Determined to sell
As minister of investment, a member of the ruling National Democratic Party's Policies Committee and chairman of the party's Economy Committee, Mahmoud Mohieddin is in a unique position to articulate and draft Egypt's future economic and political agendas.
In a roundtable discussion with Al-Ahram Weekly , Mohieddin showed enthusiasm about the outcome of economic reform and the long- term effects of the constitutional amendments. He noted that for 30 years the state failed to run public sector companies efficiently, and that keeping a loss-making company under the state umbrella is considered a crime.
Bombarded by criticism over the past three years for selling what people view as the country's crown jewels does not seem to impede Mohieddin's determination to stay on the privatisation track. Instead, he boasts the programme's success in reducing public enterprise debts and putting companies back in the black. He believes that labour strikes are a legitimate right to voice the workers' demands.
Despite being a firm believer in an open and free economy, he fully supports recent constitutional amendments that are seen by some as freedom stifling. Mohieddin asserts that the amendments protect the country but do not pave the way for inheriting power in Egypt.
How do you see the opportunities and challenges facing Egypt during the coming years? Where is Egypt heading?
One can expect some developments in light of the current economic facts. These expectations are based on some indicators and market dynamics. If there are no internal or external shocks, we can expect a higher economic growth rate of no less than 6.5 per cent annually until 2010.
Moreover, the performance of some sectors is expected to achieve higher growth rates and attract more foreign direct investments [FDIs], including manufacturing, construction and financial services. We expect that the flow of FDIs to Egypt will continue at good rates. Since private sector companies achieved a 20-25 per cent increase in investment expansion, claims that privileges are provided to FDIs at the expense of private sector investments are not true.
FDIs to Egypt are estimated at $6.1 billion and I expect this to reach $8 billion by the end of the current fiscal year. I expect a greater flow of both direct and indirect investments in the Egyptian stock market. This will be encouraged, not only by the asset management programme, but as well by investments in new agricultural, services and industrial projects.
During the coming few years, I expect less questions about why economic growth is not manifesting itself in people's lives. This would be a result of higher government investments in Upper Egypt, a well as in the health, education and infrastructure sectors.
The political atmosphere in general is good, despite of what we see in parliament, on the streets and during workers' strikes. A change is taking place; people now have the right to express their opinion in a legal manner, which in no way implies political instability. The government has no problem in handling this. Moreover, the people's right to express themselves will increase, following the application of the constitutional amendments.
Egypt is located in a region which does not enjoy political stability because of the Palestinian, Iraqi and Sudanese issues, and it plays an important role in soothing the political atmosphere in the region. This is not only for the sake of others, but because, as well, this instability is reflected domestically in Egypt. Nonetheless, in general, the internal scene in Egypt on the political as well as economic level is better than in the past.
There is a consensus that the economy is showing a positive performance. This has not been felt so far, however, by the average citizen, nor has it helped reduce corruption in government bodies.
The trickle-down effect needs time to be felt, and I personally don't believe in 'trickle-down' alone. Trickle -down means that the increase in growth rates will be smoothly and equally translated into improving the performance of all sectors of the economy. I am sure that the 7.1 per cent growth rate accomplished this year has improved the lives of people working in many sectors. IT, financial services, food industries and ready-made garments are good examples. Exporters and others also reaped many profits from the QIZ agreement. I am not only talking about those in senior positions in companies. Anyone working in the construction sector which grew by 14 per cent is sure to have reaped the profits.
Meanwhile, some regions in the country are less privileged. The area extending south of Giza all the way down to Upper Egypt needs much work to be done. There are main factors which if available can guarantee sustainable growth covering all of Egypt. These are the components of what I call a 5+2 equation. The first five are found throughout the country, while the two are mainly needed in the urban areas and in Upper Egypt. The five include better access to finance; better access to land; special courts for settling economic disputes; upgrading labour skills through training; and dealing with bureaucracy. The other two are better quality of transportation, and energy supply.
If all of these factors are available, the trickle- down effect will take place. But the economy needs to grow, in order to fulfil these requirements.
As for corruption, there are some countries with worse corruption rates than Egypt, although the scope of freedom there is less than it is here. People think that corruption rates are higher in Egypt because they are extensively discussed in parliament and the media. The government took some procedures to fight corruption, such as committing to transparency, signing agreements with different countries and setting restricted criteria on the application of corporate governance.
The government also applied legal restrictions by the Administrative Control Authority to prevent any government official from using his position to accrue personal profit. These measures are not only to penalise the corrupt, but also to prevent corruption from occurring. The one-stop shop, for example, decreases direct contact between clients and civil servants. Procedures are also facilitated for clients, in order to prevent them from manipulating corruption in order to finish their business. We have reduced the time needed to issue a company licence from 140 days to 72 hours.
Another effort undertaken by the government is to provide one single interpretation of some issues, such as the tax law. Previously, government staff had different interpretations of law items, but the new tax law clearly states the rights and duties of each person.
There are some businessmen who are close to decision-makers and use their position to buy land and businesses. One case is that of the land belonging to the Egyptian General Company for Tourism and Hotels (EGOTH) in Tahrir Square. Public opinion is concerned about this kind of corruption.
Despite the rumours, no one in the cabinet has any relation to EGOTH land. The company sold the land and no one can interfere in its decision or in the price -- although it was higher than the evaluation price. The project was to build a hotel, a garage and an administration building, but the local municipality of the Cairo governorate turned down the project for security and traffic reasons. The same problem faced the Nile Hilton Hotel on Tahrir Square when it tried to add an annex.
The full details of each project are available at the Ministry of Investment for whoever wants to know the facts. Press reports were incorrect when they said that the project was cancelled by an executive decision due to a connection between a minister and the project. Although it is untrue, it makes for a better read.
There is a feeling among the public that the government deliberately leads companies to lose money as a pretext for selling them. Since you are known as the "minister of selling", what are the criteria set by the government when selling public sector assets? What is not for sale in Egypt?
Selling assets is not a clear-cut issue, this is the norm in Latin America, India, China and even in the United Kingdom which invented this system. Over the past two years, and as part of the asset management programme, some companies such as Sugar for Integrated Industries and Nile for Matches received new investments allowing the establishment of tens of small- and medium-size projects. But the idea is that it is better to save a giant company than to build small projects at the cities of 10th of Ramadan or 6th of October.
I am responsible for selling assets at the highest price. Contrary to people's claims, no company was sold at a price lower than its evaluation value. The law does in fact allow for selling assets at lower prices, otherwise, the evaluation committee re-evaluate the asset.
I admit, however, that I tried to sell the Transportation and Engineering Company [TRENCO] at half its evaluation price, but unfortunately the sale was not concluded. I am still open for the sale if the offer is renewed because I believe that keeping a loss-making company is a crime. We have to develop and restructure these loss- making companies, and the ministry has a plan to transfer high loss companies into profit- makers.
As for suspicions that the government purposely turns companies into loss-makers, this is because for a long time the reality of public sector companies was not apparent to the public. In the past, the government used to say that the public sector is productive and [funded] war efforts in 1967 and 1973. But it did not explain how many of these companies were in fact losing money.
It has been 17 years since the privatisation programme was launched, and the companies that are remaining for sale are far fewer than those that have already been sold. The share of the public sector in the Gross Domestic Product [GDP] is very moderate, and if this sector is not reformed it would lead to huge problems. Some public companies, such as the Coke Company, continue to be owned by the state but have been restructured to make profit for the first time this year since their establishment. Al-Mahala Al-Kubra Company also for the first time became a profitable enterprise.
These companies have special characteristics which guarantee the continuity and success of a public sector administration. However, there are others whose condition is astounding; they compete in losing money. These include 28 textile companies, some of whose debts originated in the 1970s.
People who are currently defending these companies were party to their destruction. For example, an official at Kafr Al-Dawwar Company appointed 5,000 workers in 1995 before the Labour Syndicate elections, although there were no expansion plans to accommodate them. The overlap of politics and economics, as well as cotton regulations, led to the demise of these companies. Moreover, workers are also responsible for this deteriorating state since they refuse to cooperate with new administrations or participate in training programmes.
Another determinant to the decision to sell is the position of the company on the market. Any company with a monopoly position over the market is not for sale, and I challenge anyone to prove otherwise. The only exception is the Suez Cement with its subsidiary Torah Cement. This is a decision I will always consider correct, even after 100 years.
The company was partially privatised with its main shareholder, Italcementi, controlling the company through a 38 per cent ownership and a management contract. The government could not impose any decision on the owner, and hence there was no point in holding any shares. The correct decision was either for the state to buy out the Italian partner or vice versa. The latter expressed their interest in the remaining stake and put in the highest bid.
If Suez Cement was in the state's hands, it would have been controlled by putting a ceiling on its production to deal with recent price increases. As in the past, this would have led to much corruption inside the company.
What about the rights of workers of the privatised companies, and how are they affected by privatisation ?
We are talking here about 370,000 workers in the public sector, which represents less than one per cent of Egypt's overall labour force and around half the number of people joining the job market every year.
The breakdown of the unemployment figure proves that privatisation did not deprive state workers of their jobs. The majority of those unemployed in Egypt are between the ages of 19-28 years, not the age of early retirement of 45-58 years.
I stress here that leaving the company is a personal choice; there is no obligation for any worker to leave his job.
Labour strikes are on the rise in many factories, how do you view this, and what are the main reasons behind it?
There are many reasons, although strikes, sit-ins and demonstrations are not new to Egypt -- whether at private or state-owned enterprises. However, there is more media coverage of these incidents and new outcomes which make the environment favourable to such events.
One factor is that the last Labour Syndicate elections of November, 2006, brought new and inexperienced labour leaders to power. Some 70 per cent of those have no experience in syndicate work, but promote fear of privatisation with regards to the rights of workers, etc. This is despite the fact that there is nothing new about the programme which has been around for the past 16 years.
What is truly strange, is that the two companies which led recent strikes, Al-Mahala and Kafr Al-Dawar, are not even up for sale. Kafr Al-Dawar lacks anything that might appeal to a buyer, and Al-Mahala is too large for any investor to manage on account of its huge workforce of 28,000.
Another factor is that with more freedoms in the political arena, workers wanted to use them to impose their demands on management and ministers. They can make their demands known by fax, in a meeting with trade union leaders or a demonstration. Personally, I would react to demands in a fax the same way I would in a demonstration. Legitimate demands would be met in all cases.
Last year, we increased the value of meals in spinning and weaving companies from LE18 to LE32.5, then to LE45. The first increase was an initiative by the government, while the second was the result of a demonstration by the workers. We did not think of punishing them for protesting and we gave them what they wanted because it was a legitimate demand.
Eventually, protests became an abused method, sometimes used for frivolous demands. Workers go on strike because of the Workers' Magazine in one company. as well as the mistreatment of a co- worker in another.
What is your evaluation of the privatisation programme since its inception 17 years ago?
I will only evaluate the programme since I took over in July, 2004. Back then, the consolidated results of public enterprise companies showed a loss of LE1.279 billion in 2002/2003, and a marginal profit of LE91 million in 2003/2004. This profit rose to LE604 million in 2004/2005 and LE2.28 billion in 2005/2006.
What is more important, is the reduction of debt of these entities from LE31.2 billion to LE9.8 billion, a figure I am very proud of. These companies are also complying by corporate governance codes based on the Organisation for Economic Cooperation and Development [OECD] standards.
As for sale proceeds, they jumped from LE543 million in 2003/2004 to LE5.6 billion in 2004/ 2005, and LE15 billion in 2005/2006. This fiscal year, ending in June, we already have LE13 billion in privatisation receipts.
International criteria used by UNCTAD, the World Bank and the IMF allow us to include the receipts of privatisation as FDIs, despite the fact that it is money going into already existing projects. If an investor came and started a project from scratch, this does not make him any better than another who bought a loss-making company with a huge workforce, restructured it and began to make profit.
Personally, I believe the latter is even better because he is preserving an already existing asset, in addition to exerting much effort to develop it.
The spiralling increase in Gulf investments in Egypt is believed to be risky, since they tend to be short-term investments and focus on certain sectors such as real estate. How are you hedging against this?
FDIs in general reached $6.1 billion and are expected to exceed $8 billion this year. The source of these investments is diversified, including Turkey, Russia, India, China and the Gulf. No sector is cornering most of the investments, as was the case in the past when petroleum attracted 80 per cent of investment inflows. Its share now has gone down to 30 per cent, while other sectors emerged and proved to have good potential.
There have always been Gulf investments in Egypt, but they rose recently due to surplus income from the hike in oil prices. They now own some of the best companies in many sectors, and thus offer the best investments for the country. The proximity of Egypt to their markets also helped attract more of their money, not only in real estate but also in industry, tourism and financial services.
Safeguarding the entrance and exit of these investments depends on the nature of the project. If it is an investment in the stock market there is complete free exit; while non-portfolio investments are safeguarded by regulations which obliterated hit and run activities.
Is Egypt's nuclear programme being delayed because of the proximity of the Al-Dabaa nuclear power station to the new North Coast development projects in Sidi Abdel-Rahman?
Sidi Abdel-Rahman and the projects planned there are far enough from Al-Dabaa, allowing both to operate without causing any problem to the other. There is no decision to abort Al-Dabaa; the prime minister asked a committee headed by the minister of electricity to examine the location to find out whether it is the best site to build a nuclear project on.
Much local and foreign criticism has been levelled at the constitutional amendments, alleging that they restrict freedoms. To what extent do you feel such criticisms to be valid ?
We are talking about 34 articles; there was consensus on 32 and only two attracted all the criticism because they were misread and misinterpreted. For example, anyone who decries the country's need for an anti-terrorism act has neither heeded the lesson in other countries nor Egypt's experience in the 1980s and 1990s. Is there a need for anti-terrorism laws? Yes there is. Do these laws require restricting some privacy and personal freedoms? Yes. This is if you are trying to protect your country against terrorism which might rob people of all their rights, even the right to live.
This has not been translated into law yet, and we can still discuss all the articles of the terrorism law when it is presented to the People's Assembly.
As for not permitting political parties to be based on religion, I believe this is not a new idea since all existing parties already are not allowed to be based on religion according to the political parties law.
Personally, I found the reaction to the amendments very surprising. I expected some economy- related amendments to attract more attention and discussion, but no one brought up the rules strengthening ownership rights, the right to seek job opportunities, social equality and the freedom of regulating economic projects. Even omitting the term "socialism" from the description of the state system, and hence removing any obstacles hindering any government from taking certain economic measures, was completely overlooked.
Does ridding the constitution of the term "socialism" imply that we are adopting the principles of a free economy?
There is no mention whatsoever in the new constitution of the nature of the economic principles which the country is adopting. It is open and left to the preferences of how the government wants to run the economy.
Some people believe that the amendments will pave the way for the inheritance of power. What is your take on this?
I don't think this is true. In free and fair elections, the people will choose whomever they want for president. This belief might have been valid if the constitution is being amended to change the ruling system into a monarchy or placing specifically-tailored requirements for the next president.
There is talk that expanding the prime minister's powers in the constitutional amendments implies that the president's son, Gamal Mubarak, might be nominated for the position of next premier, rather than next president.
This is more like crystal ball gazing. Due to his position and relationship to the president, Gamal Mubarak will always be the focus of the media and will always be a nominee to any senior position. I recall once it was rumoured he will become the minister of youth; another time he was going to run for a seat in parliament; and on another occasion he was going to form a new political party. But we have not seen him do any of that.
Your response does not rule out the possibility that Gamal Mubarak could run for the presidency.
He himself ruled this out on many occasions, and I am not speaking for him here. I know what the layman knows; I read the same newspapers. We did not discuss this issue in the NDP's Policies Committee [which Gamal Mubarak chairs]. He has already said he does not want to become president.
Egypt is facing many challenges on the international arena, with its economy only, perhaps, showing any promise. Political reform is not moving at the same pace. In view of this do you think anyone has the answer as to where Egypt is heading?
The challenges are not easy. Yet, we have rules as well as a government that is dealing with the issue. We also have a more powerful parliament and press. I am not worried about facing challenges, and Egyptians are prone to be organised when occasion calls for it.
Egypt will always have a president; the next presidential elections will be in 2011. At the end of the day, we have a system and the rules of the game are known and documented. There is going to be a president who is selected by the public in free elections, protected by the constitution, and safeguarding the transfer of power.
If this is not enough, then nothing more can be be done.