Cairo needs clear policy on privatisation

08 August 2016

Contrasting statements have emerged in recent weeks on the possible share sale of government-owned companies

The Egyptian presidency in January announced that it planned to sell shares of “successful” government-owned companies and banks to the public, the first such move since 2005, when it offered shares in Telecom Egypt, Sidi Kerir Petrochemicals and Alexandria Mineral Oils Company (AMOC).

With its back against the wall in the wake of political instability, a stuttering economy, few foreign direct investments of note, a protracted foreign currency crisis and stagnant tourism sector – the main source of revenue for the country – unlocking value in Egypt’s financial and oil and gas sectors’ most valuable assets was a logical move.

It bolstered investor confidence in Egypt and many predicted that it will bring the much needed investment flows back to country’s equities markets as well.

However, nothing concrete has emerged since the initial announcement in terms of which of the state-assets have been selected for public floats or when the IPOs will take place. On the contrary, there seems to be policy chaos in Cairo.

Various reports have emerged in local and international media in recent weeks citing different government officials, with contrasting statements on possible listings of state-controlled companies.

Petroleum Minister Tarek El-Molla last week told news agency Reuters that Egypt was studying the possibility of selling shares in eight of the government-owned petroleum firms and the Ministry of Investment will assess the suitability of these companies for listing on local bourse.

“We sent the names of eight petroleum companies to the Ministry of Investment last week to be studied, paving the way to issuing some of their shares on the bourse or increasing their capital,” El-Molla was quoted as saying by the news agency.

Among the entities being studied for public floats were Middle East Oil Refinery (Midor) and the Egyptian Ethylene and Derivatives Company (Ethudco). Authorities were contemplating capital increases for Alexandria Mineral Oils Company (Amco), Misr Fertilizers Production Company (Mopco) and also for Midor, the minister said without disclosing the names of the remaining companies or the value and date of any of the planned IPOs.

However, Hamdy Abdel-Aziz, a spokesman for the Ministry of Petroleum on 7 August told local newswire Amwal Al-Ghad that Egypt has no plans to IPO Cairo Oil Refining Company or share sale of any other oil and gas firm, which is fully owned by the government. Instead the government is considering public floats of only the joint ventures between the government and the foreign oil companies, he added.

Egyptian press earlier this week also reported that Cairo is lining up 17 or 18 state-owned companies for IPOs, which are thought to include banks, petroleum, petrochemical companies and electricity firms. National Investment Bank subsidiary NI Capital is helping in preparation of possible share sales.

All these reports are adding to confusion and are raising more questions than answers on how firm Egypt’s privatisation plans are. The country is looking at a current account deficit of 5.3 per cent of GDP and a fiscal deficit of 11.1 per cent of GDP in 2016, according to the Washington-based IMF. Policymakers in Cairo need to put their heads together and figure out a clear policy on how they are going to steer the privatisation drive.

The challenge for them, however, will be how to overcome a historically centralist approach towards economy and letting go of large state companies. It could prove to be a tricky and lengthy process. However, for an example of how things can be done, they probably will not have to look beyond Saudi Arabia. Riyadh is running its own economic diversification programme which will have a share sale of the world’s biggest oil exporter, Saudi Aramco, at the heart of it.

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