Al-Ahram Weekly   Al-Ahram Weekly
2 - 8 December 1999
Issue No. 458
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In pursuit of the horizontal

By Gamal Essam El-Din

A large number of deputies gathered on Saturday for the Shura Council Industrial Committee's discussions of the government's privatisation programme. The discussions -- part of the committee's hearing sessions -- were intended, said committee chairman Mohamed Farid Khamis, to both evaluate the results of the privatisation programme so far and to debate the government's plans for the next period.

Members of the Council -- a consultative house without legislative powers -- were almost unanimous in claiming that the privatisation programme has as yet failed to meet its objectives, while at the same time exacting unacceptable social costs.

Addressing the Council's Industrial Committee, Public Enterprise Minister Mokhtar Khattab insisted that privatisation -- "an internationally accepted policy that leads to more efficient use of national resources and creates an equitable distribution of national income" -- remained a strategic option for Egypt.

Elaborating on the approach to privatisation policies in the coming period, Khattab outlined the government's basic objectives. The tasks he elucidated included solving the deteriorating financial, technical and administrative conditions of several public companies with the aim of enhancing their privatisation prospects and creating a new generation of trained and motivated managers. He also stressed the importance of collating an accurate data-base capable of supporting the decision-making process.

The reform record of public companies, Khattab said, was already impressive. "In June 1993, 129 companies out of 314 were registering losses. By 30 September, 1999, the number of loss-making companies had fallen to 41. And of these remaining companies only 14 will require major efforts to be turned around."

Privatization way
According to Khattab, the next twelve months will be dedicated to reforming the financial, technical and administrative conditions of a number of problem companies in the spinning and weaving sector. A fund, which will finance the restructuring of public business companies, is to be established, he revealed. "And in the future the government will retain half rather than a third of privatisation proceeds -- the additional resources going to finance the necessary reforms," said Khattab.

Up to 30 September, Khattab said, 127 companies had been sold. "Since then another nine companies have been privatised. We hope that by the end of December, 17 more will have been sold."

The slower pace of privatisation is a policy decision: "One of the main objectives behind appointing Atef Ebeid -- a former public business minister -- as prime minister, was to revitalise the privatisation programme. In the past we were adopting what I would call a vertical form of privatisation, based on floating several companies on the stock exchange at one time. Now we are adopting a horizontal form of privatisation, selling companies to anchor investors. We announce the new sell-offs and it then takes months until the transaction is completed. We hope we will sell 90 companies next year and an additional 45 in the year 2001," Khattab said.

Khattab, however, faced a barrage of critical questions from committee members. Aisha Abdel-Hadi, a leading member of the General Federation of Trade Unions (GFTU), argued that early retirement programmes adopted in an attempt to alleviate over-manning, have been socially destabilising. "It is clear," she said, "that anchor investors largely compel workers to retire arbitrarily."

El-Sayed Khamis, a textile company manager, insisted that government efforts to reform spinning and weaving companies have so far been to no avail. "These companies face the problems they do because management is not only bureaucratic but wildly incompetent." Kafr El-Dawar Spinning and Weaving Company was cited as an example of gross mismanagement that has resulted in a debt burden LE1.2 billion when its assets stand at LE1 billion.

Mohamed Farid Zakaria suggested that the figures quoted by Khattab on the drop in the number of loss making companies were overly optimistic. "These companies," he argued, "are riddled with corruption and financial irregularities. And although they suffer endlessly from liquidity problems money always seems to be available for their bosses to buy luxury cars for personal use." Contrary to common wisdom, Zakaria claimed, privatisation does not automatically lead to improved productivity.

Hardly surprising given such figures, Zakaria went on, that the shares of most privatised companies have slumped, and that a great many investors are facing huge losses.

"The share price of North Cairo Flour Mills Company dropped from LE223 in February 1997 to LE37 this month," he elaborated, "while Kafr El-Zayat Pesticide and Chemicals Company shares plummeted from LE178 to LE35 over the same period."

How, Zakaria asked the minister, can he hope to sell 90 companies next year when earlier privatisations are performing so disastrously.

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