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SUGGESTION BOX
As this issue was going to press, Prime Minister Kamal
El-Ganzouri was reportedly heading into a meeting to discuss the
yearlong drop in Egyptian share prices. On the agenda: causes of
the fall, and steps the government could take to reverse the trend.
We have our own list of suggestions.
Do nothing: Properly functioning, the market is only a mirror of
investors’ perceptions of the endless details that contribute
to the state of Egypt’s macroeconomy and corporate performance.
The government’s job is to work on these details, not to try
to manipulate investors’ decisionmaking. Past attempts to make
the market look more attractive than it is – whether via price-supporting
investments by the “ghost” or offering-boosting interventions
as in the case of Nasr Civil Works – have had the opposite
effect of sapping investor confidence. Investors want to see the
market rise, but they also want to know the government understands
its role. There’s enough uncertainty out there without throwing
the universe of possible government interventions into the equation.
Properly notify: Even if the government avoids actions designed
to push stock prices in one direction or another, many of its decisions
will inevitably move the market. In such cases, as in the case of
Law 5, which threatened the earnings potential of the banking sector,
it is important that decisions be taken clearly and that key market
players be properly notified, if not consulted. In the case of Law
5, the government gutted banking sector stocks and eventually the
law itself because it failed to foresee the law’s potential
impact on banking stocks. Now that Egypt has an active stock market,
it needs to adopt a more open process of making decisions.
Sell off full stakes: Why are privatization-list companies underperforming
their private sector counterparts? Because investors don’t
trust companies that have the government as a partner to act in
shareholders’ best interests. And why this lack of trust? Well,
there’s the whole history of state ownership of industry and
the mounting losses that led ultimately to the privatization program
in the first place. And there’s the current record of state-sector
managers, who, hamstrung by the government’s strategic imperatives
and their own lack of vision, have failed in many cases to generate
inspiring returns. If the government wants to make investors feel
better about the market, it should pull out entirely from key sectors.
Sack state managers: A logical follow-up to dumping state shareholdings
is to dump state-sector managers, who have been trained to respond
to the wrong people – government officials, rather than shareholders.
A good example is the agreement by the chairmen of Egypt’s
majority-privatized companies to implement government suggestions
to support their stocks. Why should these managers be taking their
cues from the government, which owns less than 50 percent of their
shares and which has proven unable to run their companies? If management
doesn’t change, privatization means little. Undoubtedly, this
is why management hasn’t changed. But it’s time to become
more serious about reforming these companies.
Issue more bonds: A properly functioning capital market needs a
better balance of debt and equity than we have in Egypt. The fate
of the bond market is largely in the government’s hands. Long
bonds like that issued by the treasury in August add liquidity and
set a benchmark for longer-term corporate issues. The government
appears ready to issue more of these bonds, and it should. A more
active bond market will give investors more flexibility, making
the capital market a better bet.
Hire Amina Rashad: Judging by her results here, our top-notch advertising
and circulation coordinator is fit to straighten out any troubled
system. Sadly, Amina is leaving our team this month. Happily, she’s
leaving to care for her really cute daughter, Zeinab. We wish both
Amina and her family the best.
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