Giving a wider role to the private sector is one of the main recommendations of the International Monetary Fund (IMF) for the reform of Egypt’s economy. 

 To level the playing field for the private sector, the government has to adopt several policies including the privatisation of state-owned companies either through sales or putting the management in private hands, giving incentives to the local private sector through guarantees of free competition as well as attracting foreign direct investment (FDI). 

The government has been putting privatisation plans in place for many years now, but the Covid-19 pandemic followed by the Russia-Ukraine war and the war on Gaza have made market conditions unfavourable. 

It started 2024 with the ambitious target of raising $6.5 billion in receipts through the divestment of state-owned companies and assets. The year saw many investors, mainly from the Gulf, expressing interest in local entities, but the sale of 30 per cent of the United Bank was the only deal that materialised. The deal reaped around LE5 billion and its private placement, comprising 95 per cent of the offering, was six times oversubscribed while the initial public offering (IPO) was 59 times oversubscribed. 

“The execution speed of the privatisation plans has been slower than expected,” said Maha Rashied, an economist at Dcode Economic & Financial Consulting. 

She said that the decision to pause the pace of the plans during a period of economic downturn was prudent, as selling assets under unfavourable conditions, such as currency devaluation, low investor confidence, or global economic instability, could lead to the undervaluation of offered assets.

The slowdown can be also attributed to the breathing space found after the securing of a global financing deal of $57 billion that included the $35 billion Ras Al-Hekma investment deal as well as assistance from international donors including the IMF, which more than doubled its loan facility to Egypt to $8 billion.  

Following an IMF delegation visit to Cairo in late November to undertake the fourth review of the reforms linked to the deal, Prime Minister Mustafa Madbouli said the government was planning to offer stakes in 10 state-owned companies in 2025. 

The to-go list includes four military-linked companies: the petrol station operator Wataneya, bottled water company Safi, food manufacturer Silo Foods, and fuel retailer Chill Out.

The list also includes two banks, the Banque du Caire and Alex Bank. The former has been a privatisation candidate since 2018, but it was put on the shelf due to poor market conditions. The government is said to be in negotiations with Italy’s Intesa Sanpaolo, which owns 80 per cent of Alex Bank, for it to purchase the remaining stake. 

Other candidates are two pharmaceutical companies, a plastics producer, and long-time privatisation target the Gabal Al-Zeit wind farm.

“The announcements of new companies slated for divestment in 2025 signal an effort to accelerate the pace of asset sales and open the door for greater private-sector participation. While these announcements mark an encouraging step, the focus now shifts to action and ensuring that these plans move beyond promises and translate into tangible results on the ground,” Rashied said.

Besides the previously announced list of companies being prepared for privatisation, the government also revealed plans to privatise the management of the country’s airports and public healthcare institutions.  

In May, the House of Representatives approved a bill opening the door for the private sector to build, manage, and operate public hospitals as a means to improve the quality of the services offered. 

The move saw some reservations based on fears that this might increase the cost of healthcare for those on limited incomes. The number of patients using public hospitals and inpatient and outpatient clinics in 2021, the most recent available figures, was 48 million, with only a tenth of this figure, at 4.7 million, visiting private hospitals.

The plans come as the government is preparing to launch the second phase of the Universal Health Insurance system at the beginning of January, with the results of the first phase seeming positive. Personal spending on health services in Port Said, the first governorate to apply the system in 2020, decreased by more than 47 per cent in the first year of the system, according to the National Health Accounts report issued last year by the Ministry of Health.

In October, the International Finance Corporation (IFC), which the government has commissioned as an advisor to the privatisation programme, submitted a technical study and a proposed timeline to offer the management and operation of 20 airports, including four new ones, to the private sector.

Egypt has 23 airports, with the Cairo International Airport being the largest.

The offering of these airports to the private sector, according to observers, aims to create demand and support the growth of incoming tourism to Egypt as more than 90 per cent of Egypt’s tourism comes via air. Egypt plans to attract 30 million tourists by 2028.

On a parallel path to leave more room for the private sector, the government is curbing its involvement in the investment scene, as manifested by its capping the value of public investments in 2024-2025 at LE1 trillion. This represents a departure from its long-term policy of heavily investing in infrastructure and mega projects.  

Rashied said that the state had heavily focused on mega projects and had at times crowded out the private sector by absorbing resources and elevating the cost of borrowing that might otherwise have fostered private investment and growth. 

However, she said that “not all mega projects were geared toward competing with the private sector as many infrastructure initiatives, deemed unattractive to private investors, were essential and required the government’s direct intervention.”

The private sector’s contribution to the economy is still limited, however. According to a report by the cabinet’s Information and Decision Support Centre (IDSC), the private sector’s contribution to total investment came in at 37 per cent during the fiscal year 2023-24. This is expected to increase to 48 per cent, according to economic plans for the fiscal year 2024-25.

Another proof of the slim contribution of the private sector to the economy is its low share of the overall loans given by banks. The percentage of bank loans given to the private sector as compared to overall loans declined to 46.2 per cent in the first quarter of the year, the first time the percentage was lower than 50 per cent. The high interest rates, currently standing around 28 per cent after an eight per cent increase during the year, are to be blamed. 

In another move aimed at encouraging private investments, the government cancelled preferential tax treatment and exemptions for state-owned enterprises, including military-owned ones. It also tried to enhance the transparency of state-owned company activity, which is critical to achieving the reform programme’s objective of levelling the playing field for the private sector.

“The government has taken significant steps, signalling a shift towards equitable policies that foster private sector growth,” noted Rashied, who underscored the recent tax reforms that are designed to restore trust between taxpayers and the Tax Authority. 

“These reforms aim to enhance transparency, simplify compliance, and encourage broader participation in the formal economy,” she said.

* A version of this article appears in print in the 26 December, 2024 edition of Al-Ahram Weekly