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Egypt Investment - Egypt Privatisation

Egyptian Privatization Plan

Overview

The Ministry of Public Enterprise (MPE) is dedicated to achieving the long-term goal of complete implementation of Egypt’s overall privatization plan. In an effort to promote private enterprise, the GOE is undertaking an extensive privatization program whereby state-owned companies are transferred to the private sector through the sale of company shares to the public through the Stock Exchange and/or to employees, or by means of sales to anchor investors.


Primary objectives of the plan are to generate higher productivity and faster (but sustainable) growth, and as a consequence increase returns on assets and equity while at the same time raising internal efficiency, improving captial structure and increasing capital expenditure. Since the early 1990s a number of key programs have been put into place to greatly liberalize commerce and trade; and to re-frame the country’s legal, regulatory, judicial, and tax structures. An equally important focus of the plan is the creation of new jobs that an expanding economy will provide for the workforce.

The privatization program is, in fact, the cornerstone of the Government of Egypt’s (GOE) economic reform program and through the commitment of thePresident and his Cabinet reflects a significant move of government policy away from state management and control toward a greater reliance on market mechanisms and the private sector.

Over the past five years, the GOE has achieved very gratifying results in macroeconomic terms. This is due in part to the creation of policies to remove trade barriers, the reform of trade and financial markets, the relaxing of industrial licensing procedures; and reform of the legal taxation and regulatory frameworks. The long-term plan put in place at the beginning of the last decade is now paying off.

The Organizations Involved in Egypt’s Privatization Initiative:

The Ministry of Public Enterprise (MPE) established in 1991, is responsible for all reform aspects of public enterprises including privatization, restructuring, labor, and legal issues.

The Ministerial Privatization Committee (MPC) Established in 1996, coordinates the activities of the ministries involved in the privatization process, identifying and resolving impediments to privatization and expediting the sales decision-making process.

The Public Enterprise Office (PEO) is an independent body created in 1991 to assist the Minister of Public Enterprise and to act as a coordinator for the privatization and restructuring programs. Although the PEO has no executive authority, it is the guiding force for the entire privatization and restructuring program and the link between the Government and the Holding Companies.

The Quatro Committee (QC) is comprised of the PEO, Capital Markets Authority, The Central Auditing Committee and the Cairo Stock Exchange. The QC’s responsibilities concerning Initial Public Offerings (IPO) include suggesting and approving privatization strategies; reviewing technical valuations; evaluating market values of companies; and suggesting fair prices for IPOs.

The Capital Market Authority (CMA) established in 1979, is a government organization, which reports to the Minister of Economy. Pursuant to the Capital Market Law No. 95 of 1992, the CMA was given sole control over supervising, reforming, and modernizing the Cairo Stock Exchange. The CMA is charged with market development, supervision of trading, broker licensing, and general market surveillance.

The Holding Companies (HCs) were created in 1991. The ownership and management of 314 public sector companies were transferred from the various ministries to 17 Holding Companies. The portfolios of these HCs were designed to eliminate sectorial monopolies, introduce competition, and ensure that each HC had an array of enterprises with differing profitability and sale potential. HCs are primarily responsible for organizing the sale of their constituent state-owned enterprises (known as affiliated companies).

The Share Pricing Committee (SPC) is comprised of the CMA and the Cairo Stock Exchange and is the sole authority to review and approve the share prices offered in the IPO process. The Central Auditing Agency (CAA) is an independent governmental body reporting directly to the People’s Assembly, which audits the performance/evaluation of all companies which are at least 25-percent publicly held and reviews valuation studies prepared by HCs, ACs, or their external consultants.

Privatization Methods

The GOE has designed a balanced privatization program, which includes the following sales strategies:

Public Offerings on the Cairo and Alexandria Stock Exchange

37 companies have so far been approved by the GOE for privatization and sold through IPO or second tranch offerings. The sales of these companies netted 5.6 billion pounds which represents 36% of privatization proceeds to date. 16 companies have achieved partial privatization netting the government nearly 1.76 billion LE.

Sale to Anchor and Strategic Investors

23 companies have been privatized by this method, accounting for 6.4 billion pounds LE in proceeds to the government. Sales to anchor investors have amounted to 42% of the total privatization proceeds thus far.

Employee Stock Ownership Programs (ESOPs)

The GOE has approved the allocation through the sale of 10 percent of public enterprises’ share offerings to employees as part of the "Employee Stock Ownership Program". In other cases, and according to the particular circumstances of each company, the majority of shares have been sold to its management and employees. To date, mainly medium-sized companies in the public works sector have implemented this scheme. So far, 30 ESA sales transactions have taken place bringing in 870 million pounds LE.

Lease Management Contracts

This strategy involves offering companies for management by the private sector with an option to buy at a future date. This alternative is not very different to the anchor investor approach if and when the managing company exercises its option to buy. Five contracts of this type are currently active.

Status of Privatization Plan

For an overview of the status of the Ministry of Enterprise privatization plan, please visit the Status link below.

Privatization in Egypt

The government launched a privatization program with Public Enterprise Law 203 of 1991 and executive regulations establishing the regulatory framework for the sale of 314 public enterprises (later increased to 319 enterprises). The Public Enterprise Office (PEO) is responsible for advising on the sale of Law 203 companies. The law permits sales to foreign entities.

The pace of privatization slowed over the last year. As of March 1999, 105 companies were privatized to the extent of 51% or more of their value. The firms were privatized as follows: 31 majority initial public offerings (IPOs), 29 liquidations, 28 sales to employee ownership associations, and 17 sales to anchor investors. Egypt's privatization program broadened in the past two years with the government opening maritime, telecommunications, and infrastructure sectors to the private sector on a build-own-operate-transfer (BOOT) basis. The privatization plan for the electricity sector is a particularly noteworthy development. In addition to awarding three BOOT contracts for power generation in 1998 and 1999, the Egyptian Electrical Authority (EEA) named a consortium led by Merrill Lynch and the Egyptian investment bank EFG-Hermes to evaluate the country's seven state-owned power generation and distribution companies for privatization. These assets have an estimated aggregate value in the range of $12-14 billion. An offering of up to 20% of the Cairo district power company is expected in the near future, perhaps as early as Fall 1999.

More private sector companies, long known as closed or family businesses, are now expanding and going public, making bond or stock offerings to the public. This development represents an area of opportunity for domestic and overseas investors. Foreign investors are allowed to purchase stocks and bonds of private firms, and there are no restrictions or limits on the percentage of shares which a foreign party may acquire.

U.S. Support for Development of the Egyptian Private Sector: The U.S. Government is engaged in a broad array of projects to strengthen the Egyptian economy and improve its business climate. USAID programs reflect the importance attached by the United States and Egypt to expanding bilateral investment and trade ties. For example, USAID activities promote the latest and most appropriate technologies, market opportunities, management training, international quality standards, and improved business links through computer information systems and facilities, among others. USAID programs also include assistance in support of the Egyptian Government's privatization program.

Egyptian privatization programme

The government launched its privatization program with Public Enterprise Law 203 of 1991 and executive regulations establishing the regulatory framework for the sale of 314 public enterprises.The law allows the sale of shares and assets of public enterprises to private sector investors and does not preclude purchase of assets by foreigners.

Actual privatization of public sector companies has been slow but steady. As of March 1998, the government has sold majority stakes in 29 companies, liquidated 20 companies, sold 15 companies to employee shareholder associations, and 11 to anchor investors.

This brings the privatization count to 75 companies or 24% of Law 203 companies. The government has also progressed with financial restructuring plans and early retirement schemes in the remaining state-owned firms, which will make these companies more attractive for future sales.

Egypt's privatization program broadened in the past two years with the government's opening the maritime, telecommunications, and infrastructure sectors to the private sector on a build-own-operate-transfer (BOOT) basis.

More private sector companies, long known as closed or family businesses, are now expanding and going public, offering equity n the stock market. This represents a potentially good opportunity for domestic and overseas investors. Foreign investors are allowed to purchase stocks, and there are no restrictions or limits on the amount of shares acquired.

Last Updated on Saturday 12th December 2009

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