Today, 20 January 2021, the Egyptian Gazette has published two decrees, no. 237 and 238 of 2020 (“New MoE Decrees”) issued by the Ministry of Education (“MoE”), removing the restriction of 20% cap on foreign ownership in companies owning private schools in Egypt.
Our Egypt office, Matouk Bassiouny and Hennawy (“MBH”), has prepared a brief background of the creation and evolution of the limitation. Our team remains ready to assist with any legal concerns you may have regarding your business or potential business in Egypt in the Education Sector.
Law no. 139 of 1981 (the “Education Law”) and decrees no. 420 and 422 of 2014 govern the private education sector, (no. 420 for National Schools and no. 422 for International Schools). The Education Law and decrees 420 and 422 provide that the owner of the school must be an Egyptian juristic person (“Owning Entity”). Before the Education Law, there had been no restriction on the nationality of the Owning Entity.
In June 2019, a circular (no. 6 of 2019) was passed by the MoE to schools’ owners, providing that in the event of an acquisition of a private school or of the Owning Entity by foreigners, a notification must be submitted to the MoE, and a previous approval of the MoE on such acquisition must be obtained.
Later in September 2019, the MoE issued decrees no. 183 and 184 of 2019, which introduced restrictions on foreign/dual national ownership of the Owning Entity limiting it to 20% (without any exemption whatsoever). Furthermore, any change in the shareholding structure of an Owning Entity with foreign ownership in its share capital required the previous consent of the MoE.
Following the issuance of decrees 183 and 184, many key investors in private schools in Egypt retained our Firm to represent their lobby and negotiate on their behalf with the MoE and the relevant authorities to ease the 20% cap on foreigners and dual national ownership in private schools.
By November 2019, these negotiations resulted in the issuance of decree nos. 305 and 306 of 2019 providing that private school owners can apply to a committee for granting an exemption from the 20% foreign ownership limitation (“Exemption Committee”). Following the issuance of decrees 305 and 306, MBH assisted leading investors in the education sector in applying for the exemption from the 20% cap rule.
In June 2020, the MoE decree no. 118 of 2020 was introduced to mandate the inclusion of a representative from the security agencies and a representative from the General Authority for Investment and Free Zones (GAFI) on the Exemption Committee.
Despite over a year passing since the submission of the applications for exemptions, no exemption has been issued to date. However, with the persistent efforts made by leading investors and MBH, the MoE issued the New MoE Decrees, revoking the foreign ownership limitations altogether, and the prerequisite approval needed to change or transfer ownership to foreign/dual national entities.
That being said, the New MoE Decree introduced a new limitation that any of the relevant bodies of the Egyptian Government (e.g. security agencies) can object to granting licenses to private schools (whether offering national or international curricula) on the grounds of having unwelcomed foreign or dual national owners in the Owning Entity (“Administrative Objection”).
Accordingly, the New MoE Decrees introduced a new committee for the purposes of appealing an Administrative Objection to issue a license. The Owning Entity is entitled to appeal an Administrative Objection before this committee, and the committee may approve the appeal or hold the right to refuse the issuance of a license if they deem that the applicant will either: (i) risk the national security, or (ii) will not add “new value” to the education sector.
In the present structure, it is our opinion that a foreign ownership (where a foreign/dual national is present) should only be concerned by the risk of the issuance of Administrative Objection in the following cases:
- Issuance of school licenses for the first time (where the process starts before the issuance of the school construction permit);
- Renewal or transferal of licenses; or
- Issuance of license to offer a new curriculum for an operating school.
It should be noted that the provisions of the New MoE Decrees are not entirely clear on the operating mechanism of the issuance of an Administrative Objection and the new committee, especially in regard to the refusal or the time frame for the appeal.
On this front, MBH will keep an eye on the practice of the MoE under the New MoE Decree, and let you know of any progress in this regard.
For any questions or inquiries, please feel free to contact:
Omar S. Bassiouny
Head of Corporate and M&A
Head of Education Sector Group