x Abu Dhabi, UAEWednesday 24 January 2018

Egypt finds giving away state assets a hard-sell

Sceptics say big business would quickly divest ordinary citizens of their stocks following the proposed mass privatisation.

CAIRO // As governments throughout the world intervene in private markets with costly bailouts, Egyptian economists and politicians are debating a controversial privatisation plan that would distribute state assets for free to each adult citizen. Proponents of the Egyptian Citizenship Ownership Programme, which was introduced in November but remains under debate in parliament, hope that their proposal will finally, after nearly 18 years of stop-and-go debate, privatise the government-owned industries that have dominated the Egyptian economy since its period of centralisation in the 1950s and 1960s.

But opponents say the programme's populist pretences - it would effectively give each Egyptian over the age of 21 a "bundle" of stocks in more than 80 state-owned companies - are deceiving and amount to nothing more than a backhanded attempt to put government-owned infrastructure into the hands of wealthy investors. "Eventually you'll end up in a situation where the ownership of the assets will be concentrated into the hands of a wealthy few," said Gouda Abdel-Khalek, chair of the Tagammu party's economic affairs committee and an economics professor at Cairo University. "Now is this just? I say definitely not. Is it efficient? Absolutely not."

The plan's designers say that nearly 18 years after Egypt first embarked on its economic reform programme in 1991 on the advice of the International Monetary Fund, the Egyptian government has managed to part with only 15 companies out of a total of 314. Such a slow rate of privatisation for nearly two decades prompted a shift in thinking among Egypt's top economic minds, said Bill Megginson, an expert on privatisation and a finance professor at the University of Oklahoma. Prof Megginson consulted briefly on the project with the Egyptian government two months ago.

"They've privatised only 15 companies in 18 years, each one of which has been a battle, each one of which has opened the government of the day to criticism," said Prof Megginson. "They've worked, the privatised companies have improved performance, but each has been its own mini-drama." The stated need for privatisation is never quite as controversial as the act of privatising itself, Prof Megginson said. Regardless of the economic or political circumstances and despite the preponderance of research extolling the benefits of private enterprise, the sale of publicly owned property "is always a battle", he said. "When it has been successful, the results have been positive. But they've privatised only a fraction of the state sector."

Despite details of the latest plans not being released to the public, Prof Megginson said Egypt's latest method of privatisation just might work. One merit of the programme, he said, is that Egypt's proposal improves on the failures of the privatisation strategies used by Central and Eastern European countries in the early 1990s, many of which undersold their state-owned enterprises to oligarchical investors.

Unlike those plans, each Egyptian citizen will be entitled to identical bundles of stocks from more than 85 companies. However, the amount of public shares will vary between the state-owned firms, with the government retaining larger numbers of shares in strategic sectors such as pharmaceuticals, steel and aluminium. By maintaining government ownership in all of the companies for a provisional period, the Egyptian plan hopes to avoid the kind of ownership vacuums that caused the value of privatising companies in Eastern Europe to plummet. Analysts say the fact that Egypt has always had a market-based economy and stock is likely to make the programme more successful than previous privatisation experiments in Poland and the Czech Republic.

Yet many Egyptian politicians who are not in the ruling National Democratic Party (NDP) remain sceptical. Besides the cloud of secrecy that has hung over the plan since the early days of its development three years ago, many experts have a hard time imagining the Egyptian public as stock owners. In a country where more than 40 per cent of the population is illiterate and 20 per cent live on less than US$1 (Dh3.67) each day, it is hard to imagine Egyptians doing anything else but selling their "bundle" immediately.

"They are trying to make the people who will take shares, to treat them as a machine to make the transition of these shares to the businessmen," said Ahmed El-Naggar, the editor of the Strategic Economic Directions report by the semi-official Al Ahram Center for Political and Strategic Studies. "They will give the public sector to the people and they will sell it to the businessmen. Then they will blame the people."

Responding to such criticism, one of the plan's drafters said the terms of the proposal will prevent individuals or institutions from purchasing entire companies cheaply during the early period of open market sales. No one will be allowed to purchase more than five per cent of a previously state-owned company without special permission from the government. "I know the Egyptian people will understand the value of these bundles. They will be very careful before they give away these shares to others," said Mohammed Omran, the deputy to the chairman of the Egyptian stock market and one of the new plan's designers. "We are telling them, this is your asset, this is your ownership, you are rational enough, you are mature enough, you understand your needs."

But if the government's plan is as uniquely democratic as its proponents say, its critics wonder aloud why the government has insisted on keeping the details of the proposal - such as which companies are slated to be privatised - a secret. "The lack of public transparency ... the fact that the government unilaterally decides what is to be done with no national debate about the issue - all of this is increasing opposition to the programme," said Mr Abdel-Khalek