EGYPT'S PRIVATISATION GOES NOWHERE.
The past 12 months have been disappointing for investors seeking shares of state-owned companies in Egypt. The initial plan issued by the Ministry of Public Enterprise called for the total or partial sale of 84 companies and 12 assets in the year 2000; less than one third were actually realised.
The government halted moves to sell one or more of the state banks, and announced an indefinite delay in the sale of a tranche of Egypt Telcom, the state-owned phone company, which had been expected to be the star attraction when it came on the market in the second half of 2000.
The privatisations were put on hold, ostensibly to allow for `further study', raising questions both about the government's intentions to sustain the earlier momentum of the privatisation programme, and the soundness of the companies being sold.
Decisions were not made casually; the government stood to reap billions of dollars in much needed funds. But President Hosni Mubarak and other government leaders have been reluctant to sell off what many regard as the crown jewels of the public enterprise system created under Gamel Abdel Nasser almost 50 years ago.
Sale of those assets would sharply reduce the government's ability to command economic activity in particular sectors, while raising the power of both domestic and foreign investor groups which might not be so keen to follow government dictates.
Consider the case of Egypt Telcom. The sale of a 20 per cent tranche in the company (up from the initially proposed 10 per cent tranche mooted in late 1999) would have netted the government approximately $1.2 billion. But share sales, which were to begin in October 2000, were put on hold amid government concerns over the degree of private investor control of the company, and fears that investors would not meet the desired share price.
"The government wants to get the best price for its: shares," said one investment banker. "They're waiting for global telecom share prices to rise before resuming sale plans."
But waiting for a better price has had an unforeseen negative impact on a host of high -- tech development efforts. The Egyptian government was keen to establish Egypt as the telecommunications and Internet hub of the Middle East over the next decade. By delaying the sale of Egypt Telcom shares, a number of western high-tech firms were effectively discouraged from investing in local, private high-tech companies.
Many experts say the leading Middle Eastern centres for IT (information technology, including Internet and telecommunications fields) are now to be found in Jordan and the United Arab Emirates.
Moreover, failure to sell the Egypt Telcom shares may have damaged the phone company's ability to leapfrog technology and maintain its frontrunner status. It's share of the local phone market has already been sharply diminished with the rapid growth of wireless telephone service, offered by two private joint venture firms (MobiNil and Click), which now account for over 25 per cent of all phones in service in Egypt.
Access to technology is also a factor being considered in bank privatisations. But in the case of the public sector banks, the government's chief concern is that their enormous bad debt portfolios could sink them if they went private. Much of that debt was created to finance state-owned enterprises, which were overstaffed and poorly managed.
The public sector banks, known as the Big Four, were created or reorganised under Nasser in the 1950s, and include Banque Misr, the Bank of Alexandria, the National Bank of Egypt, and Banque du Caire.
Despite the reform and opening of the finance sector in recent years, the four public sector banks still dominate the country's banking activities, accounting for 40 per cent of all lending, 47 per cent of total assets, and 58 per cent of total deposits as of last year.
This dominance masks a host of economic and operational liabilities (large portfolios of non-performing debt, low rates of return, overstaffing, and outdated infrastructure) that makes their survival as private sector institutions questionable.
Moreover, as with the sale of Egypt Telcom, sale of the banks would strip the government of yet another source of its economic power.
"We can doubt the intention of the government to privatise the four public sector banks," says Khaled Sewelam, senior economist at the American Chamber of Commerce in Egypt (AmCham). "They regard those banks as a key tool to carry out mega-projects where there is no short-term return."
However, economic circumstances may soon force the government to resume it's privatisation plans. It needs the money, and the economy needs the boost of a private sector infusion. A liquidity and foreign exchange crisis in the last half of 2000 (foreign exchange reserves shrank from $20.3 to $14.1 billion, and the Egyptian pound lost 15 per cent of its value against the US dollar) exacerbated an economic slump, raising a storm of protest from businessmen, private sector bankers and investors.
In late December 2000, Mukhtar Khattab, minister of public enterprise, announced the government would resume privatisations, though he declined to include the Big Four banks or Egypt Telcom on his schedule of companies to be sold.
As if to atone for this, the ministry has announced an ambitious schedule of offerings for 2001, anticipating the sale of 65 companies. These will include major hotels (among them Shephard's, the Oberoi Arish, and the Cleopatra), and leading department stores (Omar Effendi, Hannaux and Sednawi).
But those are not the prizes most sought by private sector investors.
One potential bright spot: despite failure to move forward on the sale of the Big Four public sector banks, the government is expected to proceed with the privatisation of the country's 23 joint venture banks. At the top of the list are the Commercial Industrial Bank (CIB), Misr International Bank (MIBank), Egyptian American Bank (EAB), and the National Societe Generale Bank.
All four are already listed on the Egyptian stock exchange, and sale of state holdings in them would probably not upset the market. State shares in those four range from 18 to 35 per cent.
A number of leading money centres and Arab banks have already put in bids. These include the National Bank of Kuwait, the Arab Banking Corporation (ABC), Credit Lyonnais, Standard Chartered, Societe Generale, and Hong Kong Shanghai Banking Corporation (HSBC).
Mahmoud Abou El Oyoun, deputy governor of the Egyptian Central Bank, believes sales could commence soon. AmCham's Sewelam is even more optimistic; he believes privatisation of the joint venture banks could be completed in the next two years.
But all sides agree that it will take a long time to clean up the debt-ridden books of the Big Four. The first sales could be as much as five years away. "The time frame for the government is quite flexible regarding the state banks," says Sewelam. "It really depends on when the economy comes out of the current recession."
Economic data is riddled with contradictions. Forecast 2001 annual growth rates range everywhere from nil to as high as 6.5 per cent. Not surprisingly, the last figure comes from the government. Most private sector analysts see 3.6 per cent as more realistic. That would prevent severe dislocation, but keep intense pressure on the government to resume and sustain privatisation efforts.
PRIVATISATION'S TRACK RECORD NUMBER OF SALE VALUE COMPANIES ($ MILLION) SOLD 1996 25 $820.8 1997 28 $998.8 1998 32 $694.5 1999 31 $820.2 2000 (E) 20 $602.8 TOTAL(*) 166 $4,720.0
(*) Covering 1990 through Q3 2000
Sources: Egypt Public Enterprise Office (PEO); JAM Research.
|Printer friendly Cite/link Email Feedback|
|Publication:||The Middle East|
|Article Type:||Brief Article|
|Date:||Feb 1, 2001|
|Previous Article:||IN THE YEAR 2015 ...|
|Next Article:||EUROPEAN AND JAPANESE FIRMS CLEAN UP IN IRAN, WHILE THE US WATCHES AND WAITS.|