Just when you were afraid that Egypt’s privatisation programme might have gone into a long hibernation, the bear suddenly begins to stir again.
Well over a year ago government officials announced that a whole series of state companies would be sold at least in part to the private sector, including three banks, as many as eight oil companies and four electricity companies. Officials said many of them would be sold in 2016.
The central bank planned to sell two banks, including 20 per cent of Banque du Caire, the state’s third largest bank, and 20 per cent of Arab African International Bank (AAIB), would be sold on the stock exchange in an IPO. It also planned to sell a controlling stake in the much smaller United Bank to a strategic investor.
The oil companies included the $1.4bn Midor (Middle East Oil Refinery) and Ethydco, which operates a $1.9bn ethylene plant that came on stream in mid-2016.
The government also talked of selling the three massive Siemens power plants it had just commissioned, as well as the company created to maintain them. The plants, each tied for first place as the world’s biggest generators, cost a combined €6 billion.
But the government’s heart didn’t seem to be in it. The aim of the sales was merely to raise revenue to plug the country’s huge budget deficit. There was little talk of the benefits of opening up markets and of competition, as there was after Ahmed Nazif’s government liberalised the economy in 2004.
Only minority stakes would be sold: the majority of shares in most of the companies would remain firmly in the government’s control. Still, selling off bits of state companies would be better than nothing. A listing on the stock exchange would impose a certain discipline on companies.
In the end, 2016 came and went with virtually no privatisations.
In the last few weeks, however, the mood has become noticeably more upbeat.
The finance ministry last month said that it expected to raise up to 7 billion Egyptian pounds through IPOs of state companies in the financial year that will begin on July 1.
Then last week, the state investment bank NI Capital told Reuters and Bloomberg that the government planned to sell up to 24 per cent of the shares of Engineering for the Petroleum and Process Industries (ENPPI), a state oil services company set up in 1978, in an initial public offering public offering in the next six months. The government expects to raise up to $150 million from the sales.
NI Capital said the government was also studying selling minority stakes in a number of state oil and gas, chemicals, utilities and shipping companies, possibly generating billions of dollars over the next three to five years.
NI Capital said it will oversee the IPOs of dozens of state companies over three to five years. None will entail selling more than 24 per cent of the shares.
The fact that the state might begin selling bits of its empire is good news. They would be the first major sale of assets since 2008, when the sale of Banque du Caire was aborted due to populist pressure against privatisation.
What would be far better news would be if the government could bring itself to relinquish control of these companies by selling majority stakes. One of the main benefits of privatisation, probably even more important than the revenue that the cash-strapped government earns, is that it allows for more agile management.
The massive devaluation of the Egyptian pound last November has made the country’s assets very attractive to anyone with foreign currency. Let’s hope that the government views this as an opportunity to attract buyers and not as an excuse not to sell. And let us hope that it is the beginning of far more comprehensive sales that would include larger stakes and companies in sectors that for political reasons have until now been out of bounds for privatisation.
Patrick Werr has worked as a financial writer in Egypt for 27 years.
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