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Egypt's Buoyant State Enterprises Leave Private Sector in the Shade

Egypt's Buoyant State Enterprises Leave Private Sector in the Shade

Tuesday, 19 January, 2021 - 12:15
A general view of buildings by the Nile River in Cairo, Egypt July 2, 2019. (Reuters)

Egypt’s state companies have been enjoying robust earnings, official data shows, acting as a growth driver and eclipsing the private sector.

Data published by the finance ministry gives a glimpse of how numerous state companies have prospered over the last few years, while investment in the private sector has languished.

Revenue at 17 non-oil, state-run holding companies more than doubled over three years to 60.64 billion Egyptian pounds ($3.88 billion) in 2018/19, according to Reuters calculations. The calculations were based on the companies’ latest available results, published on the finance ministry’s website late last year.

Net profit after tax at the 17 holding companies – which together control about 180 smaller companies – more than quadrupled over the three-year period, the data shows.

Egypt’s economy was growing at nearly 6% before COVID-19 struck and economists said state-led activity has helped cushion the blow from the pandemic.

By contrast, private-sector activity as a whole – excluding the oil sector – expanded in only five of the 36 months from July 2016 to June 2019, according to IHS Markit’s Purchasing Managers’ Index (PMI).

Egyptian officials said they are working to boost the private sector for long-term growth after stabilizing the economy and implementing widely praised reforms backed by the International Monetary Fund (IMF) that included devaluing the currency, removing most energy subsidies and imposing a value-added tax.

Foreign direct investment in Egypt rose to $8.24 billion in 2018/19 from $6.93 billion in 2015/16, according to central bank figures, but much of this was in the thriving oil and gas sector.

Egypt has not attracted the strong private investment that would help reduce poverty and absorb an estimated 800,000 workers entering the labor force every year, the World Bank said in its December report.

“The widespread presence of SOEs across the economy affects competition and distorts market outcomes,” the World Bank said.

As part of plans to reform state enterprises, Minister of Public Enterprises Hesham Tawfik announced in early 2018 a program to sell minority stakes in nearly two dozen companies.

Those sales have been delayed repeatedly by market downturns and more recently by the coronavirus pandemic.

The finance ministry published its data on state enterprises as a benchmark requirement under a $5.2 billion Standby Arrangement with the International Monetary Fund (IMF) signed in June.

While there are still some state enterprises making losses, the finance ministry data showed a trend of swelling earnings growth.

Other state companies that saw a surge in profit between 2015/16 and 2018/19 include the two main state banks and Telecom Egypt, according to the finance ministry data, as well as construction giant Arab Contractors whose revenue climbed to 24.82 billion pounds in 2018/19, from 17.76 billion in 2015/16.

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