Egyptian President Abdel Fattah Al-Sisi

Presidential promise: Abdel Fattah Al-Sisi has vowed to trim the military’s role in the economy

The government hopes to attract strategic investors for more than 30 state firms, but may struggle to reduce army involvement in the private sector, writes John Everington.

After an alarming economic slowdown, the International Monetary Fund (IMF) commended the Egyptian government’s commitment “to modernising government and to reducing government interference in market mechanisms” and “accelerating Egypt’s transformation into a dynamic, private sector-driven economy”. The year is 2005, the president is Hosni Mubarak, and Abdel Fattah Al-Sisi, who would go on to become president in 2014, is still a junior army officer.

Now, 18 years later, privatisation remains at the top of reform programmes agreed between the IMF and Egypt in return for a $3bn funding package, in a bid to “reduce the state footprint and level the playing field between the public and private sector, strengthen private sector-led growth, and enhance governance and transparency”.

The government has moved quickly to prove its commitment to boosting the private sector, saying in February that it would sell strategic stakes in 32 companies, including two military-owned companies and three banks by the end of March 2024.

Yet Egyptians can be forgiven for not getting their hopes up, given the similar pledges by successive governments over the years.

“Privatisation drives have been part of IMF loan agreements with Egypt since the 1990s, but there’s never been much progress achieved on that front,” says James Swanston, a Middle East and north Africa economist at Capital Economics.

“This time, there seems to be more momentum and transparency about the process and its targets.”

Despite such early pledges, it remains to be seen how committed the government — and particularly the country’s armed forces — will be to giving up their dominant position in the economy.

Dubious position

While Egypt has been one of the world’s best-performing economies among developing countries in recent years — being one of the few African economies not to slip into recession during the early years of the Covid-19 pandemic — the majority of growth has come from two sources: gas exports, which have quadrupled in volume over the past eight years; and government spending, including megaprojects of dubious value, such as a new capital city and an expansion of the Suez Canal.

The size of the country’s private sector has been difficult to accurately measure, given that much of it is informal in nature. Government statistics suggest that the private sector employs around 80% of the overall workforce, compared with 66% 20 years ago.

While the economy as a whole has boomed, the private sector has languished, with Purchasing Managers Index surveys showing just five months of positive sentiment during the past four years (see graph). In recent years in particular, private sector businesses have struggled to compete against a growing number of companies owned by companies affiliated with the Egyptian military.

The army, identified by Mr Al-Sisi as the main engine of economic growth upon coming to power in 2014, has steadily accumulated significant interests in a wider range of sectors as diverse as building materials, food and beverages, fuel distribution and tourism, enjoying advantages including preferential access to land and exemptions from custom duties and other taxes.

Military muscle

In 2021, the Financial Times reported that 60 companies linked to military organisations were active in 19 of the 24 industries under MSCI’s Global Industry Classification Standards taxonomy. Military-owned companies at the time accounted for 24% of the country’s cement production.

Beyond favourable treatment for new companies, the armed forces have been accused of muscling out would-be competitors on spurious charges with government assistance. In a notorious case, Safwan Thabet, the founder of Juhayna, the country’s largest juice and yoghurt maker, was arrested in late 2020, followed soon afterwards by his 40-year old son. While accused by the government of funding terrorism, Amnesty International claimed that the pair were arrested after refusing to hand over a controlling stake in their business to the state.

In January, Mr Al-Sisi vowed to trim the military’s role in the economy as part of the $3bn loan deal struck with the IMF, promising greater transparency of the finance of state-owned enterprises, including military-owned firms. In a sign of a possible softening of approach, the Thabets were released from prison later that month. The authorities gave no statement on the reason for their release.  

Old habits die hard, however. In mid-February it was announced that Tolip, a company with links to the military-affiliated National Service Products Organization, had acquired the Stella di Mare resort on the Red Sea for a consideration of E£700m ($23m).

“Deals like this call into question the regime’s commitment to reining in its business empire in a way that will encourage private sector activity to increase,” says Timothy Kaldas, deputy director of the Tahrir Institute for Middle East Policy.

Two military-owned firms — bottled water giant Safi and petrol stations operator Wataniya — were among the 32 companies slated for stake sales by prime minister Mostafa Madbouly in February, with the government planning to conduct at least eight sales by August of this year.

Safi and Wataniya were selected in a previous privatisation initiative a few years ago as the first companies in which shares would be offered, but such plans came to naught.

Prospective buyers

The list of entities identified for stake sales may be set to grow; in early March, Telecom Egypt confirmed reports that the government was considering selling a minority stake, giving no further details as to timing. Reuters had earlier reported that a sale of up to 10% of the telco was under consideration, with Egyptian outlet Al-Mal reporting that the Qatar Investment Authority was interested in investing.

State-owned and state-affiliated entities in the Gulf are likely to be the keenest suitors for the privatisation, having already provided significant aid to the Egyptian economy over the past year, together with significant investments in strategic sectors. The Abu Dhabi state holding fund ADQ announced $1.85bn investments in five listed Egyptian firms, with Saudi’s Public Investment Fund (PIF) announcing $1.3bn worth of similar deals in August.

ADQ is planning to invest up to $20bn with the sovereign fund of Egypt into a range of key sectors over the next 10 years, while the PIF last year launched the Saudi Egyptian Investment Company (SEIC) to invest in a range of sectors including infrastructure, real estate development, healthcare, financial services, food and agriculture, and manufacturing.

With ADQ having last year acquired stakes in Commercial International Bank and fast growing fintech Fawry as part of its initial spending spree, local banks are likely to be particularly attractive for Gulf investors, with big names such as First Abu Dhabi Bank, Qatar National Bank and Ahli United Bank already present in the market.

Gulf interest in Egyptian banks is a testament to the market’s potential

Monsef Morsy

Banque du Caire, Arab African International Bank and United Bank of Egypt — all of which had previously been slated for privatisation — were among the 32 firms listed for stake sales in February.

“Gulf interest in Egyptian banks is a testament to the market’s potential, given the lower penetration of banking services compared with in the Gulf Co-operation Council,” says Monsef Morsy, co-head of research at CI Capital in Cairo.

“The loan-to-deposit ratio in Egypt remains lower than the global average and what you see in the Gulf, so there’s a lot of potential for loan growth in terms of capex lending and working capital loans to the private sector, in addition to retail lending.”

The appeal of such banking assets was such that sales are likely to be completed before the end of 2023, he predicted.

As in previous rounds however, the success of such sell-offs is far from certain. It was reported in December that Saudi’s PIF was in advanced talks to acquire United Egypt Bank for around $600m via the newly created SEIC. Yet Reuters reported in late February that the deal had been paused due to a disagreement between PIF and Egyptian authorities over the bank’s valuation, relating to the devaluation of the Egyptian pound. 



All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter