New law to regulate state ownership: Pushing through the IMF review with the same old recipe

Mada

2 days ago

During the International Monetary Fund delegation's visit to Cairo for its ongoing fifth review of Egypt's US$8 billion loan program, the government renewed its push for a draft law that would regulate state ownership in companies in which it holds full or partial stakes.
While the IMF closed out its visit with praise for Egypt's economic performance, it once again called for a faster pace of reform to reduce the state's footprint in the economy, particularly by moving forward with asset sales in sectors the government had already committed to exit under its State Ownership Policy.
The draft legislation, now with the House of Representatives a year after the Cabinet approved it, is closely tied to the implementation of that policy and the broader privatization agenda.
Mada Masr broke down what's in the law and spoke to sources familiar with the key issues it introduces, who painted the new law as little more than 'reheating leftovers' — a recycled, hasty push aimed to appease the IMF ahead of its report.
***
First, what's in the law?
According to a copy of the draft law reviewed by Mada Masr, the legislation would establish a central unit within the Cabinet responsible for inventorying and tracking state-owned companies. This body would submit recommendations to the Cabinet and its ministerial economic group, with a mandate to 'implement the state-ownership policy according to specific timelines and targets, and remove obstacles to progress in this area.'
First issued in 2022, the State Ownership Policy outlines the government's roadmap for withdrawing from sectors outside its designated 'core functions,' including those that the private sector has shown reluctance to invest in. The stated objective is to generate financial savings that could ease pressure on the state budget. The policy sets three directions to manage state involvement: full exit within three years, continued participation with either stable or reduced ownership; or continued participation with stable or increased investment.
Under the proposed law, the new Cabinet unit would also develop frameworks to 'regulate' all state-owned assets. For companies entirely owned by the state, Article 6 outlines mechanisms that include selling shares — whether through initial or secondary market offerings — increasing capital, expanding the ownership base, or restructuring through mergers or demergers. In cases where the state holds only a partial stake, its role would be limited to managing the sale of shares or voting rights.
The draft law also requires relevant authorities in share-owning state entities to provide the newly proposed Cabinet unit with any information or data it requests. This includes updates on restructuring plans and policies, as well as detailed reports on projected and actual cash flows and overall financial performance.
Article 5 of the draft outlines steps the unit may take to implement its regulatory programs for both fully and partially state-owned enterprises, with frequent references to privatization and private sector involvement. These include recommending the best approach to attract private investment across various sectors, maintaining and regularly updating a comprehensive database of companies fully or partially owned by the state, evaluating whether continued state ownership is warranted, and determining the most appropriate exit strategy for each company based on the economic or investment sector under which it falls.
The unit would also be authorized to identify state-held shares in companies and decide whether to sell them — either in full or in part — or list them on the stock exchange. It would be responsible for determining the size of the stake to be offered and approving the selection of investment banks, offering advisors, and financial consultants, in coordination with the relevant owning state entity.
The draft law also stipulates that, upon a proposal from the unit's executive director and with Cabinet approval, a formal decision must be issued to set mechanisms for managing labor surpluses in state-owned companies. It states that any financial costs associated with these measures must not add further strain on the public budget.
As part of implementing the State Ownership Policy, the law introduces restrictions on the state's ability to expand its holdings. It requires prior written approval from the unit before any state entity can establish or invest in a company whose primary activity falls within sectors where the state has opted to keep its investments unchanged. It also prohibits investment in sectors from which the state has committed to a full or partial withdrawal, as outlined in the policy document.
***
Not everyone, however, believes the legislation has much chance of success or has been fully thought out.
A member of the Cabinet's macroeconomic advisory committee criticized its timing as rushed, 'like reheating leftovers that have been there for a year.' Speaking to Mada Masr, the source said the law appears to offer a superficial display of reform to satisfy the IMF and secure a favorable outcome in the fifth review negotiations.
The Cabinet approved the draft law in May 2024, and the parliamentary economic committee began deliberations in a closed session on May 25, without journalists present. The committee approved the draft and referred it to the House's general assembly for a final vote.
The IMF previously referenced the draft law as part of Egypt's structural reform commitments. In its third review report, published in August, the fund said the law aims to 'embed key elements of the state-ownership policy into law.' The fourth review report has yet to be published, at the request of the Egyptian government for it to be withheld.
The advisory committee source argued that the law's passage was merely 'a formal gesture to show that certain steps — with no value to the project's core — are being taken.' They also pointed to overlap between the proposed unit's role and existing bodies that already, in a way, manage state-owned assets: the Sovereign Fund of Egypt, the Public Enterprise Ministry, and the National Investment Bank.
By contrast, Nation's Future Party MP Mahmoud al-Saeedy, a member of the House Economic Committee who took part in the discussions, told Mada Masr he sees no conflict between the new unit and the sovereign fund. 'As part of its multiple roles,' he said, 'the unit may recommend transferring a specific asset to the sovereign fund after reviewing its data.'
A second member of the Cabinet's macroeconomic advisory committee raised concerns about the 'ambiguity surrounding the new unit's role and its actual purpose.' They noted that a committee with nearly identical responsibilities — the higher committee on implementing the State Ownership Policy — was already created by administrative decree in December 2022 and also reports directly to the Cabinet.
Amr Adly, an assistant professor of political economy at the American University in Cairo, told Mada Masr that such overlap and conflict between the roles of the sovereign fund and the new unit is not unusual. Egypt's bureaucratic system, he noted, has long been characterized by parallel bodies with overlapping mandates. 'Take, for example, the National Center for Planning State Land Use,' he said, 'whose responsibilities both resemble and clash with those of the Industrial Development Authority, the Tourism Development Authority and the New Urban Communities Authority.'
Beyond questions of overlapping mandates, the draft law also includes a broad exemption from its own provisions. According to the text, the law does not apply to companies engaged in activities deemed to be of 'national or strategic importance, as defined by a Cabinet decision issued based on a joint proposal from the relevant minister and the competent authority within the owning state entity.' But the draft provides no definition or clear criteria for what qualifies as a national or strategic activity.
This vague exemption strips the law of its substance, according to both advisory committee members. The first of the sources said that it further demonstrates that 'the government has no real intention of implementing the law, and only aims to show the IMF that it is fulfilling the required tasks.'
Adly echoed the same skepticism, suggesting that the broad exemptions indicate the law is not grounded in any genuine governmental belief in the need to exit the economic sphere or scale back its role in line with the IMF's repeated calls. Instead, he argued, the government is primarily seeking short-term financial returns from select assets to compensate for its inability to grow tax revenues — while maintaining control over assets it is unwilling to relinquish.
In contrast, the law's explanatory memorandum defends the exemption, claiming that decisions related to such companies may involve matters of national security or require approval at higher levels of decision-making.
The exemptions outlined in the draft law also include 'companies established under international agreements, companies named in special legislation that governs their purpose or ownership structure, and contributions by state-owned insurance firms to the capital of other companies.'
Under the law, the new asset inventory and tracking unit is to be led by a full-time executive director with proven expertise in investment, corporate management, and economic project administration. The unit will be supported by a team of experts and specialists in these fields, alongside personnel with financial, technical, and legal qualifications. Staff may be hired on a contractual basis or seconded from existing administrative bodies. The unit's organizational structure will be determined by a decision from the prime minister, based on a proposal by the executive director and after consultation with the Central Agency for Organization and Administration — 'without being bound by the current government rules and regulations.'
Saeedy interpreted this provision as intended to bypass several standard government constraints that may not be compatible with attracting top talent to the unit — 'particularly the public sector's maximum wage cap,' he noted.
The government's decision to revive this law came as Egypt undergoes its fifth review under the IMF loan agreement, which shows how closely the State Ownership Policy is tied to the terms of the country's arrangement with the fund.
The State Ownership Policy document was issued following the government's November 2021 announcement of the findings of a study — prepared, it said, by the Cabinet Information and Decision Support Center — the full text of which was never published.
The study was intended to lay out steps to reinforce the state's shift toward supporting the private sector. According to the government at the time, the document emphasized the need to 'identify key sectors in which the state will remain, those it will exit, and others it will gradually withdraw from.' It also recommended 'reforming the public sector by retaining major companies in strategic, high-priority sectors' while divesting from those deemed less critical.
The study's conclusions closely mirrored the IMF's second review report, released four months earlier. That report explicitly called for 'a clear state ownership policy,' stating that 'reform of state-owned enterprises should start with developing an ownership policy to enhance accountability and transparency, define the sectors where public intervention is governed by a public service mandate, and implement performance boosting measures. This would enable the state to withdraw from other sectors and allow for private sector-led productivity gains.'