US investors hit Egypt with $100M arbitration suit
But the main man behind the move tells ITP.net he is still upbeat about the future of foreign investment in the country.
Mahmoud Wahba, the Egyptian American businessman seeking substantial damages from the government of Egypt, claims he is still upbeat about the future of foreign investment in the country. Wahba, along with other shareholders of the defunct National Cotton Company (NCC), has filed a suit with ICSID, a World Bank affiliate, claiming $100 million in compensation for expropriation of the investors’ interests in the cotton industry.
As he prepares to do legal battle with the Egyptian authorities, Wahba says he is encouraged by what has happened in the two years since NCC was driven over the edge. “Some aspects of what I’m asking for have been won for others, but unfortunately not for myself,” Wahba told Arabian Business.
The story of National Cotton Company is, however, an alarming tale of what can happen to foreign investors in a country in a state of transition.
According to the suit filed with ICSID, Wahba and his fellow US investors established the largest private cotton trading venture in Egypt after the opening up of the industry in 1994. The venture grew to gain a market share of 18% of the annual Egyptian cotton crop and employed around 5000 workers.
The US investors claim that the government then took a series of measures that effectively destroyed NCC. The purpose of these measures, they say, was to force the venture to turn over its cotton inventory to government-owned mills without payments or at knockdown prices.
In order to this, Wahba told Arabian Business that the government banned NCC from exporting cotton, imposed a fixed price for selling raw cotton and prevented the company from storing inventory.
As a result, NCC was forced to sell cotton at a huge loss to the only domestic buyer — government owned mills. “The bottom line is: we had to sell it back to the government and they took it at half the price,” says Wahba.
As to why the Egyptian government would do such a seemingly illogical thing, Wahba puts it largely down to teething problems in the move from socialism to capitalism. “It’s the pain of a change, I guess. They’re changing from a totally socialist economy to a free market economy and the same rules do not apply. Old habits don’t die easily though,” he says.
Specifically, he says that state industries like cotton couldn’t get used to the idea of cash transactions, having been used to a system of barter where debts between state companies were often book debts and were never settled.
But whilst Wahba insists that things are getting better in Egypt, well publicised stories like this don’t create a positive impression in the minds of those that might invest in the country. Amongst those potential investors are the many Egyptian expatriates and US and European citizens of Egyptian origin. “It definitely has had a huge impact on the thinking of Egyptians abroad,” says Wahba.
What makes this case look even worse is the fact that Wahba says he invested in the Egyptian cotton industry at the personal invitation of the Egyptian Prime Minister. Wahba is also a founder and the first chairman of the Egyptian American Business Association, a New York based group of investors in Egypt.
Although he says that Egypt is a country in transition, Wahba is clearly still upset about the treatment he received from the Egyptian media. The press there, he says, accused him of operating a monopoly and of fleeing the country in haste with his family. Wahba insists that NCC never had more than 18% market share and that his immediate family never lived in Egypt.
Wahba says he is confident that Egypt will settle the suit. The fact that NCC earlier won a case in the Egyptian Supreme Court and was awarded LE100 million in damages, never paid, should help in his favour.
Wahba’s final hope, as he made clear in an earlier statement, is that the suit will push the Egyptian government to drive through necessary reforms and take better care of foreign investors. "Past mistakes can be corrected," he said. "Egypt still needs foreign investment, but now it also needs to reassure the foreign investment community by actions, not mere words.”