The government revealed plans one month ago that it wants to widen the private sector’s role in the economy over the next three years and targets to sell $40 billion worth of state-owned assets to local and international investors over the next four years.
But given the current global challenges, offering shares on the stock exchange may not be the right decision at the moment, said Gouda Abdel-Khalek, a former minister of supply and internal trade and a professor of economics at Cairo University known for his left-wing views.
Abdel-Khalek said that the time gap between the government’s releasing its State Ownership Policy Document and its actual exit from some sectors should also be noted, meaning that market conditions at the time of exit might be more favourable.
The state can privatise companies by several means, including initial public offerings (IPOs), selling to a strategic investor, transferring management while reserving ownership, or public-private partnership agreements, Abdel-Khalek said.
At present, the government’s financial and economic policies allow foreign investors to enjoy incentives that discourage them from making deals, he said. “Why would a foreign investor invest in a country that gives him the world’s highest interest rate on treasury bills without him making any effort,” he asked.
The Central Bank of Egypt (CBE) has sufficient international reserves to maintain the price of the pound against the dollar, and investors can generate returns without venturing into investment deals, buying projects, or partnering with the government in businesses, he added.
Before the government begins to exit, partially or completely, from any sector, it should create the right investment environment, especially since if investors buy assets they will need to pay taxes, but if they invest in hot money, they will not need to pay taxes, Abdel-Khalek pointed out.
“Economic policies work if the same principle is adopted in all fields,” he said, adding that the situation should be “fair game”.
Abdel-Khalek said that there was a need to develop the domestic investment environment and stabilise economic policies. Sudden decisions that affect investors’ businesses, such as the decision to shift from collection documents to letters of credit for imports, should be avoided.
“Changing the rules of the game while playing it is one of the most annoying things for investors. Decisions can be taken, but in a different way,” he said.
He said that the state should not exit from the public-services sector — education and healthcare — the returns from which benefit the non-investing party. Investing in healthcare limits the spread of disease and ill-health and benefits other sectors because it reflects positively on production, Abdel-Khalek said.
“Healthcare and education are public goods that should not be subject to market forces because this leads to social disruption,” he added.
Should the government exit from investment in agriculture, especially amid global food security challenges, he asked. “On the contrary, it should expand in this field and focus on solving the country’s food security problems,” he said.
According to the State Ownership Policy Document, the activities and sectors that the state will completely exit from within the next three years are agriculture, such as grains except for wheat, fish farming, livestock, horticultural crops, and forestry.
In the transport sector, it plans to exit from port construction, including dry and land ports and river transport. It aims to exit from drinking water production and desalination plants, and in the information and communications sector it will exit from software, computer consulting, and TV production.
The document identifies the state’s exiting from 18 activities within three years in order to increase the participation of the private sector. The selection of activities was based on several factors, including the standards of international organisations, mainly the Organisation of Economic Cooperation and Development (OECD), international experiences, and lessons learned from the global crises that have affected the country in recent years.
Abdel-Khalek said that the government should not be thinking in terms of the revenue it will raise from selling assets. Instead, it should adopt a development-oriented approach, with its exit reflecting positively on production, employment, and exports. It should also avoid negative experiences, such as the sale of a steam boilers company as well as three other companies that the government re-nationalised in 2018 after selling them to private investors in the 1990s on the back of allegations that the sale prices had not been fair.
It will be difficult for the government to complete its exit strategy within three years “because legislative amendments are needed if the private sector is to participate. I don’t think there is enough time for this to happen,” Abdel-Khalek said, adding that some legislation complementary to the constitution had not been finalised despite the latter’s having been drafted in 2014.
Egypt’s “parliament works on half the days of other parliaments,” Abdel-Khalek claimed. He said that perhaps the document had been issued at this time in order to accelerate a deal with the International Monetary Fund (IMF).
The government has presented proposals to create a company bringing together Egyptian ports as a prerequisite to offering private investment in them. But according to Abdel-Khalek, “offering the ports for sale is not acceptable” because it is a matter of national security.
Some sensitive marine activities are conducted via the ports, and these must not be made public, he said, recalling the US refusal to sell one of its companies managing ports to the UAE-based DP World.
According to statements by the cabinet’s official spokesman, Egypt will not sell its ports, however. He explained that earlier statements by the prime minister had only meant listing the Ports Holding Company on the stock exchange in order to manage them better and raise their efficiency.
Ports were competitive, he said, and there was a need for their development to keep up with international standards.
A version of this article appears in print in the 30 June, 2022 edition of Al-Ahram Weekly.