Egypt's Slow Privatization Efforts Frustrate Businesses

WITH privatization of Egypt's public sector faltering behind efforts in Russia and Eastern Europe, the Egyptian business community is getting increasingly frustrated.

Many thought privatization had begun in earnest in December 1991 with the creation of the Public Enterprise Office. Almost one year later, public-sector reform continues at a snail's pace.

"Raising Egypt's visibility with a [foreign] firm has limited life," says Aladdin Saba, vice president of Kidder, Peabody & Co. "There's been a lot of interest, but this interest will go somewhere else if it [public-sector reform] drags on. Investors are already looking at other countries, for example, Turkey, Mexico, or Pakistan."

For the government, privatization is more a political issue than an economic one.

The public got used to the socialist economy created by former President Gamal Abdel Nasser's government in the 1950s and `60s. Today the public sector accounts for 70 percent of industry.

"This country has a social contract that has been unwinding since the mid-1980s," says a Western economist. "The people expect a certain amount of protection from the government - subsidies, rent controls, land reforms. It's very tricky to get out of this.... There's concern that if you have more people unemployed it will provide fuel for fundamentalists."

But criticism from the private sector is growing louder.

Businesspeople accuse bureaucrats of purposely stalling the process. Since selling public firms frequently means increased unemployment, they say government employees do not want action for fear of losing their jobs.

A lack of knowledge on public-sector reform further complicates matters. Entrepreneurs complain of secrecy surrounding the process.

By not addressing the problem of excess labor, officials have another excuse to further stall the progress, business sources say.

A "unified company law," that will delineate how to start a company in Egypt, remains incomplete. Instead, there are three separate laws complicating the process.

Many entrepreneurs also refuse to consider starting firms until taxation legislation is finished. The government says that it will make the atmosphere more conducive for private investment.

"We want to know whether dividends will be taxed or not," says a Western bank official. "We want to see it in black and white before making any decisions to buy a company's assets."

Further financial assistance from international sources is also dependent on the country progressing with privatization. Until these measures are taken, Egypt will not receive a second disbursement of $150 million in loans from the World Bank.

While the bank leaves the Egyptian government to determine the pace of reform, an official advised a faster approach: "I would grab a number of winning companies and sell them as soon as possible. This would open the door for privatization. All you need is one success and then the process will start snowballing."

Egypt's economic reform program began in May 1990 when the country signed an agreement with the International Monetary Fund. A structural adjustment program with the World Bank followed a few months later.

While the government has succeeded in eliminating subsidies, increasing interest rates to market levels, and liberalizing the currency, privatization remains a stumbling block.

GOVERNMENT officials point to the accomplishments, saying that organization is more important than speed. "When you look at what has happened in the last 18 months regarding economic reform and privatization, by any measure it is not something one can overlook," says Alaa Amer, privatization specialist at the Public Enterprise Office. "Privatization [has to be] done in an orderly systematic manner, rather than very quickly. One has to be realistic. You cannot go to the second floor until you go to the fi rst."

Thirteen companies have been chosen as candidates for privatization, Mr. Amer says. A communique last month for the first time officially approved the sale of state-owned assets. By the end of the year, 20 companies will be ready for sale, followed by another 25 sometime next year.