On Thursday, Prime Minister Mustafa Madbouli renewed the government’s goal of selling stakes in state-owned companies, saying that it would release detailed plans this week showing the timing and size of the stakes to be offered in companies in a wide range of sectors including banking, industry, and pharmaceuticals.

Stakes in three to four companies affiliated with the military will also be offered on the stock market.

Floating stakes in state-owned companies is one of the strategic goals identified in the State Ownership Policy Document approved in December 2022. The document highlights the state’s intention to boost the private-sector contribution to the economy from 30 per cent to 65 per cent within three years.

In 2023, the government said it would sell stakes in 32 state-owned companies and later increased that number to 35. However, only four deals were concluded at that time due to a dollar crunch at the time.

According to Mahmoud Gad, co-head of research at Arab African International Securities, Egypt is now in a better position to negotiate the sale of stakes in state-owned companies.

Earlier this year, before the Ras Al-Hekma deal and the agreement with the IMF, the government might have been willing to accept various offers from strategic investors because it needed hard currency, Gad said.

However, today it is in a better position to negotiate such deals or refuse them altogether, he said, adding that the sale of the companies through the stock market would enable the participation of all types of investors, including local and foreign institutions, including sovereign funds, through private placements, and individuals through Initial Public Offerings (IPOs).

Gad said there were multiple benefits in going through the stock market, since it is both simpler and enables the more accurate pricing of the companies. It is also advantageous for buyers because they can also easily sell their shares should they need to do so on the stock market, he added.

Talk of selling stakes in companies affiliated with military dates to late 2020 when it was announced that stakes would be offered for sale in the National Company for Producing and Bottling Water (Safi) and Wataniya Petroleum for private-sector investment.

In March 2023, the Sovereign Fund of Egypt (SFE) said 100 per cent of Safi and Wataniya could be sold to strategic investors depending on market appetite. In April 2023, then SFE CEO Ayman Suleiman said in an interview with CNBC Arabiya that offers had begun to come in from investors for shares in Wataniya and Safi.

The fact that Madbouli has now said that stakes in military-affiliated companies will be offered on the stock market is a change of strategy.

Whether selling through the stock market or through private investment, in the end the state would be achieving its target of diminishing its footprint in the economy and meeting the demands of the IMF, Gad said.

An IPO would also be beneficial for the stock market, he added, because it helps to grow market capitalisation, making it more attractive.

According to Omar Elmekkawy, deputy head of enterprise risk management at one of Egypt’s state-owned banks, IPOs would be a healthy route to take, but the companies concerned should be ready with all the necessary paperwork and be transparent about their business.

Elmekkawy said it was important that the Government market the companies it intends to sell so that the IPOs attract new entrants to the stock market. “We don’t want people selling their current holdings to buy the new companies’ shares,” he said.

Besides accelerating the privatisation programme, the government is also committed to maintaining a fully flexible exchange rate as part of its agreement with the IMF.

This week, the exchange rate increased to above LE50 to the dollar. Since the devaluation of the pound on 6 March, when the pound spiked from around LE31 per dollar to LE49.5, the pound gained ground and appreciated to around LE47 per dollar in May.

Since then, it has been depreciating slowly until it crossed the LE50 per dollar threshold this week. Last week, Madbouli said that past mistakes in fixing the exchange rate would not be repeated and that people should expect fluctuations of around five per cent in the coming period.

According to Elmekkawy, the appreciation of the dollar reflects local demand for the currency as well as its strength globally.

He stressed the importance of maintaining a flexible rate for investors, as they would not be interested in putting their money down if they believed the exchange rate was fixed. They would be concerned that there could be a risk of a sharp devaluation, affecting the value of their assets, he said.

Elmekkawy said that a flexible exchange rate is also important to obliterate any possibility of a black market developing. If the official exchange rate does not reflect the real value of the currency, anyone wishing to convert hard currency, such as expatriates and others, will revert to the black market, for example.

According to Central Bank of Egypt (CBE) data, remittances from Egyptians working abroad during the first nine months of 2024 recorded a 42.6 per cent rise, registering approximately $20.8 billion, compared to $14.6 billion at the same time the year before.

On the downside, Elmekkawy said that for any company needing to import machinery, inputs or services, a higher exchange rate would mean increased costs and consequently pricier goods and services.

He said he hoped to see a flexible exchange-rate system in which the pound would appreciate as well as depreciate. For that to happen, the economy needs to be export-oriented to ensure steady inflows of hard currency, however.

In the meantime, Elmekkawy said that an end to the war on Gaza would improve the geopolitical situation, enabling shipping to return to normality in the Suez Canal and improve hard-currency revenues.

Suez Canal revenues have fallen by $8 billion since the war on Gaza began, Egypt’s Foreign Minister Badr Abdelatty said in November.

* A version of this article appears in print in the 12 December, 2024 edition of Al-Ahram Weekly