Companies skeptical about Egypt's push to ease industry ties

By AP News

Egypt is embarking on a privatization push to help its cash-strapped government after pressure from the International Monetary Fund

Egypt Privatization

CAIRO (AP) — In Egypt, state-owned companies bottle water, make dry pasta and cement, and run gas stations and fish farms.

Two of the most powerful economic players in the North African country have long been the government and military. For years, they have faced criticism from economists and international lenders that this approach is stifling economic growth.

Increasing pressure, brought on by high inflation and a currency crisis, led Egypt to vow things would finally change.

The government said it started to sell stakes in March in some of the 32 state-owned companies it's promised to privatize, from petrochemical firms to banks. The policy announced in December is part of reforms linked to a loan from the International Monetary Fund but still allows the state to work in key sectors like health, pharmaceuticals, agriculture, oil and gas, insurance and more.

Business leaders and analysts are skeptical. Several told The Associated Press that they expect the government and military to remain anti-competitive. As of early April, none of the state-owned companies have been sold, and some critics question who would invest as multinational companies have fled, small firms have been squeezed out and public agencies remain secretive and slow.

“In terms of risk, why would you invest in a country with a powerful state competitor that has little regard for the rule of law?” said Timothy Kaldas, deputy director of the Tahrir Institute for Middle East Policy in Washington.

Three former and current company owners, who spoke on the condition of anonymity for fear they could be targeted by the government in retaliation for speaking openly, said the military’s power in certain sectors means going into business with them is the only option. They don’t expect that to change.

They said the contracts offered by state firms can't be negotiated and payments arrive months too late. One entrepreneur started a waste management business in 2019 but found that a state company proved too large of a competitor and too unequal of a partner.

The Egypt-run company offered a partnership that would take 30% to 50% of the profits and saddle the small business with all the liability. He closed instead.

“We shut the company down before the government started coming for taxes,” he said.

Others persist despite the government's dominance.

"Even if that means at times losing money, they — firms — do it because they know that if they don’t, then the military will cut them out of future contracts,’’ said Yezid Sayigh, a senior associate at the Carnegie Middle East Center who researches the military’s role in the economy.

There are other pressures to cooperate: The government has cracked down on dissidents and critics, jailing tens of thousands, according to estimates by rights groups.

Among them were two leading businessmen. The owners of Egypt’s largest dairy company, Juhayna, were charged in 2020 with being members of a terrorist organization, parlance for the Muslim Brotherhood, which Egypt has outlawed.

Amnesty International said Safwan Thabet and his son Seif were imprisoned because they refused to hand over company shares to the government. They were later released, but the company is still in government hands.

Egypt’s policy of mixing government and business dates to socialist leader Gamal Abdel Nasser's wide-reaching nationalization in the 1950s and '60s. His successors, Presidents Anwar Sadat and Hosni Mubarak, took steps toward free-market policies but were often accused of giving contracts only to allies.

Selling state companies and government transparency are key goals of a $3 billion bailout package that Egypt secured from the IMF in December to help it weather recent shocks to the global economy, including the COVID-19 pandemic and Russia’s war in Ukraine, that have pushed the country to the financial brink.

Since the war in Ukraine began in February 2022, sending up food and fuel prices, the Egyptian pound has lost over 50% of its value against the dollar and inflation has exceeded 30%, pushing more people into poverty and leaving businesses struggling.

In seeking Egypt’s fourth loan from the IMF in the past six years, Prime Minister Moustafa Madbouly says the hope is the reforms “bring in strategic investors” and “widen the participation of Egyptian citizenship in public ownership.”

Egypt’s Ministry of Finance did not respond to requests for comment about the push to privatize companies.

The IMF says it's preparing for an initial review to ensure Egypt is meeting the goals of the bailout program, including privatization.

“Dates for the first review mission will be announced when they have been agreed with the authorities,” communications director Julie Kozack said at a March 23 press briefing.

Meanwhile, the conditions are squeezing small businesses. One owner of a manufacturing company said he is locked into state contracts while facing rising import costs and taxes. He lamented that small firms can't even take advantage of the one benefit of the economic crisis: “Egypt’s falling exchange rate is making our goods more competitive internationally.’’

But businesses are barely staying afloat, and the government doesn’t help private firms find markets abroad, he said.

Despite criticism, leaders hope the energy sector in particular will be a magnet for private investment, with its geography and large solar plants offering potential to tap renewable financing.

Rystad Energy said Egypt received over $100 billion in investment for planned green hydrogen projects last year. The government also plans to turn the country into a hub for liquefying and exporting natural gas after recent offshore discoveries.

For Egypt to attract funding, the government needs a financial overhaul to make renewable investing less risky and reduce delays, said Jessica Obeid, nonresident scholar at the Middle East Institute.

“Across the world, everyone is kind of competing for a small pool of investors’ money, and it will all go down to a country’s ability to implement required reforms and increase investors’ appetites in coming into the market,” she said.

Plus, “it’s not easy to attract investment when you have military and government involvement across so many sectors of the economy,” Obeid said.

It is yet to be seen who will buy shares in state-owned companies including Banque Du Caire, one of Egypt’s largest banks, and gasoline company Wataniya.

The World Justice Project found public agencies and the legal system are sluggish and lack transparency, in a 2022 report that ranked Egypt last among the Middle Eastern and North African countries when it comes to rule of law.

Over the past decade, multinational firms including BNP Paribas, Toyota and Vodafone have withdrawn from Egypt. While they gave few details, analysts believe the restrictive economic and repressive political climate were factors.

Gulf states are seen as likely clients. Saudi Arabia and the United Arab Emirates have been staunch backers of Egyptian President Abdel Fattah el-Sissi since the Muslim Brotherhood’s ouster in 2013. However, there are signs they are becoming less willing to support what is seen as a troubled economic model.

Gulf investors ‘’must have a high tolerance for risk over the short term or an ability to wait it out for returns" more long term, said Robert Mogielnicki, a senior resident scholar at the Arab Gulf States Institute in Washington.

Meanwhile, Egyptian firms are moving away. Notably, ride-booking application SWVL and e-commerce site Sidecup have set up headquarters in Dubai and Riyadh, respectively.

The head of an Egyptian sustainability startup, who also spoke on the condition of anonymity for fear of reprisal, sympathizes.

‘’If I grow, I would like to move my company abroad,’’ he said.


Associated Press writer Maggie Hyde in Buzet, Croatia, contributed to this report.


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