The cabinet has declared its approval of the Sovereign Sukuk (financial certificates) issuance law drafted by the Ministry of Finance, which will be the first time in history that Egypt introduces this kind of financing instrument. This will open the door for the private sector and local and foreign companies to manage the state’s assets, the Sukuk allotted to industry and infrastructure projects, or the cost-plus financing Sukuk.

The Egyptian government will issue this financing instrument after its approval by the House of Representatives and ratification by the president. The first article of this law states that the provisions of the sovereign Sukuk Law are not subject to the provisions of any other law that might contradict it.

Sukuks are one of the financing sources – debt – issued by the Ministry of Finance to fund the general state budget. They differ, however, from bonds in that they are based on trade, not interest; i.e. the law will be subject to the Islamic legitimate body to ensure its conformity with the Islamic Law. The sukuks give their bearer the ownership of a share of the assets offered by the state, whether these were one of the state’s assets or an investment activity.

According to the law, the participants will share the management of the assets with the state, as well as profits and losses as they will get a percentage of the profits to be determined at the time of contracting and will also bear losses according to that determined percentage. This is what makes them different from the other investment instruments that give their bearers a pre-determined percentage of their nominal value for each bond.

The law also stipulates that the government shall use the issuance proceeds to finance the general state budget, as well as financing the investment, economic, and development projects listed in the budget as decided by the relevant minister after the agreement with the minister concerned with the affairs of planning. A bank account is to be opened with the Central Bank for the proceeds to be deposited.

This law was suggested several times before but was not approved. It was suggested for the first time in 2008 during the reign of the deceased president Hosni Mubarak. The Minister of Investment at the time, Dr. Mahmoud Mohieldin, suggested the Sukuk Programme for the management of the state’s assets stating then that the law allows for the transfer of the ownership of shares of the public enterprise sector companies owned by the state to citizens except for the Suez Canal, railroads, water, roads, bridges, and companies of a specific nature, such as the aluminum company because he saw it is necessary that the state keeps a controlling percentage of no less than 67 per cent in such companies, whereas the remaining percentage is to be distributed among the citizens.

The same applied for the Sugar Company and complementary industries being a huge company of monopolistic status on both sides because it is the main company that produces sugar from sugar cane, has partnership interests with most companies producing sugar from sugar beet, besides being the only company that buys from the farmers. The law was also suggested during the reign of the late President Mohamed Morsi. This law constitutes a new means of borrowing that witnessed massive inflation during the reign of Abdel Fattah al-Sisi as the Egyptian Central Bank’s data showed that external debt reached $123.5 billion at the end of June compared to $108.7 billion at the end of June 2019, whereas in June 2013 it did not even amount to $43 billion.

Egypt has issued several methods for borrowing, the last of which was the $750 billion international green bonds put forward by the government in London’s stock exchange last October.