In my contribution to the annual review “Egypt in the year 2005� published by the French research centre in Cairo CEDEJ (which by the way contains excellent contributions, amongst others, on the Coptic question, the brotherhood and the fate of the Egyptian health reform) on the Egyptian privatization program during 2005, I argued that the government met surprisingly few criticism in public for its revival of the privatization program.
While hopefully the basic conclusions of my contribution (see below) are still valid, … … ever since the year turned public discourse on privatization became more aggressive. The sale of shares in Egyptian American Bank owned by the Bank of Alexandria to French bank Calyon earned a lot of criticism, as cabinet members owned shares in Calyon, as well as the ever-lasting struggle of the Ministry of Investment to get rid of public retailer Omar Effendi.
In my contribution, I concluded that the privatization program between July 2004, when the Nazif cabinet took office, and the end of 2005 moved ahead with unprecedented speed and consistency compared to the 1990s, when the Egyptian political and business elites largely outsmarted the call for privatization imposed by foreign institutions and donors, with ownership structures persisting.
This is different under the Nazif cabinet, not only in terms of numbers of companies (partly) sold and privatization proceeds generated, but, more importantly, the program is also touching strategic sectors that were previously taboo either because they generate the strategic rents for the regime such as petrochemicals and tourism, serve to control the economy such as the banking sector or play an important role in Egypt’s contrat social such as in transportation.
I basically argued that this change is a result of a change in the political setting, related to the rise of Gamal Mubarak inside the NDP and the installation of the reform cabinet under Nazif almost two years ago. In other words: today ministers are regulating the economy who during their biographies adopted the thinking of the exact same institutions World Bank and IMF whose input was largely opposed during the 1990 resulting in fake privatization.
What I find ironic today is that with Omar Effendi the critics have picked just the company that symbolizes like no other the bourgeoisie class that some Free Officers in dire need for an ideology (i.e. a pretext to cling to power) collected. I think this basically shows the critics’ powerlessness.
The debate really lacks a discussion on what privatization is supposed to achieve and on the criteria that should be applied to measure the success of the privatization program. The government appears to focus only on numbers of companies sold/privatization proceeds generated, while critics in a way follow the government here by comparing the value of companies sold – or more often their perception thereof – to the actual value of the sale.
Language like this is simply moronic: call for privatization imposed by foreign institutions and donors: recommended, not imposed.
The Egyptian public administration system wastes billions yearly of Egyptian (as well as foreign) money. Privatisation isn’t “imposed” as the idiot leftist analysis goes, it’s recommended as a way to stop the massive waste of capital.
As to the criticisms, The government appears to focus only on numbers of companies sold/privatization proceeds generated, while critics in a way follow the government here by comparing the value of companies sold – or more often their perception thereof – to the actual value of the sale. They’re magical.
Egyptian public companies are bloody basket cases, but economic illiterates want to value them like well run companies or based on invested capital.
That is neither rational nor even supportable.
I’m with Lounsbury. If the Egyptian government wants to run up large debts, and run their economy into the ground, that’s their business. But if they come crying to the IFIs for advice and help, they ought to listen.
As for the IFIs, they should make a better effort to understand the political constraints that these guys are working under, and help design privatization programs to have a minimal destabilizing effect.
A good example is how the Egyptian gov’t worked the gas subsidy issue, by keeping the 80 the same, while boosting the bread fund. In general, though, I’d say the Egyptian government needs to build a real safety net so that when they, say, lay off thousands of government employees, they aren’t thrown into the street.
One factor that should be kept in mind — and this is obviously the Egyptian government’s fault, not the international community’s — is that privatization is a great opportunity for corruption. One hears about kickbacks on these deals all the time, the most recent I heard being about the sale of a hotel for half its market value, with the minister in charge pocketing the half the difference in cash.
There also seems to be little coherent planning behind the Egyptian privatization drive besides an ideological commitment to privatization — labor disputes have been handled in a ad-hoc manner, prioritarization of certain sectors does not seem to be there, the government does not seem to be thinking about how to maximize its revenue from this one-time-only windfall, etc. Egypt does have the luxury of spending a little more time thinking about a privatization strategy and setting up a more coherent, transparent and visible auction system for public companies — it doesn’t have cashflow problems these days, and the public debt can be handled from other revenue streams. It seems to me there is a PR willingness from the Nazif govt and Minister Mohieldin in particular to rush into this to keep up the impression of a can-do govt. that makes them so popular in Davos.