Over the past two weeks, the government has reaffirmed its intention to offer stakes in state-owned companies on the Egyptian Stock Exchange (EGX) as part of its broader plans to encourage greater private-sector participation in the economy and attract investments.

Last week, Minister of Finance Mohamed Maait said the government was committed to the sale of stakes in 10 companies before the end of the year. The week before, a cabinet meeting gave the go-ahead for prelisting procedures Wataniya Petroleum and the National Company for Producing and Bottling Water (Safi), both owned by the military.

Another cabinet meeting discussed government plans to offer shares in seven state-owned hotels on the exchange.

However, according to Mohamed Seddiek, CEO and managing director of Synergy Capital, it could be better to wait before proceeding with the sales since share values are currently at half their real worth. The government could go ahead with its plans if it has other targets in mind, such as delivering on promises to exit certain sectors, however, Seddiek said.

The government had previously said it wants to sell stakes in 10 state-owned and two military-owned companies this year. The move is part of its programme to attract foreign investment as well as to promote greater private-sector involvement in the economy.

If the government is out to make money from the initial public offerings (IPOs), then current stock market conditions would make that difficult, Seddiek said. Stock market conditions have already put some IPOs on the back burner, and there are press reports that plans to offer shares of the Banque du Caire on the exchange have been put on hold. Economic conditions have delayed the much-awaited IPO of the state-owned bank for several years.

Other private-sector IPOs, such as that of Aman Holding, Raya Holding’s non-banking financial services arm, have also been delayed. Earlier in the year, food and snacks company Abu Auf postponed its IPO, and in July UAE food and beverages group Agthia said its board had approved a proposed acquisition of 60 per cent of the company.

Share prices globally are at record lows, and some are cheaper and more attractive than any new shares Egypt might offer, Seddiek said. Fears of global recession and mounting inflation on the back of rising US interest rates have also driven foreign investors to pull out of emerging markets.

Such factors have already affected trading on the EGX. Trading volumes used to range from around LE1 billion to LE1.5 billion, but today they stand at around LE400 million, noted Seddiek.

The EGX is one of the worst-performing exchanges in the emerging markets, said one analyst who preferred to remain anonymous. It is lacking in liquidity and is bureaucratic, he added. Moreover, the US central bank the Federal Reserve’s decision to raise interest rates had not helped, he said.  

The lack of liquidity is a deterring factor, Seddiek said, although this has improved slightly over the past week due to investments by institutional funds. Other problems include the need to revisit the regulatory environment, he added.

Seddiek questioned why the capital gains tax is being applied to resident investors and not to foreign investors, bearing in mind that most investors are currently local, and the tax will hurt their profits.

The uncertainty about the value of the Egyptian currency is another factor discouraging foreign investors, he added.

A revamping of the Stock Exchange is also important if it is to benefit from the IPOs, Seddiek said, adding that they would inject much-needed new products.

The government is aware of these issues. During a recent cabinet meeting Prime Minister Mustafa Madbouli said the government was working to enhance the performance of the EGX, with the aim of activating the IPO programme.

Earlier this week, the Egyptian Financial Supervisory Authority (EFSA) began a dialogue with the various capital-market players to come up with a four-year plan to overcome the challenges facing the market.

In April, President Abdel-Fattah Al-Sisi said that Egypt plans to attract $10 billion in investments annually. In May, Madbouli said the government wants to see private-sector participation increase from around 30 per cent currently to 65 per cent in three years’ time. He said the government intends to exit certain sectors or subsectors and a State Ownership Policy Document is currently being discussed with the private sector to determine which these will be.

The alternative to the IPOs, according to Seddiek, is to sell stakes in state-owned companies to strategic investors. “Everyone wants to invest in Egypt to capitalise on the huge consumer market,” he said. Selling to strategic investors would help to guarantee a fair valuation of the companies.

The price of the Egyptian companies is attractive considering their potential, noted the expert who preferred to remain anonymous. He said sectors such as food and beverages and healthcare and education could be highly profitable.

*A version of this article appears in print in the 4 August, 2022 edition of Al-Ahram Weekly.