Privatisation is not a single process: Egypt's pursuit of a bigger role for the private sector

Newspaper Title: https://english.ahram.org.eg/

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Tuesday - 30 August 2022

What needs to be done to ensure the success of the government’s privatisation programme, asks Al-Ahram Online

While it is evident that the recent government and central bank reshuffle will lead to profound changes in the economy and in government policies, it would be premature to commit to their sound and effective implementation. Egypt has never been short of plans and strategies, but they have often ended up hitting the wall of implementation.

The state has set specific objectives and clear indicators for the next three years and is hastening to implement them. These goals include doubling the role of the productive activities of the private sector, planning for a boom in exports to reach $100 billion a year by 2025, and increasing foreign direct investment (FDI) to $40 billion. These three objectives, closely interrelated, require a series of difficult and interdependent measures that will represent challenges to their achievement.

Take privatisation first and the government’s intention to sell more than 79 of the country’s state-owned enterprises. One wonders about the readiness and willingness of the private sector to venture into this experiment once again. Privatisation was one of the cornerstones of the negotiations of the International Monetary Fund (IMF) with Egypt in the 1990s, so the question is why we find ourselves in the same situation 30 years later. How should we correct the course of the privatisation process so that it does not end up in two or three decades with the IMF once again rejecting the domination of the public sector and calling on the government to once again return to its role as regulator of the national economy and not as an entrepreneur of economic activities?

The promulgation of Law 203/1991 was supposed to transform the public-sector enterprises into independent economic entities and establish a framework for their management comparable to that of the private sector. Why, then, did the privatisation experiment not work and why did it not advance Egyptian industry as expected?

Almost 10 years after the last wave of privatisations took place, we find ourselves with a bloated informal sector and a significant disengagement of the private sector from its 70 per cent hold on the economy. While the informal sector has helped to create jobs, it has unfortunately pushed Egyptian industry to manufacture products that are not up to standard and are unable to compete regionally and internationally.

If we want the processes of transformation towards the private sector to succeed and this time to be successful and sustainable, we must provide the necessary conditions for the private sector to succeed and the means for its sustainability in advance. The private sector must be empowered to compete fairly before it can be trusted to take over public-sector projects and activities.

The objective is not only to secure additional and urgent financial resources for the government, but also to consolidate the role and leadership of the private sector for long-term economic activities. The objective is for these companies to become successful industries capable of being competitive, of exporting, of attracting foreign capital and of integrating into value-added chains, which necessarily requires the establishment of rules that should support the private sector in achieving stability.

The government and private sector should take a holistic view of the transformation processes in the private sector and not implement them as stand-alone and individual ones, an approach that leads to their failure in the long term and does not achieve the expected results. It is necessary to create favourable conditions for the private sector to succeed in the task entrusted to it such that it can assume its responsibility for growth and development. Among these conditions are the establishment of a level playing field for the private and public sectors that will allow them equal opportunities to access financial services and impartial policies that will bridge the inherent trust gap between the government and private sector.

Secondly, for Egypt exports are not a luxury. They are a necessity as they are an important source of hard currency, along with the remittances of Egyptian workers abroad and revenues from the Suez Canal. Egypt badly needs hard currency for two main reasons. As a net food-importing country, its need for hard currency to cover its food imports is increasing exponentially due to rising prices and quantities. Its growing external debt, reaching $150 billion, is also unprecedented and requires $20 billion a year in interest payments alone. It is no exaggeration to say that trade is a matter of national security for Egypt.

In order for Egypt to achieve the targeted leap in exports, there will need to be preconditions that are part of the broad framework within which the government, in collaboration with the private sector, can implement a comprehensive and effective trade strategy. These prerequisites shed light on the fact that since imports and exports are two sides of the same coin, export success is conditioned by import flexibility. There also needs to be transparency and the availability of information regarding target markets and existing and future opportunities, in order to allow the state to develop an appropriate strategy for exports.

Meanwhile, clear prior analyses and cost-benefit studies in consultation with the private sector are a must. Embracing the technological dimension and the new developments related to e-commerce, and the new framework needed to deal with them, is also needed. It is necessary to restructure the Ministry of Trade and Industry and provide it with qualified people who can help it to regain its leadership within the framework of the national trading system.

Thirdly, if Egypt is to achieve its targeted inflow of FDI, it is imperative that the privatisation process succeeds and for the government to facilitate the sometimes tedious journeys of importers and exporters in performing their duties to achieve a smooth trading system. Dramatically reducing costs and avoiding unnecessary delays is necessary, and this can be done by simplifying procedures and facilitating trade in line with Egypt’s commitments under the World Trade Organisation Trade Facilitation Agreement.

Only by paying due attention to the interrelationship between privatisation, exports, and FDI and by implementing a holistic approach that serves all three can Egypt successfully work towards achieving its three ambitious goals.