Investment in the balance

Ziad Bahaa Eldin, Tuesday 20 Sep 2022

Ziad Bahaa Eldin reflects on the sale of state assets

 

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 few months ago, when Arab sovereign funds started purchasing shares of successful Egyptian companies through the stock exchange, I thought there was no cause for alarm and that we should welcome such transactions as they are consistent within our national policy of attracting foreign investment.

My position on welcoming national and foreign investment – whether greenfield, brownfield, or acquisition of existing projects – has not changed. I continue to maintain that the only way for us to come out of the current crisis is by encouraging private investment, as it is the driver for increased production, employment and export, without which there will be no sustainable economic development and no hope for progress.

But circulating news about Arab companies and funds buying more shares, projects and real estate properties — some of which may be incorrect — poses some questions about the circumstances surrounding the current drive. So let me present what I feel should be points of consensus in framing the current debate:

First, a distinction must be made between what is sold by the private sector and what is sold by the state. The private sector is free to sell as it sees fit, and no one has the right to interfere.

Secondly, while recognising that the sale of shares through the stock exchange will be at the current fair price because it is the trading price available to everyone and therefore not tainted by manipulation or corruption, the timing of the sale and its mechanisms should be subject to oversight and scrutiny from competent authorities in the state, parliament and public opinion. The reason for this is that selling stocks at low prices during a severe economic crisis is a loss to the public treasury and we should therefore attempt to delay the sale till the worst of the crisis has passed.

Thirdly, with respect to real estate assets, the issue is more complex. These assets need a proper valuation, which is not available through publicly available prices. And since valuation is — after all — a science and an art, there is a public interest in ensuring that real estate assets are properly valued.

Fourthly, both the constitution and the law recognise the right of the state to expropriate private property in order to construct public utilities and serve public interests. However, the expropriation of private property in order to hand it over or sell it for purposes of private investment, is contrary to the constitution and the law.

Fifthly, in the past, the sale of public assets was made through an organised and public program, whether called a privatisation program or a policy to expand the base for ownership. This ensures relative transparency about the assets being offered for sale, the minister responsible for the process, and the law to which sales are subject to. But in the current wave, are the sales taking place according to a specific and public program? Are they under the umbrella of the State Ownership Document being discussed? And who is responsible for such program as a whole?

Finally, with the opportunity to acquire stocks and public assets at low prices due to the economic crisis, the question that arises is why are there no organised financial pools able to attract the savings and investments of the Egyptian household sector and channel them to the purchase of these assets? In other words, if the shares of our best companies are offered for sale at low prices, as well as the real estate assets sold by the state, why is the Egyptian public not able to participate in buying them through investment funds and other official entities instead of leaving them entirely to Arab funds and investors from abroad?

Unfortunately, the answer is simply that we are paying the price of neglecting investment funds, which once had a promising future in attracting household sector savings, but their role has receded for many reasons which would need more than the space allowed here to explain. The bottom line is that the Egyptian household sector is not participating enough in buying premium stocks and assets when their prices drop in the same manner that foreign investors are.

This is a call for more transparency and clarity about the program of selling state assets being implemented, not out of a rejection of the sale in principle, but in the hope that it will achieve the best outcome.

 

This article also appears in today’s edition of the daily Al-Masry Al-Youm.


*A version of this article appears in print in the 22 September, 2022 edition of Al-Ahram Weekly.

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