March, 26

Egypt is Privatizing State Assets to boost its coffers

Egypt is selling state assets to Gulf nations as it seeks to boost its coffers despite a $3 billion International Monetary Fund (IMF) bailout loan.

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Egypt is Privatizing its State Assets to boost its coffers
Egypt is Privatizing its State Assets to boost its coffers.

In an effort to boost its coffers, Egypt is privatizing state assets to Gulf nations. This move comes despite a $3 billion International Monetary Fund (IMF) bailout loan.

The decision to privatize state assets is a controversial one, and it remains to be seen how successful this strategy will be in bringing in additional revenue. There are concerns that this move could further destabilise the already fragile Egyptian economy.

The Gulf’s offer of $12 billion in aid to Egypt is being seen as a win-win for all sides. The cash injection is badly needed by Egypt to plug what the IMF warns is “a financing gap of about $17 billion over the next four years”. In return for the aid, Egypt will undertake reforms that will be beneficial to the Gulf countries.

The old Gulf largesse of unconditional aid is no longer on the table. The new deals will require reforms, but they are seen as being beneficial to all sides. Egypt hopes that the aid will help to revive its economy and put it on a more sustainable footing. The Gulf countries, in turn, hope that the reforms will lead to a more stable and prosperous Egypt.

The move by these countries to invest in Egypt is seen as a way to diversify their economies, which are heavily dependent on oil and gas. Egypt provides a good opportunity for these countries to invest in assets and land, as well as to take stakes in state-owned enterprises. This will help to reduce their reliance on oil and gas, and to develop their economies in a more sustainable way.

The investments by Gulf states into Egypt last year helped to alleviate some of the immediate financing concerns that Egypt encountered, prior to securing further funds from the IMF. According to James Swanston, an emerging markets economist at Capital Economics in London, this has allowed the Gulf states to continue to have a sphere of influence in the region.

The timing of the investments was crucial, as it helped to shore up Egypt’s finances at a time when it was struggling to secure additional funding. This allowed Egypt to avoid having to make major cuts to its budget or take other austerity measures. In addition, the investments have allowed the Gulf states to maintain their influence in the region.

Since taking office in 2013, Egyptian President Abdel Fattah El-Sisi has relied heavily on financial support from his Gulf allies. But with those nations now demanding economic reform and greater transparency, Sisi is turning to other sources of funding, including a steep devaluation of Egypt’s currency.

This move is sure to make Egypt an attractive investment for Gulf nations, which are facing their own economic challenges. But it remains to be seen whether Sisi can deliver on his promises of reform, given the country’s history of political turmoil.

Gulf spending spree

Egypt is Privatizing its State Assets to boost its coffers
Egypt is Privatizing its State Assets to boost its coffers.

In under a year, the Egyptian pound has lost half of its value, propelling annual inflation in the import-dependent country to 26.5 percent in January. This has put immense pressure on the already struggling economy, as the prices of basic goods and services continue to rise.

Of the $34.2 billion in Cairo’s foreign reserves -– a 20 percent drop from February 2022 –- some $28 billion are deposits from wealthy Gulf allies. These allies have been essential in propping up the Egyptian economy, but it is unclear how much longer they will be able to continue doing so. The future of the Egyptian economy is uncertain, and it will likely take some time before the situation improves.

The country’s foreign debt has more than tripled in a decade to $155 billion.

“A country like Egypt needs a trillion-dollar budget each year. Do we have that money? No. Do we have half of it? No. Do we have a quarter of it? No,” Sisi said at the World Government Summit in Dubai this week, noting the importance of “help from friends, the UAE, Saudi Arabia and Kuwait”.

But the days of unconditional aid are over, Saudi Finance Minister Mohammed al-Jaadan has warned.

“We used to give direct grants and deposits without strings attached, and we are changing that,” Jaadan said at Davos in January, explaining the kingdom will be demanding “to see reforms”.
When Egypt turned to the International Monetary Fund (IMF) for a loan in 2016, part of the agreement was that the country would privatise key state assets. The goal was to increase the private sector’s share of the economy from 30 percent to 65 percent by 2025. To help meet this target, countries in the Gulf region have been investing in Egypt through mergers and acquisitions (M&As).

According to Enterprise, an Egyptian business news publication, 66 M&As were completed in Egypt in 2022, more than double the number of transactions in 2021. These investments have helped to inject much-needed capital into the Egyptian economy and have contributed to the country’s privatisation efforts.

Military’s powerful economic role

Last year, Emirati and Saudi companies had the bulk of transactions in the Egyptian economy, with stakes in 40 deals. Abu Dhabi’s sovereign wealth fund ADQ, and Saudi Arabia’s Public Investment Fund “spent some $3.1 bn to acquire significant minority stakes” in some of the “strongest companies”, Enterprise wrote in December.

They snapped up key shares of Egypt’s two largest fertiliser producers — 41.5 percent of Abu Qir Fertilizers Company, and 45 percent of MOPCO. These investments signal continued confidence in Egypt’s economy by its neighbors, and underscore the strategic importance of the country in the region.

The Abu Dhabi Investment Authority (ADQ) is the largest private shareholder in Egypt’s Commercial International Bank (CIB), purchasing a 17.5 percent stake for $911.5 million.

The Saudi fund now owns 25 percent of state-founded digital payments company eFinance, and is negotiating the purchase of United Bank of Egypt.

This is a significant investment for ADQ, as Egypt is one of the fastest-growing economies in the Middle East. CIB is the largest private bank in Egypt and is a major player in the country’s financial sector.

The investment by ADQ will help to support the continued development of Egypt’s economy and its banking sector.

If Egypt is to meet its ambitious privatization goals, it will need to do more than just cut red tape. It will need to open up the economy to greater competition, including by selling off state-owned assets that are currently controlled by the military.

The military has long been a powerful force in Egypt’s economy, and it has been hesitant to give up its control over key industries. However, if the country is to attract the foreign investment it needs to grow, it will need to open up these sectors to greater competition.

The government has already taken some steps in this direction, but much more needs to be done. The military will need to be onboard with these changes if they are to be successful.

Military-owned companies are so financially opaque that they cannot be put on the market, according to Abdulkhaleq Abdulla, a senior Emirati political scientist.

Of the 32 military companies up for sale, only two are actual military companies. One of them is the army’s Wataniya Petroleum, which Abu Dhabi National Oil Company (ADNOC) had in 2021 considered purchasing.

Sayigh said that deal stumbled “apparently because the internal financial management of the military company would scare off any serious investor from risking his capital”.

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