After decades of socialism, the Egyptian Government turned over a new leaf in 1991 by endorsing Law No. 203 to clear the way for selling off 314 State-owned companies. For nearly 20 years, privatisation has been a controversial issue among the country's elite as well as the public, who are divided over its fundamentals. In recent years, Egypt has been gripped by labour protests partly fuelled by perceived misguided privatisation. In a surprise volte-face, the Egyptian Government has recently announced putting the contentious privatisation programme on hold. It's not only a ‘dogmatic divide', as socialists may call it, but even proponents of a free enterprise economy criticise the Egyptian Government for its lack of transparency in selling off the country's assets. Opponents of privatisation argue that the selling off of 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. Moreover, some market watchers smell a rat in the evaluation and selling off of these assets. Al-Ahram Centre for Strategic Studies estimates the market value of State-owned firms at LE100 billion in 1990 (when LE100 billion was worth $50 billion [according to the exchange rate at the time, the greenback averaged LE2]). Revenues from privatisation totalled LE50 billion ($8.8 billion) by the end of June 2008, according to the Ministry of Finance, given that the greenback averaged LE5.50 in 2008. The IMF believes that privatisation is a must to attract more investments and inject confidence into an economy. In its report on the Egyptian economy this year, the IMF said: "Prioritising reforms that promote macroeconomic 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." The resumption of privatisation and development of public-private partnerships will help mobilise private-sector financing and know-how, according to the IMF report. Is privatisation an IMF recipe that emerging economies should follow? Critics of privatisation do not believe so. "In the beginning, the Government said that only loss-making companies would be sold off. Later on, only profit-making assets were privatised. The policy should have been made clear to the public from the beginning," Hany Riyad, an analyst at Cairo-based Financial and Legal Consultants Centre, told the Egyptian Mail. "Selling off these firms was finalised through secret negotiations. The Government would reveal afterwards that an asset was acquired by some investors. Many textile companies were privatised in this way," Riyad said. "Many questions were raised regarding assessment committees and their formation by the Government. These committees should have been independent and formed by the People's Assembly [the Lower House of the Egyptian Parliament] and the Central Auditing Agency," he said, arguing that these assets are owned by the Egyptian people, not by the Government. "In the 1990s, Pepsi Cola Egypt was sold off for around LE157 million. A few years later, a 77 per cent stake in the company was given for $400 million. Where was the assessment committee and who approved the sell-off?" he wondered. In 1994, a consortium comprising late Egyptian 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. "Another example is Omar Effendi. An assessment committee set a price of around LE1.14 billion. It was sold off to one investor for nearly half that figure," Riyad explained. In 2007, Omar Effendi, comprising 82 branches nationwide, was bought by Saudi-based Anwal for LE589.5 million. "Bank of Alexandria was a good example of privatisation. It was an international auction and the highest bidder won the deal," he said. 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, which accounted for six times the bank's estimated book value. "Receipts may be pumped into other assets to maximise gains. But the Government wanted to cover its chronic budget deficit. Unfortunately, many assets were given away for cheap prices and the budget deficit persists," Riyad added. The IMF said Egypt's State budget deficit averaged 8.5 per cent over the past five years. "Excluding windfall receipts and one-off bank restructuring costs, the underlying budget sector deficit fell to 8.5 per cent of GDP," the IMF stated. The country's budget deficit rose to LE65 billion in the first half of fiscal year (FY) 2009/10, according to the Ministry of Finance. Egypt plans to keep the budget deficit at 7.9 per cent of GDP in FY 2010/11, but to "cut it to 3.5 per cent by 2015" as Youssef Boutros Ghali, the country's Minister of Finance, said last month. In the wake of the global downturn, the North African country netted roughly LE1.5 billion from privatised assets in FY 2008/09, according to the Ministry of Investment. Criticism of privatisation in Egypt extends to how its receipts were used. Some economists urged the Government to set up new productive facilities to create more jobs and boost investment. The Government opted for easing the State budget deficit. Away from privatisation opponents, some economists see a half-empty glass, others a half-full glass. "Privatisation aims to turn Egypt from a socialist economy into a free market one, relying on the private sector. I think most objections are levelled at the way privatisation is handled, and not the core or the aim of the process," Mohamed Hashem, a professor of economics at Tanta University, told this newspaper. "It's necessary, but it should be carried out according to two standards: economic; selling off assets should be to the highest bidder according to market value, and social; any sacked labour should be compensated in a way that guarantees a decent living," Hashem explained. "Transparency in carrying out these two principles is a must," he said. Over the past 16 years, hundreds of thousands of workers have lost their jobs due to privatisation. Job shed has added insult to injury as unemployment stands at 9 per cent of the country's workforce, which is estimated at 23 million, according to the State-run Central Agency for Public Mobilisation and Statistics (CAPMAS). In 2009, workers and other groups from various walks of life made 742 protests, according to Cairo-based Land Centre for Human Rights. "These protests reflect workers' discontent, resulting from their feeling of injustice. The Government should correct mistakes in the privatisation process, and not undo the whole policy," Hashem argued. "Privatisation has pushed the country's GDP over the past six years. Foreign direct investment hit record highs in 2007 and 2008 due to economic reforms, including privatisation," he said. The country's economy has been on the rise, growing by an average of 7 per cent in 2007 and 2008, before slowing to 4.7 per cent in 2009 in the wake of the global downturn, according to the Ministry of Finance. Inflows of FDI jumped from $407 million in FY 2003/04 to $11.1 billion in FY 2006/07 and $13.2 billion in FY 2007/08, according to the Ministry of Investment. Egypt pulled in $42 billion from 2004 until 2009, according to official reports. "It's up to the Government. The receipts go to the public finance. Some of this money may help ease the budget deficit," Hashem commented.
