A greater role for the private sector

Safeya Mounir , Tuesday 21 Jun 2022

The time is ripe for the government to limit its presence in some sectors of the economy, economist Hany Tawfik tells Safeya Mounir

A greater role for the private sector


A societal dialogue is underway over the government’s State Ownership Policy Document, described by Prime Minister Mustafa Madbouli as part of a new phase in which the state will identify its vision for the economy and implement it through legislation.

The dialogue will be conducted over the next three months with the aim of restructuring the economy and boosting the role the private sector plays in an attempt to mitigate the repercussions of the Russia-Ukraine war.

The idea is to increase the contribution of the private sector in the economy to 65 per cent over the next three years and attract investments of $40 billion until 2026.

While the government plans to retain its role as the main player in the transportation and primary education sectors, it wants to end 11 per cent of its involvement in the ICT sector and exit from more than 70 industries, including the automotive industry, some transformative industries, and agricultural production.

This exit strategy comprises several mechanisms, including initial public offerings (IPOs) and public-private partnership (PPP) schemes.

Hany Tawfik, an economic expert, believes the state should exit from all sectors save for strategic ones related to national security like agricultural production, notably planting wheat and staple foods.The state should be involved in sectors where the private sector does not play a leading role, such as roads, sanitary waste disposal, water, hospitals, and schools, Tawfik said.

The government has been investing heavily in infrastructure over recent years, which has helped to keep the economy’s growth rates high despite the Covid-19 pandemic. However, the challenges associated with the war in Ukraine have made this more difficult, prompting it to find more room for private investment.

Last year witnessed the conclusion of important PPP deals in the energy, transport, and water and sewage sectors.

For Tawfik, the state’s exiting from investing in any particular sector should not mean selling off assets. An alternative would be to inject new capital that can be used to increase production and allow for the provision of more employment.

“The government selling assets is like a bankrupt person selling his furniture to pay off his debts. But paying his debts won’t make him a rich person,” Tawfik said.

He said that now was the perfect time for the state to announce its intention to exit much of the economy and not in three years’ time as the Policy Document says.

In 2018, Egypt slated 23 state companies for privatisation, including oil producer Enppi and the Banque du Caire, but most of the plans were put on hold due to the emerging markets slowdown and the Covid-19 pandemic.

The government had planned to offer shares in four to six companies in the fiscal year ending this month, but it has recently said that the sales will now begin in September. The list of companies to go on the bloc include two that are military owned.

Despite the unfavourable global conditions, Tawfik believes that the timing is right for the privatisations to go ahead, as recent increases in the price of oil have produced surpluses for the Gulf countries and Arab sovereign funds looking for investment opportunities.

The Saudi Wealth Fund is showing interest in buying a stake in the in-the-making entity resulting from the merging of seven or eight Egyptian state-owned hotels, for example. The fund also said in March that it wants to inject $10 billion of investments in the Egyptian healthcare, education, and agricultural sectors.

However, Egypt’s history of privatisation has not necessarily been bright. The government began to privatise much of the public sector in the early 1990s in line with International Monetary Fund (IMF) conditions for a loan granted on the back of a local financial crisis.

Critics said that some of the companies were sold off at low prices, laying off thousands of employees.

Tawfik noted that previous unsuccessful privatisation experiences, which resulted in the return of assets that had been sold, would not be repeated if capital is increased. He said that rumours of assets being sold off at unfair prices during the early privatisation period in the 1990s were “untrue”.

The prices were fair at the time, he said, adding that Egypt had been facing a dilemma in trying to fulfil the conditions of the World Bank and the IMF to exit many companies over a period of nine months as a condition for dropping 50 per cent of its debts.

The case is different today, he said, with the country having many other options besides selling, such as renting, increasing capital, selling via usufruct, or selling management rights, he noted.

“Egypt has enough experience and the right legislation not to repeat the mistakes of the past,” Tawfik said.

But it is still imperative to improve the investment climate and remove any obstacles that might discourage investors, such as corruption, bureaucracy, high energy prices, the lack of a one-stop system, multiple regulatory bodies, and increased fees and taxes.

“Otherwise, investors could spend the majority of their time trying to solve these problems,” he concluded.

A version of this article appears in print in the 23 June, 2022 edition of Al-Ahram Weekly.

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