More room for the private sector - Egypt - Al-Ahram Weekly

Al-Ahram Weekly

11-02-2025

The cabinet's Information and Decision Support Centre (IDSC) has issued its second report tracking the progress of the government's implementation of the State Ownership Policy Document, which sets out ways to widen the role of the private sector in the economy, from March 2022 to June 2024.
The report revealed that 288 per cent of the targeted implementation rate, with regards to the value of deals, had been achieved during this period, bolstered by the proceeds from the Ras Al-Hekma real estate deal on the North Coast, which is worth $30 billion.
The State Ownership Policy Document is a long-term strategy rolled out by the government in 2022 that entails the partial or full withdrawal of the state from more than 79 industries, helping to double the private sector's share of the economy to 65 per cent.
According to the report, the private sector's contribution to GDP rose from 70 to 74 per cent in the 2022-23 financial year, and its total investments reached 37 per cent in 2023-24, with a targeted increase to 47 per cent in 2024-25 and ultimately to 65 per cent.
The private sector's contribution to employment increased by 81 per cent in 2023, up from 76 per cent over the past 10 years, while its share in exports increased from 91 to 93.6 per cent in the last decade.
The report showed that efforts to activate trading and enhance market depth on the Egyptian Stock Exchange (EGX) had elevated market capitalisation to LE1.072 trillion, or 17 per cent of GDP, compared to 11 per cent of GDP in 2020.
Alia Al-Mahdi, a professor of economics at the American University in Cairo, lauded the government's achievements outlined in the Document, noting that it supports the enhanced role of the private sector in the economy, an essential objective the state has pursued for decades to boost overall growth rates.
However, she cautioned that the lack of consistency in the report's presentation, with some figures in dollars and others in Egyptian pounds, could lead to inaccurate results. She recommended unifying the monetary values, preferably in dollars, as this would offer greater ease of evaluation.
For instance, the increase in the market capitalisation of the EGX should be presented within a broader context that accounts for the inflation rates that impacted the pound in 2023 and 2024, she said. It would also be valuable to reference the number of new companies listed on the EGX and the percentage of foreign investment inflows.
Regarding indications that the private sector's contribution to employment has reached 81 per cent, Al-Mahdi said that it was important to consider that this percentage reflects the cumulative effect of investments over many years. It also encompasses employment in the informal sector.
While the report highlights ambitious targets, such as a 10 per cent increase in the private sector's contribution to the economy within one year and reaching the final goal of 65 per cent, these figures face a set of challenges.
The most prominent are high interest rates, the need for procedural reforms, the provision of industrial land, and efforts to encourage small and medium-sized enterprises (SMEs) to operate in the formal economy.
Creating a conducive environment for both local and foreign investment is a complex, large-scale process that goes beyond ensuring the availability of financing, Al-Mahdi said.
When considering the broader context, it is important to note that Egypt and Turkey are the only two countries in the region offering loans at high interest rates, while other countries in the region have maintained interest rates not exceeding five per cent.
The interest rate on loans in Egypt is 28.25 per cent.
Ali Abdel-Raouf, an economic expert, referred to the global context in the light of the new US Administration and the ongoing trade war between the US and China. He said these developments added further complexity to the challenges of implementing Egypt's objectives outlined in the State Ownership Policy Document and the broadening of the private sector's contribution to the economy.
Abdel-Raouf said there was a need to assess the effects of unilateral US decisions, such as the imposition of higher customs duties and the threat of additional measures, as well as their influence on the dollar's value and inflation rates, especially after US President Donald Trump said he did not favour the decision to maintain interest rates unchanged in the US.
The high interest rates on loans in Egypt inhibits the willingness of the Egyptian and foreign private sector to engage in new partnerships, acquisitions, or investments, Abdel-Raouf said.
The investment climate is still in need of reforms, he said, adding that while the entry of foreign investors is facilitated, the process for these investors to exit and transfer their profits in dollars is not as easy.
The fact that nearly 50 per cent of the companies in which the government has a stake are unprofitable indicates a need for a different management strategy integrated into the productive capacity of the Egyptian economy.
Abdel-Raouf said that utilising this capacity or redirecting productive activity would be more feasible than seeking liquidity at high interest rates to establish new factories and companies.
The data analysis, conducted by the IDSC in collaboration with the relevant state institutions, involved the creation of a comprehensive database encompassing all state-owned companies.
In August 2024, this database recorded approximately 709 state-owned companies distributed across 18 sectors. The ownership of these companies is held by 33 entities, including 18 ministries, nine governorates, the Central Bank of Egypt, the Financial Supervisory Authority, the Radio and Television Union, the Unified Procurement Authority, the Upper Egypt Development Authority, and the Suez Canal Authority.
Companies affiliated with the Ministry of Public Enterprise represent about 44.7 per cent of the total.
The report says that out of the total 709 state-owned companies, 452 do not have clearly specified government shareholdings. The government's stake exceeds 75 per cent in 158 companies, while in 80 its shareholding is less than 25 per cent.
Some 54 per cent of the companies in which the government has a stake are profitable, compared to 42.2 per cent that are incurring losses. The remaining 3.8 per cent have an unclear status regarding whether they are making profits or losses, the report said.
* A version of this article appears in print in the 13 February, 2025 edition of Al-Ahram Weekly
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