The economy today

Will Egypt go through with the announced privatizations?

Audio 04:23

Egyptian Prime Minister Moustafa Madbouli announced the privatization of a dozen companies, following the financial crisis triggered by the Russian war in Ukraine.

© REUTERS/Amr Abdallah Dalsh

By: Dominique Baillard Follow

4 mins

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Once again cornered by a financial crisis, triggered this time by the Russian war in Ukraine, Egypt announced a privatization plan a few days ago.

The project raises many expectations and questions, because it is not the first time that Cairo has promised privatizations.

Without ever taking action.

There is plenty to do: 400 Egyptian companies are public according to the World Bank, including around 60 under the control of the army.

It is an Egyptian specificity.

La grande muette is a discreet and omnipotent player in the local economy.

The Prime Minister has announced the privatization of just ten companies, two of which belong to the military.

In a second step, the 7 largest ports in the country and its best hotels should be listed on the stock exchange.

The state also plans to extend its control in the railways, the management of the Suez Canal, banking and insurance.

Beginning of change but not yet the dismantling of a sector much decried by donors

A year ago, IMF experts for the first time suggested privatizing all profitable state-owned companies and shutting down lame ducks.

In their latest report, they point to the poor financial performance of these companies.

Those who are in the lap of the army benefit from exclusive advantages discouraging private competition.

They do not pay customs duties and are not subject to tax.

They also benefit from the cheap labor of the conscripts.

It also happens that these soldiers converted into business also abuse their power.

Safwan Thabet, the owner of the country's largest dairy company, is languishing in prison for refusing to hand over his shares to the military.

An environment not really conducive to the development of private initiatives.

Since Marshal Sisi came to power, the generals have increased their grip on the economy

It is a way of buying their loyalty and providing them with substantial income, for lack of being able to pay them decent salaries.

They are present in a wide variety of activities: this ranges from food, a military company has a monopoly on school catering, for example, to the supply of medicines, including telecommunications or the management of industrial zones.

When called for help in 2016, the fund was already asking Egypt for a privatization program to clean up this cash economy.

In vain.

► To read also: Concern of Egyptians after the announcement of the cessation of Indian wheat exports

But this time, the pressure is much stronger, because the financial situation of Cairo has deteriorated sharply with the invasion of Ukraine by Russia.

The war has increased the bill for imports of hydrocarbons and wheat, an essential cereal for Egypt.

The world's leading importer buys 60% of its needs abroad.

80% comes from the two countries at war.

Tourism, already exhausted by the Covid crisis, is also suffering from the absence of Russian or Ukrainian visitors

They represent 40% of its usual clientele.

It is therefore a precious source of foreign currency that is drying up.

As a result, inflation is soaring, it is now at 15%.

And foreign capital has evaporated.

They moved to safer markets and became more profitable again.

Thanks to these privatizations, the Egyptian government intends to collect 10 billion dollars per year until 2026.

This prospect should facilitate negotiations with the IMF to obtain a third rescue plan in six years.

The details will be carefully scrutinized by the donors.

And also by the Gulf countries also called to the rescue.

They have promised 15 billion dollars, on the condition of being able to invest in the flagships that Cairo will want to give them.

► IN BRIEF

Elon Musk, still a candidate for the takeover of Twitter, plans to bring in more money to acquire the social network.

It will only borrow a trifle of 13 billion dollars instead of the 25 billion provided for in the first financing plan.

An announcement that caused the action to jump 5% in electronic trading, after the closing of the American stock market.

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