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Shock to the system.

EGYPT'S PUBLIC sector institutions have been the object of both ridicule and exasperation amongst Egyptians and expatriates alike. A strange mix of profitable industries on the one hand and great sleeping monoliths (vastly overstaffed with employees who do no more than an hour's work in a week) on the other, characterises the enterprises inherited from the Nasserite era, when full employment at any cost was the prized goal. This diverse mix of institutions, which together account for about 75% of GDP, are now being restructured before being exposed to the mercies of the market.

The privatisation programme is regarded as the centrepoint of restructuring. The Public Sector Law 203, approved on 29 October 1991, replaced direct ministerial control of 350 public sector businesses with a network of 27 holding companies. Each of these will be run by a "general assembly" of 14 members of whom four are technocrats, four are businessmen from the private sector (around 450 members of the Egyptian Businessmen's Association are being co-opted) and the remainder are a mix of bank representatives, economists, financial and legal experts and union representatives. The assemblies are intended to behave as owners of the companies, although how much of a say they have in electing and overseeing the boards of management is far from clear.

Each holding company is capitalised at not less than E 20m [pounds] divided into shares of equal value. If a holding company's shares in any affiliate drop below 51% of the total after disposals then the affiliate is no longer regulated by Public Sector Law 203 but is regarded as a private sector company under the 1981 Stock Companies Law 159.

The affiliated companies, on whose boards private sector shareholders are to be given full rights of representation, can be merged and divided. If they fail to achieve target results, the chairman and the boards of directors of affiliate companies may be dismissed. Assets or production lines can be sold off and, if the company makes losses equivalent to 50% of its capital (or less if specified in the company's by-laws), the business can be liquidated.

Another 650 companies are to be evaluated independently by international and local consultants. More than 40 of these have already been shortlisted for assessment, and a first tranche of 25 small and medium-sized firms have been selected for analysis.

Under the first phase of privatisation the government is concentrating on those sections of the public sector that can most easily be left to their own devices, such as hotel chains which already operate efficiently and run at a profit. More problematic are some of the service companies whose management needs to be taught even the basics of profit-oriented approach. Privatisation will administer a severe jolt to the established system.

Not surprisingly, this is being viewed with trepidation and will be tackled cautiously. Mubarak fears that the inevitable increase in unemployment resulting from streamlining the companies, if conducted too suddenly, will lead to political instability.

In charge of the formidably complex task of valuing state assets earmarked for privatisation is Fuad Abdel Wahab, who heads the recently formed Public Enterprise Office (PEO). Before him is a portfolio perhaps worth E 150,000bn [pounds] ($45m) which has to be systematically evaluated before entering the market.

Though strategically important industries, such as the Egyptian General Petroleum Corporation and the Suez Canal Authority, do not come under the plan, the list of companies to be privatised is considerable and spans virtually every sector of the economy including tourism, agriculture and food production, construction, manufacturing and shipping. The list also takes in public transportation systems in 14 districts. Also to be sold are government stakes in profitable joint ventures, in many cases resulting in the extension of the foreign partner's holding.

The first batch of major companies to be privatised includes the National Cement Company, one of Egypt's largest cement companies, Egptian Chemicals Industries (Kima), one of the country's largest fertiliser producers, El Shams Company for Housing and Development, Misr Hotels Company (whose assets include the Nile Hilto), Canal Shipping Agencies, Alexandria Shipping Agencies, Ramses Agricultural Company and the Egyptian Real Estate Company.

According to Abdel Wahab of the PEO, although many foreign investors have submitted offers to buy companies, priority will given to Egyptian purchasers. Foreign companies can purchase shareholdings of privatised companies as long as no unit is entirely foreign-owned.

Sparked by what they see as an opportunity to buy companies at a fraction of their value (the World Bank is, in fact, pushing for the sale of companies at a discount), many private sector companies have banded together to raise funds. Of these, most notably, is the newly formed Ten Ramadan Privatisation Support Company (TRPSC). Headed by Mohammed Farid Khamis, chairman of Oriental Weavers, one of Egypt's most successful private companies, TRPSC has pulled together 70 or so business leaders to raise capital of around E 100 [pounds] ($30m). As privatisation gets under way, the next few months are likely to see the formation of such consortia specialising in specific sectors of the market and joining together in the scramble for the more lucrative national enterprises.
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Title Annotation:Special Report on Banking and Finance in Egypt; Egypt's privatization programme
Author:Amin, Nadia
Publication:The Middle East
Date:Jul 1, 1992
Words:854
Previous Article:Just what the doctor ordered.
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