On the block

Sherine Abdel-Razek explores USAID's role in the privatisation programme

Bechtel, Arthur Andersen, IBTCI and Carana -- you must have seen one of these names on the banners of conferences or cover sheets of reports related to privatisation in Egypt. Yet these US companies are neither buyers of the state-owned companies nor investment banks managing floatations. Their role, though, has been crucial to Egypt's privatisation effort -- the cornerstone of the country's reform programme -- in all its stages. And since 1991 it is USAID that has been contracting the firms that provide the Egyptian government with the technical assistance needed for the implementation of its privatisation programme. When the government embarked on its ambitious programme to sell off 314 public sector enterprises in the early nineties, it had to resort to institutional donors -- USAID, the European Union and the Canadian International Development Agency (CIDA) -- to assist with the sales by providing institutional development aid and related technical assistance.

USAID was the first to offer its assistance, and its projects were the widest in scope and best funded. Technical assistance -- the core of all USAID-funded privatisation projects in Egypt -- covers many disciplines and includes studies to identify problems specific to individual companies slated for privatisation, valuation, preparation of selling documents and the promotion of companies to potential investors.

Maybe this is the reason that any criticism of the programme tends to be directed automatically at the influence of USAID, which is consistently accused of pushing the government into further privatisations at the expense of the social welfare of company employees.

Yet, according to Taha Abdel-Alim, Deputy Director of Al Ahram Centre for Political and Strategic Studies, USAID has never directly pressured the government to privatise specific companies, though it may have urged a faster implementation of privatisation. Indeed, any pressure from Washington, he argues, is far less likely to be exercised via USAID than through the World Bank and the IMF.

"The role of USAID in the privatisation programme has always been consultative. They give recommendations but have no direct influence over which companies will be privatised or the manner in which the employees of the companies will be dealt with," said Mohamed Hassouna, performance evaluation expert in the Public Enterprise Office.

Since 1991 USAID has funded three consecutive technical assistance projects, each managed by a consortium of Egyptian and US sub-contractors. The first project was initially headed by Coopers and Lybrand, subsequently replaced by Bechtel. Arthur Andersen assumed the senior role between 1995 and 1999, while the third project, launched in July 2000, is headed by Price Waterhouse Coopers (PWC).

The kind of technical assistance provided by USAID has varied according to the particular phase of the reform programme. "In the first stages," says Hassouna, "we needed their assistance in diagnostic studies of ailing companies and in all phases of preparing them to be put on the block." It was only towards the end of the Arthur Andersen contract in 1998 and early 1999, a period characterised by intensive divestiture activities, that Egypt asked for help in company promotion, now one of PWC's main tasks.

There has always been an informal agreement between USAID and the Egyptian government to rely mainly on Egyptian employees as a means of capacity building. Indeed, Hassouna believes that the creation of a cadre of high calibre privatisation experts is one of the primary achievements of USAID privatisation projects.

"We currently have experts in valuation and diagnostic activities with wide experience gained during the previous two technical assistance projects," he said.

Egyptian experts currently working on such projects outnumber Americans, though many still criticise the amounts of money that go into paying US salaries and consultancy fees.

The first two technical assistance programmes were regulated by Law 203 for companies, and covered the 314 public enterprises identified for sale by the government in 1991. The original batch of companies all fell beneath the umbrella of the Ministry of Public Enterprise though the latest, PWC project, has been expanded to provide assistance to part government- owned banks and joint-venture companies under the Ministry of Economy's jurisdiction. And while a USAID committee was responsible for selecting the contractors forming the consortium in the first two projects, the Egyptian government has a much greater say in the PWC project.

"Representatives from both the Ministry of Public Enterprise and the Ministry of Economy have participated in setting the scope of work, as well as recommending the names of staff members. We even negotiated a raise in funding levels, which are now $19 million," said Hassouna.

The Egyptian government, though, has nothing to do with how the funds are used. "We are an end result-oriented user," Hassouna said. "And while the value of these projects varies in all cases it is the experts employed who account for the bulk of spending."

In return for their fees Bechtel, during its tenure as senior partner, pioneered the role of Employee Shareholder Associations (ESA). These associations, set up in companies slated for sale, offer employees an opportunity to buy shares. Out of 166 companies sold, 30 have been privatised via such stake-holder schemes.

When the privatisation programme first began needs were different. "At that time," said Hassouna," we required manuals for privatisation procedures and guidelines for preparing a company for sale, techniques for Initial Public Offerings (IPOs) and so forth. Arthur Andersen provided us with this kind of valuable assistance."

While no Egyptian body exists to monitor project performance, IBTCI was commissioned by the USAID to oversee developments as part of the Arthur Andersen project. IBTCI also prepared comprehensive quarterly reviews on privatisation-related issues. When IBTCI's contract expired, part of its role was assumed by the Carana project.

"Carana acts as a think-tank. Its role is to come up with policy ideas and analyses that reflect and address some of the issues related to the privatisation programmes. But it does not have the same monitoring role as IBTCI since the USAID now carries out the task internally," said Akram Bastawi, senior manager at the USAID Privatisation Implementation Project at PWC.

"Ultimately, of course, any technical assistance is based on the interest of the donor country, which is what defines the sectors they will be involved in," said Bastawi. CIDA, for instance, was interested in the impact of privatisation on the environment. They were not concerned with specific issues related to privatisation, they focused on what would be better described as externalities -- privatisations impact on such things as social welfare, gender equality and environmental issues. USAID's agenda, on the other hand, is similar to the Egyptian government's. Both are concerned with liberalisation of the economy and transferring public companies to the private sector. Projects funded by the EU tend to focus on restructuring companies and on the social consequences of privatisation whereas "restructuring is not on the US foreign policy agenda and, therefore, not on USAID's either."

"USAID's provision of technical assistance to companies needing restructuring is very limited and is mostly done with a view towards privatising the company at the end," Bastawi said. Tellingly, USAID does not offer any programmes aimed at supporting the workforces of privatized companies. On the other hand, and at the Egyptian government's request, the EU is willing to extend what is called "shadow management," or management assistance, to companies with weak management. The EU sends its technical experts to help these companies set and implement strategies to improve operations.

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		Al-Ahram Weekly Online 21 - 27 June 2001 Issue No.539
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