Experts are sceptical about the means to privatise the insurance sector in Egypt. Sherine Nasr reports Mahmoud Mohieddin, minister of investment announced two days ago that a consortium made up of BNP-Paribas, Commercial International Bank (CIB) and Milliman, which provides actuarial and management advice, has been chosen to evaluate and advise the government on public-sector insurance companies slated for privatisation. The news has raised many questions among experts who insist that answers need to be first provided by the government before the process actually begins. Earlier this year, Mohieddin made it clear that one of the four national insurance companies would be privatised. These are Misr Insurance, Al-Sharq Insurance, Al-Ahlia Insurance and Egypt's sole reinsurance company, Al-Masria for Reinsurance. The restructuring and privatisation of the selected company is said to be completed before the end of the year. But while the government moves forward with its privatisation plans, experts remain sceptical about the pace as well as the means by which the whole privatisation process will be carried out. One issue of great importance is how the company will actually be sold. "So far, we do not know what the likely scenarios are for selling the company. Will it be sold to one strategic investor or will it be sold through the stock market?" inquired Ahmed Galal, executive director of the Egyptian Centre for Economic Studies. During a meeting organised recently by the AIG Egypt Impressions Media Club, Galal added that no clear answers have been provided as to the means by which the company's assets will be evaluated or to how the employees of the currently over staffed insurance companies will be treated. Experts believe that the assessment of any company should be done with accuracy and careful consideration of all relevant factors. "Technically speaking, evaluating a company solely on its assets is ridiculous. The only economically viable assessment of the financial status of a company is to determine its potential for turning a profit in the future," explained Galal. Therefore, he feels that it is inappropriate for the government to set the price. "It is not the government's task to name prices for companies," he stated, adding that the government's primary responsibility is to insure that there are as many buyers as possible who will be able to compete in a healthy and transparent environment. "This is the only way to guarantee the acquisition of the best possible price for any given company." For this reason, Galal believes that accurate assessments for the privatisation of companies will continue to be hindered so long as the government plays an inappropriate role in the process. He added that, "it is also one reason why privatisation in Egypt has been going at a very slow pace." The fact that the only Egyptian companies which have been privatised have been those under the Ministry of Investment shows just how limited the privatisation process has been. Selling the insurance companies to one strategic investor is an idea that many experts do not find attractive. According to Egyptian law, new insurance companies can be established with an issued capital of LE30 million (approximately $5 million). "Why take the risk of buying a losing company when an investor can set up a new company for a tenth of the cost?," questioned Galal. According to Hammam Badr, chairman of Al-Sharq Insurance company, one viable option for strengthening the financial status of the national insurance companies would be to merge them into two large conglomerates. One of the new companies would be in charge of life insurance while the other would handle direct insurance. "This may be one effective way to withstand the fierce competition we currently face from multinational and private companies," said Badr, who reiterated that his opinions are voiced not in his capacity as the chairman of one of the biggest national insurance companies but as a person with a long career in the insurance industry. However, Badr's suggestions for merger were overturned by Galal who insisted that the more players there are in the market, the better the services and their cost. "More competition is in the best interest of the consumer," Galal explained. The government restructuring of an insurance company before it's sold is also believed to be a serious mistake. "If the government is capable of restructuring an insurance company into a profit-making entity, why do they need to sell it?" inquired Galal who added that the government is never sure whether the restructuring is merely a cosmetic process or rather a complete make-over. He believes that the government needs to be positive of what it needs to address regarding restructuring plans before it goes ahead with the process. "When the government talks about restructuring, does it refer to the financial status of the company, the services and products it provides or the company's employees because the three elements are not the same thing," said Galal. According to Mohamed Taymour, chairman of EFG Hermes, the restructuring of products and services should be entirely the task of the new investor, while dealing with the surplus labour should be handled by the government before the company is privatised. "It would be ridiculous to sell an over staffed company and then ask the new investor not to touch them," he commented. The restructuring of employment for the national insurance sector may prove to be a very difficult task. According to Badr, the insurance sector retains a considerable number of employees but only a few are highly qualified. "We have to admit that we are still working in the same old fashion," he noted. The manner in which the insurance industry developed in Egypt may provide an answer to the lack of expertise in the field. Badr explained that Al-Sharq insurance, for example, was established in 1931 by foreigners who relied on Egyptians only as second-class labour. When the company was nationalised in 1961, those who learned the business from foreigners took over and became its managers. "Throughout the years, little attention has been paid to training, and usage of modern technology has been minimal in an industry that is changing everyday," said Badr, who noted that the gap in performance between national companies and multinationals can hardly be ignored. "Because privatisation is new to the insurance industry in Egypt, steps in any direction should be carefully calculated. Fragmentation of this huge industry may not be the best solution, particularly as we see gigantic mergers in the American market taking place everyday," Badr commented.
