Egypt’s mass privatisation: Would it help the economic crisis?

The Egyptian government announced its intention to offer 32 state-owned companies for privatisation to face the severe economic crisis plaguing the country due to the shortage of hard currency. The companies offered for sale (totally or not) belong to several vital sectors, including banks, oil, real estate, insurance, and ports. Most of them acquire essential market shares in their field and achieve excellent profits.

Prime Minister Mostafa Madbouly stated that shares in these companies would be sold either to strategic investors or through a public subscription on the Egyptian Stock Exchange, or both. While experts suggested that most of the sales would take place by offering shares to Gulf strategic investors, as happened last year. In 2022, Emirati and Saudi wealth funds bought stakes in Egyptian government companies with values exceeding $3.1 billion. They allocated more than $20 billion to acquire large stakes in Egyptian companies over the next few years.

Cross-sectors privatisation

The government intends to offer three banks for sale, namely: Bank of Cairo, the Arab African International Bank – owned equally between the Central Bank of Egypt and the Kuwaiti sovereign wealth fund – as well as the United Bank, about which rumours have been raised about an acquisition offer from the Saudi sovereign wealth fund. For the first time, the privatisation plan included two insurance companies: Misr Life Insurance Company, the largest life insurance company in Egypt and the Arab region, which is currently 100% owned by the state, and Misr Insurance Company.

A significant share of the privatisation proposals will be for the oil and petrochemical sector, as the government intends to sell stakes in 7 companies operating in the industry: the Egyptian Company for the Production of Ethylene and Derivatives (ETHYDCO), the Egyptian Company for the Production of Linear Alkyl Benzene (ELAP), the Helwan Fertilizer Company, and the Chemical Industries Development Company (Syed), the Egyptian Company for the Production of Polypropylene, the Drilling Petroleum Company and the Paints and Chemical Industries Company. As for the ports sector, the Port Said Company for Container and Cargo Handling and the Damietta Company for Container and Cargo Handling will be offered, which the Qatar Investment Authority has shown particular interest in during the recent period, and it is currently engaged in negotiations with the government about them. A share of the Rabat Lights Company of the Suez Canal Authority will also be offered for sale. As expected, the list includes two companies affiliated with the army, namely the National Company for the Sale and Distribution of Petroleum Products (Watania) and the Safi Water Bottling Company, owned by the armed forces. The offering of these two companies comes to calm the pressures of the International Monetary Fund and international donors, who have been calling for years to reduce the role of the Egyptian army in the economy.

The government intends to offer shares in 4 sizeable real estate companies for sale: Al-Nasr Housing and Development, Maadi for Development and Construction, Al-Mustaqbal for Urban Development, and Al-Salihiya for Investment and Development. In addition to 7 significant hotels owned by the Ministry of Business Sector (Cairo Marriott, Sofitel Legend Old Cataract Aswan, Marriott Mena House Cairo, Sofitel Winter Palace Luxor, Cecil Alexandria, Mövenpick Aswan, Elephantine Aswan). The plan also includes the state offering some of its assets, including two of the country’s most significant wind farm projects: Jabal Al-Zeit station, with a capacity of 580 MW, and Zaafarana station, with a total of 545 MW. Also due to be sold is the 4.8 GW combined-cycle power plant built by Siemens in Beni Suef, in which the Saudi Public Investment Fund has shown particular interest.

IMF conditions

The announced government proposals are one of the International Monetary Fund’s conditions for approving a loan of $3 billion to Egypt to alleviate the severity of the financial crisis that has hit the country since the beginning of 2022. These proposals aim to provide financial liquidity for the government to meet its external obligations. According to the announced government plan, the government will sell properties worth $40 billion over the next four years (2023-2026) through public offerings, selling shares to strategic investors, and expanding partnerships between the public and private sectors.

Economists fear that implementing this plan will decrease the state’s revenues, as the public budget will lose an essential part of its revenues, especially since most of the companies that are offered for sale are successful companies and generate huge profits. There are also fears that the rapid implementation of the privatisation plan, and the government’s need for funds quickly to pay off its debts, will lead to the devaluation of these companies and their valuation at a lower price, especially since the market is currently unfavourable. There is a mass flight of foreign investments from Egypt and emerging markets because of the global economic situation.