14 - 20 February 2002
Issue No.573
|
Al-Ahram Weekly Online 14 - 20 February 2002 Issue No.573 |
||
| Published in Cairo by AL-AHRAM established in 1875 | Current issue | Previous issue | Site map | ||
Privatisation phase out?
Egypt's much-hyped privatisation programme has reached a seeming state of stagnation. Gamal Essam El-Din reports on how the government is facing an uphill battle against a mix of adverse internal and local factors
The government's eight-year privatisation programme is currently facing one of its most serious challenges since its successful re- launch in 1996. The bleak immediate horizon is rooted not only in the seed planted on 11 September, when terrorists attacked the US, but also in a new mix of external and internal factors which led to a crisis of confidence among local and foreign investors alike.
In his address to the People's Assembly Industrial Committee, Minister of Public Business Sector Mukhtar Khattab, talked about 2001, and its witnessing the privatisation of a meager 13 companies, which generated LE1.1 billion in receipts.
"This is the most modest number of companies privatised, compared to previous years," he said. "In 1998, '99, and 2000, the number of privatised companies reached 32, 31 and 25 respectively."
Signs of the crisis started to sprout approximately 12 months ago, when the dollar crunch and liquidity squeeze hit the national economy hard.
"It is true that the dollar shortage crisis broke out in the summer of 1999," Khattab said. "But its most damaging effect on the privatisation programme was very hard at the beginning of last year when the government moved to devalue the Egyptian pound."
Last year, Khattab elaborated, the government was seen devoting most of its time to formulating new monetary and fiscal policies necessary to confront the dollar crunch. "This came at the expense of privatisation although privatisation is originally viewed as a major source of foreign exchange inflows," he said, adding that after 11 September, economic conditions began to further deteriorate, setting the stage for a gloomier picture of the privatisation programme.
Root causes being the element to tackle, Khattab argued that the committees formed by the Cabinet for evaluating public sector companies slated for privatisation are largely to blame for the crisis. "These committees have tended to put highly exaggerated evaluations for the assets of the companies listed on the privatisation programme," Khattab said. These evaluations, he added, have scared many investors from tapping the privatisation programme. "This was especially clear in the case of internal companies and department stores whose assets were over-evaluated."
Khattab said that the most serious crisis facing the privatisation programme, however, is that most of the remaining public sector companies slated for privatisation in the coming period are in a state of steady decline.
"One of the worst consequences of the liquidity crisis is that the government has become severely short of the cash it would need to settle these companies' banking debts, support their financial restructuring efforts and fund the early retirement programmes for their redundant employees," Khattab said.
Out of 130 companies left on the privatisation list, Khattab said 66 are faltering concerns stuck with 160,000 employees.
"These companies are bleeding LE1.8 billion in losses every year, while their overall losses over the past 10 years hit in 2001 a staggering LE12 billion (around $3 billion). Not to mention that these companies are in dire need of LE25 billion to rectify their financial situation and improve their technical and administrative performance," Khattab said.
MPs were unanimous about the present flaws of the privatisation programme and supported Khattab's explanations of the reasons behind them.
The industrial committee's chairman, Amin Mubarak, has a slightly different perspective. Mubarak pinpointed the major reason for the stalling of the privatisation programme as the unrealistic and complicated measures used by the evaluation committees (generally led by officials belonging to the Central Auditing Agency) in valuing the assets owned by companies.
"The twisted ways and obsolete thinking of these committees has led to a credibility crisis and growing signs of unease among local and foreign investors about the privatisation programme," he said.
Mubarak, a long-time resident of West Germany, suggested the government emulate the experience of West Germany in privatising the public loss-making companies in the old East Germany.
"The government of West Germany decided to sell their companies for almost nothing and gave investors a free hand in running the outdated industries and businesses," he explained. "This led the privatisation programme in East Germany to be a big success in just a few months."
Khattab agreed with Mubarak but said the best form of privatisation in the coming period is selling the loss-making companies in a public auction. Some MPs suggested that the privatisation programme lay greater emphasis on local rather than foreign buyers.
"By the word buyers here I mean ordinary citizens," one MP said. "The government should launch a promotion campaign aimed at attracting ordinary citizens to using part of their banking savings in buying shares in public sector companies slated for privatisation." MPs also urged that the holding companies buy the debts of their affiliates before offering them for sale.
A possible option, but one which Khattab is leaving as a last resort -- a final attempt to relieve affiliates of their heavy debts and make them attractive to buyers. According to Khattab, the most heavily indebted affiliates are in the textile and iron and steel sectors.
"As many as 33 textile companies are riddled with debts of LE8.7 billion and are in dire need of LE1.5 million for restructuring and streamlining," Khattab said. The streamlining efforts in this sector, he said, will include modernising production lines, raising the export competitive capacities and drawing up new marketing strategies.
"Due to the dollar shortage and recession crisis, the government resorted to borrowing, obtaining $100 million in loans from the African Development Bank to raise the export capacity of El-Mahalla El-Kubra's Misr Spinning and Weaving Company from LE780 million to LE1500 million," Khattab said. In the Iron and Steel sector, he added, the greatest emphasis of reform will be on disposing of 3,500 employees through the early retirement programme. "This will cost us LE160 million," he said.
As bleak as it may seem, Khattab, insisted that his review should not be regarded as painting a fading picture of the privatisation programme.
"Last year, for example, we achieved some successes in bailing some textile companies out of their bad conditions. We managed, for example to put two of the most loss-making companies back on track: Misr Helwan Spinning and Weaving and Kafr El-Dawar for Spinning and Dyeing," Khattab said. The combined sales of these two companies, he added, steadily grew over the last three months from LE866 million to LE990 million.
© Copyright Al-Ahram Weekly. All rights reserved
 |
|
|||||||||||||||||
| ARCHIVES Letter from the Editor Editorial Board Subscription Advertise! |
WEEKLY ONLINE: www.ahram.org.eg/weekly Updated every Saturday at 11.00 GMT, 2pm local time weeklyweb@ahram.org.eg |
 Al-Ahram Organisation |
Recommend this page