As part of its privatization plans, Egypt wants to sell off more than $40 billion worth of assets.
Ali Noureddine
This article was translated from Arabic.
Gulf States are vying to pump investments into Egypt, particularly in privatization projects or public-private partnerships. Such endeavors have undoubtedly piqued the interest of Gulf capital holders, looking for enticing opportunities to invest in industries that the Egyptian government previously monopolized.
Due to the strains on its economy, its debts, and its urgent need for hard currency, not to mention the market liberalization policies the International Monetary Fund insists on, Egypt is scurrying to implement such projects.
Gulf countries scramble to invest in Egypt
As a result of the sharp increase in oil and gas prices, Arab Gulf states have been experiencing a financial boom since 2021. These countries’ quest to invest in Egypt, which enjoys positive relations with the majority of the Gulf Cooperation Council nations, is explained by the consequent capital surpluses.
Egypt is highly appealing for Gulf investments due to its relative security stability, its booming population, and its immense market, in addition to political considerations. More crucially, Gulf nations are drawn to Egypt’s lucrative and promising economic activity, particularly in sectors that have just lately opened up to foreign investment after long being confined to the governmental oversight.
The Gulf rush grew increasingly evident in April 2022 after the Abu Dhabi Holding Company, operated by the Emirate of Abu Dhabi, entered into a $2 billion agreement to purchase shares in firms held by the Egyptian government.
The agreement comprised the purchase of stock in the Misr Fertilizers Production Company, the Commercial International Bank of Egypt, the Alexandria Container Handling Company, and the Abu Qir Fertilizers and Chemical Industries Company (MOPCO). Additionally, the Emirati corporation purchased a stake in Fawry for Banking Technology and Electronic Payments in a deal for approximately $54.9 million in the technology sector.
Saudi Arabia has also embraced the endeavor, and since March 2022, plans have been developed by the Saudi Public Investment Fund to invest roughly $10 billion directly in Egypt. Interests included the privatization of or public-private partnerships in the areas of health, education, agriculture, finance, shipping, and transportation.
The fund swiftly carried out the first stage of these plans in August by purchasing $1.3 billion worth of shares in industrial, technological, and agricultural enterprises from the Egyptian government.
Qatar, whose ties to Cairo have been warming up, instructed the Qatar Investment Authority to inject $2.5 billion into the Egyptian market and invest it in privatization. To this end, it launched negotiations efforts to acquire a 20 per cent stake in the telecommunications company Vodafone, which is partially owned by the Egyptian government. Meanwhile, the Qatar Energy Company moved to acquire shares in the gas exploration area north of Marakia in Egypt’s territorial waters in the Mediterranean.
Unquestionably, the three nations had already made large investments in the Egyptian market and had signed a number of investment agreements with the Egyptian government. Their rapid, coordinated efforts to bid for shares in companies owned by the Egyptian state since the end of March 2022 are significant.
Egypt’s economic crises and privatization programs
Egypt’s privatization efforts were not an overnight success. Egypt has experienced significant economic challenges over the past few years, forcing it to implement extensive privatization measures.
According to data from Egypt’s Central Bank, the nation now owes foreign creditors $157.8 billion, five times as much as it did ten years ago. On the other hand, domestic debt amounts to $194 billion at the current value of the Egyptian pound.
The Egyptian government’s main concern lies in managing the cost of servicing the account for around 33 percent of its total state budget expenditures, which has reduced the government’s ability to spend on social protection networks and infrastructure projects.
The cost of repaying Egypt’s foreign debt is anticipated to increase as a result of the rise in global interest rates, endangering the nation’s capacity to pay its debts in the future.
This problem was further exacerbated by global spikes in fuel and food prices following the war in Ukraine, which resulted in an increase in the cost of imports. Consequently, the foreign reserves of the Egyptian Central Bank decreased from $45 billion in February to about $33.1 billion today.
This rapid decline in foreign reserves is what recently prompted the Central Bank to reduce the Egyptian pound’s exchange rate against the dollar due to its inability to defend the currency.
All these reasons forced Egypt to resort to privatization programs, with hope that the resulting liquidity would finance the state public budget as well as address the debt crisis and rising interest rates. Egypt also considers such programs a solution to attracting hard currency from abroad and replenishing its dwindling foreign currency reserves.
Finally, through these projects Egypt has tried to increase the economic growth rates by bringing in foreign investments capable of reviving local companies and expanding their capacities. The country has also attempted to exclude public sector personnel from the management of some companies through privatization with the aim of overhauling said management.
Additionally, the loan agreement reached on October 27 between Egypt and the International Monetary Fund pushed Egypt farther in the direction of privatization plans. A number of structural reforms demanded by the Fund were agreed upon prior to the deal’s signing during the months-long negotiations between Egypt’s government and the IMF mission.
Examples of these terms include enhancing the private sector’s role, boosting foreign investment, and reducing the role that the government and military play through the firms they hold. The fund also explicitly called for boosting market competition and liberalizing commercial activity, which mandated the state’s gradual exit from several economic sectors.
Egyptians’ concerns
Vast swathes of Egypt’s populace have expressed alarm over these developments, particularly as it became apparent that the government intended to privatize vital sectors rather than restrict privatization to the business and trade industries.
As part of its privatization plans, Egypt wants to sell off more than $40 billion worth of assets, including infrastructure, telecommunications, energy, and water companies, ports, and the land transportation and shipping industries.
Such privatization initiatives, in the opinion of detractors, carry a serious risk since they pass over crucial public functions connected to citizen welfare to private businesses eager for rapid profits. With regard to the costs of these services as well as their universal accessibility to all societal sectors, such an agenda will have an impact on the rights and interests of the people.
With so much at risk, many consider that the Egyptian government’s costly approach to dealing with its financial crises will have a detrimental impact on society. In addition, some believe that in order to secure foreign financial support, Egypt is agreeing to deals that favor foreign companies, which will soon seize profitable public services under decades-long contracts.
The privatization projects are also drawing criticism, which warn that although the state may gain liquidity in the short term, it will lose revenue streams from its public utilities in the long term, further exacerbating the economic pressures the country is facing.