Egypt in ‘race against time’ with privatisation drive

Reuters/Mohamed Abd El Ghany

Egypt’s economy is facing a perfect storm of economic headwinds. While its currency is plummeting, its budget deficit is rising along with its borrowing costs. 

In an effort to counter rapidly growing external imbalances, Egypt’s government devalued its currency, the Egyptian pound, by 10 percent in March and subsequently requested a support package from the IMF which it is still negotiating.

Financial experts have suggested that a debt restructuring may now be on the cards.  

• Egypt repays $24bn to cover foreign debt, departing investors
• Egyptian currency touches five-year low

Little wonder then that Cairo is planning a quick-fire sale of many state assets. 

“Egyptian authorities are in a race against time and have shown a strong willingness to act fast,” said Ramona Moubarak, head of MENA country risk at Fitch Solutions, speaking in a webinar hosted by the rating agency. 

“Just look at how quickly they published their privatisation plan. It is very ambitious and the timeline is very tight.” 

On May 15, Egyptian Prime Minister Moustafa Madbouly announced that the privatisation drive would kick off in September and seek to raise a total of $40 billion by the end of 2025. 

The Egyptian government intends to fully exit 79 sectors, including the auto and fertiliser sectors, and partially step back from a further 45.

It has outlined a wide array of state assets that it will offer to private investors with Madbouly stating he wanted private investment to increase to 65 percent of the country’s total investment within three years, up from its current figure of around 30 percent. 

“The companies being privatised span a range of very diverse sectors,” Mabourak said.

“So it should be a very appealing opportunity for foreign investors to enter a market with a population of over 100 million – one of the largest in the region with very high potential.”  

According to a document circulated in local media shortly after Madbouly’s announcement, the government plans to reduce its holdings in the textile industry by 90 percent, the chemical industry by 75 percent, the food processing industry by 73 percent and the mining industry by 40 percent.

Among the assets that it plans to sell on the stock exchange by the end of 2022 were shares in 10 state companies and two military companies.

Egypt’s seven biggest ports will be grouped under the umbrella of one company and a number of its most prominent hotels merged into another before their shares are listed. 

The Egyptian government has been mulling sales of state assets for years.

In 2018 it announced that it would offer minority stakes in 23 state-owned companies but plans have been repeatedly postponed due to depressed markets, legal and bureaucratic hurdles, as well as companies’ financial documentation not being up to scratch. 

Mabourak believes the Egyptian government now has no choice given the challenges stacking up. 

“Is privatisation real this time? We believe so – out of necessity,” she said.

“The events of the last two years, firstly with the Covid pandemic which triggered capital outflows, and now again with the Russia-Ukraine crisis, have made it essential.”  

However, some industry experts have expressed doubts over the likely success of the government’s privatisation plans. 

In a research note published last week, James Swanston, MENA-focused economist at consultancy Capital Economics, observed how Egypt’s track record provides little hope that it will meet its targets, referencing data published by the IFC showing that the state and the military retained a sizeable role in Egypt’s economy after past privatisations. 

Swanston said this adds to concerns about the validity of the government’s commitment to “fully exit” some sectors, noting how it has already hinted that it may hand over management, but retain ownership, of some firms.

“The upshot is that, if past form is anything to go by, there is a high chance that the privatisation drive falls short of the government’s targets and that the government retains a high degree of control over Egypt’s economy,” said Swanston. 

“Not only would this dampen Egypt’s long-term prospects, but also raise public debt risks if the government is forced to bail out struggling state-owned firms.”

To add further pressure, the finalisation of the privatisation plans is likely a prerequisite to a deal being agreed with the IMF. 

In mid-May, Madbouly said he expects to reach a new programme with the IMF “within months”. It is expected to comprise both funds and technical support. 

“The IMF has mentioned three main areas that they want Egypt to work on – its monetary policy, exchange rate and its reforms to promote the private sector,” said Moubarak. 

“Authorities have been working on these and advancing in terms of reforms.

“There’s no clear timeline or exact date by which they will agree a programme but discussions are on track and we can comfortably say that a programme is expected in the next two to three months.”