CAIRO, 11 April 2005 — The Investment Ministry has been recently busy crafting new reform plans to retrieve both local and foreign investments in Egypt. The ministry announced recently that it will launch a number of initial public offerings (IPOs) to give a push to the privatization program that has been dead in the water since the beginning of the new century.
The government said it is currently negotiating an IPO of 25 percent of Sidi Kreir and 20 percent of Alexandria Mineral Oils Company — the first petroleum sector companies to go public. This announcement came almost a week after the government revealed that Trenco, an Alexandria-based tire company, was sold to the French firm Michelin for $10 million.
Observers welcomed the new scheme, which they said is proof of the new government’s commitment to economic reform. However, the re-launch of the privatization program has drawn criticism from some analysts who said the move was the result of pressure from the International Monetary Fund or other external sources since privatization is an indicator of Egypt’s commitment to the laissez-faire system
Ahmad Galal, executive director of the Egyptian Center for Economic Studies (ECES), believes the move is the answer to experts’ ongoing plea since 1997 to have an effective privatization scheme. “It is something that we have been always calling for and not an exceptional one or a result of international pressure. It came late, but it is better late than never,” Galal said.
The decade-old privatization program witnessed a drop in the late 1990s as the number of deals signed in 1999 declined to 31, 25 in 2000, 16 in 2001, eight in 2002 and only three in 2003. In early 2004, former public sector minister announced plans to sell off 114 state-owned companies over the next three years, most of them in the heavy industry sector that are loss-making or have annual profits of less than 5 million Egyptian pounds ($810,000). But most of the deals were frozen due to the Cabinet reshuffle.
In terms of revenues, the 194 companies that were privatized from 1993 to 2003 generated 16.6 billion Egyptian pounds, 3.4 billion pounds were generated only during 1997. State-owned companies that were sold during the first half of 2004 brought only 210 million pounds to the state’s treasury.
According to statistics prepared by the ECES when the privatization program kicked off in 1991, the former public enterprise sector contributed around 30 percent of the country’s GDP. But due to the opposing public opinion that accused the program of increasing the percentage of unemployment in the nation, the privatization process saw a downturn.
Galal said the failure of many privatization deals was a result of the government’s inflexibility. “For instance, the government kept on saying they cannot sell for less than the minimum asking price — a price that is set by the respective state holding company and the Central Auditing Agency,” Galal explained. Consequently, the government’s decision to keep loss-making entities has done the economy more damage than selling them at lower than minimum asking price. Investment Minister Mahmoud Mohieldin has sold 17 assets of the 170 companies and 695 joint ventures he has slated for sale since he took office last June generating some 1 billion Egyptian pounds in foreign direct investment (FDI).
The highest deals in the privatization drive have been the sale of the National Bank of Egypt’s shares in the joint venture bank NSGB to Sociètè Gènèrale for 535.6 million pounds last month and the sale of a 36 percent stake in Bisco Misr in January for 100.5 million pounds.
The companies lined up for sale in the next couple of months are Egyptian Fertilizers Co., Suez Cement, Nasr Firm for Real Estate, besides four insurance firms: Al Sharq Insurance, Egyptian Company for Reinsurance, Misr Insurance and National Insurance of Egypt. The rest of the list has companies work in a variety of sectors, like textile and pharmaceuticals, such as Medical Professions Pharmaceuticals, Nasr for Garments and Textiles.
The state stakes in these companies are worth between 15.4 and 88 percent.
A former public Enterprise Office official told Arab News that the choice of these companies mark a change in the government’s old policy that tended to sell loss-making companies by offering generous incentives to attract investors like offering lower prices or the transfer of excess and inactive assets. “It is a total reform in the privatization program. The government is working now on selling attractive companies in sectors like chemicals, fertilizers, food and textile, while trying effectively to sell loss-making companies at better bargains,” said the official. “It is a very effective package of incentive for foreign investors.”
Galal stressed that in order to make the privatization program more successful the government should not retain control of companies in key sectors. “The government is still talking about selling ordinary companies, it is not talking about selling off key entities,” he said.
The government, meanwhile, stressed that it will keep companies in strategic industries, like sugar and tobacco, but may seek the help of the foreign companies to manage these entities.