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Egypt’s New Privatization Wave: Free Economy and Oppressed Society

The most critical issue with this new wave of privatization in Egypt is the context in which the program is implemented this time, when transparency is absent and the right of oversight is restricted.

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On December 15, 2022, the IMF announced the approval of a $3 billion loan for Egypt—the third of its kind since 2016—over the span of 46 months. According to the official statement, this program “paves the way for inclusive and private-sector-led growth.” The new IMF deal comes less than two months after a staff-level agreement was reached, which hinted at the inception of a new wave of privatization in Egypt. “The program will include policies to unleash private sector growth including by reducing the state footprint, adopting a more robust competition framework, enhancing transparency, and ensuring improved trade facilitation.” 

The most critical issue with this new wave of privatization is the context in which the program is implemented this time, when transparency is absent and the right of oversight is restricted. And more importantly, for the first time, the state is set to exit from entire sectors of the economy.

Some attribute this privatization wave to President Abdel Fattah El-Sisi and his remarks made last April at the “Egyptian Family Iftar” event. Sisi stated that day that he had instructed the government to announce a program that would allow the private sector to participate in the ownership of state-owned assets, to attract $10 billion annually for four years. The details of his plan appeared later at a press conference by Prime Minister Mustafa Madbouly.

As part of this partnership, the government seeks to “offer”—a term the government has been using instead of saying “privatize” or “sell”—public assets. Revealing the amount of revenue the government seeks is remarkable and raises questions about whether this estimate is based on Egypt’s foreign currency needs or on those assets’ fair value. It is also difficult to know whether the government has made a collective assessment of its assets—the people’s assets—in a way that allowed for this announcement, or if assessments were made based on the country’s need for foreign currency, regardless of whether the targeted revenues were proportionate with the value of these assets.

The declaration of that fundamental shift dates back to November 2021 when the cabinet issued a statement reviewing the results of an “important” study drafted by the Information and Decision Support Center—a research center affiliated with the cabinet—on “steps and procedures that would enhance the state’s orientation toward supporting and assisting the private sector.”

The statement on the study, which still has not been made public yet, hints at “identifying the main sectors the state will continue to control, the sectors that the state will exit, and the sectors that the state will gradually exit from.” In addition, the statement highlights reforming the public sector by keeping state control to big companies in strategic and high-priority sectors and leaving companies in less-priority sectors.

This announcement is considered a fundamental change in the history of privatization in Egypt, which dates back to the early 1990s. For the first time, the logic behind privatization is for the state to leave almost all sectors and select only certain ones to continue investing in.

In mid-June 2022, the government released a draft document on state ownership—a document still open to amendments based on consultations with representatives of the private sector only. The document revealed that the state intends to leave the manufacturing sector within three years, at the following rates: the textile industry by 90 percent, printing and packaging industry by 78 percent, engineering industries by 77 percent, chemical industries by 75 percent, food and beverage industries by 73 percent, pharmaceutical industries by 50 percent, and metal industries by 40 percent.

It is worth noting that some sectors, such as the textile industry, from which Egypt intends to exit are labor-intensive. The Holding Company for Cotton and Textiles industries, managed by the public business sector which includes several subsidiaries, is the largest in the public business sector in terms of the number of workers. It has more than 49,000 workers, according to the latest available data. The same applies to the chemical industries and the paper and packaging sectors, which employ more than 26,000 workers. The government did not deem necessary to discuss the impact of exiting from these sectors on employees’ job security after privatization.

The government proclaimed that this shift was necessary. This privatization push, however, is almost identical to the content of the IMF’s “advice” to the Egyptian government in its July 2021 review report about the loan Egypt received in 2020. The report was published four months only before the government announced the recent loan staff-level agreement.

The 2021 IMF report explicitly recommends “defining a clear state ownership policy: Reforming the [state-owned enterprise sector] should start with developing an ownership policy to enhance accountability and transparency, define sectors where public intervention is governed by a public service mandate, and implement performance boosting measures. This would enable the state to withdraw from other sectors and allow for private sector-led productivity gains.”

The discourse linking transparency measures and privatization constitutes in itself an apparent paradox. Indeed, this leap toward a new wave of privatization is linked to the exact opposite: the absence of the basic standards of transparency and accountability.

The new wave of privatization takes place in a context of the absence of judicial oversight over deals with the private sector and the restriction of the regulatory bodies, to have proper oversight on the fairness of these deals. In contrast to the previous two phases of privatization from 1990 to 1997 and 2004 to 2010, this new wave of privatization comes after the approval of two draconian legislations that undermine judicial oversight and regulatory bodies tasked with combating corruption over any planned deal between the government and the private sector.

The first legislation is the 2014 Procedures for Appealing State Contracts law which restricts judicial oversight on deals and contracts done by the state. This controversial law, issued by interim President Adly Mansour, stipulates that no person or entity has the right to challenge state contracts—including real estate allocation contracts and decisions— other than the government and the investor. The law was justified in “protecting legal positions, rights, and avoiding turmoil, collapse, and chaos,” in an implicit reference to individuals exercising their right to oversee their assets.

This law was issued months after the 2013 Protest law, which regulates the right of citizens to “organize a meeting, or conduct a procession or protest.” This law severely restricted all forms of public protests and was viewed at that time as one of the measures aimed at erasing the impact of the January 25 Revolution and oppressing labor and social movements. By issuing the “Procedures for Appealing State Contracts” law in 2014, the state was practically stopping the achievements of the pre-2011 labor and social movement, which got court rulings to invalidate many privatization procedures at the time.

The 2014 law does not stop there: it also suspends all the appeal requests submitted to courts, even if they were filed before the law was issued. “This means immunizing the previous state’s contracts and future contracts that would waste the state’s assets and its natural resources,” according to the Egyptian Center for Economic and Social Rights, a civil society organization that had previously gotten court rulings nullifying many privatization deals.

Under former President Hosni Mubarak, numerous lawsuits were filed to the administrative judiciary by workers of public companies to invalidate privatization deals, based on reasons related to corruption, unfair valuation, or non-compliance with contracts. These lawsuits resulted in successive final court rulings that, in hindsight, documented one aspect of the privatization process in Egypt during the Mubarak era. Among the most prominent examples are the rulings on the Omar Effendi company, Nasr for Steam Boilers and Pressure Vessels Company, Tanta Flax and Oil Company, and Shebin El-Kom for Textile Company.

What is striking about those judicial rulings is the repeated references to the corruption in the valuation process and the consequent low value of sale. For example, the Supreme Administrative Court stated in its final ruling annulling the privatization of the Shebin El-Kom Textile Company in 2013, “the privatization process was marred by apparent corruption, and its procedures expropriated the people’s assets by selling them at a lower price than its real value.” The Administrative Court—the court tasked with reviewing appeals against state decisions and contracts—said in the initial court ruling regarding the same deal that “a huge waste of public money and the Egyptian economy’s assets took place under the leadership of several ministries, which is the biggest sabotage of the Egyptian economy.”

This new wave of privatization in 2022 comes in the context of a closed and restricted public sphere. Civil society organizations challenged the “Procedures for Appealing State Contracts” law, which seems unique in its authoritarian nature, including denying the society’s right to control the fate of its assets and restricting litigation rights. They demanded the Administrative Court refer the law to the Constitutional Court. Indeed, one of the court’s circuits decided to refer the law to the Supreme Constitutional Court to determine if it is constitutional. The decision was based on a report drafted by the State Commissioners Authority—an Administrative Court’s unit with experts providing technical opinions to the court body—which questioned the constitutionality of some articles in the law.

The fate of this dispute over people’s assets is still pending, waiting for the Supreme Constitutional Court decision, the same court that Adly Mansour was its president before he came to office after the overthrow of the late President Mohamed Morsi. However, a final decision on the law’s constitutionality has come close as the court will announce its final ruling in mid-January 2023. If the lawsuit is rejected, the fate of all existing privatization contracts will be far from any judicial oversight.

The second legislation of great concern is a decree issued by Sisi in July 2015 which defines the criteria for dismissing heads and members of independent bodies and regulatory agencies. This decree undermines the independence of oversight bodies, among which is the Central Auditing Organization. It includes only one vague and broad clause: the right of the president to dismiss heads and members of independent bodies and regulatory agencies if “serious evidence is established against them that compromises the security and safety of the state, or if they have lost confidence and respect, if they have breached their duties leading to damage to the higher interests of the country or a legal person, or if they have lost the merits [other than health reasons] required for the position they occupy.”

The ramification of such legislation was seen less than a year later: in March 2016, Hisham Genena, Head of the Central Auditing Organization, was dismissed one day after the Supreme State Security Prosecution announced that he had been summoned for questioning regarding remarks he had made in 2015 about the cost of corruption in Egypt.

According to the 2021 IMF report, the state owns more than 300 companies: these include companies owned by the public enterprise sector, the public sector, and the armed forces. In addition, there are approximately 645 companies or joint ventures that the state owns with the private sector, plus 53 economic bodies. Each is a potential target for privatization over the next four years. Regardless of the validity of the reasons behind privatization, the fairness of value, or the impact on the market, it is inevitable that the Egyptian people, the owners of these assets, will not be allowed to express their opinion on the matter. They will not be able to stop the implementation of a decision related to their properties. After all, the economy would become more “free,” according to IMF standards, while society’s right to oversee its property has been taken away.

Beesan Kassab is an economic journalist, and her work mainly focuses on social justice, inequality, labor issues, and public budget. 

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