CAIRO — Egyptian President Abdel Fattah al-Sisi's visit to Saudi Arabia this week, where he met with the kingdom’s crown prince, Mohammed bin Salman, ended without any major announcements. But it came at a time when Egypt is battling a deep economic crisis while its Gulf allies have grown increasingly reluctant to offer support without conditions.
In the document accompanying the $3 billion agreement that Egypt and the International Monetary Fund (IMF) signed in December 2022, Cairo stated that it had identified a group of state-owned enterprises from whose stake sale it hoped to raise $2.5 billion by June. The funds would be allocated to the country’s $5 billion financing gap.
Months earlier, when the economic turmoil unleashed by the Russian invasion of Ukraine accelerated a massive capital flight in Egypt and left the country in a very vulnerable economic position, the United Arab Emirates, Qatar and Saudi Arabia had all stepped in, pledging to inject at least $22 billion to shore up Cairo’s finances, mainly through investments.
Yet one year after those initial pledges, and almost four months after the IMF deal, only a fraction of these investments have materialized, owing to difficulties to agree on how to proceed, Cairo’s reluctance to sell strategic and lucrative assets and companies, Egypt’s highly volatile economy and the refusal of its Gulf allies to keep disbursing easy money.
“So far, Egypt’s privatization drive has had a few hits and a growing list of misses,” Callee Davis, an economist at Oxford Economics Africa, told Al-Monitor.
Pakistan CB hikes by 100bps to 21.00%.— Emre Akcakmak (@akcakmak) April 4, 2023
Now, #Pakistan & #Egypt have two things in common:
1) Depreciating currencies
2) Behind-the-curve CBs that are chasing inflation with too-little-too-late rate hikes
Inflation >30% in both, economies to slow and FX reserves are low.… pic.twitter.com/t4vbQZA2Ix
Last April, Abu Dhabi’s sovereign wealth fund ADQ acquired stakes in five Egyptian firms, including three state-owned — the two largest companies in the fertilizer sector, MOPCO and Abu Qir Fertilizers, and the logistics player Alexandria Container and Cargo Handling. ADQ also bought stakes in the Commercial International Bank, one of Egypt’s largest banks, part of which came from the state-owned National Bank of Egypt.
Then, in August, the Egyptian arm of Saudi Arabia’s Public Investment Fund bought minority stakes worth $1.3 billion in four publicly listed state-owned companies, including the same three that ADQ had entered as well as the fintech platform E-Finance.
In an apparent attempt to keep building momentum, Sisi approved in December a document defining the contours of the future of public sector presence in the national economy. And in February, Prime Minister Mustafa Madbouly unveiled 32 state-owned companies of which the government plans to sell shares within a year.
Since then, the local press has been running almost daily reports, leaks and rumors about the progress of the privatization program, at times fueled by new announcements from the government. But closing deals is proving a much more arduous task.
Of the 32 companies earmarked for privatization, two are at a particularly advanced stage, but interest predates the government’s February announcement. The first — Paints and Chemical Industries Company — has sparked a bidding war between an Emirati and two Egyptian firms. And Sidi Kerir Petrochemicals Company, one of Egypt’s largest chemical companies, has its eyes on the Egyptian Ethylene and Derivatives Company.
Other sectors that have drawn a great deal of attention include logistics, transport and ports. Here, two of the most coveted companies flagged by the Cabinet are the Damietta Container and Cargo Handling and the Port Said Container and Cargo Handling, whose sale has reportedly attracted interest from Qatari and Emirati investors but remain stalled.
The government has also been open to negotiate the sale of minority stakes in other key companies such as Telecom Egypt (TE), the country’s main telephone company, and Vodafone Egypt, which is 45% owned by TE. In both cases, talks have reportedly attracted great interest from Qatar, but have yet to come to fruition.
Egypt’s Sovereign Wealth Fund, which is playing a leading role in the privatization program, now claims that it aims to start taking to market the state-owned companies in its pre-initial public offering fund after Ramadan, but its plans have been repeatedly postponed.
The future of the two military-owned companies listed among the 32 earmarked in February — bottling company Safi and Wataniya Petroleum — is also uncertain after the Cabinet said that shares would be offered by mid-March, which did not happen.
“It looks like the government’s plans to sell stakes in 32 companies by March 2024 will not be carried out within the proposed timeline,” Davis said. “Already, the deadline to have sold first stakes by the end of March 2023 will be missed,” she noted.
“The resistance could be coming from the Finance Ministry, which is reluctant to divest from cash-generating businesses, as well as from the army, which is reluctant to open up the books of the companies it owns and to jeopardize the positions of the current and retired officers who run them,” she noted.
One of the main sticking points in negotiations between Egypt and Gulf investors is the size of stakes for sale, as Cairo prefers to sell minority stakes while Gulf investors are seeking greater control. The firms’ valuation is also proving to be a point of contention.
“Inflation, interest rates and the exchange rate are among the basic elements that control and affect directly and indirectly the evaluation of companies,” Mostafa Shafie, senior equity analyst at Arabeya Online, a local brokerage firm, told Al-Monitor. “It is possible that under [current] circumstances the negotiations may take more time.”
In cases where the entry of foreign investors is perceived as being more sensitive, such as the strategic Suez Canal and the Red Sea, part of Egypt’s state apparatus has also been reluctant to compromise, according to the independent Egyptian news outlet Mada Masr.
Cairo’s dollar shortage has been flagged by authorities as another reason that is slowing the inflow of foreign investors, as it limits their options to exit the market. And Gulf states are reportedly waiting for the pound to stabilize before proceeding with more investments.
“Gulf and foreign investors prefer to wait for the exchange rate to stabilize,” Hany Abou-El-Fotouh, banking expert and director of the consulting firm Alraya, told Al-Monitor. “The exchange rate of the US dollar witnesses a considerable gap between the official rate in banks as opposed to the rate prevailing in the currency black market,” he added, noting that “there are [also] expectations of a further devaluation of the pound.”
In addition to Sisi’s ongoing visit, other members of the Egyptian government have visited Doha and Riyadh in recent weeks in an effort to break the current stalemate and reassure them of their commitment to reforms. From the Saudi capital, Finance Minister Mohamed Maait went so far as to say that Cairo will support “everything that is required to increase Saudi investments,” the ministry said.
Despite the current standstill, Abou-El-Fotouh believes that Cairo will eventually go ahead with its plans this time around. “IMF pressure is particularly strong. In order to avoid losing credibility with international investors and organizations, the government is not likely to break its commitment,” he said.