Better hurry selling loss-making state owned companies
Egypt, Economics, 8/22/2001

In recent statements, Minister of Public Enterprises, Mokhtar Khattab, has announced that the privatisation program that Egypt started in the early 1990s was not bound to a fixed schedule.

"The government has no intention nor is it in a hurry to sell any of the state-owned profit-making companies at prices less than their actual evaluation," he said.

The statements have drawn strong contrast with the desire at all levels to complete and even accelerate the implementation of the economic reform program in a bid to get rid of the losing companies which constitute a heavy burden on the state's budget and a major block in the privatisation effort.

In comment, former chairman of the Federation of Egyptian Industries (FEI), Adel Gazarein, has said that the private sector had been calling for accelerating the privatisation programme over the past years as the loss-making or the unprofitable companies were viewed as an obstacle to economic development.

"The losing companies form a burden on the state budget and cause great losses. They need to be sold to investors who can have the ability for administrative and technological modernisation as well as making profits on the long run," he said. According to the FEI the best type of investors to buy these companies are the international companies that are seeking more presence in the world economic arena through establishing branches for their businesses in the region.

"In order to attract these international investors to buy loss-making companies, the government has to work for getting rid of all aspects that can discourage buyers to consider buying these companies. This can be achieved by promoting their positive sides and advantages through restructuring and reforming them.

"We have to convince them that developing these non lucrative ventures might be costly but they have good prospects," he said. Gazarein referred to the slow pace in certain sectors included in the privatisation programme such as selling hotels. He said that the evaluation process of these sectors had taken longer time than necessary.

"The evaluation process takes long time but not many companies have been sold." This happened at the time when there were positive economic indications supporting the privatisation programme and there were serious offers by foreign investors to buy companies put for sale, he added Meanwhile, a recent report by the National Council for Production and Economic Affairs has stressed the need to adopt certain criteria and measures for the evaluation of the economic units that were going to be sold considering their production capacity.

Benefiting from other countries' expertise in that field was also essential, the report said. The Council has also called for adopting modern policies in light of the privatisation programme and the economic liberalisation trends so as to help meet the needs of economic and social comprehensive development.

"The Egyptian privatisation programme is in need of an impetus to widen the base of ownership by selling these companies," businessman Badran Kamel told a business paper, saying that investors should be offered more incentives and benefits to buy them.

"Of the major causes that discourages local investors from buying the loss-making companies is their surplus labour that could later on create problems that would affect the buyer's plans to restructure the company and make profits.

Some technical and administrative problems offer other obstacles and many investors prefer buying low-risk companies that could help in the circulation of their capital," he said.

In Kamel's view restructuring and reforming the state-owned companies prior to selling them help create better chances for marketing them and bringing in a fair price. Meanwhile, Minister Khattab said that 56 new companies would be put for sale soon with the new facilities recently approved by the Ministerial Committee on Privatisation.

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