A report published in Egypt on Monday seemed to pour cold water on the idea that the Egyptian government may start selling shares in some of its companies, one of the most positive proposals to come out of the government in quite some time.
Al Masry Al Youm quoted “government sources” as saying the newly formed public enterprise ministry, which controls 125 state-owned companies, had come out against a plan proposed by the investment ministry to sell partial stakes in a number of government companies through public offerings on the stock exchange.
Dalia Khorshid, the investment minister, had argued that the sales would increase investment, energise the stock market and help to plug the budget deficit.
This might be a good idea, since the deficit in the year to the end of June last year was equivalent to 11.5 per cent of GDP, among the highest from the world’s major economies, or almost half of all government spending. The deficit widened even further between July and February, according to the finance ministry.
The public enterprise ministry was created in the 1990s to manage a portfolio of 314 state companies, many of which it brought to sale during a spurt of liberalisation at the time when Kamal Al Ganzouri was prime minister. Majority stakes in about 100 were sold as were minority stakes in a further 70. A further 33 lossmakers were liquidated.
Privatisation, however, is a fashion that comes in and out and by 2000 it had gone out of favour and sales had all but stopped. Many government officials argued that the companies represented strategic industries that were too important to sell.
This changed again when Ahmed Nazif’s government came to power in 2004. His cabinet folded the public enterprise ministry into the investment ministry and added new state companies to its portfolio, bringing the total to 695 companies partly or wholly owned by the state, including insurance companies, cement makers, fertilizer plants, flour mills and the monopoly cigarette maker.
The central bank governor at the time, Farouk Al Okdah, and the investment minister, Mahmoud Mohieldin, promised a vigorous privatisation programme, and they delivered.
During its first 18 months in office, Mr Nazif’s government sold assets worth about 15.4 billion Egyptian pounds (Dh6.35bn), at the time equivalent to more than US$2.5bn, including a 20 per cent stake in the fixed-line monopoly Telecom Egypt. In the following year it sold Bank of Alexandria for $1.6bn. They demanded that government entities also sell their stakes in private sector joint venture banks. This was well over five times what the previous government had sold in the previous four years. Mr Nazif’s government used the proceeds to offer early retirement to unneeded staff and to reduce a 40bn Egyptian pound backlog of debt that state companies had logged up.
By 2008, however, the mood turned against privatisation once again, and the Nazif government was forced to curb sales and instead concentrate on restructuring the management of the 150 companies left in the investment ministry portfolio. Very few companies have been sold since then.
This is a shame. The privatisations and other liberalisation measures had transformed the formerly lumbering Egyptian economy and created the nucleus of a rapidly growing middle class. From 2004 to 2008 the economy grew by about 7 per cent, its fastest rate in decades.
In March this year, the government again took the portfolio of state-owned companies, now numbering only 125 under eight holding companies, away from the investment ministry and placed it into the hands of a recreated ministry of public enterprise.
Al Masry Al Youm quoted the new minister, Ashraf Sharkawy, as saying he did not plan to sell the companies but rather exploit them to bring revenue to the state.
These companies, which have debts of 40bn Egyptian pounds, include hotels, building contractors, food industries, textile makers, drug makers and chemical, shipping and mining companies. They do not include the three main state-owned banks, the state carrier EgyptAir, Egyptian General Petroleum Corporation, the Suez Canal Authority and companies under ministry of war production.
All too often they have become little more than places for politicians to stuff the unemployed, with scant regard for productivity. If the newspaper report is true, let’s hope the new minister will reconsider.
Patrick Werr has worked as a financial writer in Egypt for 25 years