To maximise the return on state assets the government is planning to transfer the management of all state-owned enterprises (SOEs) in batches to the Sovereign Fund of Egypt (SFE), Minister of Investment Hassan Al-Khatib said last week.
Speaking at an investment conference in Abu Dhabi, Al-Khatib said Egypt has “a lot of good companies” and that by moving them, getting the private sector to run them or partnering with the private sector and ensuring proper governance and listing some (on the stock exchange), the sovereign fund will maximise the value of, and return on, assets.
The idea of moving state-owned enterprises to be managed by the SFE to maximise returns is a step in the right direction because divestment and identifying the role of the government in the economy needs a more comprehensive approach than just focusing on a few companies, said Reham ElDesoki, economist and policy advisor.
“There needs to be a whole-of-government approach towards divestment, identifying the role of the government versus the private sector in each sector, under the umbrella of the state ownership policy,” she noted. The financial position of the SOEs and their contribution and weight in each sector should be identified so the potential impact of any decision is clear.
According to a report by the cabinet’s Information and Decision Support Centre (IDSC), there are 709 state-owned companies, of which around 40 per cent are overseen by the Ministry of Public Business Sector. Egypt’s Sovereign Wealth Fund was established in 2018 with the aim of creating opportunities for investment in state-owned assets.
This would be a strategic move that could enhance the profitability of state-owned enterprises, says Sherihan Bekhiet, head of government affairs and public policy at Dcode Consulting. By transferring SOEs management to the SFE, the government aims to maximise returns on state assets through improved governance, restructuring and attracting private sector partnerships, she explained. The approach is expected to unlock value, create wealth and potentially lead to public listings of some enterprises, increasing their market value.
Some of the SOEs are not very attractive for investors in their present state. They face challenges such as operational inefficiencies and outdated financial records which could lead to undervalued transactions, notes Bekhiet, adding that placing these enterprises under SFE management could allow the government to implement necessary overhauls and reforms to maximise competitiveness and profitability.
The target of the decision needs to be clear, says ElDesoki. “Will it mean that the private sector will be brought in to share ownership from the start, or will the first step be to restructure and improve the management and then decide whether full or partial stakes are sold or strategic investors or another alternative sought?”
Expanding the role of the private sector and selling stakes in state-owned companies is part of the government’s commitment to the International Monetary Fund (IMF) under the framework of its $8 billion Extended Fund Facility. Maximising the assets of these enterprises benefits the country and doesn’t contradict with Egypt’s commitment to the IMF, says Bekhiet.
The ultimate policy target under the IMF programme is a reduction of the state’s role into that of regulator and an increase the role of the private sector in economic activity, says ElDesoki, a broad mandate that can be carried out in multiple ways. It could, for example, happen through revenue sharing agreements with the private sector, management agreements or sales to the private sector. “The approach can also be mixed. We can improve management and keep companies in government ownership. Others can be improved and sold. There is no one size fits all.”
In 2022 Egypt issued a State-Ownership Policy Document outlining sectors it plans to exit to allow a greater role for the private sector. In August 2023 the government produced a list of 35 companies to be floated on the stock exchange or sold to a strategic investor. The revenue from the sales would boost government revenues and help cover its financing gap. However, the IMF has criticised the process as slow. In December 2024, the prime minister said stakes in at least 10 companies would be offered this year, including two military-owned companies.
According to ElDesoki, in the past few years a mix of macro and micro factors has affected the divestment of stakes in state-owned companies, including economic turbulence resulting in a forex shortage, the Covid-19 pandemic, regional conflicts and the dynamics of the sectors themselves. Moreover, there was no single entity to which investors could apply. The Ministry of investment was only reinstated in July 2024 and the SFE became affiliated with the ministry in October 2024.
There needs to be a single entity to which investors interested in acquiring or partnering with the government can revert, says ElDesoki, adding that there also needs to be clarity and a minimum level of information available in the public domain that investors can check before contacting the authorised entity.
To ElDesoki, managing the companies and improving their income will be a positive step because the government cannot sell everything. It needs to maintain some strategic companies, and the most important factor is less about ownership per se than a competitive environment.
“Some companies could remain state-owned but they need to function like the private sector and be subject to the same regulations and market environment governing the private sector. Their activity needs to be based on sound financials and operations, not propped up by the government by hidden benefits in the form of tax exemptions or other extraordinary benefits that the private sector does not enjoy.”
The IMF and the World Bank, she points out, are asking for a bigger role for the private sector because it is more efficient financially, and to ensure that a competitive market-oriented environment is in place to attract local and foreign investors. Competition guarantees that the best and strongest survive.
It remains to be seen how the decision will be carried out given the existence of other entities with roles related to restructuring public sector companies, notes ElDesoki. These entities include the Ministry of Public Business Sector and NI capital, the financial services subsidiary of the National Investment Bank whose mandate includes restructuring and marketing state-owned assets. Either the government will expand the SFE or augment its capacity with existing capacities from the government and entities such as NI Capital which have expertise. She also suggests engaging other investment banks in supporting the preparation of selected SOEs.
The role of the SOE unit affiliated with the cabinet also needs to be clarified, she says.
In May 2024 the cabinet prepared a draft law creating a unit that would be in charge of following up on the implementation of state-ownership policy according to specific performance indicators. The draft law is currently in the House of Representatives awaiting finalization.
“How will the unit factor in the process, who will be the decision maker?” asks ElDesoki.
* A version of this article appears in print in the 6 March, 2025 edition of Al-Ahram Weekly
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