At the end of 2021, Cairo announced it would make its domestic debt available for investment on Euroclear (1). The news sparked widespread controversy within Egyptian public opinion and opposition groups who feared Egypt would fall under “economic occupation.” They described these measures as a threat to sovereignty and national security.
It all started in April 2019, when the Egyptian Ministry of Finance signed a memorandum of understanding with Euroclear, a European financial services company, as the first step to link the Egyptian Government’s local currency debt issuance tools with Euroclear, including bonds and treasury bills (2). In May 2021, the Minister of Finance stated that Egypt's domestic debt would become “Euroclearable” and available to foreign investors by the end of 2021. However, the government soon announced that it would put off the offering for several months.
Scene 1
During the opening of housing units in the new city of Badr in August 2021, the Egyptian President Abdel Fattah El-Sissi announced that the government was planning to offer the shares of the New Administrative Capital Company (45 kilometers from the current capital, east of the Nile) on the Egyptian Exchange. He expected that the value of its assets would reach approximately 4 trillion EGP (about $214 billion) over the next two years. The administrative capital is the largest project established since President El-Sissi took power.
Scene 2
Immediately after the Muslim Brotherhood fell from power in 2013, Cairo received a package of economic aid estimated at $12 billion: $5 billion from Saudi Arabia, $4 billion from the UAE, and $3 billion from Kuwait. 50% of the value of that aid was non-repayable cash grants and in-kind grants in the form of petroleum derivatives. In March 2016, Saudi Arabia deposited $2 billion in the Central Bank of Egypt (CBE); the UAE and Kuwait made $4 billion in interest-free repayable deposits, according to a government statement. Per recent CBE data, Saudi Arabia deposited $3 billion and renewed old deposits estimated at $2.3 billion in the CBE in October 2021. It also made a new $5 billion deposit in March 2022. On the other hand, the UAE has halted providing cash aid since 2019 due to some news of Emirati anger and doubts about the Egyptian authorities' mechanism of disbursing aid funds.
During a television interview at the time of his candidacy for the presidential election in May 2014, El-Sissi stated that the total funds Egypt received from Gulf countries as economic aid amounted to about $20 billion after 2013. The announcement sparked controversy in Egyptian circles regarding conflicting official data (3) about the volume of assistance provided by the Gulf countries to Egypt and where this aid goes.
Scene 3
By the end of March 2022, the CBE announced that Egypt’s net foreign currency reserves declined by $3.91 billion to $37.082 billion in just one month.
Scene 4
Cairo announced that the assets to be sold on the stock exchange were shares in 10 state companies and two military companies, identifying $9 billion in assets that would be monetized and another $15 billion that it would quickly begin preparing to offer.
Final Scene
US-based Bloomberg published a report about Cairo's intention to sell some state-held stakes in Egyptian companies estimated at $2 billion to Abu Dhabi's sovereign wealth fund, including the Commercial International Bank (CIB).
Partisan rage
After Egypt announced that it would be circulating its debts on international stock exchanges, the Socialist People's Alliance Party, an Egyptian opposition party, issued in December 2021 a statement rejecting the measures taken by the Egyptian government. It said: “Contrary to the attempts by government propaganda to portray the Egyptian debt as being within the safe limits, we have noticed a rising curve in the debt that has reached a dangerous point. The government took things further, announcing the start of trading the internal Egyptian debt on the European Euroclear stock exchange.
Accordingly, the international investors, who are international speculators, will acquire these debts for certain guarantees, which ultimately means a kind of mortgage on the state assets in exchange for those debts. Contrary to what the government is promoting, Egypt’s internal debt had reached 4.8 trillion EGP (about $256.7 billion), while its external debt amounted to $138 billion. In other words, the total public debt, close to 7 trillion EGP (about $374.4 billion), has outstripped GDP growth, making the debt-to-GDP ratio jump to more than 100%.”
During a television interview at the time of his candidacy for the presidential election in May 2014, El-Sissi stated that the total funds Egypt received from Gulf countries as economic aid amounted to about $20 billion after 2013. The announcement sparked controversy in Egyptian circles regarding conflicting official data about the volume of assistance provided by the Gulf countries to Egypt and where this aid goes!
According to the announced data, Egypt’s external debt has increased by 360% in 38 years.
In 1981, it reached about $21 billion and jumped to about $96.6 billion in 2019. It had reached a record high of $145.5 billion at the end of December 2021. On the other hand, domestic debt jumped by 1,324% in 18 years. In 2001, it amounted to about $15.8 billion and jumped to about $226 billion at the beginning of 2019. The data illustrate the size and pace of borrowing that the successive regimes in Egypt are following.
It begins with Mubarak
The current regime is not the first to suggest selling Egypt's public assets in exchange for debts. Former President Mubarak started it when he met the preconditions set by the International Monetary Fund (IMF) (4) and issued Law No. 203 in 1991. The law stipulated the privatization of 314 companies operating in the public sector. To privatize these companies, his government had resorted to several means: It sold 26% of them to the employee shareholders' associations, listed 28% on the stock exchange, liquidated and sold 24% of their assets, and sold 22% to investors. Moreover, in 2008, Minister of Investment Mahmoud Mohieddine and Gamal Mubarak, the deputy secretary-general of the then-ruling and now-dissolved National Democratic Party (NDP) and the son of President Hosni Mubarak, who was preparing to succeed his father, announced a draft law on managing public assets through the application of the voucher privatization method. Per this method, the government would distribute free shares to 40 million Egyptians in 86 public companies out of 153 companies to be privatized (5).
In a report, the Land Center for Human Rights indicated the extent of corruption that accompanied the privatization process during the Mubarak era from its inception in 1991 until 2008. While the government officially announced that it sold 412 companies for 320 billion EGP (about $17 billion), the NGO said that the government had sold 623 companies for 23 billion EGP (about $1.2 billion). That inconsistency raised suspicions within the Egyptian parliament during its session in 2006 when it questioned the absence of about 13 billion EGP (about $695 million) privatization proceeds from the government's accounts.
In November 2019, the Egyptian President Abdelfattah El-Sissi indicated that some army-affiliated and public sector companies need to list their shares on the stock exchange to stimulate investors. In a speech at the Egyptian Family Iftar Banquet held on 26 April, the President announced that he had assigned his government to offer shares of military companies to the stock exchange before the end of 2022.
With the end of the Mubarak era, after the 2011 revolution, the struggles of the Egyptians concerned with public affairs and the labor issue culminated in the rulings handed down by the Courts of Administrative Justice. They nullified the privatization contracts (6) of many public sector companies, starting with Omar Effendi Company's sale in May 2011. However, all these efforts came to nothing with the rise of the current regime, which evoked the specter of privatization more acutely. So what is happening now?
The Sovereign Fund of Egypt
In 2018, a new law to establish a sovereign fund named “The Egypt Fund” was issued with an authorized capital of 200 billion EGP (about $10.6 billion) and will start with paid-in capital of about 12 billion EGP (about $641.3 million). Since its establishment in 2018, the Egypt Fund has received state-owned assets and real estate worth 30 billion EGP (about $1.6 billion) and created four sub-funds with a capital of 120 billion EGP (about $6.4 billion). The law granted the head of state the right to transfer ownership of Egypt’s underutilized and utilized public assets to Egypt Fund and the right to buy, sell, rent, lease, and benefit from them. Then, Amendment No. 197 of 2020 changed the fund’s name to The Sovereign Fund of Egypt for Investment and Development, which soon acquired a large number of state-owned assets and pieces of land, including 126 holding and subsidiary companies (affiliated with the Ministry of Public Business Sector). It also acquired lands such as the land of the dissolved NDP headquarters on the Nile Corniche Street overlooking Tahrir Square, the pieces of land of the General Office of the Ministry of Interior, the land attached to the Nasser Medical Institute overlooking the Nile, and the building of Mujamma al-Tahrir in the center of the capital, among others. Within a short time, the assets of the fund were estimated at $11.9 billion, per the Sovereign Wealth Fund Institute; and the fund ranked 41st globally, per G-World, an investment analysis firm.
The military has taken over key industries, and President El-Sissi has increasingly resorted to the military establishment to confront the country's economic crises, especially when civil state institutions have become unable to carry out their tasks, which has led to a significant expansion of its economic activity. Per recent World Bank data, 60 military-affiliated companies are operating in 19 industries in Egypt, out of a total of 24 listed on the local industry classification table.
Per the law amendments (7), the state has ended the people's right to oversee public funds, under which entities and citizens were able, at the end of the Mubarak era, to file lawsuits against privatization. Hence, the right to challenge the fund's transactions has become confined to the asset's owner and the entity to which the ownership was transferred. The amendments appeared immediately after El-Sissi and Bin Zayed set up a $20 billion joint strategic investment platform (8) in November 2019. The sum is equally divided between Egypt’s sovereign wealth fund and Abu Dhabi Developmental Holding Company (ADQ), a sovereign wealth fund located in Abu Dhabi.
El-Sissi and Resource Management in Egypt
27-03-2022
In September 2019, the government declared the efforts made by the State-owned Unutilized Assets Inventory Committee, which has compiled an inventory of the assets owned by various authorities, ministries, and governorates. At that time, the committee announced that it drew up an inventory of 3,692 assets and registered 3,273 in 24 governorates and five ministries. The committee's work is mainly concerned with preparing the assets that will be disposed of, either through direct selling or trading in the stock exchange or otherwise exploiting them. Article 6 of the fund law says: “The President of the Republic shall have the right to transfer the ownership of state-owned assets, exploited or untapped, to the fund or any of its sub-funds, based on a proposal submitted by the Prime Minister and the competent minister. The exploited assets shall be treated as the untapped assets by agreeing with the Minister of Finance and coordinating with the concerned minister.” The text of the article means that all Egyptian assets will be successively owned and managed by the sovereign fund, which has begun offering some for sale, either to pay off debts or to exchange debts for assets.
Indeed, the Executive Director of the Sovereign Fund of Egypt has announced the state's intention to sell some of its assets to pay off part of the debt. In June 2020, he explicitly indicated that the state had an insatiable desire to invest, particularly in historic areas and heritage sites such as downtown Cairo (historic Cairo and Khedivial Cairo). The first of these sites is the famous Mujamma al-Tahrir overlooking Tahrir Square (Revolution Square).
In March 2022, the Egyptian Exchange announced that the UAE Sovereign Wealth Fund agreed with the Egyptian Government to invest $2 billion by buying state-held stakes in five companies listed on Egypt’s stock market: CIB, Fawry Banking and Payment Technology Services, Abu Qir Fertilizers, and Alexandria Container & Cargo Handling Company, and Misr Fertilizers Production Company (MOPCO). The Egyptian public opinion received the news with dreadful shock because the deal was concluded after Muhammad bin Zayed, the apparent heir of the UAE, visited Egypt and met with President Abdel Fattah El-Sissi and the Israeli Prime Minister at a tripartite summit in Sharm El-Sheikh. However, this is not the first UAE deal. In February 2022, the Egyptian Exchange announced that First Abu Dhabi Bank offered to acquire a majority stake of no less than 51% of the capital of Egyptian Financial Group-Hermes Holding and that the deal could reach about $1.2 billion. Also, in 2021, the UAE acquired the Egyptian SODIC Company, Amoun Pharmaceutical Company, and Atyab brand owner Ismailia Agricultural and Industrial Investments.
Per the law amendments, the state has ended the people's right to oversee public funds, under which entities and citizens were able, at the end of the Mubarak era, to file lawsuits against privatization. Hence, the right to challenge the fund's transactions has become confined to the asset's owner and the entity to which the ownership was transferred.
In November 2019, the Egyptian President indicated that some army-affiliated and public sector companies need to list their shares on the stock exchange to stimulate investors. In a speech at the Egyptian Family Iftar Banquet held on 26 April, the President announced that he had assigned his government to offer shares of military companies to the stock exchange before the end of 2022. In fact, this is an enormous change, especially since the military economy was one of classified information that all successive authorities were keen not to disclose its size or forms. Moreover, the law prohibits publishing any figures related to its budget details. With the current power, the military has also taken over key industries. The President has also increasingly resorted to the military establishment to confront the country's economic crises, especially when civil state institutions have become unable to carry out their tasks, which has led to a significant expansion of its economic activity. Per recent World Bank data, 60 military-affiliated companies are operating in 19 industries in Egypt, out of a total of 24 listed on the local industry classification table. The state has already prepared itself to offer the National Petroleum Company and Safi Water (National Company for Producing and Bottling Natural Water & Olive Oils), both owned by the Armed Forces National Service Projects Organization, on the stock exchange. Data issued by the Ministry of Planning indicated that the state was considering offering three other military companies for the market. On the other hand, the statements by the sovereign fund chairman confirmed that the state had a preliminary plan to sell ten military companies.
More companies expected to be listed
The recent Russian-Ukrainian war has negatively impacted the investment sector in Egypt, which led to the exodus of $20 billion of investors' money from the Egyptian treasury markets. For the first time, the CBE announced that the monetary reserve at the CBE decreased by approximately 3 billion EGP (about $160.3 million) in one month. The Egyptian Government estimated the cost of the war's direct impact on the country's budget at about 130 billion EGP (about $6.9 billion), according to statements by the Prime Minister on 16 May. He also announced that Egypt's seven biggest ports were put under the umbrella of one company, and many state-owned hotels and transportation projects merged into another, with shares in both to be sold on the stock market. The Prime Minister stated that the regime planned to attract the private sector to acquire approximately 65% of the total investments inside Egypt during the next four years. He added that the goal was to raise $40 billion through the sale of public assets at a rate of $10 billion annually. The Prime Minister stressed that the state would soon submit an exit document outlining the sectors from which it would withdraw and leave for private investment only. He did not go into any more detail.
Analysts and those concerned with privatization and the stock market believe that the Egyptian Government is studying the companies expected to be put up for sale or traded on the stock exchange soon. Perhaps the most prominent companies are Misr Life Insurance Company, El-Nasr Mining Company, Egyptian Ferroalloys Company, Delta Steel, Sinai For Manganese, El Mex Salines Company, Ghazl El-Mahalla Sporting Club, Damietta Container & Cargo Handling Company, Port Said Container & Cargo Handling Company, El Maamoura Company for Reconstruction and Tourism Development, High Fashion Stores (Hano, Benzaion), the Egyptian Contracting Co. Al ABD, Maadi Company for Development and Reconstruction, and El Nasr Housing & Development.
In March 2022, the Egyptian Exchange announced that the UAE Sovereign Wealth Fund agreed with the Egyptian Government to invest $2 billion by buying state-held stakes in five companies listed on Egypt’s stock market. They concluded the deal after a visit during which Muhammad bin Zayed met President Abdel Fattah El-Sissi and the Israeli Prime Minister at a tripartite summit in Sharm El-Sheikh.
The Egyptian Exchange announced that First Abu Dhabi Bank offered to acquire a majority stake of no less than 51% of the capital of Egyptian Financial Group-Hermes Holding and that the deal could amount to $1.2 billion. Also, in 2021, the UAE acquired the Egyptian SODIC Company, Amoun Pharmaceutical Company, and Atyab brand owner Ismailia Agricultural and Industrial Investments.
The discrepancies in the announced data have raised serious concerns and fears among Egyptian citizens, especially since public assets are linked, in the public imagination, with national independence. However, the Egyptian state is apparently planning to transfer the ownership of state assets to the Gulf sovereign funds as a fulfillment of its promises and perhaps as a kind of barter on debts that have become a heavy burden, which is causing local anger. Before the Prime Minister announced a few days ago that the Egyptian ports would be listed on the stock exchange, the Abu Dhabi Ports Co. had announced in November 2021 that it intended to make serious investments in Egyptian ports. All these agreements may appear to be preset deals. Although the Egyptian constitution stresses that public property is inviolable and may not be infringed upon and that its protection is a national duty that lies on every citizen’s shoulders, the amendments to the 2014 constitution have omitted any reference to the roles of citizens or society in safeguarding public property. The constitution now simply stipulates that the protection of public property is a “duty according to the law.” This leaves the citizens of Egypt constrained, unable to express their opinions on the selling of their national property, and incapable of even expressing their anger.
Translated from Arabic by Sabry Zaki
Published in Assafir Al-Arabi on 26/05/2022
1- Euroclear is one of the major global clearing companies. It settles securities transactions, covering bonds, equities, and derivatives in the Eurozone and the world. At the end of 2019, a group of assets amounting to 31.4 trillion euros came under its tutelage, including assets for the countries of Argentina and Greece.
2- After amending the Central Securities Depository and Registry Law No. 93 of 2000, the Central Bank of Egypt established a new company whose mission is to offer domestic debt, bonds, and treasury bills, to foreign investors through the Euroclear mechanism. To view the law: https://manshurat.org/file/79206/download?token=ghkKxDYh
3- To view a report explaining the discrepancy in the announced figures: https://studies.aljazeera.net/en/node/3857#e1
4-To view a study showing Egypt’s history of borrowing from the International Monetary Fund until 2016: https://democraticac.de/?p=53087
5- Public sector policy goes back to the regime of the late President Gamal Abdel Nasser and the July state. Until the Mubarak era, public sector properties and companies represented about 40% of Egypt's gross domestic product.
6- For more information, see the book: "The Role of the State Council in Corrupt Privatization and Schemes to Sell Egypt".
7- The amendments stated: “The appeal against the decision made by the President of the Republic to transfer the ownership of assets, or the measures taken based on this decision, shall only be lodged by the owner of the asset or the fund to which the ownership of that asset is transferred.”
8- The percentage of contribution to the platform is divided equally between the two parties, provided that Egypt contributes in-kind assets equivalent to $10 billion and that the Abu Dhabi Developmental Holding Company, representing the UAE side, provides financial liquidity of the same value.
