PHOTO
The Egyptian government’s decision to appoint the World Bank Group’s IFC as a strategic advisor to the state asset monetization program might give a boost to the cash-strapped country’s lumbering privatisation plans, Oxford Economics told Zawya.
“The IFC's appointment is a positive development as the Egyptian government fails to meet its ambitious privatization targets,” Callee Davis, an economist with Oxford Economics told Zawya. “The IFC’s strong know-how and wealth of experience in guiding governments could potentially help advance some of the smaller SOE sales and get the privatization program back on track.”
On Sunday, the Egyptian government signed an agreement with the IFC, whereby the Washington-based agency is expected to provide Egypt with technical assistance to monetize state assets and bring in private investors.
Under the terms of the agreement, the IFC will help structure and prepare state-owned companies for sale by improving corporate governance and will ultimately help implementing approved transactions.
“The IFCs perceived independence as a member of the World Bank Group should also help with establishing trust in the broader process,” Davis said. “In its advisory role, though, the ultimate decision around privatization is still up to the Egyptian authorities, and as we know, privatization is a political decision which receives plenty of pushback in Egypt.”
The monetization of state assets is part of a larger plan aimed at reducing the government footprint in the economy, attracting more FDIs, reducing the widening financing gap and hence meeting the conditions of a $3 billion IMF loan. However, the program has been stalling. With June nearing an end, the government seems far away from reaching a preset target of assets sales worth $2 billion by mid-2023.
So far, the government has only secured around $122 million from selling a 9.5% state in the state-controlled Telecom Egypt.
“The announcement will give investors some reassurance that the plans have not yet fizzled out, but the government will have to make some real moves if it hopes to keep faith in privatization plans alive at this point,” said Davis.
Earlier this year, the Egyptian PM Mostafa Madbouly announced that 32 state-owned enterprises including three banks and two military companies would be floated by March 2024. At the time, the government said that at least 25% of those companies would be floated or see stakes sold to strategic investors by September 2023.
Some observers have cited the overvaluation of the local currency as the main impediment to reaching fair pricing agreements with potential investors as an issue that the IFC’s involvement may not necessarily resolve.
“Even with IFC backing, though, currency uncertainty means that investors will still be hesitant to purchase Egyptian SOEs,” he said. “Market expectations for another devaluation have eased in recent weeks, but markets are still pricing in another devaluation of at least 5.4% in the next three months and 22.5% in the next 12 months.”
(Reporting by Noha El Hennawy; editing by Seban Scaria)
