By: Ahmed Abdeen
In April of 2018, the Egyptian Minster of Planning and Administrative Reform, Hala Al-Saeed, announced that the government had established Egypt’s sovereign fund under the name “Egypt’s Fund.” This comes despite Egypt’s poor economic situation. Sovereign funds are mainly established to invest the surplus of rich countries; however, the government justified this move saying that it aims to better utilize state assets, especially those that remain untapped.
In August of the same year, the law establishing the fund was issued with an allocated capital of 200 billion Egyptian pounds ($12.8 billion) and an initial working capital of 5 billion ($ 320.5 M), of which one billion pounds would be paid from the state treasury at the time it is established. The law grants the President and his government the right to transfer ownership of any of the unused or exploited state-owned assets of the fund, while also granting them the right to buy, sell, rent, lease, exploit and benefit from the assets, increase resources through borrowing, selling assets, renting or leasing with the intent to transfer ownership, or issue shares and financial bonds. The law and its amendments exempt transactions of the fund and the entities in which it takes part in from all taxes and fees.
How is the fund managed?
The law establishing the fund defined how to form its board of directors and its general assembly, both of which are formed according to a decree by the President, which includes members from his government and aides. According to the law the board of directors is comprised of the Minister of Planning as the non-executive chairman of the board of directors, five members from the independent party, and representatives of the Ministries of Finance, Planning and Investment. The term of membership of the council is four years. The board is responsible for setting the general vision and strategy of the fund, monitoring performance, and approving the annual budget.
As for the general assembly, it includes the ministers of finance and investment, two ministers whose duties are related to economic affairs chosen by the prime minister, and seven expert members. The term of membership of the General Assembly is three years. They are responsible for approving the financial statements, absolving the members of the board of financial liability and monitoring the performance of the fund.
In October 2019, the Board of Directors chose Ayman Muhammad Suleiman as Executive Director of the Fund for a period of three years. He had previously held the position of Managing Director and CEO of Gemini Holding Company, which invests in various industries, prior to that he was the head of Strategic Planning at Orascom Telecom Holding.
Acquisition of State Assets
Under the law of its establishment, the fund quickly acquired a large number of Egyptian state assets, including 126 holding and subsidiary companies that are affiliated with the Ministry of the Public Business Sector, and, in accordance with a decision by the President, a large number of buildings and lands of high monetary and historical value, such as: the Tahrir complex in Tahrir Square in central Cairo, the land of the former ruling National Party on the Corniche on the Nile next to the old Egyptian Museum in Tahrir Square, the land and buildings of the two exploratory and cosmic cities in the city of 6th of October, the land and buildings of the Nasser Medical Institute extension in Shubra Egypt on the Nile and the Andalus Park in Tanta.
In accordance with the law, all the assets of the Egyptian state are illegible to be transferred to the fund only by order of the President, and only then can the fund manage them as it sees fit, which includes all sectors and services. This was made clear when the fund began selling the electricity generating stations owned by the Egyptian Electricity Holding Company, which were built by the German company Siemens under an agreement valued at six billion Euros ($6.6 billion) signed in 2015, which included three stations located in the New Administrative Capital, Beni Suef and Burullus. In the past year it contributed to 26% of the total energy generated in Egypt and achieved annual savings in fuel consumption at an estimated 10.7 billion Egyptian pounds ($ 625.9 billion).
Recently the fund partnered with Hermes Group in the acquisition of 76% of the Arab Investment Bank. Hermes Holdings was given majority shares with no less than 51% ownership and the Egyptian Sovereign Fund with not less than 25% of the bank’s capital, while the National Investment Bank and the Union of Arab Republics holds the remaining shares.
Within a short period, the Egyptian Fund ranked 43rd among global wealth funds, according to the classification of the Global Sovereign Wealth Funds Institute, which included 93 funds with total assets of $8.229 trillion. Based on the institute’s data, the fund’s assets are estimated to be $11.959, accounting for 0.14% of the total assets of global sovereign funds.
Insufficient Oversight
According to the law establishing the fund, financial oversight is limited to an audit of its accounts by two auditors: the first is the Accountability State Authority, which is a supervisory body directly affiliated with the President, and the second is selected by the Fund’s Board of Directors from the auditors registered with the Central Bank or the Financial Supervisory Authority.
During parliamentary deliberations regarding the approval of the establishment of the fund, some representatives demanded that parliament oversee the fund’s performance. The Parliament’s Planning and Budget Committee introduced an amendment to the law requiring the declaration of the financial statements, auditors’ reports, and the detailed annual report on the fund’s activity and plan to the House of Representatives. However, the proposed amendment was rejected so the fund, its business, and its financial statements remain outside the oversight or review of the Egyptian parliament.
Preventing civil monitoring
The law also specified the parties that may challenge the fund’s operations, starting with the transfer of state assets to the disposal of the state’s assets. This was limited to only two parties, namely, the original owner of the asset and the entity the asset was transferred to, and this is in accordance with Law No. 32 of 2014 regulating any procedures that would challenge contracts set forth by the state. Thus, the civil monitoring of state assets was abolished, which had previously had great effect, as the Egyptian judiciary annulled a number of contracts for the sale of assets and state-owned companies under lawsuits filed by citizens or human rights organizations, for example; The Tanta Linen and Oil Companies, the Nile for Cotton Ginning, the Arab Company for Foreign Trade, and the Steam Boilers Company, which was the only producer of steam boilers in the Middle East and was sold to the Canadian Babcock Company before the sale contract was annulled by the Egyptian Administrative Court.
Economic expert Abdel Khaleq Farouk says: “We are faced with a fund in which all the remaining assets of the Egyptian state, including lands, companies, projects and others will be available for mortgage or put ups as collateral in order to obtain more foreign and domestic loans. In addition, according to its law, the fund has an independent budget and the surplus is carried over from one year to another, which means that it is not a part of the state’s general budget, and the public treasury will not be able to withdraw a single piaster from it.“
The head of the Nile Center for Economic Studies adds in his comment on the fund law: “The remaining assets owned by the state and the Egyptian community will be diverted to a new legal and regulatory framework, in partnership with institutions, banks and foreign companies, repeating the experience with Law No. 203 of 1991. Referred to as the Public Business Sector Law, under which the largest and most dangerous operation took place to plunder and waste productive assets owned by the state and the Egyptian society, wasting more than 150-200 billion Egyptian pounds ($ 9.6 – 12.8 billion). Article (42) also stipulates non-compliance with government rules and regulations regarding auditing its accounts or maximum wage and other such rules. If we can describe this law in general, it is the greatest example of corruption and the largest waste of national resources and capabilities.”
Farouk, who won the State Encouragement Award in Economic Sciences, continued saying: “Besides the fact that, Article (12) has established a very dangerous principle, which is that the fund manages its finances and assets by itself, it may entrust the management and the finances of the fund, as a whole or in part, to companies or institutions that are specialized in asset management. Such institutions and companies that specialize in asset management exist only in western companies, institutions and banks especially in the US and England. Despite the fact that these funds, including hedge funds, one of which was managed by Egyptian-American Economic Expert Dr. Mohamed El-Erian – executive director of Pacific Investment Management Company (PIMCO), which manages assets valued at more than $1100 billion – failed to save the US economy in particular and the Western economy in general from the disaster that befell the economy in the stormy crisis of 2008, the effects and repercussions of which still exist to this day.
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