After slowing to a crawl for three years, the privatisation programme has witnessed rapid developments during the last six months. Sherine Abdel-Razek reports The slow pace of the privatisation programme launched in the early 1990s had been always among the negative notes taken about the performance of the Egyptian economy in recent years. The solution to the heavy losses of many state-owned companies has for years been seen as privatising them and allowing capitalism to work its magic, but in practice it has proven problematic to transfer loss- making companies to the private sector. The new government came with sweeping reforms to the programme, as reflected by the record number of entities sold since the new government was sworn in. Investment Minister Mahmoud Mohieddin recently said that 18 companies have been privatised in the last six months at a value of over LE1 billion, compared to only 15 during the whole of 2002 and 2003. This unprecedented increase stems from a total change in the concept of privatisation. The previous two governments had backed the idea of privatising the profit-making, easier-to-sell companies first while unprofitable companies went through a restructuring process. "If I find a buyer, I won't spend money, time and effort on restructuring in order to sell. I will just sell and all will be reflected in the price at the end of the day. Restructuring is a very costly exercise and in many places does not succeed," Mohieddin said, according to recent press reports. This naturally means that companies burdened with labour or debt problems may be sold at a price lower than their book value. This new attitude was received with a cautious optimism, as seen in the extraordinary general meeting of the Holding Company for Engineering Industries, during which its tyre-making affiliate, the transport and engineering company Trenco, was sold to Michelin. On one side some members of the general assembly had reservations about the value of the offer, which was not seen high enough. However, heading the meeting, Mohieddin was among those who backed the offer, arguing that Trenco carries a debt burden of $200 million, is losing $40,000 a year, and is in dire need of LE200 million in immediate investments and LE1.2 billion over the medium term. They won out, and Trenco was eventually sold to Michelin for $10 million. The minister said that Michelin would offer $40 million in investments for the company, in accordance with its plans to develop it into a production centre for the Middle East. For a period of three to four years, it will also retain the 1,500 current employees of the Egyptian company. This does not contradict with another new concept adopted by the Ministry of Investment, namely the efficient asset management of the entity rather than selling the entity. This can be in the form of injecting new investments in state-owned plants with good future potentials. This was the case in the textiles sector where a LE105 million facility was funded in the Holding Company for Spinning and Weaving to technically restructure it and upgrade the machinery in order to prepare it for the fierce competition its products will face in the American market after signing the QIZ agreement. Another important development is selling what had been seen before as untouchable strategic industries. Companies belonging to textiles, food, oil and even the banking sectors are either on the bloc now or under preparation to be sold soon. The biggest of all was the sale in February of the state's 18 per cent stake in National Societé Générale Bank in a deal worth LE535.6 million. There was also the sale in January of the state's 36 per cent stake in biscuit and cereal manufacturer Bisco Misr worth LE100.5 million. There is also talk about competing offers to purchase Shebin Al-Kom Weaving and Textile Company, which contributes 37 per cent of the total revenue of the state- owned United Arab Weaving Company. The textiles sector has previously thought not to hold the potential for privatisation due to its over-staffed labour force. The same applies to the steel industry, with one of its iconic entities apparently being readied for privatisation. In a recent seminar, Mohieddin described the financial position of the Helwan Iron and Steel Company as "critical" because it needs continued assistance of some LE5.2 billion. He said that foreign partnership may be sought for the upgrading of the company. This followed earlier reports that the state-owned Metallurgical Industries Holding Company was looking to sell its stake in the Dekheila Iron and Steel Company to the National Investment Bank for an undisclosed sum. NIB intends to later sell it on the open market. The selling spree did not bypass the country's buoyant oil sector. The state will offer 20 per cent of its shares in Sidi Krir company for Petrochemicals and 25 per cent in Alexandria Mineral Oils Co (AMOC) through CitiBank and the National Bank of Egypt. The new team in the Ministry of Investment seems also to be having reservations about giving the workers the right to buy shares in their own companies through the Employee Shareholders Associations (ESA). Thirty-four public companies was partially privatised this way in the period from 1992-2003. The original plan was that those employees would own shares in their companies and that the price of these shares will be paid through their dividends at the end of the year. However most of these companies have failed to post profits. As of July 2003 the ESAs were indebted by LE2 billion worth of unpaid share values. Reading through the new government's statements on privatisation also shows a tendency to sell more to foreign investors. Mohieddin stressed recently that a drop in foreign investment from $1.5 billion to $450 million dollars in the fiscal year that ended on June 30, 2004 "had a negative impact on Egypt's economic growth rates". Such policy can sometimes be worrisome, especially in sectors where there are fears of a foreign monopoly of the market. For example, the cement sector is now almost 50 per cent owned by foreigners -- one clear case, especially after Italy's Italcementi raised its stake in Egypt's largest cement producer to more than 70 per cent. The Parliament approved a law early last year aimed at attracting international companies by offering them investment incentives such as tax reductions and exemptions for up to 20 years in priority sectors, including oil. The state still owns 172 companies under Law 203 in addition to holding stakes in shares in 695 joint venture companies.
