Privatisation wave in Egypt
Emirates and Saudi Arabia play a leading role in Egypt's privatisation process.
Egypt will privatise 32 public companies and sell their shares to relevant investors in order to comply with the demands of the International Monetary Fund (IMF) and avoid the acute economic crisis that the nation led by Abdel Fattah al-Sisi is going through.
The Egyptian pound has lost 50% of its value since March, and the government is seeking solutions to prevent it from continuing to drown in the financial abyss. One of the lifelines envisaged by the Egyptian state is the sale of national business assets to private investors. Privatisation is making headway and is thus navigating the stormy waters of the Nile. The challenge is to develop Egypt's private sector, which is currently almost non-existent.
On the one hand, nationally owned assets are lost, which can be seen as negative, but on the other hand, the state is relieved of the economic burden of maintaining these public entities.
"32 companies will be listed on the stock exchange, sold to a strategic investor, or both, within a year, starting from this first quarter of 2023 until the first quarter of 2024," said Egyptian Prime Minister Mostafa Madbouly. "The state will gradually and definitively exit seven sectors," Madbouly explained, without elaborating further.
The state companies to be privatised include three banks: Banque du Caire, The United Bank and Arab African International Bank, as well as insurance, electricity, energy, hotel, industrial and agricultural companies, in addition to organisations linked to the army.
The IMF on the horizon
Behind Cairo's strategy is the International Monetary Fund. The IMF is an entity whose objective is to achieve sustainable growth and prosperity for each of its 190 member countries. To that end, it supports economic policies that promote financial stability and monetary cooperation, which are essential for productivity, job creation and economic well-being. The IMF is administered by and accountable to its member countries.
The IMF has three critical missions: to promote international monetary cooperation, to encourage the expansion of international trade and economic growth, and to discourage policies that are detrimental to prosperity. To achieve these missions, member countries work together with other international organisations to improve people's lives.
The IMF promotes international financial stability in the following ways:
- Surveillance, which consists of monitoring and advising on countries' economic and financial developments.
- Financial assistance, which seeks loans and other support for member countries.
- Capacity building, through technical assistance and training to help governments implement sound economic policies.
The IMF approved a $3 billion loan to Egypt over the next 46 months, with an immediate disbursement of $347 million. Cairo reached an agreement with the IMF at the end of 2022 to obtain a new loan and begin to resolve its economic crisis. But this comes with a quid pro quo in the form of measures and guidelines that must be met in order to qualify for this assistance. To access this, Egypt committed to making its currency more flexible, promoting competitiveness and touched on the burning issue of privatising a large number of state-owned public enterprises.
The aim of the plan is to reduce public debt and the burden on the Egyptian state. Egypt's president, Abdel Fattah al-Sisi, himself expressed his support for the privatisation process and the offering of state-owned enterprises to the private sector. Al-Sisi said that the state has no problem with making SOEs available for privatisation. "I confirm it so that it reaches everyone and the private sector and whoever is willing to enter into partnership with the state in its institutions or companies," said the Egyptian president, as reported by EFE news agency.
There are red lines in this privatisation process, however. One of them is the famous Suez Canal, which carries 12% of the world's maritime trade. Egypt does not want to privatise this infrastructure despite rumours of a 99-year concession to a foreign investor.
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The press office of the Council of Ministers denied these reports in a statement and confirmed that the Suez Canal "will remain the full property of the Egyptian state and subject to its absolute sovereignty", stressing that all the staff of the Suez Canal Authority, including employees, technicians and administrators, are Egyptian citizens, a situation that will continue to be the case. The head of the Suez Canal Authority, Osama Rabie, also made a similar statement, rejecting any change to the current arrangement.
The aim is to redress the national situation after Egypt's debt has risen from 43 billion to 160 billion dollars in the last ten years.
The british mirror
Egypt has had important links with the UK. The British and Ottoman empires clashed during World War I (1914-1918), when the British established a protectorate between 1914 and 1922, known as the Sultanate of Egypt. From there, the Kingdom of Egypt emerged as the first modern Egyptian state between 1922 and 1953. The Kingdom was created in 1922 when the UK granted independence to Egypt, until then a de facto colony, in order to suppress growing nationalism. With nationalist sentiment rising, the UK formally recognised Egypt's independence in 1922, and Husayn's successor, Sultan Fuad I, replaced the title of Sultan with King.
A century later, Egypt looks in the mirror of the UK, which also undertook a massive privatisation process to become the economic powerhouse it is today. When Margaret Thatcher came to power in 1979, the British nation was experiencing similar conditions to Egypt's, and the North African country seems to want to follow the same path to emerge from the crisis and have a more prosperous future.
The UK suffered from problems of inflation and sharply rising interest rates as it had major problems such as high public debt and a bloated public sector that was costly and generated little revenue for the coffers.
The public sector covered many areas, from basic services to large industries, from the steel industry to the energy sector. The trade unions had great power and were a focus for confrontation with the government and agitation through protests to maintain their status and rights. Then came Thatcher's slashing of the public sector and now Egypt is following suit.
Thatcher's management was widely criticised, but this strategy led to the UK establishing itself as an economic power. Now, with its limitations, the Egyptian government is embarking on the path of privatisation, albeit more cautiously than the British did more than 40 years ago, by selling 'stakes' in 32 of the North African country's public companies, which are not the main ones. These are secondary companies and the procedure will be at a lower level than what the Thatcher administration did in its day.
Egypt wants to follow in part the example of economic stability and progress set by the UK at the time.
Saudi Arabia and the United Arab Emirates in the spotlight
The Gulf has set its sights on Egypt and the supply of public companies and assets in which to invest as part of the privatisation process. Here, Saudi Arabia, the great economic power in the Middle East, and the United Arab Emirates, which also has great financial clout, are of great importance. The planned purchases by these Gulf states will help the Egyptian privatisation process. The sale of stakes in 32 companies as part of Egypt's privatisation plans has aroused the interest of Gulf countries seeking to enter these companies, which several experts believe is beneficial for both sides. According to analysts, this entry of private capital into Egypt's public sector will boost competition and invigorate Egypt's stagnant economy.
Egypt looks to nations such as Saudi Arabia and the UAE as options to be considered for a way out of the economic crisis in which the country is mired. "Gulf investments in Egypt over the past year have helped alleviate some of Egypt's immediate financial concerns, before getting more from the IMF," said James Swanston, an economist at Capital Economics, as reported by Al-Arab.
These Arab countries have already been involved in takeover moves in Egypt, with the Abu Dhabi Sovereign Wealth Fund (ADQ Holding) and the Saudi Public Investment Fund (PIF) taking the lead. The two investment entities have already been involved in 40 deals that have injected some $3.1 billion into Egypt's coffers.
Among the two funds' most prominent deals is the joint purchase of almost half of Egypt's two largest fertiliser companies, Abu Qir Fertilizers (41.5%) and Misr Fertilizers Production Company (45%).
The Egyptian government is trying to facilitate regional investors in order to increase the flow of foreign exchange and improve the national financial situation. One of the most important recent moves is the Saudi Public Investment Fund's negotiation to fully acquire The United Bank owned by the Central Bank of Egypt, one of three financial institutions whose shares are scheduled to be offered on the stock exchange.
Also, the state-owned oil company ADNOC Distribution announced that it completed the acquisition of a 50% stake in TotalEnergies Marketing Egypt LLC. This marked the official entry of the UAE's largest oil distributor into the Egyptian market.
Meanwhile, Dubai hosted the World Summit of Governments this week, with the participation of Egyptian President Abdel Fattah al-Sisi, who highlighted during the main session the role of the Gulf countries in helping Egypt to improve its economic situation.
#UAE President @MohamedBinZayed, Egypt's President Abdel Fattah El Sisi and @HHShkMohd attending Day 1 of @WorldGovSummit. pic.twitter.com/m4iCQpK99i
— Dubai Media Office (@DXBMediaOffice) February 13, 2023
It is not about giving direct aid. The aim now is to provide money to Egypt, but in exchange for receiving other assets and reforms to stabilise Egypt's economic situation. In this vein, Saudi Arabia's Finance Minister Muhammad al-Jadaan told Al-Arabiya at the Davos Economic Forum that Saudi Arabia has changed the way it gives aid. "We used to offer direct grants and unconditional deposits... Now we want to see reforms," he said.
