Issue No. 603
Economy
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12 - 18 September 2002 Issue No. 603 Economy |
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| Published in Cairo by AL-AHRAM established in 1875 | Recommend this page | ||
"Slowly but surely"
After a decade of the government's controversial privatisation programme, a fresh evaluation points to mixed results. Mona El-Fiqi investigates
When the Egyptian government embarked on its economic reform programme in 1991, privatisation was at the heart of its aims. Hopes were pinned on improving the country's economic conditions and moving to a more liberal, market-led economy. Were the programme's goals achieved?
"The major objectives of the privatisation programme have been achieved," said Mohamed Hassouna, head of valuation and financial analysis at the Public Enterprise Office of the Ministry of Public Enterprise.
Performance indicators of sold companies show better sales and profits in 75 per cent of cases, lower debt in more than 80 per cent and an increase in self-financing and investment in 40 per cent of the sold companies.
"Reforming a sector that employed more than one million workers means that every day that passed without troubles was in itself an achievement," Hassouna said.
In a decade, 190 public companies were privatised, generating total proceeds of LE16.9 billion.
Of the 190, majorities were sold in 38 companies through stock market offerings for a total of LE6.3 billion. Twenty-nine companies were sold to anchor strategic investors for LE6.9 billion. Employee Share Associations (ESA) bought 34 companies for LE950 million.
Minority shares in 16 companies have been privatised and 32 companies have been liquidated. Moreover, the government has leased company assets with the option to buy as a means of divestiture. As of 30 June, 2002, the productive assets of 21 companies were sold and 20 leased transactions were concluded.
According to Ministry of Public Enterprise figures, privatisation proceeds in June 2002 were LE16.9 billion. Half of that amount was transferred to the Ministry of Finance, while the rest went to banks' debt settlements, early retirement funds, pensions, salaries and advance payments to holding companies for future restructuring.
The evaluation of the impact of a decade of privatisation was the focus of a recent study conducted by the Privatisation Coordination Support Unit of the Carana Corporation.
Relying on several major indicators, the study concluded that although the impact of the privatisation programme on the economy cannot be quantified at this time, there are certain positive results that can closely be linked to privatisation.
At the macro level, the study revealed changes towards a market-oriented, private sector-led economy.
The programme also opened the door for increasing the domestic savings rate and local and foreign investment. There is good potential that a circle of savings, investment and growth can thus be created in the economy, the report said.
Privatisation's effect on the labour force has not been negative and may even have been positive. At the start of the reform programme, a little over one million workers were employed in the 314 public companies. This figure was slashed to just under half a million at the start of 2001 due to labour restructuring policies implemented by the government.
According to the study, most companies sold to strategic investors have performed relatively well and have tended to be profitable and competitive. Others privatised through public offerings on the stock exchange or sold to ESAs have been mixed performers, with some faring better than others. However, some companies have faltered and, due to their inability to pay instalments, have returned their share to the government.
There were some negative aspects of the privatisation procedures, the study pointed out. The lack of clarity has been costly to both government and investors. International experience shows that, in most cases, regulatory procedures need to be put in place to ensure transparency. Hassouna admitted that bureaucracy has led the government to take decisions that negatively affected investors, such as that of Misr Duty Free Shops.
The privatisation programme has gone through several periods of slowdown in the last decade, but, the reason, said Hassouna, was and continues to be the "slowly but surely" approach the government has adopted in conducting its reform agenda.
Topping the reasons that keep privatisation sluggish and discourage investors to buy into companies offered for sale is overvaluation.
The government has apparently attempted to address this problem by appointing a ministerial committee to revalue land according to market prices in the new industrial complexes. This is expected to lower company valuations to less than one 10th of the initial land values in some cases. The government will also transfer ownership of idle assets to holding companies in order to optimise the viability of investments.
Another decision was to transfer utilised lands to holding companies upon the request of investors, releasing those assets back to the company under sale for long periods. The government will assume the debts and excess labour not needed by investors. It will also give a five- year tax exemption and the possibility of inventory transfer.
The government's response to market conditions has been another point of criticism in some circles. However, Hassouna said that the government has undertaken measures to demonstrate its flexibility and readiness to respond to market dictates.
The government is making a committed effort to solve major problems, such as valuation, outreach and packaging of assets. New techniques adopted, such as asset unbundling and tender offering, have proven successful so far, Hassouna said.
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