Egypt risk: Labour market risk
September 22, 2006
Egypt risk: Labour market risk. Check it out:(RiskWire Via Thomson Dialog NewsEdge) COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentC44C46Labour market riskB39B39Note: E=most risky; 100=most risky.SUMMARY
A new labour law was passed in April 2003 after nine years of discussion. The legislation was highly contentious as employers feared the consequences of allowing workers the right to strike, while workers' representatives were resistant to allowing employers greater latitude in making redundancies. The law does give workers the right to strike. However, complicated and time-consuming conditions in practice severely limit the ability of workers to do this. The law also eases restrictions on termination of employment--most importantly redundancies can now be made on economic grounds. The education system, based on learning by rote rather than critical analysis, is not geared to teaching the skills required in the free market. A Nasserite government promise to employ all university graduates still stands, though in practice it is no longer applied. The labour market is packed with young job-seekers.
SCENARIOS
The passage of the new labour law causes an increase in the incidence of strikes by Egyptian workers (Low Risk)
Egypts parliament passed a long-considered labour law in April 2003. This measure gives workers limited rights to strike and to take other industrial action. In practice, however, the procedure for gaining permission to strike is complicated and time-consuming and strikes will be hard to implement--the government dislikes populist activity such as industrial action, and disapproves of anything that disrupts industrial production. As in any country, advance notice of changes in labour conditions and a transparent approach to worker relations will minimise the risk of industrial action. Incentive-related pay schemes have proved successful where implemented and may encourage more loyalty to the company.
The education system produces too few graduates with the skills needed by foreign businesses (High Risk)
The state education system is massively overburdened, teachers are underpaid and instruction methods are based on learning by rote rather than by critical analysis. Companies complain of too few workers with specialised training, particularly in the tourism and pharmaceutical sectors, but also in the budding high-technology industries. The government under Ahmed Nazif has recognised the deficiencies of the education system and has announced plans for an overhaul, including the introduction of public-private partnerships, an idea which is yet to be fully fleshed out. However, it will take time for benefits to accrue from any such overhaul. Foreign businesses, at least initially, may find suitable workers among the large number of Egyptians educated in Europe or the US. There is, however, no shortage of able and motivated graduates looking for employment who will respond well to in-house, on-the-job training.
BACKGROUND
(Updated: September 4th, 2006)
Union Strength
Unified Labour Law 12/2003 gives workers the right to organise trade unions, and employers are prohibited from interfering in union activities. There are 23 industrial unions in Egypt, all of which are under the Egyptian Trade Union Federation (ETUF), which is closely linked to the ruling National Democratic Party. Union membership exceeds 4m, and members are drawn mostly from state-owned companies. Hence, the ETUF represents more than 20% of Egypts workforce.
Workers have the right to organise a union in any enterprise employing more than 50 workers, but only one union is allowed in a workplace. Where there is no trade union, discussions can be held between the employer and five employees elected by a general trade union that is associated with the sector. Union membership is not mandatory, even at state-owned enterprises.
Articles 146151 of Law 12 cover collective bargaining, defined as negotiations between trade unions and employers to improve the terms and conditions of employment or to settle disputes between workers and employers (Article 146).
Even with the new labour law, collective bargaining is difficult since the government sets public-sector wages, benefits and job classifications by law. The unions have little influence in determining private-sector wages, which are kept above those of the public sector by market needs. There are no closed shops in the private sector, but employees may not be dismissed for being union members.
Labour Disputes
Strikes appear to have increased in recent years. Karam Saber, director of the Land Centre for Human Rights, reported 743 labour protests in Egypt in 19982003, adding that there was nearly one per day in 2004. MahmoudMohieldin, the minister of investment, called the report exaggerated. Even so, strikes started receiving local and foreign media attention during the first half of 2005: workers at the private-sector Aura-Misr Asbestos Factory demanded compensation for severe health problems; public-sector textile workers staged hunger strikes amid fears about the upcoming privatisation of the Esco factory, thereby receiving early-retirement packages or seasonal contracts; and air-traffic controllers at Cairo International Airport staged a disruptive work slowdown for better wages, prompting Ahmad Shafiq, the minister of civil aviation, to proclaim them traitors. There were 16 demonstrations, 43 strikes and 53 sit-ins in 2005.
Article 192 of Law 12 gives workers the right to stage peaceful protests, although these must be organised and approved by the appropriate trade union. Workers are prohibited from modifying a collective labour agreement during its period of validity, and staging a strike is prohibited if such action is deemed a threat to national security.
Strikes rarely last more than a few days, usually taking the form of sit-ins, work slowdowns or stoppages, or demonstrations in worker-housing areas. Strikers may be sentenced to up to two years in prison, and those who incite others to strike may receive more severe penalties. Union involvement tends to be low-profile since the government can remove any union executive from office for provoking a strike.
Public confrontations between the ETUF and the government are rare, and disputes are usually resolved by consensus behind closed doors. The principal unions are those in the industries dominated by the public sector, including petroleum, chemicals, iron and steel, textiles, and transport. Aside from privatisation, the main reason for strikes is the failure to pay bonuses or allowances due to employees.
Wage Restrictions
Even the highest wages and salaries in Egypt are low by international standards. The minimum monthly wage, which applies to all workers except those under probation or in vocational training, is less than E400 for a six-day, 48-hour working week. Wages for any job at a foreign-owned firm are probably at least four times the basic minimum wage.
Article 34 of Unified Labour Law 12 specifies annual wage increases of at least 7% of base salary. Standard compensation includes salary, bonuses (other than productivity bonuses), allowances, cost-of-living increases and profit sharing. If an employer cannot afford a pay increase of 7%, the National Council for Wages will adjudicate to resolve the issue. Many private-sector employers prefer to pay workers a low basic wage and add incentives to improve productivity.
There is no generally recognised wage index, and the governments attitude to wage questions reflects its need to restrain public-sector wages and reduce the budget deficit. As far as the private sector is concerned, the government mainly wishes to keep people employed. However, in late 2005, the government increased public-sector salaries by up to 100% as part of President Hosni Mubaraks election campaign. Officials at the Finance Ministry point out that the lions share of public-sector pay packets comes from bonuses and other allowances, and even a 100% increase in basic salaries will have little effect on the budget deficit.
As a result of an overall labour surplus, wages in many areas of the private sector have hardly risen at all in recent years. Wage rises have been slight even amid concerns about inflation on staple consumer goods since January 2003, following the devaluation of the Egyptian pound. For most local firms, any acknowledgement of rising living costs has been offset by corresponding increases in business costs as a result of the currency devaluation.
Private-sector salaries for skilled workers and professionals are considerably higher than in the public sector, and foreign companies are generally willing to pay more than market rates to attract the best candidates. Financial and human-resources managers and qualified sales and marketing staff, which are in short supply, can demand relatively high salaries. Salaries at banks and financial-services firms also have risen in recent years as the market has become more sophisticated.
In service sectors, including hotels and restaurants, the distribution of service charges (for instance, through tip sharing) is more significant than the basic salary level. For every E1 earned in salary, employees tend to receive E34 as their share of service charges.
Employers must pay monthly contributions to the Ministry of Social Insurance and Social Affairs in accordance with Social Insurance Law 79 of 1975, as amended by Law 47 of 1984. The law requires total contributions amounting to 40% of the employees basic annual salary, subject to an upper limit of E5,400, with 26% paid by the employer and the remainder deducted from the employees salary. In addition, a contribution of 35% is payable on variable salary (such as bonuses and commissions), subject to an upper limit of E6,000. A separate system applies to workers employed by a contractor, whose contributions amount to 28% of all wages (18% of which is contributed by the contractor). The payments, due within 15 days of the end of the month, cover old-age pensions and insurance for disability, death, work accidents, medical needs and unemployment.
Foreign employers are not required to pay social contributions if their country of origin offers the same treatment to Egyptians. Private-sector companies can obtain exemption from payments to the health-insurance scheme if they provide a free health-insurance scheme of their own, offering equivalent or better care.
Article 54 of Law 12 entitles an employee whose illness is verified by a competent medical authority to sick leave as determined by the Social Insurance Law, which guarantees compensation equivalent to 75% of salary for the first 20 days of illness and 85% for the following 90 days within the same year. For workers aged 1217 years, employers must pay for additional health provisions, including a yearly physical examination, up-to-date medical records and a daily cup of milk (at least 200 grams).
Article 47 provides for an annual vacation for employees in all sectors, set at 21 days for workers with more than one year of service and 30 days for workers with ten years of service, or who are older than aged 50. Workers employed for less than a year are entitled to take leave in proportion to their time employed. Vacations can be increased by up to one week for employees who work in dangerous occupations or remote areas, depending on ministerial directives.
Article 91 of Law 12 grants female workers a three-month maternity leave at full wages, assuming that the worker has been at the company for at least ten months. Women are not required to work during the 45 days after a childs birth, but such maternity leave does not have to be granted more than twice in the course of one job. Mothers of infants up to 24 months old are entitled to two extra daily rest periods of at least 30 minutes each without any loss of pay. In firms with more than 50 employees, women workers may also take up to three unpaid leaves of two years to care for their children. Firms employing more than 100 workers at one location must provide nursery care for workers children.
All employees are permitted six casual days per year, with a maximum limit of two days at a time. Employees are also entitled to full pay for holidays designated by the Ministry of Manpower and Immigration (not to exceed 13 days per year, except that with Coptic Christian holidays the number may rise to 18 days). An employer may ask employees to work during public holidays, but such employees will be entitled to double pay.
Public-sector employees have come to expect annual bonuses equivalent to at least one month pay, in addition to benefits from profit-sharing and social-insurance schemes. Bonuses and voluntary fringe benefits are also an important element of the private-sector pay structure; indeed, some 40% of companies award a standard one-month pay bonus each year, and 20% award a two-month bonus.
The payment of bonuses is not mandatory, but it can become so under the doctrine of acquired rights. A bonus must be of general application, must be fixed and must be paid for at least three consecutive years before it can be considered habitual and therefore mandatory.
Around 70% of private-sector firms offer representative allowances, such as a company car or a uniform, which are not subject to tax. Most large firms also provide bus transport for their employees, partly as a benefit and partly to ensure on-time arrival. Many private firms also arrange for a doctor to visit the workplace several days a week in a bid to discourage absenteeism.
In general, the total cost of fringe benefits is only about 10% of base pay. Foreign-owned firms must offer the same benefits as those required of Egyptian companies.
Hiring and Firing Restrictions
To work in Egypt, all foreigners (with the exception of accredited foreign journalists) must obtain a work permit from the Ministry of Manpower and Immigration in the relevant governorate (or from the free-zone authority for free-zone projects). The General Authority for Investment and Free Zones (GAFI) has established its own manpower office to assist companies registered under Law 230 and Law 8. A foreigner working for one of these firms should submit an application to GAFI with the necessary documents from the employer and a fee of E250 (E150 for renewals). Application reviews normally take up to two months, and permits last for one year.
Before a foreigner can obtain a work permit, the employer may be required to demonstrate that no qualified Egyptian is available for the job. On requesting work permits for non-Egyptians, the employer must commit to appointing Egyptian assistants who will be trained to take over the foreigners job. Hence, work permits are not renewed indefinitely, though renewals rarely present difficulty in actual practice. Non-Egyptian company owners automatically obtain a residence visa when they obtain permission to establish a company in Egypt.
For Law 159 companies (and previously for Law 230 inland projects), the number of foreign employees is limited to 10% of staff, with pay not exceeding 20% of total compensation. For shareholder companies, at least 75% of professional and administrative employees must be Egyptian, with combined earnings comprising not less than 70% of the total. An exception may be granted for up to two years if no qualified Egyptians are available. Similar rules for staff composition apply in the free zones, where at least 75% of staff must be Egyptian citizens.
Termination of employment is a lengthy and rigidly supervised procedure. Although employers may establish work requirements, the Unified Labour Law limits initial disciplinary sanctions imposed on an employee to a warning, postponement of the annual wage increase and deferment of a promotion. No penalty may be imposed without submitting reasons for it in writing. The employer may suspend the worker pending dismissal, but not for longer than 60 days.
If the suspended employee files a complaint within three days, a dismissal committee will be summoned to review the case. This committee includes two judges from the Ministry of Justice, the general manager of the Ministry of Manpower and Immigration (as chairman), a representative of the Federation of Egyptian Trade Unions and a member of the concerned employers organisation. The affected employee must be allowed to have a trade-union representative attend the associated investigation. The committee must decide on the case within 15 days of the employers first request for discharge. The employer must pay the salary in full until the case is decided.
Article 69 of Law 12 provides that dismissal of an individual employee requires documented evidence of the employees deficiency or wrongdoing. Grounds for dismissal include the following: submission of false certificates or references; deliberate damage to company property; commission of an error that results in grave material loss to the employer; failure to observe safety instructions; absence from work for 20 intermittent days or ten consecutive days in a year; disclosure of a firms secrets; conviction of a crime; appearance at work under the influence of drugs or alcohol; assault on the employer; or display of gross inefficiency.
The committee must decide by a majority vote. If the committee refuses the request, the employer must either drop the dismissal or pay the worker compensation. The decision issued by the committee may be challenged before the Court of Appeals, in accordance with provisions of the Civil and Commercial Procedure Law.
By law, the government may grant a company permission to cut back production and lay off workers only if the company is operating at a loss or can give some other substantial reason. Dismissals are generally not permitted for consolidation. An application by a company to lay off excess staff will lead to the summoning of a stoppage committee within 15 days.
The decision issued by the stoppage committee may be challenged before the Court of Appeals, in accordance with provisions of the Civil and Commercial Procedure Law. Appeal may be made to a district committee, which must convene within 15 days with at least five members. These members include the deputy ministers of the relevant ministry for the companys activities and those for manpower and immigration, social insurance and the interior. The committee must reach a decision within 30 days of its first session, subject to review by the manpower and immigration minister.
Articles 104130 address contract expirations. Under the present law, if employees and employer continue with the same work arrangement after a contract expires, the contract is automatically renewed. Significantly, contracts renewed by default in this way become indefinite.
For a contract with an indefinite period, the employer may not terminate the contract unless the employee is guilty of wrongdoing as stipulated under Article 69. Expired contracts can also be renewed for a limited term by agreement between both parties.
An employer is legally responsible for providing two months notice of termination for employees with an employment contract of less than ten years, and three months notice if a contract extends beyond ten years. The labour contract remains legal during the notification period. Upon notification, the employee has the right to take off one day a week to search for other work until a job is found or the notification period ends.
Article 125 puts the retirement age at 60 years.
Copyright 2006 Economist Intelligence Unit
Related Tags: private sector, public sector, trade union, manpower immigration, social insurance, workers
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