Egypt wants to attract investors into backing companies owned by the country’s army to address private sector complaints that they are being crowded out of lucrative sectors by the military.
The Sovereign Fund of Egypt is assessing 10 companies owned by the National Service Projects Organisation, an economic arm of the military, with the aim of opening them up to domestic and foreign investors, said Ayman Soliman, its chief executive.
“We are looking at 10 companies, scalable businesses that are transactable,” Mr Soliman told the Financial Times. “Once we get our hands around the sizes of those assets, the valuations of those assets and the market space, we will offer to the market co-investment opportunities into those assets. They [the NSPO ] said we are happy to exit those assets up to 100 per cent.”
The country’s army has in recent years dramatically expanded its footprint in the economy, as part of efforts by President Abdel Fattah al-Sisi, who ousted his elected Islamist predecessor in a popularly-backed coup in 2013, to revive growth following the 2011 Arab uprisings.
But private companies are concerned about unfair competition with a state body that has huge political clout and is at the very least better able to surmount bureaucratic and other hurdles. In an apparent effort to reassure private and foreign investors, Mr Sisi has voiced his intention to float military companies on the stock exchange. There is no suggestion that all military companies will be sold off, or that the army and other security bodies will cease to be economic actors.
Sovereign wealth funds are normally associated with countries that have surpluses to invest, such as Saudi Arabia and Norway, not an indebted country like Egypt. The fund which has authorised capital of $13bn, is mandated to invest its own money alongside private investors in designated state assets.
Last month, the fund signed a memorandum of understanding with the NSPO agreeing to help them sell assets. Mr Soliman described this as a signal that “they [the military] are saying we are consciously not crowding out the market. They are sending a message that we are inviting FDI [ foreign direct investment] and private sector participation”. He declined to name the companies under consideration and said that it was the first phase of a process that would see more military assets brought to market.
The NSPO lists some 30 companies that it owns and runs on its website in sectors ranging from cement and fertiliser production, to petrol stations, fisheries, egg production and refrigerated transport.
Despite the completion of a programme of tough reforms agreed with the IMF under a $12bn deal, FDI remains low in sectors other than oil and gas. Analysts said that this reflects weak domestic demand and, in some sectors, concern about competition with the military. The SWF aims to boost the share of private investment in the economy. The government has spent “billions and billions” on infrastructure, said Mr Soliman, accounting for about 55 per cent of overall investment in the economy. “Forty five per cent is the norm for Egypt historically and we would like to restore that,” he said.
Beyond military-run companies, the fund aims to package and promote a wide array of state assets to private investors, he said. Power stations, desalination plants, water treatment plants, state-owned enterprises and government buildings in Cairo, vacated after a planned move to the new administrative capital this year, could be opened up to private investment, he said. The fund would turn them into “investable products” and take a minority stake itself to help investors navigate any difficulties.
Infrastructure projects, said Mr Soliman, are currently the “most exciting” for investors who approach the fund. He cited as an example three power plants built by Siemens under a €6.5bn deal signed in 2015 and owned by the Egyptian Electricity Holding Company. “We’re going to offer a strategic stake in a power plant to turn it into a concession with a typical offtake agreement,” he said. “We as a fund will participate with a minority . . . anywhere like 30 per cent of that asset . . . We add value in holding hands with the investors, aligning with the investor’s interest and we will endure . . . if [they] decide to monetise, or exit or roll it over to another fund we will remain.”