Egypt unlikely to privatise again

Privatisations across Egypt's companies during the 1990s has been blamed for the cronyism that helped spur this year's revolution.

The telecommunications operator Mobinil was one of the companies privatised by the Egyptian government. Dana Smillie for The National

A swathe of privatisations across Egypt's companies during the 1990s that helped the country avoid bankruptcy has been blamed for the cronyism that helped spur this year's revolution.
Now, as Egypt's economy tumbles towards recession, the memory of those so-called "sweetheart deals" has prompted the country's top business players to call for alternative methods in plugging a widening budget deficit.
"I don't think absolute privatisation will be taken again [to buoy the economy]," said Yasser El Mallawany, the chief executive of EFG-Hermes, Egypt's largest investment bank.
"It doesn't have the right solutions for the country, so I think the approach of the government will be different," Mr El Mallawany said.
Although privatisation is regarded as a way to improve operating efficiency, bolster corporate governance and wipe out corruption, for Egypt it has been at the core of a complicated web of crony capitalism, where a select number of senior executives have amassed huge fortunes through sweetheart deals.
Officials under the former government are being investigated over charges of squandering substantial sums of money in the privatisation of public-sector companies.
They include former prime minister Atef Abeid, who is alleged to have approved illegal sales, according to a report from the Egyptian daily paper Al Masry Al Youm, citing judicial sources.
The report said 329 public-sector companies were sold to private companies owned by Egyptian and other Arab businessmen at prices much lower than their actual value.
The list includes Tanta Linens, a textiles company reported to have been sold for about 90 million Egyptian pounds (Dh55.5m) less than its actual value.
The Egyptian government responded to a dramatic fall in growth and macroeconomic imbalances in the early 1990s by enforcing a wave of privatisation among the country's biggest companies, which now include Bank of Alexandria and the telecommunications operator Mobinil. At the time, the economy was in dire straits with a budget deficit of 17 per cent of GDP and an inflation rate of about 15 per cent.
Although the programme lifted the fiscal burden and opened up the country's capital market, Egypt remains haunted by the corruption that underpinned many of those deals.
Other business owners have agreed that the government is unlikely to go forward with another string of privatisation, considering the controversy now associated with it.
Karim Shafei, the managing director of Al Ismaelia, a property investment company, said he would be "very surprised" if the government went down that road.
"Whether it is a sound strategy or not is of no concern; privatisation has very negative connotations with the Egyptian population. It has been an extremely corrupt process and has not put workers benefits in consideration," he said.
Trade union activists and workers, including those at Tanta Linens, have for several years called for better working conditions and wages.
The government has partially responded to the demands for social justice by introducing a minimum wage of 700 pounds and by raising the top rate of income tax.
Most observers agree that if the government was to weigh selling equity in major companies, it would not be until the country had gained some continued political stability and transparency.
Earlier this year, a Cairo court cancelled the 2006 sale of Omar Effendi, a well known retailer, to the Saudi company Anwal on the grounds the valuation was inaccurate.
Local media reported that the 82 stores, which included historic buildings dating back to the 19th century, were sold for only 590m pounds, when in fact the land value alone was as much as 4 billion pounds.
"Until we have a secure environment, the government is not going to delve into anything," said Sherif Raafat, the chairman and managing director at Concord International Investments.
"Right now it is about getting people back to work, getting back to a safe environment and getting the economy starting again," he said. Despite the tumultuous political landscape, Egypt is still on the radar of large international investors.
This month, the Swedish appliance maker Electrolux said it had decided to go ahead with its acquisition of Olympic Group, an Egyptian appliance maker, in a deal that valued the company at 2.4bn pounds - more than analysts' expected.
The deal had been delayed because of the revolution, but the company returned to the negotiating table with a positive outlook on Egypt.
It signals a new phase of economic development for the country, where international investors look to snap up a slice of some of the oldest companies in the world.
"Definitely we will see potentially huge investments with a corruption-free government.
"That has been the biggest impediment we faced in the last 10, 20 years," said Mr Shafei.
[e-mail]