Cairo is aiming to restructure its state holdings to improve management, maximize results and reduce losses. Under the new public sector minister Hesham Tawfik, who took office in mid-June 2018, the government is seeking partnerships with international investors to revive public companies, that are criticized for being inefficient and too bureaucratic. In the past, Cairo intervened in the state economy with two phases of total or partial privatization, which involved almost 400 companies: the first from 1991 to 1997 and the second from 2004 to 2010.
According to the minister’s statement to the local media, Cairo currently has state holdings in eight holding companies with 121 companies: 48 companies are at a loss and 73 in profit. In 2015-16 fiscal year, the losses amounted to 7.5 billion Egyptian pounds, about 380 million euros. “We have devised an initial development plan for 26 companies, which accounted for 90% of the total losses of the 48 companies,” said Tawfik. “We have studied the strengths and weaknesses of companies and we have decided to restructure them. In addition to these 26 companies, we have others that – although they are useful – can be more efficient and give greater profits. We will concentrate on the restructuring of these forty companies in the first phase. We have already started operating procedures and we know what needs to be done, but then we will have to examine the cases individually “.
The government therefore wants to find international companies that have the capacity and experience to manage public companies and bring them back to profit. Foreign partners would get a determined share of the profits for 20 years in return.
The main focus is on the automobile sector, as well as the steel industry. The ministry aims to produce between 100 thousand and 150 thousand vehicles per year and to not limit the sector solely on assembly. The goal is to attract investors who want to wish to export and not only manufacture for the domestic market. El Nasr is the candidate for this role, an automaker founded in 1960 in Helwan (about 25 kilometers south of Cairo) and is currently losing 12 million Egyptian pounds a year, with a partner capable of producing 50-60 thousand vehicles a year. “We will choose the foreign partner on a technical basis and the agreement would be a partnership contract, based on profit sharing, with a penalty charged to the partner in the event that the production objective established in the contract was not reached”
With regards to loss-making companies, the government tends to exclude liquidation, which occurred in October 2018 with the National Company of Cement, a company losing about 2.55 billion Egyptian pounds (about 145 million dollars) a year. Mergers are not included in the plan. In the case of El Nasr, for example, the minister said the merger would be an exception to the rule. “If we agree with an investor to produce 60 thousand cars, we could discuss a merger because El Nasr alone is not able to achieve this goal.”
As for the steel industry, the restructuring concerns the Egyptian Iron and Steel Company, which since 2014 has hired an international consultant to study the development potential. The plant was built in the 1950s. Up until 2008, the company made profits, albeit few due to obsolete machinery and has suffered losses for ten years. The goal, once again, is to find a foreign partner. The board of directors of the Egyptian Iron and Steel Company announced a call for tenders. The foreign partner would have the task of restructuring the company’s production units with a preliminary cost of 250 million dollars to reach an annual production of more than 1.2 million tons in exchange for profit sharing. According to Mohamed Dawoud, vice president of the Chamber of metallurgical industries of the Egyptian Federation of industries, “the support of a foreign partner is fundamental since Egypt does not have the necessary technological capabilities”. Dawoud added that the success of public sector companies will also depend on reducing bureaucracy.