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TIME TO STEP UP
Next month, AmCham Egypt will take the stories of
14 state-owned companies slated to be sold to strategic in-vestors
on the road to the U.S. Support-ed by Merrill Lynch and ING Barings,
we will do our part to highlight the unlocked opportunities of the
state sector and to make the case for investment in Egypt’s
new economy.
We have already made these arguments at a workshop held in Cairo
on Sept. 14, which was headlined by Dr. Atef Ebeid, Egypt’s
minister of public enterprises. For anyone serious about investing
in Egypt, Ebeid’s comments were extremely encouraging. Egypt,
he said, is working hard to broaden the privatization program by
selling state assets in previously untouchable sectors like power
and telecommunications and deepen the program by increasing the
scale of government divestitures.
“We will pull out,” he said. “The government is not
competing and will not compete with the private sector in owning
and running economic enterprises.”
Many of the enterprises that remain are struggling. But those same
enterprises enjoy strong product lines and high market shares, and
could be turned around by private management. For that reason, the
Ministry of Public Enter-prises is focusing on strategic investor
sales in this stage of the program.
In an effort to make the companies on offer more attractive, the
ministry has put them through restructuring to pare down excess
debt and labor. Prior to restructuring, Ebeid said, the companies
had an average debt-to-equity ratio of 9:1 and average overemployment
of close to 70 percent. After negotiating with the companies creditors,
moving debt from the affiliate to the holding company level and
selling assets to raise cash, Ebeid has said that 100 companies
are ready to be offered almost debt-free.
Attractive early retirement packages offered to workers produced
a voluntary reduction of excess labor, the minister said, leaving
the companies with manageable work forces.
The ministry has also made some concessions on valuing the companies.
Most importantly, land holdings have been valued at the price of
equivalent plots in the new communities.
The government has taken its step forward. Investors should feel
confident that the activities they undertake to develop and implement
their turnaround strategies will have the full support of the Egyptian
government. But now, private investors will have to show that they
are up to the opportunity.
As potential strategic partners in the U.S. will hear next month,
investment in the 14 companies on offer demonstrate plenty of potential
for profit and growth. But as they will also hear, that potential
is only available in exchange for commitment. Speculation will not
pay off in this round of privatization. On the other hand, investors
who take the time and effort to chart new management and marketing
strategies that build on these companies’ strengths, and who
are dedicated enough to see these plans through, will be amply rewarded.
This round of sales of state-owned companies to experienced, dedicated
in-vestors is perhaps the most important in the privatization program.
It is through the sale of struggling but viable companies that our
commitment to proceed will best be tested. And it is only through
the introduction of new managers and new owners that the true benefits
of privatization will be realized.
This round of sales will constitute a full surrender of government
control over the offered companies, and send a clear message to
the world that Egypt intends to push ahead with structural reform,
even when the going gets tough.
The government of Egypt has made plain its commitment to clear the
way for private investors interested in buying into Egypt’s
privatization program. It is now up to us – as private investors
– to recognize and unlock the potential of these companies.
Our response will in-fluence not just the future of the privatization
program, but the future of Egypt itself. The economy has been placed
in our hands. Now it is time to show that we can live up to theory.
Ahmed Shawi
President, AmCham
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