Egypt's Entry into BRICS+: Implications for Corporate Governance in Emerging Markets

The recent expansion of BRICS to include Egypt marks a significant milestone, offering promising opportunities and challenges. As Egypt joins the ranks of Brazil, Russia, India, China, and South Africa, its integration into BRICS+ presents a unique chance to enhance its corporate governance practices, crucial for economic development and global integration.

The BRICS+ club is a very heterogeneous group. Economically, China far surpasses all others in scale, while other countries differ significantly in status. There are also important differences regarding diplomatic status and geopolitical presence. China and Russia are permanent members of the UN Security Council and possess nuclear weapons, while others do not. The expansion of BRICS suggests its attractiveness, allowing newcomers to advance their interests. The primary interest is to challenge the Western camp. BRICS+ countries weigh heavily demographically (over 40% of the world population), economically (25% of world GDP), and possess large gas and oil resources. Another key interest is to work on "de-dollarization" of the economy and find financing alternatives due to dissatisfaction with current development financing, primarily granted by the World Bank and IMF.

These interests seem to outweigh the group's internal divisions, such as political rivalries between Iran and Saudi Arabia or Egypt and Ethiopia. The differences are also reflected in approaches to corporate governance, which vary greatly among countries.

Why Egypt Joined BRICS+

Egypt's integration into BRICS+ creates various opportunities. The first is financial. The Central Bank of Egypt has limited foreign currency reserves (US dollars and Euros), and the country’s foreign debt reached US$165 billion by Q1 2023. However, Cairo can diversify its portfolio by using BRICS currencies. BRICS efforts in forming alternative payment systems and non-dollar financial systems, along with the longer-term possibility of creating a common currency, can benefit Egypt.

Experts estimate this new currency will likely have a fixed exchange rate between BRICS monetary authorities. A more flexible system might define central parity and conversion rates for each country's currency in relation to the BRICS currency, allowing adjustments as needed. Some Egyptian analysts believe Egypt’s presence in BRICS could save about US$25 billion due to a stronger Egyptian pound via increased usage of its currency when importing from BRICS countries. Using an alternative currency for trade initiatives with Russia, China, and India could reduce dependence on the dollar.

Egypt also hopes its integration into BRICS will help ease foreign currency shortages and attract new investment. The country's membership in the New Development Bank (NDB), created by BRICS members in 2015, will provide concessional financing for development. As a BRICS member, Egypt has voting rights in the BRICS Development Bank, leading to financial aid, technical assistance, and soft loans to support sustainable development and investment.

Corporate Governance in Egypt

Egypt’s economic benefits from BRICS+ are closely linked to improvements in corporate governance. Robust corporate governance is essential to attract and retain foreign investment, ensure transparency, and build investor confidence. Egypt aims to develop alternative supply chains, promote economic growth, diversify the economy, minimize costs, develop e-commerce, and enhance market integration through cooperation with other BRICS countries.

The Egyptian legal system, a civil law system, is based on a well-established system of codified laws. Anglo-American common law concepts prevail in the Capital Market Law and the Central Depository Law. The Egyptian Civil Code of 1948 remains the main source of legal rules applicable to contracts. Much of the ECC is based on the French Civil Code and, to a lesser extent, on various other European codes and Islamic law, especially in personal status contexts.

Egyptian commercial law is based on the Commercial Code (Law No. 17 of 1999), which regulates various facets of commerce, including contracts, trade, and business establishment. The Companies Law (Law No. 159 of 1981) outlines processes and regulations for forming, operating, and liquidating corporate entities.

According to an African Development Bank Group study, the private sector accounts for around 60-65% of GDP and employs almost 70% of Egyptians. However, a significant part operates informally, with no registration in the commercial register and no insurance number. Entrepreneurs cite costs (registration fees, taxes) and perceived lack of benefits as reasons for remaining informal, complicating the study of corporate governance in Egypt.

Studies on corporate governance in Egypt identify challenges and assess progress. They find Egypt has started to appreciate the need for corporate governance in businesses but, like many other emerging markets faces several hindrances:

• Family-owned or closely held corporations dominate the private sector.
• State-owned companies still play a major role in the economy.
• The capital market is thin.
• There is a lack of awareness of corporate governance concepts and benefits, a lack of board independence, and weaknesses in the economic structure.

Over the past decade, significant efforts have been made to support private sector development. The business climate has improved, notably with the Investment Law approved on June 1, 2017 (Law No. 72 of 2017). The law aims to:

• Provide equal opportunities regardless of the size or location of the project.
• Support start-up entrepreneurs and micro, small, and medium companies.
• Consider the social dimension and protect the environment and public health.
• Guarantee competition, prevent monopolies, and protect consumer rights.
• Facilitate investment procedures and business operations.

The Egyptian government established the Egyptian Institute of Directors under the supervision of the Ministry of Foreign Trade. The Institute works with international organizations to spread awareness and improve corporate governance practices through training and advocacy activities, providing information on corporate governance principles, codes, and best practices.

Several corporate governance rules have been adopted, such as the Egyptian Code of Corporate Governance (2005) for joint-stock companies listed on the stock exchange and those using the banking system as a major finance source, and the Code of Corporate Governance for State-Owned Companies (2006). These rules are not mandatory or legally binding but promote responsible and transparent management according to international best practices, balancing various parties' interests.

Corporate governance in Egypt, a term that started to appear in the late 1990s, requires structural and cultural changes to become firmly established. While progress is evident, more work remains. As Egypt steps into the BRICS+ framework, enhancing corporate governance will be pivotal for maximizing the benefits of this new economic alliance. By improving regulatory frameworks, promoting transparency, and ensuring accountability, Egypt can build a robust foundation for sustainable economic growth and greater global integration.

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By Syrine Ismaili-Bastien, Professor of Law and Geopolitics, IÉSEG School of Management

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