'Size does matter'

By Gamal Essam El-Din

The PRC report notes that the government "failed three times to submit a draft anti-trust law to parliament." This, the study adds, is despite the fact that various types of monopolistic practices have developed in the local market over the past few years. The most notable form of monopoly practice, according to the study, is the winning by a small circle of bidders of privatised government monopolies in the financial services, telecommunications and infrastructure sectors. The major players, says the report, tend to exploit their influence so as to play the prime roles in national mega-projects.

The study calls this latter form of business practice a "horizontal monopoly," where businessmen use their influence in one business sector to muscle in on others. This, the study explains, differs from "vertical monopoly" in which businessmen promote their original field of business to monopolistic levels. "In light of these hectic monopolistic trends, a tougher trust-busting approach by regulators will be necessary," it concludes.

Criticisms have been raised in parliament as well over what some MP's have described as the gradual emergence of new monopolies in the Egyptian economy.

MP Ahmed Shiha, a Cairo businessman and a member of the ruling National Democratic Party (NDP), told parliament's Economic Committee that "most national mega-projects in Egypt are now dominated by a handful of wealthy businessmen." He warned that the economy risked being "dominated by monopolist suppliers as has happened in Indonesia and Korea, where the collapse of these monopolies precipitated a global crisis."

Shiha said that "a specific number of businessmen is winning bids in the national mega-projects," alluding to construction and investment plans in the Gulf of Suez, Port Said, the South Valley (Toshka and Oweinat) and Aswan.

The Cabinet's recent announcements might attest to the fact that the same private investors seem to be active in most of the major projects currently being announced. Last May, it announced the allocation of 10,000 feddans in the East Oweinat region to 15 investors, most of whom, according to the Cabinet's previous announcements, are also involved in development projects in the Gulf of Suez and east of Port Said.

Shiha underscored "the desperate need in Egypt of an anti-trust law to police the new free-market system."

In parliament's last session, MP's raised criticism as well against what they described as the goverment's hasty awarding of bids for the Aswan iron mines to a number of prominent private investors. The MP's were also critical of the government for ignoring the correct procedure, which was first to cancel the old concession held by the public sector Helwan Iron and Steel Company (HISC), for these mines.

The government had signed a contract with a number of local businessmen, together with three international companies, to establish the Aswan Company for Development and Mining (ACDM), with a licensed capital of LE517 million to produce 1.4 million tons of iron.

The parliamentary debate brought to the fore the fact that private investors might be wielding a new influence in the economy. Following the debates, the minister of industry issued a decision to revoke the old Helwan Iron Company concession.

But given the government's new dependence on private investments to fuel most of its major projects, some MP's counter that large market shares are necessary, not only because efficiency results from bigness, but also because such vast sizes allow investors to compete in the global market. "It is not at all heroic for the government to submit a tough anti-trust law aimed at aggressively pursuing business giants and slapping down their ambitious business plans," said Amin Mubarak, chairman of the Industry Committee of the People's Assembly. "In most national mega-projects, big private businesses are sought after because they are the most likely to play the role which the government used to play in financing and executing them directly."

Mubarak cited the example of the controversial Aswan Company for Development and Mining (ACDM). "When the plan to set it up was discussed in parliament, many MP's actually called for granting concessions to a number of businessmen to establish a new firm, even if it was at the expense of the Helwan Iron and Steel Company (HISC)," he said. According to Mubarak, the ACDM project is huge and requires considerable financial resources and technical expertise. "Although HISC, was granted a concession a long time ago to exploit iron ores in Aswan, it always failed to do so because it lacked the financial and technical resources required," he said. "Why should some people raise objections and call it a monopoly when a group of big businessmen take bold steps to replace the government in these projects?"

Mubarak said it is a good thing for the national economy and consumers. "We have to change our attitudes on 'bigness,'" he said. "Big companies are not bad. They are a necessity to develop the industrial capacities of an emerging market like Egypt." He added, "In current liberal economics, there is some tolerance for big and dominant, not to say monopolist, companies and corporate giants as a basic necessity to compete in global markets and undertake mega-projects."

Mubarak's views reflect the trend that calls for a redefinition of monopoly and competition in favour of corporate gigantism and, ultimately, national efficiency and consumer interests.

There is, however, a rival point of view. According to Mustafa El-Said, a former economy minister, whereas expansion of the industrial private sector is needed, it is quite dangerous in developing countries for most activities to be dominated by a few businessmen. "This requires regulators to take a hard look to ensure that markets do not get bottle-necked," he said.