Egypt's Public-Sector Revamp
Source: www.export-egypt.com 9/1/2018
Minister of Public Enterprise Hisham Tawfik recently announced that the ministry would begin plans to restructure the public sector in September with a view to improving companies’ performance and paying off their debts.
Meetings would be held with each of the state-owned companies to discuss the ministry’s vision for reform according to the situation of each company, he said.
He added that plans given to the companies would be set according to a comprehensive study of each sector.
Egypt’s public sector includes 121 companies in different areas affiliated to eight holding companies with 210,000 employees.
These companies have been criticised for being inefficient and making losses that in some cases have reached 90 per cent of their capital.
President Abdel-Fattah Al-Sisi has asked the government to draw up plans to reform the public-sector companies and increase their share of the economy.
Speaking during the inauguration of projects in Beni Sweif in August, he said that financial assistance could be provided to upgrade the performance of these companies, but positive results would also be necessary.
He asked the minister concerned to track the assets of the public-sector companies and act accordingly.
“This is an important step because if there are unused assets owned by the public-sector companies the government could use them to pay off the sector’s debts,” Ehab Al-Dessouki, head of economics at the Al-Sadat Academy for Administrative Sciences, said.
The plans include different approaches to the problem of the companies’ debts, mainly due to the National Bank for Investment, the Ministry of Electricity,and the Ministry of Petroleum.
The debts currently exceed LE40 billion, and Tawfik said that paying them could be through cash installments during a fixed period, shifting the ownership of shares in the companies, or employing unused assets to the benefit of creditors.
According to Tawfik, the plans will start with a dozen companies, setting out clear steps to help them stand on their feet again.
Mohamed Al-Batal, head of administration at the state-owned Nasr Company for Spinning and Weaving in Al-Mahallah Al-Kobra, said that as part of the reform plans last week his company had been requested by the Holding Company for Spinning and Weaving to send a detailed statement of the Company’s workers, salaries and bonuses over the coming three years and the ages of retirement of all workers.
He said that the plans should be combined with investment to buy new machines to replace older ones that were no longer able to compete with the private sector.
Although there had been many unsuccessful attempts at restructuring his company in the past, Al-Batal said that workers were optimistic and hoped the plans would succeed.
Mokhtar Al-Sherif, a professor of economics at Mansoura University, said that the public sector was a “gigantic machine” that had enabled the country to build its military infrastructure after the 1967 defeat.
However, since the second half of the 1970s the sector had deteriorated due to a lack of investment, the failure to upgrade machines and the neglect of training for workers.
To restructure the sector, the government needed to provide funds to upgrade the technology of these companies, Al-Sherif said, questioning why the state had earlier stopped developing the public sector.
Ahmed Al-Sayed Al-Naggar, former chairman of the board of Al-Ahram, wrote in an article on Ahram Online in 2016 that since 1975 there had been an “organised destruction” process in the public sector in mismanaging some of its companies and turning them into loss-making units that could be sold off to local, Arab and foreign investors.
These deals had seen horrendous wastes of public money and unprecedented levels of corruption, he said. He added that the judiciary had decided to return some of these companies to the state in the light of the corruption that had tarnished some privatisation deals.
The public sector became an orphan when it came under the control of the Ministry of Investment from 2004 to 2016.
“During this period, the ministry took charge of privatising it, while the idea of reforming it was discarded. Even when it was reported that there were ongoing reforms, these were actually unfair sales of the best pieces of land owned by some companies to the benefit of creditors and banks,” Al-Naggar said.
Besides tackling the debt burden of most public-sector companies, the government’s plans include a programme for initial public offerings (IPOs) of 23 of the most successful companies over a period of 24 to 30 months.
The total value of the shares to be listed is estimated at between $4.5 and $5.7 million.
The aim of the move is to expand the companies’ ownership and to revitalise the Egyptian stock exchange.
“Our target is to improve the companies’ performance and to allow private-sector participation in their boards,” Tawfik said.
The first stage includes five companies, with the government planning to start with the sale of the Heliopolis Housing and Eastern Tobacco in October.
The other three companies on offer in the first stage are Abu Kir Fertilisers, Alexandria Containers and Cargo Handling, and Alexandria Mineral Oils.
The government is expecting to secure LE30 billion from the first stage and LE100 billion overall from the offerings. The move is a partial privatisation since the government will keep more than 51 per cent of company shares.
Experts believe that the step will help the government bridge its budget deficit and allow businessmen to hold shares in public-sector companies and be representatives of the shareholders on their boards.
This will mean improved governance and corruption control, they say, and will also force the companies to disclose their dividends and financial statements.
However, Al-Dessouki said the government should carefully study which companies to offer for sale and which should be kept in the state’s control before acting.
He said that earlier privatised companies had proved that companies sold to major investors had the opportunity to succeed more than those sold in public offerings.
“Investors on the stock exchange seek profits and are not really interested in the activity of the company concerned. They wait until prices increase, and then they sell their shares. They have also often refused to join the boards of directors, negatively affecting the companies’ performance,” he said.
Privatisation has gone through two phases in recent decades, the first from 1991 to 1997 and the second from 2004 to 2010. During the privatisation process, 382 state- owned companies were fully or partially privatised and countless lawsuits were then filed resulting in the cancelation of many deals.
Interim president Adli Mansour later issued law 32/2014 to prevent any party other than the contracting parties filing lawsuits against contracts made between the government and another party or investor.