Will Telecom Egypt stake sale help country achieve IMF reforms?

On Sunday, the Egyptian Finance Ministry announced the sale of a 9.5% stake in the North African country’s state-owned telecoms company for 3.75 billion Egyptian pounds ($121.4 million) — a move signaling that the government is moving forward with its national privatization program.

Some 162.2 million shares in Telecom Egypt were sold at 23.11 Egyptian pounds ($0.75) each in a subscription that was 3.11 times oversubscribed, the ministry said. Another 0.5% of the shares are being offered to Telecom Egypt staff until May 25.

The sale is not a privatization, as the government will still own 70% of the company. The ministry did not say what proportion of shares were sold domestically and which were sold to international buyers. 

Egypt’s national debt has been ballooning — $224.79 billion in 2022, up from $193.94 billion the previous year. The Ukraine war sent inflation sky-high and increased the cost of importing essential grains and fertilizers, causing foreign investors to flee and the Egyptian pound to tank by around 50% against the US dollar.

Under a $3 billion bailout package from the International Monetary Fund (IMF) signed in December 2022, Egypt promised that it would roll back the state’s involvement in the economy and allow private businesses more of a role. The IMF has implored Egypt’s government to undergo a state-wide privatization drive to free up more hard currency.

The sale of the minority stake in Telecom Egypt is the second sale of state assets since Prime Minister Mustafa Madbouly promised on April 29 to sell state assets worth $2 billion by the end of June. But an expert poured cold water on the sale, pointing out that it is “unclear” whether it will help solve Egypt’s “key problem” of accessing hard currency.

Timothy Kaldas, deputy director at The Tahrir Institute for Middle East Policy, talked to Al-Monitor about the shares made available on the stock exchange. “The sale through the stock exchange, while a more transparent vehicle for selling state assets, doesn't really necessarily solve a key problem for Egypt, which is access to hard currency. The reporting that I've seen at least doesn't make clear what share of the sold equity went to foreign buyers,” he said.

Egyptian buyers will be buying in Egyptian pounds, so they will not be bringing hard currency into the country. If it is a foreign buyer, then in theory for them to be able to buy Egyptian pounds, they need to buy the equity on the stock exchange, meaning they will have to convert their purchase into hard currency.

“The main goal of the sale of public assets in the IMF program is for Egypt to be able to raise hard currency to close its external financing gap so that it can pay off its international obligations and, in an ideal world, reduce its general hard currency shortage. It is unclear to what extent this deal contributed to achieving those goals,” Kaldas noted.

Kaldas added that in general much of the government’s so-called privatization program is “problematic in terms of achieving actual privatization.”

The Egyptian government over the last year has sold some minority stakes to sovereign wealth funds in Saudi Arabia and the United Arab Emirates. Those companies will remain politically connected.

“They’re likely to continue to have special privileges that independent private sector actors will not be able to access,” Kaldas said.

“And given Egypt's vulnerability financially and increasing dependence on a handful of Gulf states, those countries have growing influence over the conduct of the Egyptian government and likely will be able to uniquely protect companies that they acquire within Egypt,” he explained.

The sale of publicly owned Egyptian assets to publicly owned sovereign wealth funds in the Gulf is expected to continue.