In keeping with our monitoring of issues in both emerging markets and the developed markets that so often shape reforms elsewhere, this tenth issue of the EMPEA Legal and Regulatory Bulletin looks at developments impacting investors in South Asia, the Middle East, China and Europe.
Legal & Regulatory Issues
The Indian economy has been famously dubbed the elephant economy. Lately, the fabled elephant has unfortunately been bogged down by shackles. Criticism from the investor community suggests that India’s legal and regulatory systems have not kept pace with business and the requirements of an increasingly globalized economy. In response, the Government has recently taken significant steps to seek to remedy this situation. These recent developments should help in building investor confidence and are discussed in greater detail below.
Since the removal of the Morsi-led government from power in July 3, 2013, Egypt has started on a path of istikrar, istismar and istilam—stability, enhancement of entrepreneurship, and safety and security of the state—that should bolster Egypt's economy. The EGX30, Egypt's key share index, hit a three-year high in early November, with the market up 20% over the previous two months. Private equity activity continues and local private equity players formed the Egyptian Private Equity Association (EPEA) in 2011. In the background of this economic activity, most Egyptians have been focused on the draft Constitution, which was overwhelmingly approved in a two-day vote on January 14 and 15, 2014. The approval of the draft Constitution will set the stage for Egypt to undertake further reforms to create a more favorable environment for private equity and venture capital.
Although China remains an attractive destination for private equity investors, it has gained a reputation as a market where contracts are often treated more like vague notions than bona fide agreements. Kroll commissioned the Economist Intelligence Unit to carry out the Annual Global Fraud Survey, which found that fraud continues to be pervasive in China, with 67% of senior executives based in China reporting they were affected by fraud in 2012 – 2013. The study also found the average percentage of revenue lost to fraud across industries in China rose 50% from 0.8% in 2011-2012 to 1.2% in 2012-2013.
The European Private Equity and Venture Capital Association (EVCA) published an analysis of the circumstances under which European and non-European private equity fund managers are able to market their funds under national placement rules across Europe as of 22 July 2013. This is the day the EU Alternative Investment Fund Managers Directive took effect in national law.
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