I can understand the objection to selling certain assets owned by the state if the sale appears suspicious.
However, I cannot condone conspiracy theories emerging to explain every deal, following those with vested interests in opposing the state’s withdrawal from activities that compete with the private sector, or by some who spread these rumors for political purposes.
This tendency to incite a climate of hostility towards foreign investment significantly weakens the country’s attractiveness for various types of investment and makes foreign investors highly wary of their funds and interests being exposed to the risks of nationalization or confiscation under public pressure throughout the life of the project.
It thereby increases the level of risk for direct and long-term investment (the desired type of investment) and causes investors to demand a higher return on their money.
If the world is going through a cycle of rising costs of capital on the back of monetary tightening policies, supply shocks, the impacts of climate change, and geopolitical disturbances- and if Egypt is adopting a tight monetary policy to contain inflation by raising interest rates and absorbing excess liquidity from the markets – then this type of hostile investment environment is the last thing we can afford to add to the cost of financing the country’s development burdens and requirements.
The average person expects a degree of transparency in the sale of shares of state-owned companies, but the nature of this transparency may differ from the expectations of non-experts.
Many deals require a degree of confidentiality due to the signing of non-disclosure agreements with the other party to the deal during the negotiation process.
Non-disclosure agreements are common in large deals to avoid affecting the market value of the shares of the companies involved in the deal, especially if they are restricted and traded on the stock exchange.
These agreements also prevent the interference of certain parties that could undermine the deal.
However, once the details have been agreed upon and the outlines of the ownership transfer deals have been initiated, the appropriate disclosure must be made to achieve the goals of accounting and public oversight.
Any citizen has the right to ensure that the deal is fair and maximizes the owner’s objectives, and that it was carried out through the best possible means and through a fair valuation of the assets being sold.
The objectives that the seller must set in advance can vary depending on the project, activity, labor market needs, export returns, and other objectives. In general, however, the direct financial counterpart to the value of the shares and assets sold is not everything, especially if a government institution is the selling party.
The state has developmental and operational goals, and it is concerned with the sustainability of the activity and the employment of the largest number of willing workers.
Another common mistake in the public evaluation of the state’s exit from economic activity is the objection to selling profitable companies on the pretext that they provide a return for the state.
The truth is that the state benefits when the interests of the private sector are achieved in more than one way, including improving the efficiency and profitability of assets, recapitalizing companies, providing working capital that the public treasury cannot provide, employing and qualifying the workforce, and improving the quality of the product to make it competitive in exports.
And above all, it pays the Ministry of Finance all the taxes that should be the primary source of government revenue, not private investment.
The state invests in what private investors are more reluctant to invest in, such as infrastructure projects, and even these projects have been able to be penetrated by private capital alone or through forms of partnership with the public sector.
And let us not forget that the state is a failing manager in most cases, for structural reasons that cannot and should not be eliminated: foremost of which is that it does not seek profit when this goal conflicts with the goals of social stability and public security, and it also does not know competition because it always enjoys preferential treatment.
If the owner of the asset lacks the incentive of profit and the drive of competition, productivity and efficiency are the first victims.
Lastly, we need to address another myth promoted by those who advocate for privatization where management is transferred while ownership remains with the state.
This notion has been the reason for the failure of many divestment projects and the expansion of private sector ownership for more than one reason.
First, state ownership comes with accounting and administrative requirements and conditions that burden the private sector, such as the requirement of central auditing authority oversight, interference in the formation of boards of directors to achieve balance, rewarding old employees, and interfering in board decisions to achieve the interests of public employees rather than the interests of the companies and other potential negatives.
This does not diminish the importance of separating ownership from management to meet the requirements of governance, nor the feasibility of making assets available through long-term usufructs to preserve state ownership of the asset while making it available to the private sector for the entire life of the project to achieve the optimal allocation of state resources.
In previous experiences of offering cement companies to be managed by the private sector without a stake in ownership, the result was even greater losses.
Perhaps the State Ownership Policy document could serve as a foundation for drawing clear lines between the activities in which the state should continue and those from which it should exit.
However, it is crucial to avoid using this document and its related matters to flood the markets with more financial papers than they can absorb, which could lead to undervaluation and cheap sales.
This requires that the asset portfolio be managed professionally and with consideration for limiting the interference of various parties in the work of those responsible for this important issue.
I believe that the Ministry of Investment will oversee this through the sovereign wealth fund that has come under its purview.
About the author:
Medhat Nafea is an experienced economist and business leader. He served as Deputy Minister of Supply and Internal Trade in Egypt and is currently the Chairman of Arab Alloys.
He holds a PhD in Economics from Cairo University.
