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Post Privatization - Egypt - Case Studies

Post Privatization - Egypt - Case Studies

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Published by: Yolanda Valencia on Apr 13, 2011
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The Post Privatization Developmentof Former Law 203 Companies15 Case Studies
Special Study
June 2000
Provided to the
United States Agency for International Development
by 
C
ARANA
Corporation
under the
USAID Coordinating and Monitoring Services Project
Contract # PCE-1-800-97-00014-00, Task Order 800
Unless otherwise stated, opinions expressed in this document are those of the PCSU. They do not necessarily reflect those of USAID, the US Government, or the Government of Egypt.
P
RIVATIZATION
C
OORDINATION
S
UPPORT
U
NIT
 
 
  __________________________________________________________________________________ Post Privatization Development of Former Law 203 Companies
Draft for Review
 Selection of 15 Case Studies 1
Table of Contents
 
  __________________________________________________________________________________ Post Privatization Development of Former Law 203 Companies
Draft for Review
 Selection of 15 Case Studies 2
Introduction
The objective of this study is to evaluate the post privatization development of 15 former stateowned enterprises (SOEs) which have been sold off by the Egyptian government as part of the privatization and public enterprise reform program. Egypt first became committed to privatizationof its public sector enterprises in 1991, when it came to an agreement for a structural adjustmentloan with the World Bank and the International Monetary Fund to stabilize the macro-economy.The centre piece of this agreement concerning privatization was the promulgation of Law 203,which re-organized 314 public sector enterprises under 27 Holding Companies, detached thesecompanies from “soft” credit policies previously extended through public sector banks, andencouraged them to become profitable, market oriented and autonomous of the state inmanagement. It also allowed for equity in these companies to be bought by the private sector,either through the capital markets or through strategic sale to anchor investors. A newgovernment organ, the Ministry of Public Enterprises, was established to co-ordinate the privatization of the enterprises in the Law 203 sector. However, until 1996 the privatization program proceeded slowly and only a few transactions were effected between 1992-95.Egypt’s privatization program has effectively been under way since May 1996, when the HoldingCompany for Building and Construction sold off a 75% stake in one of its major affiliatecompanies, Nasr City Housing. Since that time the government has proceeded to sell off much of the portfolio slated for privatization under Law 203, and has employed both the Stock Exchangeand the strategic sales methods as the primary mechanisms for effecting transactions. By the endof the first quarter of 2000, a total of 142 Law 203 companies had been majority privatized andre-incorporated as private companies under corporate law 159. While there is no doubt that the privatization of such a large portfolio of government enterprises is a major achievement, there is presently very little information available about the post privatization development of thesecompanies.One of the central goals of any privatization transaction is the transfer of ownership of a stateowned economic asset to new owners in the private sector. Transfer of ownership, or, majority privatization, usually refers to having 51% or more equity in a government enterprise sold to the private sector in the transaction. From this perspective, given that the Egyptian government hasmajority privatized 142 companies, one may assume that ownership of these enterprises has beentransferred to the private sector and that the government is no longer involved in the internal business affairs of these companies. However, there is presently very little information availableabout the post privatization development of the Law 203 companies sold off by the Egyptiangovernment and it is subsequently difficult to conclude that the privatized enterprises have indeed become separated from the state after their privatization.The present study will consequently examine the post privatization development of a samplegroup of 15 privatized Law 203 companies and seek to evaluate the degree to which they are becoming independent of the state after their privatization. A qualitative evaluation criteria, basedon six conditions, has been created in attempt to categorize the degree to which an enterprise has become independent of the government after the privatization. The evaluation criteria is presented below. Enterprise independence will be evaluated according to what may be referred to as
direct conditions
(ie, the amount of equity the state has retained in the company after the privatization;whether the government’s lingering influence in corporate governance has led to the enterpriseretaining its public sector management structure) and
indirect conditions
(ie, changes to publicsector corporate culture; positive adjustments in wages and compensations packages after the privatization). The 15 privatized companies have been grouped into three categories, each group

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