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LETTER FROM THE EDITOR

Whatever happened to the Privatization Cabinet?

Back in October 1999, when Egypt’s current cabinet, headed by Prime Minister Atef Ebeid, was first appointed, government-watchers anticipated new life being breathed into the country’s privatization program. Businessmen, along with American structural-adjustment consultants, had been expressing concern about an evident slowdown since the previous year in the government’s campaign to sell-off state assets.

Then – as now – caution could be justified by referring to unsuitable global economic conditions. But the cabinet shuffle came at a time when foreign investors were eyeing emerging markets with renewed interest, while Egypt’s tourism industry was well on its way to recovery from the devastations of late 1997.

Ebeid, formerly the minister of public enterprise under Prime Minister Kamal Al Ganzouri, was recognized as one of the government’s stronger voices in favor of privatization. Ganzouri’s fall from grace, amid accusations of blowing the state’s budget through mishandling of the national megaprojects, suggested that the new government was going in with a mandate – if not a duty – to put economic reform back on track. The press dubbed the new team “the Privatization Cabinet.”

Somehow, that mandate doesn’t appear to have been fulfilled. Of the 348 companies on the list to be privatized under Investment Law 203 of 1991, about half remain unsold. Not surprisingly, the most attractive companies – such as Al Ahram Beverages or Commercial International Bank – were picked up early, and those that remain do not look like they have instant money-making potential. Rather than selling off its assets cheap, however, the government prefers to engage in endless rounds of restructuring to make the companies attractive to buyers.

That arguably goes against the basic idea of structural adjustment. The point of putting state assets into the hands of the private sector is that better management will follow, and that, as a result, the economy will benefit from an overall improvement in efficiency. Private investors who would be willing – if the price were right – to take the most derelict companies off the government’s hands would also have a strong motive to make the firms profitable.

For now, however, the prices are clearly not right. Tenders on state-owned cement companies, for example, have repeatedly been extended after failures to find buyers. Telecom Egypt’s inability to stir foreign investors is more complicated, because of doubts about the regulatory framework under which the firm will have to operate. Still, the fastest way to offset such doubts would be to lower the price tag.

The more cautious approach is to hold on to a company until everything is fixed and its operations are running smoothly. But the underlying assumption here is that the necessary improvements can actually be accomplished within the public sector – in which case, why privatize at all?

By treating privatization as a potential source of revenue, isn’t the government losing sight of the need to invigorate the economy? State assets are theoretically the property of the Egyptian people, but wouldn’t the people see more rewards from inflows of investment and creation of jobs than from a few million extra dollars going into the public coffers at an unspecified date in the future?

Foreign corporations still have their eyes on Egypt, as the recent gathering of American CEOs for a meeting in Washington with President Mubarak indicates. Good news for advocates of economic reform perhaps, but hardly a reason for complacency.

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