WATANI International
28 November 2010
“Behind the privatisation decision taken by the Egyptian government in 1991, stood the poor performance of public enterprises, reflected in deteriorating productivity and heavy financial burdens,” Dr Taher Helmy, head of the Egyptian Centre for Economic Studies (ECES) says. “To pay back these obligations, the government had to borrow from the local banking sector; hence it competed with the private sector when it came to accessing credit.”
In their annual seminar held this year at Ain Sukhna on the Red Sea coast, ECES and the economic editors’ section at the Journalists’ Syndicate discussed “The Private Sector’s Role in Developing the Egyptian Economy”. The event drew a number of economics experts and journalists with differing outlooks.
Magnifying revenues
“The privatisation process went through different phases varying in pace and momentum,” Dr Helmy says. “At a certain stage things grounded to a total halt, since the process triggered heated debate and encountered strong opposition on the grounds that public assets were being passed into private hands, they were under-priced, and that worker rights were being jeopardised.
“These arguments overlooked the positive aspects of privatisation, first and foremost raising the efficiency of our economy as a whole and creating a climate favourable to free competition. Privatisation is not an end in itself. Rather, it is a component of a strategy aiming to maximise economic revenues and push forward the process of development through joint forces of private and public sectors. If this strategy is to bear fruit, there should be a comprehensive study for the best ways to run State-owned assets. Past experiences as well as those of other countries have to be taken into consideration.”
Generating profits
Gouda Abdel-Khaleq, professor of economics at Cairo University has harsh words for the process of privatisation in Egypt. In theory, he said, the private sector includes productive projects aimed at generating profit. “In practice it includes a hodge-podge of enterprises with different sizes, management systems, and activities,” he says. “In general there are three schools of thought on the relationship between the private sector and development: the first believes that the private sector’s role is indispensable for development. Among the strongest advocates of this argument are international financial institutions, particularly the IMF and the World Bank.
“The second school stresses the role of the public sector in economic development as this process requires national planning rather than profit-oriented initiatives. The third school calls for cooperation between the two sectors, with a strong role for the State to confront market failure.”
Dr Abdel-Khaleq compares Egypt’s privatisation experience with those of India and China. In China, he said, privatisation implied launching IPOs that offered shares for public subscription with the privatised companies preserving all the revenues generated by the sale. In India, the State played a major role in dealing with social challenges including poverty, food security and unemployment. He criticises privatisation in Egypt as a process of mere liquidation.
Capitalist groundwork
Historically, the private sector in Egypt laid the groundwork for local capitalism in the first half of the 20th century. Talaat Harb was the first Egyptian to form a fully Egyptian owned bank; other Egyptian capitalists followed in his footsteps.
“The private sector contributes 88 per cent of total activity—with oil and energy excluded. Egypt has 2.5 million private enterprises, about 95 per cent of which are of small and medium size,” Minister of State for Economic Development Othman Mohamed Othman says. “The sector’s share in agriculture, communications, construction and transportation accounts for 95, 62, 89, and 76 per cent respectively. To attain an annual growth rate of 7 per cent, we should increase productivity and develop human resources.”
ECES’s executive manager Magda Qandil, however, says that the private sector share in the GDP remains limited compared with emerging markets.
“The liberalisation of the financial sector and the improvement of monetary policy since 2001 have helped strengthen the relationship between the private sector and financial and credit markets,” Dr Qandil says. “Since 2004 efforts in economic reform have focused on reducing the budget deficit and raising the private sector’s share of the GDP,” he added.