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Legal Assessment of the Social Entrepreneurship Framework in Egypt

Roger Spear and Samuel Barco Serrano EMES European Research Network asbl Loay Y. El-Shawarby, Zaki Hashem & Partners Ahmad Hussein, Nahdet Elmahrousa NGO With the support of the World Bank May 2012

INTRODUCTION .......................................................................................................................................... 3 SECTION 1. INTERNATIONAL GOOD PRACTICE ON LEGAL FRAMEWORKS FOR SOCIAL ENTREPRENEURSHIP ................................................................................................................................................................... 6 1.1. GENERAL INTRODUCTION TO THE INTERNATIONAL STUDY .................................................................................... 6 1.1.1. Defining social entrepreneurship ................................................................................................... 6 1.1.2. Using the concept of social enterprises .......................................................................................... 9 1.1.3. Complementary role of policy and networks ................................................................................ 10 1.2. COUNTRY STUDIES FRAMEWORK .................................................................................................................. 12 1.2.1. Country case: United Kingdom ..................................................................................................... 12 1.2.2. Country case: Turkey .................................................................................................................... 22 1.2.3. Country case: Spain ...................................................................................................................... 36 1.2.4. Country case: Ecuador .................................................................................................................. 54 1.2.5. Country case: United States of America ....................................................................................... 67 1.2.6. Country case: Philippines.............................................................................................................. 76 1.3. SUMMARY OF BEST PRACTICES RELEVANT TO EGYPT ......................................................................................... 90 Strengths and weaknesses of each legal form ....................................................................................... 91 SECTION 2. LEGAL ASSESSMENT OF SOCIAL ENTERPRISE FRAMEWORK IN EGYPT ................................... 94 2.1. OVERVIEW – POST-REVOLUTIONARY STOCKTAKING ......................................................................................... 94 2.2. THE LEGAL GAP – EGYPT - GENERAL ............................................................................................................. 95 2.3. SOCIAL ENTERPRISE – GENERAL ................................................................................................................... 95 2.3.1. Social entrepreneurship – Egypt ................................................................................................... 96 2.3.2. Reflections from Egyptian entrepreneurs ................................................................................... 100 2.4. THE LEGAL FRAMEWORKS OF SOCIAL ENTERPRISE - GENERAL ........................................................................... 103 2.4.1. Divergent approaches to social enterprise to date .................................................................... 103 2.4.2. The legal framework of social enterprise – Egypt ...................................................................... 106 SECTION 3. SUMMARY AND RECOMMENDATIONS ................................................................................ 114 Economic and social dimensions .......................................................................................................... 114 Lessons from international experience................................................................................................. 114 3.1. LEGISLATION .......................................................................................................................................... 116 3.1.1. Revisions to existing legislation .................................................................................................. 116 3.1.2. The case for new legislation ....................................................................................................... 118 3.2. POLICY MEASURES .................................................................................................................................. 119 3.3. ELEMENTS OF A MORE GENERAL STRATEGY................................................................................................... 120 3.4. AREAS OF POLICY BEST PRACTICE ................................................................................................................ 121 3.5. NETWORKS FOR SOCIAL ENTREPRENEURSHIP ................................................................................................ 122

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Introduction The present report comprises an introduction covering the aims of the project and the approach adopted (including the methodology used). This is followed, in section 1, by an international report on good practices on legal frameworks for social entrepreneurship, conducted by Roger Spear and Samuel Barco. Section 2 consists of a legal assessment of the social enterprise framework in Egypt, conducted by Loay Y. El-Shawarby and Ahmad Hussein. Finally, a summary and recommendations are provided in the final section. The overall aims of this project were: first, to identify the legal/fiscal/administrative hurdles hindering the establishment and scaling-up of social enterprises (particularly in health, agriculture and education sectors) in Egypt; secondly, to analyse how to address these barriers and how to strengthen the legal and policy framework to support social entrepreneurship, including ways to scale-up, and develop a network of social entrepreneurship; and, thirdly, to recommend how to improve the legal and policy framework for social enterprises, together with measures which may enhance prospects for the implementation and support processes, including Public Private Dialogue (PPD). The project was led and coordinated by the International EMES team 1 , working in conjunction with the local Egypt team.2 Similarly regular communication with IFC ensured good progress on the work plan, and regular reporting on progress. An interim report meeting was also held in Cairo on 11th April. The overall approach adopted was essentially a contrast between international good practice experience and the local Egyptian context and experience, in addition to reviewing policy and legal frameworks, in order to develop appropriate recommendations for developing social entrepreneurship in Egypt. This report used the definition of social enterprise proposed by EMES3. Three thematic strands of work were developed in order to meet the above objectives:

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Roger Spear (scientific coordinator), Samuel Barco (consultant), and Rocío Nogales (project coordinator). Loay Y. El-Shawarby (Of–Counsel, Zaki Hashem & Partners) and Ahmad Hussein, Incubator Manager, Nahdet Elmahrousa NGO). 3 In the EMES approach three criteria reflect the economic and entrepreneurial dimensions of social enterprises (a continuous activity producing goods and/or selling services; a significant level of economic risk; a minimum amount of paid work); three indicators encapsulate the social dimensions of such enterprises (an explicit aim to benefit the community; an initiative launched by a group of citizens; a limited profit distribution); and three indicators reflect the specificity of the governance of such enterprises (a high degree of autonomy; a decision-making power not based on capital ownership; and a participatory nature, which involves various parties affected by the activity. Note that these criteria are intended to be used as dimensions of an ideal type, rather than strict criteria with threshold values; thus different organizations might be considered as more or less like the social enterprise model. This approach also allows the development of specific country perspectives on social entrepreneurship depending on local conditions; for example, where the social enterprise sector is emerging, the proportion of economic activity generating income from producing goods and\or selling services might be low (