Scissors in Egypt

It’s not exactly the topic of the day, but privatization (‘As’assa, as many Egyptians refer to it, mixing Arabic for scissors 'As and privatization Khas'khassa), will continue to be an issue in Egypt, as this summer we can rather see the limits the government still faces in the program.This week the Ministry of Investment stated that it would not sell shares in important companies such as Egyptian Iron and Steel or Egypt Aluminium Company. Ten days before, the government stepped up its efforts to open Egypt’s National Railways to private investment. But the sharp debate in parliament casts light on the increasing resistance it is meeting in its privatization program, in particular in transportation, probably the sector of the Egyptian economy that needs modernization and investment like no other.

In my contribution to the annual review “Egypt in the year 2005� published by the French research centre in Cairo CEDEJ (which by the way contains excellent contributions, amongst others, on the Coptic question, the brotherhood and the fate of the Egyptian health reform) on the Egyptian privatization program during 2005, I argued that the government met surprisingly few criticism in public for its revival of the privatization program.

While hopefully the basic conclusions of my contribution (see below) are still valid, … … ever since the year turned public discourse on privatization became more aggressive. The sale of shares in Egyptian American Bank owned by the Bank of Alexandria to French bank Calyon earned a lot of criticism, as cabinet members owned shares in Calyon, as well as the ever-lasting struggle of the Ministry of Investment to get rid of public retailer Omar Effendi.

In my contribution, I concluded that the privatization program between July 2004, when the Nazif cabinet took office, and the end of 2005 moved ahead with unprecedented speed and consistency compared to the 1990s, when the Egyptian political and business elites largely outsmarted the call for privatization imposed by foreign institutions and donors, with ownership structures persisting.

This is different under the Nazif cabinet, not only in terms of numbers of companies (partly) sold and privatization proceeds generated, but, more importantly, the program is also touching strategic sectors that were previously taboo either because they generate the strategic rents for the regime such as petrochemicals and tourism, serve to control the economy such as the banking sector or play an important role in Egypt's contrat social such as in transportation.

I basically argued that this change is a result of a change in the political setting, related to the rise of Gamal Mubarak inside the NDP and the installation of the reform cabinet under Nazif almost two years ago. In other words: today ministers are regulating the economy who during their biographies adopted the thinking of the exact same institutions World Bank and IMF whose input was largely opposed during the 1990 resulting in fake privatization.

What I find ironic today is that with Omar Effendi the critics have picked just the company that symbolizes like no other the bourgeoisie class that some Free Officers in dire need for an ideology (i.e. a pretext to cling to power) collected. I think this basically shows the critics’ powerlessness.

The debate really lacks a discussion on what privatization is supposed to achieve and on the criteria that should be applied to measure the success of the privatization program. The government appears to focus only on numbers of companies sold/privatization proceeds generated, while critics in a way follow the government here by comparing the value of companies sold – or more often their perception thereof – to the actual value of the sale.