Egyptian privatization bid would spread ownership of stocks

Therevamped plan that would give lower-income Egyptians a chance at owning stocks was met with a measure of skepticism.

Egypt stocks 88 248 (photo credit: )
Egypt stocks 88 248
(photo credit: )
A revamped plan that would give lower-income Egyptians a chance at owning stocks was met Tuesday with a measure of skepticism by some commentators who view it as a back-channel attempt by the government to muster support for an unpopular privatization program. The new program, outlined by the ruling National Democratic Party (NDP), would give some 40 million Egyptians over the age of 21 coupons to be exchanged for shares in state-owned enterprises slated for privatization. Officials said the program was aimed at achieving greater social and economic equality. But in a country where previous privatization bids have been marred by claims of corruption and nepotism favoring the government's well-heeled backers, the NDP's announcement on Monday was greeted with skepticism. Economist Ahmed Sayyed el-Naggar described the coupon-book idea as "absurd" and an attempt to "circumvent [the problems of] privatization by getting citizens involved [in ownership]." He said its intended beneficiaries - the poor, unemployed and needy - would simply turn around and sell their shares, accruing no substantive long-term benefit. "The ruling party is just using citizens as intermediaries," said Naggar, an analyst with the semiofficial Al-Ahram Center for Political and Strategic Studies. Analyst Lamis el-Hadidi wrote in the independent Al-Masry Al-Youm newspaper that the government wants to "get rid of the anti-privatization headache, only to add to it another 41 million problems." The criticism stems from skepticism that this plan would dramatically improve the livelihood of lower-income Egyptians who have been grappling with inflation of over 20 percent, even as the country has boasted a 7% growth rate over the past couple of years under the guidance of a pro-business cabinet that took office in 2004. Previous privatization efforts - first launched in the early 1990s - were derided as benefiting only those closely connected to NDP leaders. Those criticisms have echoed loudly in a country where, according to a recent World Bank report, the number of Egyptians living below the poverty line - roughly $2 per day - rose from 16.7% in 2000 to 19.6% in 2005. That widening economic divide has sparked several protests and stoked fears of unrest in the Arab world's most populous nation. The government's last privatization sale was that of 80% of the Bank of Alexandria for $1.6 billion. But it failed in 2007 to sell Banque du Caire, one of the largest state-owned banks, due to low bids, and officials have since backed off other plans because of the global financial crisis. Gamal Wafa, an engineer at a factory that was privatized three years ago, was doubtful about the plan, voicing common concerns that the country was being sold off to foreign investors. "Everything will fall in the hands of the rich, [Gulf] Arabs or foreigners, and the rest of the nation will only serve as doormen." Institutional investors, however, sounded a cautiously optimistic tone, with Reham ElDesoki, a senior economist with Middle East investment bank Beltone Financial, dubbing it a "turning point" in the privatization process. "While we are concerned about the method of implementation of the new program... we believe that, if implemented correctly, the new program would lead to better public support of economic reform and increased activity in the stock market," ElDesoki said in a report. Mindful of past criticism, government officials have been careful to stress that this new approach is aimed at giving all Egyptians a fair chance at stock ownership - so far, largely the domain of a minute fraction of the country's 78 million citizens. "The program will not differentiate" between Egyptians, said Investment Minister Mahmoud Mohieddin in announcing the plan. Mohieddin did not provide details on portfolio size or net worth because the market price had not yet been determined. Gamal Mubarak, a top NDP official who is widely viewed as successor to his father, President Hosni Mubarak, described the program as an attempt to search "for creative ways to expand popular participation in the management of state-owned assets." The plan would potentially apply to 155 state-owned companies, in which the government would retain 30%-67% ownership. It would continue to hold the largest stake in key sectors, including pharmaceutical, sugar, cement and construction companies. Some of the privatization proceeds would be directed to a "generation fund," which would be used for development projects, education and health care, one official said.