Egypt delivering on economic promises

Niveen Wahish , Sherine Abdel-Razek , Wednesday 12 Jul 2023

On Tuesday, Prime Minister Mustafa Madbouli announced that the government had divested stakes worth $1.9 billion in a handful of state-owned companies.

Mustafa Madbouli
Prime Minister Mustafa Madbouli. Al-Ahram


Speaking at a press conference, he said the deals included a 37 per cent capital increase, the equivalent of $700 million, of the holding company of seven of Egypt’s five-star hotels to a consortium that includes the local Arab Company for Hotels and Tourism Investment (ICON), a subsidiary of Talaat Mustafa Group.

Minority stakes of between 25 to 30 per cent of three companies — Egyptian Linear Alkyl Benzene (Elab), the Egyptian Drilling Company, and the Egyptian Ethylene and Derivatives Company (ETHYDCO) —went to Abu Dhabi Development Holding Company for $800 million. The government is also divesting 31 per cent of its shares in Ezz Al-Dekheila Steel Alexandria to its current major shareholder Ezz Steel, Egypt’s biggest steel manufacturer, in a deal worth $244 million.

The prime minister added that deals worth a further $1 billion will be announced soon. According to Minister of Planning and Economic Development Hala Al-Said, these include Gabal Al-Zeit wind farm located in Khaleeg Al-Zeit on the Red Sea and the military-owned Wataniya Petroleum Company. Al-Said said the government has received bids from interested investors who are currently carrying out due diligence for both companies, with a decision expected early in the fourth quarter of 2023. Speaking at the press conference, she also said 21 desalination plants are in the pipeline for divestiture, with 90 investors from 30 countries showing interest.

Madbouli said the sales are part of the government’s plans to allow a greater role for the private sector and consolidate hard currency revenues. Since 2020, Covid-19 and the war in Ukraine have seriously dented Egypt’s economy, impacting hard currency revenues and investments. To turn the situation around, President Abdel-Fattah Al-Sisi said in April 2022 that he wanted the government to attract $40 billion in fresh investments over four years by selling stakes in state-owned assets to local and international investors. Soon after, the government launched its State Ownership Policy Document.

Finalised in December 2022, the document outlines a strategy to expand the participation of the private sector in the economy from 30 per cent at present to 65 per cent within three years. It also identifies the sectors from which the state plans to withdraw or decrease its presence, and those in which the state’s presence will increase over the next three years.

The announcement shows that the government is serious about implementing its commitments, Amr Hussein Elalfy, head of research at Prime Securities, told Al-Ahram Weekly. He noted, however, that a clear timetable for when the rest of the companies slated for privatisation are to be put on the block should be announced.

One highlight of the prime minister’s announcement was that the deals were made in hard currency rather than Egyptian pounds, said Ali Metwally, risk analyst at Infospectrum, a UK-based counterparty risk appraisal services company. According to Madbouli, around 85 per cent of the value of the deals will be paid in hard currency. Seconding Metwally, Elalfy stressed the importance that these be dollars that are new to the local economy rather than being borrowed from local banks.

The sale of stakes in state-owned companies is an important part of the commitments Egypt made to the International Monetary Fund (IMF) as part of its 46-month $3 billion Extended Fund Facility approved in December 2022. Only $347 million of the loan has been disbursed so far. The slow pace of privatisation and delays in applying a fully flexible exchange rate system have been cited by experts as the main reasons behind a delay in the IMF’s review of the first tranche of the loan, originally scheduled for mid-March. A successful review is necessary for further disbursements.

Madbouli said the implementation of divestitures is not a response to the crisis but an implementation of the State Ownership Policy Document and progress in the five-year structural reform programme launched two years which aims at growing the manufacturing, agricultural, and information technology and communications sectors. He said 35 per cent of the programme has now been implemented and that since its launch exports have grown by 16 per cent, registering $35 billion for non-oil items. The three targeted sectors currently contribute 26 to 30 per cent of GDP.

During the press conference, Madbouli outlined steps taken by the government to facilitate and encourage investments. Incentives for industrial investors include exemptions of up to half of the cost of utilities infrastructure, partial reimbursement of part of the cost of land and income tax rebates of between 30-35 per cent. These were part of 22 decisions taken by the Supreme Council for Investment in May to boost private sector participation in the economy and facilitate foreign direct investment.

The government has been working for the past seven months to sell off asset shares in the face of challenges that include speculative attacks on the currency, higher interest rates worldwide and cautious investor sentiment towards emerging markets, noted Metwally. The announcement of $1.9 billion in asset sales is positive news, he said. It reaffirms Egypt’s commitment to fulfilling the reform agenda agreed with the IMF and should reassure the market that Egypt is unlikely to face significant pressure in meeting its foreign debt obligations. An additional $1 billion in deals during the second half of 2023 or the first half of 2024 means that the country will exceed its $2 billion sales goal, which, says Metwally, “brings Egypt very close to a successful first IMF review”.

During the press conference Madbouli also spoke of how the government plans to increase hard currency revenues in a bid to meet its financing needs. He said in the coming three years the target is to increase exports and tourism revenues by 20 per cent. The government is also targeting a 10 per cent increase in remittances, FDIs, Suez Canal receipts and outsourcing revenues. Added up, hard currency revenues should reach $191 billion by 2026. “All things being equal, these figures are doable,” says Elalfy.

During the press conference, Madbouli stressed that Egypt is committed to meeting all its financial obligations. “There may be delays in fulfilling the needs of some companies which want to repatriate their profits,” but “this is a temporary situation that we will overcome,” he said.

Finance Minister Mohamed Maait said plans are afoot to reduce Egypt’s public debt to 75 to 80 per cent of GDP within four to five years. Egypt’s foreign debt has grown from under $40 billion in 2015 to $163 billion in December 2022.

A report issued earlier this week by BMI, a Fitch Solutions company, concludes that Egypt will be able to cover its external financing needs of $18.7 billion in 2023-24 from FDIs, multilateral funding, and some debt issuance. During the press conference Maait said $3 billion will be secured by the end of the year through loans from the African Development Bank and the Asian Investment International Bank, and that Panda and Samurai bonds will be issued that target the Asian market.

* A version of this article appears in print in the 13 July, 2023 edition of Al-Ahram Weekly

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