CAIRO - Recent court verdicts, ordering privatised companies to revert to State ownership, have raised many questions over Egypt's 20-year-old programme for selling off its assets. While legal experts say that cases designed to have more such companies revert to State ownership will be a marathon in the courts, economists warn against the credibility of future governments when it comes to investment. A court ruling in September cancelling the sale of three privatised companies has sent shockwaves in the Egyptian market, stoking investors' fears, yet raising hopes of thousands of the country's blue collar that similar court verdicts would bring them their rights. While legal experts and workers hailed the ruling, economists warned that similar rulings may send an alarming message to investors, especially that the country has not cleared its economic orientation after the January 25 revolution yet. "This is a legal marathon. It has nothing to do with economics at all. In the case of these specific three companies, the contracts were based on corrupted transaction. What is based on a void contract is void," Yasser el-Gamal, a Cairo-based legal consultant, told The Egyptian Gazette in an interview. In September, the Cairo Administrative Court ruled that Tanta Flax and Oil Co, Misr Shebin Al-Kom Spinning and Weaving and Al-Nasr Company for Steam Boilers and their assets be returned to State ownership. "The ruling did not mention anything about returning to the socialist system. It is a legal matter and the law must be respected, if the Government wants to attract investment," el-Gamal said, stressing that the Government should put the ruling into effect. More than 50 privatised companies may be reverted by similar rulings, experts say. "The Government should repay the price of the three firms and compensate workers," he said. Opponents of the ruling say that such court verdicts are bad for the business climate in a country that is "badly in need of investment". They also warn that investors might seek international arbitration. "Of course, they will. But Egypt's legal position is very strong. It is easy to prove that the contracts were based on fraud. Besides, Article 34 of the United Nations Convention Against Corruption gives Egypt a very strong legal ground," he said. According to Article 34, with due regard to the rights of third parties acquired in good faith, each state party shall take measures, in accordance with the fundamental principles of its domestic law, to address consequences of corruption. In this context, states parties may consider corruption a relevant factor in legal proceedings to annul or rescind a contract, withdraw a concession or other similar instrument or take any other remedial action. "Encouraging investment does not mean closing the eyes on corruption. On the contrary, a good business environment requires wiping out graft," said Ziad Bahaa Eddin, ex-chairman of the Egyptian Financial Supervisory Authority (EFSA). "Investment and fears about Egypt's reputation are all wrong allegations. The State has not canceled contracts. A court has. Abiding by the law will boost investment in the long run," Bahaa Eddin explained.Opponents of privatisation argue that selling off State-owned assets has been pushed through at the request of the International Monetary Fund (IMF) and the World Bank. They even claim that privatisation is against the wishes of the majority of Egyptians. Experts around the world are divided over mechanisms of privatisation, but they agree that each country has its own socio-political conditions. In an essay titled "The Meaning of Privatisation", Paul Starr, a professor of sociology and public affairs at Princeton University, wrote: "Even where state enterprises are generally agreed to be highly inefficient, it is not necessarily clear that privatisation will be a remedy. Moreover, the performance of some state-owned enterprises for example, in Malaysia and France has been excellent, and it is simply not true that as public sectors grow, rates of economic growth fall." "The meaning of privatisation depends in practice on a nation's position in the world economy. In the wealthier countries, it is easy to treat privatisation purely as a question of domestic policy. But where the likely buyers are foreign, as in the Third World, privatisation of state-owned enterprises often means denationalisation a transfer of control to foreign investors or managers," Starr wrote. Throughout the world, the privatisation of enterprises with strategic military or economic significance raises especially sensitive questions of sovereignty and security. In most oil-producing countries, for example, no government is likely to try to privatise the state oil companies because of the likely domestic political reaction. Even in Great Britain, the prospective sale of a helicopter company to an American company caused a political stir. "It was recommended by the IMF in the 1980s to reduce the State budget deficit and external debts. But of course, Egypt's bill privatisation has been costly as thousands of workers lost their jobs," said Mohamed Hashem, a professor of economics at Tanta University. In 1991, Law 203 was endorsed to open the way for the Egyptian Government to plan the sell-off of 314 State-owned companies. By 1997, 190 of these companies were divested, making around LE17 in revenues, according to the Ministry of Investment. In the present, there are 153 companies left out of 314 firms back in 1991, and many experts and officials call for a halt. Labour at the country's public-sector firms fell from one million in the 1990s to around 373,000 in 2009, according to official reports. In 2009, workers and other groups from various walks of life made 742 protests, according to Cairo-based Land Centre for Human Rights. Unemployment in Egypt rose from nine per cent of labour force in 2010 to 11 per cent this year, according to CAPMAS. But unofficial reports estimated unemployment before the January 25 revolution at around 20 per cent. "Egypt has adopted selling public-sector firms to strategic investors, not by IPOs. This mechanism has opened much room for graft. Omar Effendi has been an obscene example of wasting public property," Hashem said, referring to the sale of Egypt's mega chain store. In 2007, Omar Effendi, comprising 82 branches nationwide, was bought by Saudi-based Anwal for LE589.5 million, while experts claimed that it was worth LE1.5b-LE2b. In 1994, a consortium comprising late Egypt entrepreneur Mohamed Nosseir, a Saudi investor and PepsiCola acquired Pepsi Cola Egypt. In 1999, Nosseir and the Saudi investor sold off 77 per cent stake to PepsiCola, raising the US company's total stake to 79 per cent. In 2006, an 80 per cent stake in the Bank of Alexandria (known as Alexbank now) was auctioned, and Italy's Sanpaolo Group bought the stake for $1.6 billion, while its value allegedly exceeds $5 billion. Al-Nasr Company for Steam Boilers was sold out at $17 million on condition that the Government pays debts and taxes. The net price of the firm totalled $750,000. The company had 31 feddan (acres) overlooking the Nile that is worth around $115 million, according to experts. Total receipts from selling off State-owned firms totalled LE39.3 billion from 2004 until 2008. In the wake of the global downturn, the North African country netted roughly LE1.5 billion from privatised assets in the fiscal year (FY) 2008/09, according to the Ministry of Investment. In its report 2010 on the Egyptian economy, the IMF said: “Prioritising reforms that promote macro-economic stability and improve the investment climate will support the resumption of foreign direct investment. The planned fiscal adjustment and tax reforms are an important element of generating confidence, improving the business environment, and ensuring space for the private sector.” Resumption of privatisation and development of public-private partnerships will help mobilise private sector financing and technical know-how, according to the report. "The Nile Meridian is another blatant example. It was sold cheaply at $75 million. A private consultant firm estimated the hotel at $185 million," Hashem said, adding that something should be done to set the record straight.
