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	Egypt		Info-Prod Country Guide
CHARACTERISTICS   INDICATORS   THE ECONOMY   INVESTMENT ISSUES   PROJECTS   PROSPECTS

Prospects For Economic Growth Privatization The Egyptian government made a formal commitment to privatization in the early 1990s and announced a plan for the divestiture of 125 public enterprises over the following five years. The government has also decided to sell off its shares in more than 250 public joint venture companies. The privatization program in Egypt is two-fold. The first and most extensive part involves divestment of public sector holdings in production and manufacturing companies. To that end, two approaches are being undertaken: sales of shares through the stock exchange and sales of a strategic stake to anchor investors through public auction. The second stage of the program is the encouragement of private sector investment in sectors historically controlled and operated by the public sector including electricity, roads, airports, ports, oil and gas transmissions. For that purpose, new laws were passed by the Egyptian government authorizing private sector investment in public services. Law 203 of 1991 established the legal basis for privatization by removing the 314 public sector enterprises from the control of government ministers and restructuring them as affiliates under sixteen independent holding companies. In principle, the holding companies operate as private sector companies with full financial and managerial accountability. Since early 1994, shares of twenty-seven state-owned enterprises (SOE) were publicly offered on the Egyptian stock exchange with a total value of 2.6 billion ŁE . Four companies were sold to strategic investors, totaling 664 million ŁE. During 1997, the program aims to transfer 40 companies from Law 203 to law 159, meaning that the public offering will exceed 51 percent of its capital. In addition, 40 percent of the shares of another twelve companies and 100 percent of the shares of another twenty-seven companies will be offered to the public on the stock exchange by the end of 1998. As many as sixty-four other companies will be offered to strategic investors. In total, 143 companies are expected to be either wholly or partially privatized during 1997 and 1998. At the same time, all state owned banks are planning to sell their shares in all joint venture banks to private investors. A Parliamentary decision from June 1996 allows foreign banks to own more than 49 percent of the capital in banking joint ventures. The government is moving closer to privatizing Egypt's leading four state banks as well as the insurance industry . Egypt is committed to begin that process during 1997 according to its 1996 agreement with the International Monetary Fund ( IMF). In addition, the government has announced its plan to sell almost all of the seventy-three hotels and tourism related assets owned by the public sector. In the power sector, recent legislation has allowed the Egyptian Electricity Authority (EEA) to begin buying power supplies directly from private providers and then sell it to state-owned distribution companies. While government subsidies may still be needed, analysts believe that the EEA could produce profit margins of up to 10 percent on current figures for industrial and residential users. Private operators are expected to be given concessions from 10 to 12 years, with profit margins ranging from 10 percent to 12 percent built into the contracts for the power plants. The privatization plan will be part of a larger project to link Egypt's power grids and distribution networks with that of other countries in the Middle East by the year 2000. Legislation to allow the private sector to build roads and bridges was also passed in 1996, providing that both foreign and local entities may build, administer and maintain roadways for periods of up to ninety-nine years. Furthermore, since the end of 1990 local governorates have disposed of more th1,700 oftheir 1,850 small businesses such as agricultural projects, poultry units, dairies and retail outlets. Examples of privatization programs include the sale of shares in the profitable Kabo/Nasr Clothing and Textiles; United Arab Spinning and Weaving; Egyptian Electro-Cables; Alexandria Portland Cement; Helwan Portland Cement; Amreya Cement; Al-Ahram Beverages, Egypt' s only brewer; Madinet Nasr Housing and Development and Egyptian Dredging Co. In the agricultural sector companies include Wadi Kom Ombo for Land Reclamation, Egyptian Akkaria Co., Arab Co. for Land Reclamation and Behera Co. In the chemicals sector - companies include Alex. Pharmaceutical & Chemical Industry, Misr Chemical Industries, Nile Pharmaceutical and Chemical Industries. The overall value of the assets targeted for sale in 1996 stood at US$ 2.9 billion. This program has met with some skepticism on the part of observers of the Egyptian economy, in part due to the poor record of previous privatization efforts and in part because of the structural problems of the Egyptian economy. The blossoming private sector, however, is already contributing about 60 percent of Egypt's GDP, which stands at about US$ 60 billion. Nevertheless, to date the government has concentrated on the sale of the most attractive companies, so that as the less profitable companies come on the market the sales volume may be expected to decrease. Along with the increase in direct foreign investment, twenty-nine international funds have been set up by foreign banks and fund management companies, particularly in the UK and US, to invest in Egypt and other parts of the Middle East and North Africa. The government declared its intention to preserve the full rights of workers in companies sold to the private sector. The government is to stay in control of public companies which produce strategic products related to national security. Other Reform Efforts In 1996, the Egyptian cabinet abolished a long-standing ban on foreign ownership of real estate in the country, which dated back to the socialist and nationalist policies of the 1960s. Additionally, the Ministry of Interior has increased the number of raids on suspected technology pirates, to stamp out Egypt's reputation of offering poor intellectual property rights. As a result, US-based Microsoft has recently committed to investing there. The government's food subsidies, however, are likely to remain in place for some time, as Egypt looks to what Jordan encountered as it lifted bread subsidies in August 1996. Previous Chapter Contents Menu Next Chapter

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