On the morning of September 4, 2020, Egyptians were surprised by General Abdel Fattah al-Sisi’s decision to transfer ownership of several state-owned real estate assets to the Egypt Sovereign Fund (Tharaa). The decision was surprising, and many Egyptians did not understand how suddenly the state’s assets were exposed to the threat of sale through deals that had immunity, which could not be challenged before the courts.
What added to the astonishment of observers is that the fund, which is not subject to the general budget or real control, can sell these assets without accountability or elected leaders. To see how this happened, observers had to return to July 20, when the Egyptian parliament quickly passed amendments to the law establishing Egypt’s sovereign fund. Given that the fund was established only two years ago, the need to amend some of its laws so quickly was remarkable. Nevertheless, the statements from parliament members said that these amendments give a boost to the economy and represent an essential factor in the framework of economic reform.
However, the deputies did not mention that amendments to the draft law of Egypt’s Sovereign Fund include exempting intra-state transactions for the fund and the entities wholly owned by it from all taxes and fees. The amendments also prohibit any third party from filing lawsuits for invalidity of contracts concluded by the fund, actions taken by it to achieve its objectives or actions taken based on those contracts or activities, except the contracting parties and not others.
In practice, this means that for all sales or transactions carried out by the fund, Egyptians will not be able to appeal them in court. However, the controversial law did not receive a real follow-up because the Egyptian regime took advantage of the Egyptians’ preoccupation with following the coronavirus developments.
Observers say that the privatisation policy has a terrible reputation in Egypt due to the corruption incidents that are associated with it. For Egyptians, privatisation has become another word for squandering public money and state assets. Despite this, Egyptians could have legally challenged government decisions to sell or privatise assets and companies.
The Egyptian system invented a new way, by which it avoided the term privatisation, and made legal challenges to fund deals impossible. According to the law papers, those deals conducted by the fund are not privatisation, nor are they carried out by the government but rather by the fund, and they cannot be appealed before the courts.
Observers say that the Egyptian media, which is controlled by the regime, did not search for the articles of the law, did not publish them, or conduct a dialogue about them, but instead published brief news that makes the passage of the law as if it was done in secret. Followers expressed their dissatisfaction and surprise at the decision, considering that these real estate assets will be lost on the state and will be sold to Gulf investors, especially since the sovereign fund is not subject to any control.
According to the republican decree, the public benefit’s attribute will be removed to several lands and real estate from the state’s available property and transferred to the ownership of Egypt’s Sovereign Fund. The properties covered by the decision are the land and building of the Tahrir complex, the land and buildings of the Ministry of Interior (the old building), and the land of the National Party next to the Egyptian Museum in Tahrir Square in Cairo.
The real estate also includes the land and buildings of the Nasser Institute extension on the Nile in Cairo and the Exploratory Educational Village’s land and facilities in the Sixth of October City. The decision also included the land and buildings of the global village on the 6th of October City, and the Andalus Park (Tanta Zoo) land in Gharbia Governorate. Egyptian newspapers and websites reported that ways to exploit the assets transferred to the sovereign fund in the downtown area were discussed by various government agencies, including the Tahrir Complex.
Egypt’s Sovereign Fund
The decision to transfer many state-owned assets to Egypt’s sovereign raises fears it will be wasted and sold, especially after statements by the fund’s executive director, Ayman Suleiman.
Suleiman announced the government’s intention to get rid of some of its debts by selling state-owned assets to (Arab and foreign) investors, in partnership with Egypt’s sovereign fund. Suleiman said that opening the door for investors to buy some assets through alliances with the fund would allow the Egyptian economy to recycle capital significantly. The Egyptian economy invested hundreds of billions and took loans for infrastructure projects. He added, “If investment transactions are made on those assets, they will raise the national economy’s debts in the state budget.”
Regarding the value of the assets expected to be transferred, Soliman revealed that preparations are underway to transfer assets with an amount ranging between EGP 50 and 60 billion, as a preliminary package. Usually, countries establish sovereign investment funds from its surplus funds and wealth, which exceed the local economy’s capacity and direct it abroad to maximise the return.
Sovereign funds also invest these assets in projects that represent an added value for future generations or as a reserve in times of crisis. Still, the situation is different when it comes to Egypt’s Sovereign Fund. Egypt’s Sovereign Fund’s mechanism of action differs from other investment funds in that Egypt does not have financial surpluses for the fund to manage. Instead, its management is directed towards the exploited and untapped state assets, confirmed by the executive fund director’s statements.
The fund’s immunity
The Egypt Sovereign Fund was established under the direct supervision of the Presidency of the Republic, with a capital of EGP 5 billion (equivalent to $312 million), and was approved by parliament in July 2018, and approved by the government in April 2019, with an authorised capital of EGP 200 billion. However, the executive director of the fund expected an increase in the authorised fund’s capital to EGP one trillion, and said in press statements, on November 12, that he expected this to happen within three years or less, “according to the investment appetite and the response of the investors.”
Questions surrounded the establishment of the fund, as no official body has disclosed how the fund operates. Mystery surrounded its management, the maximum powers it enjoys, or the means of monitoring it, as it is subject to direct supervision by the president and is not subject to parliament’s oversight. The fund’s accounts are audited by one auditor, an employee of the Central Auditing Agency, and the other is among the accountants registered with the Central Bank or the Financial Supervision Authority.
The accountants mentioned above are appointed by a decision of the fund’s general assembly based on the board of directors’ proposal. Last December, the Council of Ministers approved a bill to amend some articles of Law 177 of 2018, establishing the Egypt Sovereign Fund. This bill is to prevent citizens from challenging the transfer of ownership of assets from state agencies, or challenging the fund’s contracts with other parties, as stated in Article 6. The “ministers’” statement stated that according to the article mentioned above in the draft law, the right to appeal is limited to the authority that owns the asset (the fund). Lawsuits for the invalidity of contracts, or the actions taken by the fund to achieve its objectives, are only brought by the parties to the agreement, meaning that the fund is immune only from itself.