everything must go

During the first weeks of March 2005, the cabinet of Prime Minister Ahmed Nazif quietly but steadily stepped up his long-talked about privatisation programme. One of the largest sell-offs in Egyptian history, Nazif earmarked nearly 700 state-owned assets for partial or complete privatisation. Nazif’s move pleased investors, elated that the government finally put its money where its mouth is, while heightening concern among others, most notably industrial and labour groups.

Minister of Investment Mahmoud Mohieldin, who is charged with managing the privatisation portfolio, has sold 17 of the 170 assets that he slated for sale—an impressive number considering it is more than was sold throughout all of 2004. In his first eight months in office, Mohieldin generated over £97 million in Foreign Direct Investment (FDI).

On the other hand, most of the companies and assets sold to date have not been the large, often problematic, firms whose successful sale is key to the government’s reform effort.

Government officials are indicating that the near future may yet see some of the most important privatisations in Egypt’s history. The jewel of the crown would undoubtedly be Telecom Egypt, the historic telecommunications operator, which Nazif noted in February would probably be partially sold off by the end of 2005. While some may treat this with scepticism—Nazif first spoke of selling TE in 2000 when he was a freshly anointed minister of communications— the current market environment is much more conducive to sale than it has been for the past five years.

“The privatization of a company like TE is just not so easy, because you have a lot of social issues to take into account. They have to make sure that whoever [buys it] is sensitive to the needs of the workers,” explained Wael Ziada, a telecom analyst at the brokerage firm EFG-Hermes.

There are 420,000 workers in the 170 companies on the privatisation list, and in several there have already been strikes and protests by workers who fear that privatisation will mean that they’ll lose their jobs. Workers at Esco (for ‘spinning’), whose sale is currently under negotiation, have been on strike since mid-February.

At Sidi Kreir (petrochemicals), a company that manufactures plastic products used in packaging, the government has met opposition from both workers concerned about their jobs and industrialists, who are afraid that the privatisation of one of Egypt’s key producers of packaging plastics will mean an increase in the cost of their raw materials. The government is currently negotiating an IPO of 25% of Sidi Kreir and 20% of Alexandria Mineral Oils Company, marking the first time that petroleum-sector companies are sold through the privatisation drive.

Two other recent sales are also examples of potential labour issues. On 3rd March, Trenco, an Alexandria-based tyre company, was sold to the French firm Michelin for £5.65 million. The company had originally been valued at £13 million, but was losing £22,600 daily from its operations—a fact that justified the quick sale of the company, the ministry said. The deal will actually save the jobs of 1,500 workers, who were originally going to be offered early retirement packages, because Michelin has pledged to invest £22.6 million in the plant and wants to keep them for at least three to four years.

As the government begins to tackle some of the larger and more problematic firms on its privatisation portfolio, negotiations will become more complicated. While Mohieldin has done an impressive job so far, he will have to increase his efforts if he is to meet his own goal of more than doubling FDI by the end of the year.