According to the following Cablegate cable, the Ministry of Investment (MOI) in Egypt is not quite working on its own. "On behalf of MOI," says ۦ6, "Microsoft Chairman Bill Gates launched a website, www.investment.gov.eg in January 2005, to serve as Egypt's investment portal."
UNCLAS SECTION 01 OF 03 CAIRO 005350
SIPDIS
SENSITIVE
STATE FOR NEA/ELA, NEA/RA, AND EB/IDF USAID FOR ANE/MEA MCCLOUD USTR FOR SAUMS TREASURY FOR MILLS/NUGENT/PETERS COMMERCE FOR 4520/ITA/ANESA/TALAAT
E.O. 12958: N/A TAGS: ECONââ¬â°[Economic Conditions], EFINââ¬â°[Financial and Monetary Affairs], ETRDââ¬â°[Foreign Trade], EINVââ¬â°[Foreign Investments], EGââ¬â°[Egypt] SUBJECT: UPDATE ON EGYPT'S PRIVATIZATION PROGRAM
REF: A. CAIRO 4374 B. CAIRO 1329
Sensitive but Unclassified. Please protect accordingly.
------- Summary -------
ۦ1. (SBU) Since taking office in July 2004, Prime Minister Nazif's administration has reinvigorated the GOE's program to privatize state-owned industries. Under the leadership of the new Ministry of Investment, the revitalized program aims to speed up privatizations by making public enterprises more efficient - and thus more attractive to potential investors - while also introducing good corporate governance principles. The effort has paid off for the GOE, which completed a total of 19 privatizations from July 2004 to March 2005, generating LE 2.9 billion ($500 million) compared with five transactions generating LE 81 million ($14 million) in the period July 2003-March 2004. The GOE has promised even bolder steps in the near future for divestiture of formerly "strategic" industries. Labor issues remain a concern, but the GOE has indicated that it will deal with workers' concerns on a case-by-case basis as public companies are privatized. It is doubtful, however, that the GOE would approve any deals that would result in massive layoffs, particularly in an election year. End summary.
------------------------- Privatization revitalized -------------------------
ۦ2. (SBU) The GOE privatization program has undergone a complete makeover in concept and implementation in the last year under the Nazif administration's new Ministry of Investment (MOI). Minister of Investment Mahmoud Mohieldin has been the driving force behind revitalization of the program, which he refers to as "asset management." Mohieldin has used his political weight, as a key member of the NDP economic policy apparatus, to garner support for broadening the scope of the program to include all public enterprises, the more competitive companies as well as those with large workforces that could be negatively affected by privatization. He has made privatization a focal point of the macroeconomic reform effort led by the Minister of Finance, the Minister of Foreign Trade and Industry and Nazif himself, all of whom agree on the goals of stimulating private sector-driven growth and "marketing Egypt" as a destination for foreign investment.
------------------------------------------- Pre-Nazif: Privatization in fits and starts -------------------------------------------
ۦ3. (U) The GOE has two categories of public enterprises: wholly state-owned companies regulated by Law 203 of 1991, and joint venture companies (including banks) with a public- private ownership mix, regulated by Law 159 of 1981. When the privatization program began, the 314 wholly state-owned companies were grouped according to the type of economic activity they conducted and put under the supervision of holding companies (HCs). The HCs managed the privatization of their affiliate companies, eventually dissolving when all of their affiliates had been privatized. This process created a conflict of interest, especially for the HC chairmen. Working efficiently to privatize all of their affiliates meant that the HC chairmen worked themselves out of a job. Privatization was therefore a slow, sporadic process and after more than a decade of fits and starts, liquidations and restructuring, there were still seven HCs with 139 affiliate companies.
ۦ4. (U) In 1999, after a cabinet change, the GOE decided to include the sale of public shares in joint venture companies under the rubric of the privatization program. The Ministry of Economy and Foreign Trade (now the Ministry of Foreign Trade and Industry) began an inventory of joint ventures and their shareholder structure. After a lengthy research process, the number of joint venture companies and banks was found to exceed 600, all with different percentages of public ownership. In early 2000, the entire privatization program, including wholly state owned companies and joint ventures, was consolidated under the Ministry of Public Enterprises, where it remain until being subsumed by the new MOI in the July 2004 cabinet change.
------------------------- Privatization under Nazif -------------------------
ۦ5. (U) Soon after MOI took over managing the privatization program, a three-pronged effort was undertaken to remake public enterprises by: 1) restructuring and re-engineering public companies to make them more efficient, and ultimately more attractive to potential purchasers; 2) implementing good corporate governance principles in all public companies; and 3) aggressively pursuing the advertisement and sale of public companies. As part of the effort to introduce corporate governance principles, MOI published an OECD-based code of conduct for corporate governance and disclosure in public companies and began publishing the minutes of companies' general assembly meetings to increase transparency. MOI also created a ministerial committee to assist investors in resolving disputes arising from privatization transactions. The committee has already reportedly resolved 18 disputes, including several long- standing disputes from privatizations that occurred in the pre-Nazif era.
ۦ6. (U) MOI also began a campaign to advertise the newly revamped privatization program. The thrust of the ad campaign was that the GOE was committed to removing obstacles that had blocked or slowed privatizations in the past. Labor and debt issues would be dealt with on a case- by-case basis, foreign private sector interest was encouraged rather than feared as it had been under previous administrations, and no sectors were off-limits or "strategic" as in the past. On behalf of MOI, Microsoft Chairman Bill Gates launched a website, www.investment.gov.eg in January 2005, to serve as Egypt's investment portal. The GOE then took its investment campaign to the May 2005 World Economic Forum in an effort to drum up more foreign investment.
ۦ7. (U) The result of MOI's efforts has been a rekindling of interest among foreign investors. A list of 41 local and international financial institutions, including Citibank, Goldman Sachs and Merrill Lynch, are now working with MOI as advisors/consultants on privatization. A number of prominent foreign companies - such as Ciments Francais, La Farge Titan and Michelin - concluded multi-million dollar deals to purchase public companies such as Suez Cement (ref B). From July 2004 to March 2005, the GOE completed 19 privatizations, generating LE 2.9 billion in revenue, compared with only five transactions that generated LE 81 million in the period July 2003-March 2004. MOI expects the total value of privatizations in fiscal year 2004/2005 to exceed LE 3 billion, almost double the aggregate value of sales for the period 2001 through June 2004. The budget for fiscal year 2005/2006 (July 2005-June 2006) projects revenues from privatization will reach LE 5 billion (ref A).
---------------------- Privatization expanded ----------------------
ۦ8. (U) As noted above, MOI has included in the privatization program companies that were not previously slated for sale. Prior administrations considered certain companies "cash cows" that were too valuable for the GOE to sell. Likewise, certain sectors, such as petrochemicals and telecoms, were considered "strategic" and therefore off limits to private ownership, especially foreign private ownership. In June MOI sold 20% of the GOE's stake in Sidi Krir petrochemical company on the Cairo and Alexandria Stock Exchange (CASE) for LE 70/share. The company's shares have dominated trading by volume and value on the CASE in the last several weeks and recently closed at LE 105/share. A number of other high profile companies are also in the pipeline, including petroleum company AMOC and Eastern Tobacco Company (one of the GOE's "cash cows"). MOI has also indicated it will offer a significant stake in Telecom Egypt by the end of 2005. Shares of several public companies, possibly including Telecom Egypt, will also soon be registered on the New York Stock Exchange to further open channels for foreign investment. (Note: An update on privatization in the banking sector will be sent septel. End note).
------------ Labor issues ------------ ۦ10. (SBU) One of the difficult issues for the GOE as it divests its public assets is the reaction of labor. The GOE deals with excess labor in companies to be privatized by offering early retirement packages, which are largely funded by proceeds from privatization. Senior GOE officials continue to provide public reassurances that labor issues will be resolved amicably and a safety net will be provided for workers affected by privatization, in keeping with the GOE's general policy of protection of low-income earners. The MOI is working on a new early retirement system designed to more closely address workers' concerns and improve the financial management of privatization proceeds that will be used to fund the early retirements.
ۦ11. (SBU) Nevertheless, in state-owned enterprises, particularly those burdened with surplus manpower like textiles, iron, and steel, concerned workers have expressed opposition to privatization through their representatives in parliament, through strikes and in the opposition press. The proposed sale of shares in Suez and Torah Cement Companies late last year triggered strikes that were resolved only after MOI obtained the purchaser's commitment not to lay off workers for three years (ref B). Mohamed Hassouna, Advisor to the Minister on Privatization Affairs, told Econoff that MOI is "keeping channels open to workers," and cooperating with the Egyptian Trade Union Federation (ETUF) on a case-by-case basis to resolve potential problems with privatization deals. It would be surprising, however, for the GOE to conclude any deals that risk large-scale layoffs from labor-intensive industries prior to Egypt's October elections. CORBIN
UNCLAS SECTION 01 OF 04 CAIRO 005344
SIPDIS
STATE FOR NEA/ELA, NEA/RA, AND EB/IDF USAID FOR ANE/MEA MCCLOUD USTR FOR SAUMS TREASURY FOR MILLS/NUGENT/PETERS COMMERCE FOR 4520/ITA/ANESA/TALAAT
E.O. 12958: N/A TAGS: ECONââ¬â°[Economic Conditions], EFINââ¬â°[Financial and Monetary Affairs], ETRDââ¬â°[Foreign Trade], EINVââ¬â°[Foreign Investments], ENRGââ¬â°[Energy and Power], EWWTââ¬â°[Waterborne Transportation], EGââ¬â°[Egypt] SUBJECT: EGYPT MONTHLY ECONOMIC REPORT: MAY-JUNE 2005
------- Summary -------
ۦ1. In this edition: More Egyptian companies make it into international emerging market stock indices and the GOE signs an S&T agreement with the EU. The Ministry of Communication and Information Technology announces a third mobile phone license will be issued and minister Tarek Kamel visits the U.S. Orascom Telecom purchases an Italian telecom. President Mubarak inaugurates a new liquid natural gas facility, the Ministry of Petroleum announces new oil and gas deals as well as new oil discoveries, and Egypt and Israel sign an MOU on gas exports. Air traffic controls go on a "go-slow" strike and Suez Canal revenues increase 18% over last fiscal year. End summary.
-------------------------- Macroeconomic Developments --------------------------
ۦ2. In mid-May Morgan Stanley International (MSI) announced the addition of seven Egyptian companies to its emerging markets indices, bring the total number of Egyptian companies on MSI indices to seventeen. MSI increased Egypt's weight in its indices, which cover all emerging markets, from 0.77% to 0.78%. The change raises Egypt's market capitalization in the MSI indices to $1.22 billion. The seven new companies included are EFG-Hermes Holding, Egyptian American Bank, Egyptian Financial and Industrial Co., Ezz Rebars, Egypt Beni Souef Cement, Olympic Group and Sinai Cement. The companies were chosen based on largest private sector ownership, market capitalization and trading activity in the Egyptian market. Other Egyptian companies included in the MSI indices include domestic blue chips like Commercial International Bank, AlWatany Egyptian Bank, Eastern Tobacco, Media Production, EIPICO, Mobinil, Nasr City Construction, Misr International Bank, Orascom Construction and Orascom Telecom Holding.
---------------------- Science and Technology ----------------------
ۦ3. S&T Conference: On May 28, PM Nazif opened the First National Conference for Scientific Research in Egypt. About 4,000 Egyptian scientists and researchers, including Egyptian expatriate scientists, and various Cabinet ministers attended the two-day event. The conference focused on soliciting feedback from the S&T community on development of a new strategy for promoting scientific research, services and technology in Egypt. For the first time in recent memory, ministers fielded direct questions from working-level Egyptian scientists and listened to their opinions on S&T issues. Minister of Foreign Trade and Industry Rashid discussed plans to increase private sector funding of R&D projects and Minister of Higher Education and Scientific Research Salama noted that his ministry would establish a fund to support R&D.
ۦ4. The conference produced a series of recommendations to shape a new national S&T strategy for Egypt. The most significant decision was to increase the GOE budget allocation for scientific research by 10-50%. The increase would include salaries and administrative costs for scientific institutions. The conference action plan will be published at the end of July. (Comment: PM Nazif's commitment to increasing the S&T budget and the presence at the conference of reform-minded ministers such as Rashid indicates that the GOE is serious about reform in the field of scientific research. Private sector involvement will be key, however, and the GOE's ability to attract foreign investment in S&T will depend on continued commitment to macroeconomic reform. End comment).
ۦ5. EU-Egypt S&T Agreement: On June 21, PM Nazif attended the signing of a new S&T agreement between Egypt and the EU. According to Fawzi El Refaei, President of the Egyptian Academy of Scientific Research and Technology, the agreement aims to expand S&T cooperation and provides for Euro 11 million in funding for S&T projects. The agreement allows Egyptian scientists and research institutions to apply for funding of specific R&R projects from EU sources. El Refaei indicated that funding from this agreement would be channelled into areas of development identified in Egypt's new S&T strategy.
-------------------------------- Telecommunications and Info Tech --------------------------------
ۦ6. In mid-May, Minister of Communication and Information Technology (MCIT) Tarek Kamel announced that the GOE would soon issue a license for a third mobile phone operator. The RFP would be issued in 3-4 months and proposals would be reviewed by early 2006, with the goal of getting the third operator in place by mid-2007. Kamel indicated that MCIT anticipated LE 2.5 billion in licensing fees from the new operator. The coming RFP would be "technology neutral," i.e., either GSM or CDMA. According to a study by the National Telecommunications Regulatory Authority (NTRA), Egypt's mobile market growth rate is currently 12%, but is expected to reach 25% within five years.
ۦ7. In late May, the Information Technology Industry Development Authority (ITIDA) invited Egyptian and international firms to apply for e-signature licenses under Law 15 of 2004, which regulates e-signatures. According to ITIDA, use of e-signature technology will encourage new investment in e-commerce and e-business projects and facilitate access to global e-business sectors. Details of the licensing requirements can be found at www.itida.gov.eg/csp.
ۦ8. Also in late May, Orascom Telecom (OT) announced the $130 million sale of its controlling stake in Libertis, a GSM company in the Democratic Republic of Congo, and Libertis' operator Oasis Telecom. Also in late May, Naguib Sawiris, CEO of OT, announced the purchase of Wind, the telecom subsidiary of Italian conglomerate Enel, by the newly established "Weather Investments." Sawiris owns 73.9% of Weather Investments and Enel owns the remaining shares. OT plans to eventually transfer 51% of its shares to Weather Investments. The total cost of the purchase was Euro 17.2 billion.
ۦ9. MCIT Minister Kamel made his first official visit to the U.S. June 18-28. The delegation included the Chairman of NTRA, the President of Telecom Egypt and representatives from approximately 20 Egyptian IT firms. Kamel held meeting with USG officials and on the Hill, and also met with Microsoft Chairman Bill Gates and executives from Intel, Cisco, and Oracle. The visit led to establishment of a U.S.- Egypt IT consultative council. Kamel also witnessed the signing of several business deals, including a $5 million agreement between Egypt's QuickTel and Qualcom to service wireless networks in Egypt. The minister also announced that NTRA would soon issue licensing terms for Voice-over Internet Protocol (VoIP) service in Egypt.
------ Energy ------
ۦ10. On May 30, President Mubarak inaugurated the liquefied natural gas (LNG) plant at the Mediterranean Gas Complex in Damietta. The LNG facility is owned and operated by the Spanish Egyptian Gas Company (SEGAS), which is 80% owned by Union Fenosa Gas (50% Union Fenosa of Spain and 50% ENI of Italy), and 20% owned by Egyptian State Holding Companies. The $1.3 billion facility was built by a joint venture of Halliburton KBR, JGC Corporation of Japan, and Tecnicas Reunidas of Spain. The output of the facility, 5.5 mt/yr, has already been committed for the next 25 years. The Mediterranean Gas Complex near Damietta is a joint investment between the Italian AGIP and British Petroleum.
ۦ11. In mid-June, Petroleum Minister Fahmi announced that the GOE had signed 36 new oil and gas exploration agreements over the last year for a total investment of $250 million. The agreements will result in the drilling of 55 new wells in the Western Desert, the Nile Delta, and off the Mediterranean coast and Gulf of Suez. Foreign investors in the agreements include British Gas, Malaysian Petronas, International Egyptian Oil Company (an Italian subsidiary of AGIP) and Apache. Announcement of the new exploration agreements was followed by three new oil discoveries in late June. The largest was at Ras Gharib-Amr, a 50-year-old oil field in the Gulf of Suez, 2 km offshore. The discovery was the first at Ras Gharib-Amr in the last 40 years. The second discovery was at El Tamad, approximately 90 km northeast of Cairo. This was the first on-shore oil discovery in the northern Nile Delta region. The third discovery was at El Diyur in Egypt's Western Desert. Total reserves from the new discovery were estimated at 70 million barrels of crude oil.
ۦ12. Egypt-Israel Gas Agreement: On June 30, Fahmi signed an MOU with Israeli National Infrastructures Minister Binyamin Ben-Eliezer, clearing the way for a long-awaited $2.5 billion commercial gas deal between Eastern Mediterranean Gas (EMG) and the Israeli state-owned Electrical Company (IEC). While the commercial details remain to be determined, EMG will export approximately 25 billion cubic meters of gas over 15 years from the Egyptian port of El Arish to the port of Askalon in Israel. EMG is an Egyptian-registered company 25% owned by Israel's Merhav Group. Egyptian businessman Hussein Salem owns another 65% of EMG and the Egyptian Gas Holding Company owns the remaining 10%.
ۦ13. The MOU provides a "political umbrella" for the commercial agreement, and commits the GOE to providing gas to EMG and the GOI to providing tax exemptions for equipment and materials. Completion of the project is expected to take two years. Announcement of the MOU was coordinated with announcement of cooperation between the GOE and the Palestinian Authority on gas exports. Headlines of some opposition papers tried to portray the MOU as an attempt to appease the USG and deflect pressure for further political and democratic reform.
-------- Aviation --------
ۦ14. In early May, Egyptian air traffic controllers went on a "go-slow" strike, their second in the span of two months, to protest the Ministry of Civil Aviation's penalization of 8 air traffic controllers for delays at Sharm El Sheikh airport. The Association of Egyptian Air Traffic Controllers threatened to bring air traffic to a total halt if the penalties were not lifted. Controllers also demanded a doubling of salaries over three years, better health insurance and better promotion opportunities. The strike ended after Minister of Civil Aviation Shafik promised to look into the strikers' demands for better pay and conditions. Aviation officials indicated that the controllers conducted the go-slow in line with International Civil Aviation Organization standards, but failed to announce the go-slow to the airlines in advance. Unofficial reports indicated that losses from the go-slow amounted to $31 million.
--------------------------------- Suez Canal and Maritime Transport ---------------------------------
ۦ15. In early May, the Suez Canal Authority indicated that revenues from Suez Canal tolls during FY 2004/2005 would exceed $3.2 billion, compared to $2.82 billion during FY 2003/2004. During the first 9 months of FY 2004/2005 (July 2004- March 2005), revenues increased by $369 million to $2.446 million, up 18% from the previous year. A recent study by the Ministry of Transportation indicated that total revenue from port facilities, excluding customs, duties and taxes, increased in 2004 by 25% to L.E. 2.24 billion.
------------------- Economic Statistics -------------------
ۦ16.
Exchange Rate: (05/31/05) (06/30/05) Egyptian Pounds/$ Buying Selling Buying Selling Avg. Bank/Bureau Rate 578.79 581.22 578.24 580.84
Capital Market: (05/31/05) (06/30/05) Capital Markets Authority Index 1644 1789 Hermes Financial Index 36344 41772 EFG Index 19599 22692
Interest Rates: (percent, monthly comparison)
Interbank Overnight 9.49 9.55 T-bills (182 days) 9.88 8.39 T-Bond (maturing 01/06) 4.15 4.15 T-Bond (maturing 04/09) 5.50 5.50
Foreign Reserves: (US $ billion, official gov't figures)
(04/2005) (05/2005) 18.470 18.712