Abu Dhabi, UAETuesday 19 November 2019

Plan to privatise Egypt's military-run businesses raises questions

President Abdel Fattah El Sisi unveiled the idea last week but hinted it would take some time

Egyptian President Abdel Fattah El Sisi said a plan to list military-run companies on the stock market would take time. AFP
Egyptian President Abdel Fattah El Sisi said a plan to list military-run companies on the stock market would take time. AFP

Egypt’s plans to privatise companies owned and run by the military could put to rest persistent questions about their transparency, operating revenues and profits, but both experts and the president agree that it is likely to take years for them to be listed and traded on Cairo’s stock market.

President Abdel Fattah El Sisi announced the decision in televised comments on Thursday, saying it would allow ordinary Egyptians to own a stake in these companies.

“These companies must be listed on the bourse and offer Egyptians a chance to own shares in them,” the president said.

He suggested that the process might take some time. “Listing on the stock market involves complex procedures that I don’t want to talk about,” said Mr El Sisi, whose five years in office have witnessed staggering growth in the military’s economic activity, with significant forays into unlikely territory such as advertising, film production and imports.

Mr El Sisi, a former army chief, sought to reassure his nation of 100 million people that the military’s role in the economy was not intended to sideline or weaken the private sector, and renewed his call for businessmen to come forward and partner in projects with the military.

The president’s comments follow allegations of corruption against the military by a businessman living in self-imposed exile in Spain who posted a series of video messages online that went viral. Mr El Sisi denied the allegations in televised comments to the nation in September.

There has been a flurry of official assurances since then that the country is on track to achieve prosperity after years of political turmoil and violence that followed a 2011 popular uprising that toppled longtime ruler Hosni Mubarak. Criticism of government policies and serious probes into claims of corruption or mismanagement have also been encouraged.

“We are not perfect,” Mr El Sisi declared on Thursday, urging the staunchly pro-government parliament to thoroughly investigate corruption allegations and publicise their findings. He also called on state institutions to join forces in the search for the “truth” and to “protect the state not the regime”.

“We will not be upset, and we should not be; and this goes for me and the government.”

The Egyptian military’s economic activity can be traced back to the mid-1950s when factories were built to produce munitions and basic firearms. Soon, those factories were also making home appliances such as cookers. The industry began to diversify and expand under the late president Anwar Sadat who sought to make the military economically self-sufficient. That goal was significantly broadened as the military built an economic empire during Mr Mubarak’s 29 years in office.

It 1997, Mr Mubarak placed the military in charge of all unused land in Egypt, leading to its involvement in the lucrative sale and development of real estate, particularly on the Red Sea and Mediterranean coastlines.

But the biggest and quickest expansion of the military’s economic activity came after Mr El Sisi took office in 2014, a year after he led its removal of an elected but divisive president, Mohammed Morsi of the now-banned Muslim Brotherhood.

Mr El Sisi said in December 2016 that the military accounted for up to 2 per cent of the country’s GDP, a figure widely thought to be too low. Egypt’s GDP that year was $336 billion (Dh1.234 trillion), according to the World Bank.

However, the military’s economic role was big enough to prompt a warning in 2017 from the International Monetary Fund, which said the development of the private sector and job creation “might be hindered by the involvement of entities under the Ministry of Defence”.

Mr El Sisi has said repeatedly that military-owned businesses reduced unemployment by providing hundreds of thousands of jobs, and that the giant infrastructure projects currently under way were being carried out by civilian companies, with the military only supervising to ensure deadlines and standards were met.

Public listing of military companies might prove a lengthy and complex proposition since it would involve restructuring and streamlining to make them ready for the stock market, according to Abdel-Qader Ramadan, head of economic reporting at Masrawy, a popular news website.

The government has been speaking about privatising parts or all of 23 government-owned companies and banks for the past three years, but has so far sold only a tiny slice of a tobacco company that was already listed. One possible reason for the delay is the poor performance of the stock market this year.

“In principle, the idea of listing military-owned companies is a good one. But it’s a dream that will take a long time to come true,” Mr Ramadan said.

“When it goes ahead, people will gain from the profits, and their listing will mean transparency on how much they sell and how much they profit.”

Listed companies are subject to a multi-tiered regime of scrutiny by the bourse’s watchdog and others. Directors are routinely grilled by investors during shareholder meetings if profits are down or a company is not meeting targets. Mergers must also be ratified by shareholders.

Some question whether military-owned companies can go public, arguing that the secrecy traditionally surrounding the armed forces and its longstanding policy of running its affairs away from any outside scrutiny run counter to everything that a market listing entails.

“Will there really be any transparency regarding their budget?” political and media analyst Hisham Qassim, a critic of the government's policies, wrote in a Facebook post.

Updated: November 3, 2019 09:42 PM

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