive from French civil law. This is an important consideration when negotiating, drafting and enforcing contracts in this area in that these concepts of civil law might not be fully understood by many common law practitioners and, although underlying the agreement, might not be expressed in the agreement, and yet have full effect.

The Egyptian Civil Code provides that the “contract is the law of the parties”. Despite this clear legal recognition of the sanctity of contract, civil law has adopted doctrines which may, despite the agreement of the parties, materially change the performance obligations of the parties – chief among these are the doctrines of “abuse of rights” and “hardship” and administrative law concepts, which give the government certain exceptional contract rights and remedies, including the right to unilaterally terminate or amend an agreement and to compel the contractor to continue the progress of work despite the government's breach.

This translates into good opportunities for lawyers. It is estimated that there are over 175,000 attorneys in Egypt, concentrated mainly in Cairo, but firms with international experience are few and the opportunities to guide clients through the procedural maze are many.

Bridget McArdle McKinney is the resident partner and manager of the Cairo office of Denton Wilde Sapte.