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privatization drive lures fdi
by amena bakr
egypt has witnessed a resurgence of its privatization
program under the nazif government with inbound foreign capital
rippling its way into various sectors of the economy. sell-offs
of state banks, petroleum companies and even a stake in the national
telephone company have proven attractive bait in luring foreign
investment.
according to ministry of investment figures, the government’s
revitalized privatization program has brought in more than £e
16.5 billion since the nazif government took office in july 2004.
meanwhile, net foreign direct investment (fdi) reached $3.9 billion
in fy 2004-05, a $900 million increase on the previous fiscal year.
“privatization opened up the markets, which led to the increase
of fdi,” said a privatization expert who spoke to business
monthly under condition of anonymity.
last year, amid a spate of bank m&as, the government announced
that bank of alexandria would be the first of the “big four”
public banks to be privatized. the bank has already undergone management
restructuring and has begun to divest its stakes in the private
sector, most recently its 33-percent stake in egyptian american
bank (eab). meanwhile, banque misr has sold its 33-percent stake
in misr-romanian bank to lebanon’s blom bank, and nbe has announced
its intention to sell its 18.7-percent of stake in commercial international
bank (cib).
“we’ve seen public banks being sliced down by privatization,
which i believe led to having better management and made investors
gain confidence in egypt’s financial system,” said maged
fahmy, general risk manager at suez canal bank. “most of the
funds gained by the sales of these banks will go into improving
the existing financial system.”
the telecommunications sector has also taken the spotlight as of
late with a media frenzy surrounding the initial public offering
(ipo) last december of a 20-percent stake in the national fixed-line
monopoly, telecom egypt (te). the 341 million shares sold like hotcakes,
generating £e 5 billion for state coffers in the process.
“i think that the te ipo worked well in attracting both egyptian
and foreign investors into the stock market,” said mohamed
fahmy, an analyst at prime securities.
egypt’s privatization program stalled in the late 1990s after
the government sold its most profitable companies, and was left
with the loss-makers. now that it’s up and running again, investors
are eager for more. and according to ministry of investment officials,
they’ll soon get it.
department store omar effendi is also on the block, but the overstaffed
retailer with 82 branches valued at £e 600 million has attracted
only one investor, kuwait’s sultan center. other privatizations
expected in 2006 are bank of alexandria, middle east oil refinery
(midor) and a second stake in alexandria mineral oils company (amoc).
the sales are long overdue, argue privatization advocates. “i
think that it’s a very strange thing when a government decides
to control stores, cinemas and chocolate factories,” quips
the privatization expert. “they have to be more focused to
public services and let the private sector take charge of these
other things.”
on the other hand, many egyptians are still wary of privatization.
upon acquiring state companies, private investors usually attempt
to streamline labor and processes by restructuring departments and
laying off redundant staff. the egyptian government has attempted
to allay fears and protect jobs by requiring the purchasing companies
to retain staff or offer early retirement packages.
privatization aside, a number of other factors have contributed
to the overwhelming increase of fdi. “the boom in oil prices
over the past couple of years has created a surplus in the accounts
of arabs so they began to look for ways to invest their money in
neighboring countries such as egypt,” explains the privatization
expert. he went on to note that in western countries a period of
recession followed the 9/11 terrorist attacks, with interest rates
falling to almost 1.8 percent. in egypt, however, interest rates
have continued to hover between 10 and 13 percent. “that’s
why many foreigners and non-residents have chosen to place their
money in egypt – so they will obtain higher interest.”
suez canal’s fahmy, meanwhile, sees investors responding to
the economic reforms of the last 18 months, which have included
state asset sales, tariff cuts and tax reform. he says the reforms
have raised investor confidence, but to continue, they must be accompanied
by real political changes. “economic reform cannot be achieved
without political reform; they have to work hand in hand,”
he stressed.
finally, egypt has negotiated a number of bilateral and multilateral
agreements that are fostering trade and luring foreign investors.
the main aim of agreements such as the egypt-eu association agreement,
the pan arab free trade agreement and egypt’s recent free trade
agreement with turkey [see story, page 24], is to remove the tariffs
and bureaucratic barriers that restrict trade. but as trade flows
freer, the opportunities for investment increase.
suez canal’s fahmy expects these trade agreements, coupled
with economic reforms and an aggressive privatization program, to
continue to attract foreign investors. “if the government continues
to take its privatization and reform plans seriously, i believe
we will see very positive results for fdi by the end of the year.”
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