When former Chinese leader Deng Xiaoping observed that it does not matter whether a cat is black or white as long as it catches mice, he was advocating the simple but powerful economic principle of pragmatism over ideology.
What matters in economic policy is not the ownership model, institutional label, or theoretical purity, but whether the policy delivers results. In today’s debates over economic reform in Egypt, this wisdom remains highly relevant.
Last July, the International Monetary Fund (IMF) agreed to merge the fifth and sixth reviews of its $8 billion Extended Fund Facility (EFF) programme with Egypt. The combined review will assess progress across several fronts, especially the reduction of the state’s economic footprint and the enhancement of private sector participation. If Egypt completes these reviews successfully, it stands to receive a combined disbursement of roughly $2.5 billion.
For the IMF, the message is clear: less state, more private sector. Yet this prescription, while rooted in economic orthodoxy, deserves more critical examination. The assumption that diminishing the state’s role will automatically improve performance is far from settled. As Deng implied, the cat’s colour, whether state-owned or privately operated, is less important than whether it delivers real economic outcomes.
Before accepting the IMF’s recommendations, Egypt must scrutinise them both theoretically and practically. Economic systems do not succeed merely because they tilt towards the state or the market. They succeed because institutions are credible, incentives are aligned, and capacities are developed. Reducing the state’s role may satisfy ideological preferences, but ideology alone cannot solve Egypt’s structural challenges.
From a theoretical standpoint, state participation, including military involvement, is not inherently problematic. It is acceptable under specific circumstances that are not rare in developing economies. When private investors are absent, when markets are unbalanced, or when strategic industries must be safeguarded, state participation fills essential gaps. No economy leaves national defence, critical logistics, or vital infrastructure fully to the private sector.
There are sound economic rationales for the state’s role. One arises from national security considerations. Defence manufacturing, infrastructure protection, and the maintenance of essential supply chains often require state oversight. Another rationale is the need for rapid execution in periods of crisis or institutional weakness. Military institutions, for example, often possess logistical and organisational capacities that can deliver infrastructure or social projects quickly and reliably when civilian institutions are overstretched.
A third justification stems from market failures or weak private capacity. When the private sector is excessively risk-averse, fragmented, or focused on low-value activities, state involvement can provide coordination and investment that would otherwise be missing.
The widely cited “crowding-out” argument against state enterprises also deserves refinement. The crowding-out effect, the idea that state firms displace private investment, depends heavily on market structure. In saturated or low-margin markets where many firms already compete and profit margins are thin, the private sector has little incentive to invest further because returns are minimal or competition is intense.
In such markets, additional state participation does not truly displace private firms, because there is no new private investment to crowd out. Instead, the state may help to stabilise prices, prevent shortages, or maintain activity in areas where private investors are reluctant to operate.
The IMF, to its credit, does not object to state ownership in principle. Rather, it worries about how that ownership interacts with competition, fiscal management, and investor incentives. Its concern is that state-affiliated enterprises may enjoy preferential access to land, credit, or government contracts in advantages that undermine competitive neutrality and discourage private entry.
But these concerns can be addressed through regulatory reforms, transparency, and leveling the playing field. Privatisation is not the only, nor necessarily the best, solution.
If theory calls for a balanced approach, practice reinforces the need for caution. Egypt’s past experiences with privatisation offer sobering lessons. In the earlier waves of privatisation, most if not all of the major enterprises sold ended up in the hands of foreign investors rather than Egyptian ones. While foreign investment can be beneficial, this pattern poses two long-term economic risks.
First, foreign-owned firms typically repatriate profits to their home countries. Over time, these outflows add pressure on the balance of payments, increasing Egypt’s demand for foreign currency. In a country already grappling with periodic foreign-exchange shortages, high external debt levels, and structural current-account gaps, sustained profit repatriation can exacerbate vulnerabilities. Rather than improving external stability, privatisation under these conditions risks undermining it.
Second, the anticipated benefits of foreign ownership, including technology transfer, capacity building, managerial improvement, and increased productivity, largely failed to materialise. Many privatised firms simply shifted ownership structure without upgrading production capabilities or expanding output. Egypt did not see a significant improvement in technological sophistication, export competitiveness, or innovation among these enterprises. Privatisation, in most cases, merely reallocated rents rather than stimulating meaningful economic development.
These outcomes point to a deeper issue: selling state assets does not automatically create a more productive or competitive economy. When the private sector is shallow, import-dependent, or geared toward short-term returns, ownership change alone cannot transform industrial capacity. Indeed, Egypt’s private sector remains risk-averse and heavily oriented towards trade, real estate, and services rather than manufacturing or technology-intensive activities. Asking such a private sector to replace the state rapidly or comprehensively is unrealistic.
This brings us back to the central flaw in the IMF’s approach. It assumes that reducing the state’s footprint will automatically unleash private-sector dynamism. But a weak private sector cannot play the role the IMF imagines. Without adequate financing, technological depth, or integration into global value chains, private firms cannot fill the gap left by a retreating state. Instead, the result may be reduced investment, job losses, and slower growth, precisely the opposite of the intended outcome.
The issue, then, is not whether the state is present, but how it is present. The state can be an enabler of development, a provider of strategic guidance, and a counterweight to market failures. It should avoid distorting competition, but it should not abandon sectors where private participation is unlikely or insufficient. Likewise, privatisation should not be pursued as an end in itself. Selling assets to meet short-term fiscal targets or to satisfy external benchmarks often produces long-term costs.
None of this suggests that the state should expand indefinitely. On the contrary, Egypt needs a more efficient, transparent, and accountable state sector. But reducing the state’s footprint must be done thoughtfully, gradually, and with a realistic understanding of what the private sector can absorb. Policies should be pragmatic, not ideological. What matters is strengthening economic performance — productivity, exports, employment, and technological upgrading — regardless of whether the entity driving those results is public or private.
This is where Deng’s proverb offers its clearest lesson. The colour of the cat does not matter; what matters is whether it catches mice. Egypt’s priority should not be to reshape its economy in accordance with IMF preferences, nor to cling rigidly to a state-led model. Instead, it should adopt a flexible approach that allows both sectors to contribute according to their strengths. A capable state, a stronger private sector, and a competitive environment can coexist productively.
For Egypt, the ultimate goal should be building an economic system that catches mice: one that boosts productivity, attracts investment, preserves stability, and improves living standards. The IMF’s focus on ownership risks missing this broader point. Egypt’s reforms must be judged not by the size of the state or the private sector, but by the results they deliver.
If Egypt adopts this pragmatic approach, it need not worry about the colour of its economic cat. It will instead concentrate on ensuring that it performs its essential task: catching mice for the benefit of the entire economy.
The writer is a banking consultant.
* A version of this article appears in print in the 4 December, 2025 edition of Al-Ahram Weekly
Short link: