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Al-Ahram Weekly 1 - 7 June 2000 Issue No. 484 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 1 - 7 June 2000 Issue No. 484
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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 Heritage Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Muddying the waters
By Aziza Sami
Government announcements that it intends to float companies in several strategic sectors -- including telecommunications, petroleum and electricity -- have led to increased optimism among investors that the privatisation process is about to receive a boost.
But although accelerating privatisation by including several strategic companies has been welcomed by many, concern continues to be expressed about the context within which such privatisations will take place.
The government has pledged itself to repaying a substantial portion of its LE22 billion debt to contracting companies, state companies and economic authorities, a pledge that is largely to be funded from privatisation proceeds. Some LE8.6 billion is to be repaid over the next three months, a sum, which, according to Prime Minister Atef Ebeid, the government hopes to eventually cover from the privatisation receipts of Telecom Egypt, the national telecommunications company, and possibly the sale of oil refineries and distributors. An additional LE1 billion is also expected to be available from the backlog of unpaid taxes, which are estimated to exceed LE17 billion.
Collecting tax arrears, though, is fraught with logistical problems, and fluctuations in oil prices mean that oil receipts -- also earmarked by the government for the repayment of its outstanding debts to contractors -- remain volatile. Which leaves the brunt of the government's financing of its debt repayments squarely on the shoulders of its privatisation programme.
The greater part of the LE8.6 billion debt repayment will be covered by the floating of a 20 per cent stake in Telecom Egypt, which is expected to bring in LE4-5 billion. A further LE3 billion might be raised from the sale of oil companies. The prime minister has stated that all proceeds will be allocated to repaying government debts, which ignores the need to allocate at least some of the proceeds to writing off the debt burdens already incurred by the entities to be privatised, or off-setting the costs of the restructuring of companies necessary before they can be sold.
Investors are naturally concerned that state assets will be sold simply to pay government debts, which flies in the face of the stated aims of the privatisation programme, which has until now been presented as a means to raise equity and direct investment to support economic development.
Nor is it clear how the liquidity shortage is likely to impact on the planned privatisations. Assessments submitted to the Ministry of Public Enterprise by the chairmen of holding companies indicate that the absence of liquidity is already squeezing investors who are facing problems in obtaining sufficient credit.
Is it possible that the selection of companies for privatisation will be dictated by the urgent need to raise revenues to meet the government's promised debt repayment schedule? Certainly studies on several of the companies slated for privatisation in the second half of this year have indicated that they are as yet unready to be sold. A second question that must be asked is how will this sudden flurry of privatisation affect the stock market?
Experience has also shown that problems related to the valuation of shares have not been fully resolved. In several instances valuations have been contested by the holding companies as being too low. International investment banks and investors, claim the opposite.
In the rush to sell, too, there is a danger that the wrong kind of buyers will succeed. Strategic investors, who will bring in much- needed liquidity, technology transfers and the opening up of new markets -- must be actively sought. And while there are valid reasons to limit the stakes that foreigners might be allowed in certain strategic sectors of the economy, the government must pursue a policy consistent with the need to encourage hard currency investment. Ambiguities regarding the presence of these foreign investors must be clarified, as well as the future course of the privatisation programme itself. Announcements that parts of this or that sector are to be sold in the near future, followed by a retraction of the statement just a few days later, serve only to muddy the waters. A clear and consistent strategy is called for if privatisation is not to become a source of providing one-off budgetary allocations.
