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Al-Ahram Weekly 25 - 31 May 2000 Issue No. 483 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 25 - 31 May 2000 Issue No. 483
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters A kind of accounting
By Aziza Sami
Last week Al-Wafd, the widely-circulated daily, carried a front page news item reporting that Helwan Portland Cement had been de-listed from the stock exchange. It had not, and the next day the newspaper corrected its mistake, saying the delisted company was in fact Cairo Portland Cement. Needless to say, the correction was not given the prominence of the original story, being hidden in the inside of the paper. And such is the lack of trust that has grown up around economic reporting, who is to say that it is true?
Yet the paper is not wholly to be blamed. The fact that such inaccurate rendering of information is possible concerning a venue as sensitive as the stock market is in many ways a result of the lack of transparency that shrouds the workings of the market.
The operation of the stock exchange, consistently spotlit by the government to reinforce Egypt's status as an emerging market, remains shrouded in obscurities that baffle the experienced investor, let alone the layman. So much so, that the Egyptian stock exchange, more often than not, appears driven by a host of psychological factors regarding investors' perception of the performance of listed companies rather than on a realistic assessment of actual performance. Not that the latter would be an easy task, given the paucity of information available. For the simple fact of the matter is that investors in the Egyptian stock exchange have no access to detailed information on company performance, though such access is required by the Capital Market Law.
Take MobiNil's financial results for 1999-2000. The company -- dealings in whose shares regularly top the list of most-heavily traded companies -- indicated in its annual return as LE1.9 billion in revenues, though it neglected to break down this figure in any detail. Some LE750 million of this figure was accounted for by paid subscriptions -- one-time budgetary items.
The company's return went on to assess operating and service costs at LE933 million, and LE416 million respectively, again without any meaningful breakdown of the figures. And while profits over the previous 19 months were quoted at LE196 million, this figure included as yet undistributed pre-paid cards and roaming services bills that had not been collected.
Given the anomalous accounting procedures in its annual report, including the inclusion of one-time items, no one should have been surprised by the 61 per cent drop in profits announced by MobiNil in its quarterly report of 10 April. Yet investors proclaimed their shock, and a share price spiral that had continued for more than a year and a half was brought to an abrupt halt.
Tellingly, the Capital Market Authority declined to comment on MobiNil's annual report, though concerns over accounting discrepancies could justifiably have been raised.This inaction -- the authority is, after all, allowed to commission an independent review if it is dissatisfied with any company's return or feels there is a lack of transparency concerning any budgetary items -- led to rumours that the Capital Market Authority was reluctant to compromise MobiNil, given the strength of its trading position on the exchange.
The position of Media Production City, another mass-traded company, is even more peculiar. The absence of information regarding MPC's assets or revenues is embarrassing: there is absolutely no way in which potential investors can assess the company's worth. Yet the stock market authorities insist that the company operates with the requisite transparency, and the "psychological" motivation of local investors is made glaringly apparent by their thirst for shares in a company that to all intents and purposes has no known assets or revenues.
As part of its privatisation drive, the government has announced it will float LE15.3 billion worth of public sector shares in 403 joint ventures. Investors, both local and foreign, are said to be interested. Yet unless a market data base is created, and company budgets systematically publicised, with no exceptions made -- unless, in short, the regulatory authorities act to ensure necessary transparency is upheld -- then the potential optimism that might greet the new privatisation drive will be dissipated. The market will rely, once more, on empty hype -- hardly a formula for long term success.
