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Egypt may start sukuk program with industrial companies

10 October 2009
CAIRO: By offering minority stakes in government industries, Egypt is set to resume the sukuk privatization program temporarily suspended last year, reported Al-Shorouk.

With the stabilization of the Egyptian economy, the privatization program will reportedly launch in the chemical industries sector, with sales of minority shares of 10 to 20 percent of companies belonging to the Chemical Industries Holding Company.

"The Chemical Industries Holding Company will meet sometime in the last 10 days of October to discuss which of its companies are appropriate for sale," Mohamed Hassouna, privatization adviser to the office of the Minister of Investment, said.

"The companies will be evaluated on a case by case basis," he added, stressing that by no means does the government intend wholesale privatization.

No announcement has yet been made concerning the government's potential plan to pursue partial citizen ownership through the distribution of free shares to Egyptians. Last year the Kefaya Movement for Change organized opposition to the plan, saying that it would result in citizens selling their shares to corporations, effectively losing their inheritance in the rising profits of the Egyptian economy.

In late 2008, the government -- along with the National Democratic Party (NDP) -- proposed selling its minority stakes in some state-run companies in a move it said would make privatization more popular and inject a windfall of cash into poor households.

Based on the proposal, Egyptians over the age of 21 (estimated at around 41 million Egyptians) would receive free coupons redeemable for shares in public companies lined up for privatization.

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Since the announcement, however, and as the financial crisis started affecting Egypt's economy, the proposed program has been on and off the table with little said on the final details or when it will be implemented.

Privatization in Egypt began when the IMF first imposed economic liberalization policies as part of the conditionality attached to structural adjustment loans. With the passage of Law 203 in 1991, Egypt initiated the process of dismantling Nasser's vast network of nationalized industries.

Hasouna spoke to Daily News Egypt about the specific stages of privatization. The government began with an "infrastructure building" phase, pursued from 1991 to 1995, during which only 5 percent of 15 publicly-owned companies were sold.

In 1996 and 97, privatization entered a so-called "take off" stage, when 30 companies were put out for public offerings. Restructuring was again emphasized from 1997 to 2004, with sales geared towards anchor investors rather than initial public offerings (IPOs).

From 2001 to 2004, privatization slowed, with average annual sales of less than LE 500,000. From July 2004 until the financial crisis of 2008, internal and international factors were, according to Hasouna, "highly conducive to privatization," which ushered in the asset management stage.

During this period, profit from the sale of government-owned companies jumped from a cumulative LE 17 billion from 1991 to 2004, to a dramatic LE 40 billion earned between 2004 to June 2009. Now that the Egyptian economy has demonstrated its stability in the face of external shocks, the government is ready to continue with privatization.

When asked to account for the jump in profitability of government-owned companies, Hasouna explained "40 percent of the LE 40 billion came from the sale of public sector stake in joint ventures, another 40 percent from the sale of Telecom Egypt and the Bank of Alexandria, and the rest was largely a result of financial restructuring, specifically debt settlement."

At the time, government-owned companies were LE 20 billion in debt. By settling with the government-owned banks, (including the formerly public Bank of Alexandria), they relieved an interest burden of LE 2 billion.

Questioned about citizens' concerns that privatization is undertaken for the benefit of business tycoons at the expense of workers and the social good, Hasouna admitted a glitch in communication.

"Particularly for the first 15 years of the program, there was not enough emphasis on informing the public, in my opinion. The layman wanted to know 'What's in it [privatization] for me?' and no one told him."

"Now these figures are everywhere. I see them in the newspaper, on TV. I hope people are paying attention," he added.

The enhanced performance of public enterprises, whose portfolio went from a net loss of LE 1.3 billion in 2003 to a net gain of LE 5.1 billion in 2008, represents an undeniable shift. Managerial reconstruction -- almost 90 percent of high-level management positions of public enterprises were replaced -- Hasouna believes is largely responsible for the increase.

Yet is it enough to assure Egyptians that privatization is in their best interest?

"There are certain sectors where privatization is not appropriate," conceded Hasouna. "Textile production, for example, is an industry that is both labor intensive and not particularly profitable, yet the government intends to maintain ownership for the public good. Some people think the government is just trying to hold on to sectors that generate a profit. This is not the case," he concluded.

By Annelle Sheline

© Daily News Egypt 2009

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