Asset liquidation is one of the economic tools governments use to achieve specific financial goals. It involves converting state-owned assets, such as real estate, companies, and infrastructure, into cash by selling or privatizing them. Governments use this process to achieve various economic and financial objectives, such as reducing public debt or improving economic efficiency to attract investments. For instance, during its debt crisis in the last decade, Greece sold some public assets as part of the bailout program provided by the European Union and the International Monetary Fund. Similarly, India privatized several public companies, including airlines and oil refineries, in an attempt to boost financial efficiency and attract investments, according to the Financial Times.

In Egypt’s case, the government announced in mid-July, as part of its program presented to the Parliament, a project to establish an Asset Liquidation Committee under the Ministry of Finance. This aims to generate 20-25 billion Egyptian pounds annually for the treasury from divestment revenues in the coming years, with 1% of the GDP from these revenues directed to the budget to reduce public debt.

However, this move has sparked wide questions and reactions in Egypt, especially in light of the substantial financial inflows the country has recently received, including $60 billion from the Ras al-Hikma deal and international financing, and investment agreements worth 70 billion euros with the European Union earlier this month.

This has led to widespread debate and questions about the committee’s nature, the government’s right to dispose of public property, and the economic and political implications of the committee’s potential decisions, particularly regarding future generations, amidst a lack of official clarifications on the matter.

A few days before the official announcement, the IMF revealed that Egypt aims to sell at least four assets in the energy and manufacturing sectors in the fiscal year 2024-2025, expected to yield $3.6 billion in foreign inflows. The experts’ report on the first and second reviews of the economic reform program stated that these inflows would be directed to the new fiscal year’s budget to reduce public debt.

Egypt repaid $3 billion to the IMF in the first half of 2024 and plans to pay another $257 million by the end of this month. The IMF has reinstated Egypt on its executive board meeting schedule after briefly removing it and then re-adding it on the same date.

The committee’s formation is part of a program aimed at reducing public debt sustainably by continuously directing the primary surplus and using part of the divestment proceeds and the government offerings program to increase budget revenues to reduce government borrowing. This aims to reduce the public budget debt service bill to 42.6% of public expenses by 2026/2027 as part of an integrated strategy to put the debt rate on a downward trajectory, according to the government’s program.

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Motivations

 Wael Gamal, an economic researcher and head of the Economic and Social Rights Unit at the Egyptian Initiative for Personal Rights, says the primary goal is the state’s need to provide dollar liquidity, as agreed with the IMF, and to repay overdue debt installments.

According to Gamal, the current decision lacks all historical justifications for privatization decisions. He says: “The private sector is better at management, with higher competitiveness, development, and innovation capabilities than the public sector, especially in the presence of a foreign investor with better production methods. These justifications are now non-existent and only stated, with the clear need to repay debts.”

Over the past years, the state’s sovereign fund primarily handled asset management and investment. Today, the entire matter has shifted to the committee, with the purpose of addressing the budget deficit in dollars. Therefore, it may largely depend on foreign investors, according to experts we spoke to.

Regarding the negative implications of the committee’s decisions, Gamal says they revolve around two main points. First, the assets available for sale are usually profitable, so selling them deprives the state of profits. Second, the sale proceeds go into the state’s treasury only once for the sale price, and thereafter, the state is obligated to provide dollar liquidity to the investor to earn profits in dollars, not the local currency, adding an extra burden.

“There are no conditions in the process to ensure retaining profits for a specified period and reinvesting them within Egypt. The state has not signed any such conditions, so the state benefits from the sale price only once, usually to repay debts, and then the investor becomes part of a new crisis, as they pressure the government for dollars, as happened with the Eastern Tobacco Company,” says the head of the Economic and Social Rights Unit at the Egyptian Initiative for Personal Rights. He describes the state’s reliance on asset liquidation to solve the current economic crisis as a temporary fix that eventually becomes an additional source of pressure and a new crisis for the state.

According to Gamal, another crisis relates to the future mechanism of the companies and assets being sold, with no information on the value or extent of foreign ownership in companies like fertilizer companies and how it will affect the local market and prices. In the case of the Eastern Tobacco Company, the largest share of the company became owned by a foreign (Gulf) investor, initially a state monopoly subject to various regulatory tools. The monopoly was transferred to a foreign investor without any oversight, representing a significant risk.

He questions the benefit of selling profitable state-owned companies and assets that generate revenue for the public budget, are listed on the stock exchange, and are already regulated, while bearing the responsibility of providing foreign currency for the investor’s profits and granting the right to monopolize goods within the country to non-Egyptians. He cites the crisis of pharmaceutical companies, whose official production share has fallen to less than 10%, causing a significant crisis currently and a lack of alternatives for treatment.

Political economist Karim Al-Omda agrees, saying the asset liquidation project since 2023 aims to achieve investments to increase dollar liquidity, reduce public debt, and address the public budget deficit by divesting from some projects, especially unused companies and assets.

In his discussion with us, he adds: “Given the Egyptian government’s need to deal with the IMF, it must adhere to conditions such as reconsidering subsidies and reducing state intervention in the economy. Therefore, under Egypt’s difficult circumstances, there is no quick source of income other than disposing of assets and reducing state costs.”

However, some strategic sectors, such as petroleum products and fertilizers, are also being offered for private investment despite being promising and important industries. The UAE has acquired a large part of these investments, but not all of them have been sold. According to Al-Omda, some are joint investments, such as the aluminum sector, managed jointly.

According to his description, the public sector suffers from corruption and bureaucracy, and the more the state can relieve itself of public sector burdens, the faster the economy can move forward. However, some employees in these sectors may be adversely affected.

He adds that the government announced in its program its intention to improve the efficiency of local administration’s use of state-owned or state-held assets within the governorate’s scope, maintain them, and plan their operation properly. To achieve this, an electronic system will be established to inventory and code these assets, provide a detailed description of their condition through a geographical database, ensure their use and operation, and benefit from their returns while preventing the duplication of asset purchases to avoid wasting financial resources. All newly completed project assets will also be added and included in maintenance plans, with ten-year plans for asset maintenance, determining maintenance costs, and sources of funding. The program states that the government has completed the first and second phases of the announced offerings schedule with a 100% execution rate, and the total value of companies and assets offered since the program announcement until now is about $5.8 billion.

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The government project coincides with moves to relocate all vital facilities, including ministries and the parliaments, from old Cairo to the New Administrative Capital, opening wide possibilities for utilizing government facilities and assets valued at billions, including strategic assets like the Suez Canal, which the government later denied selling for a trillion dollars.

In 2023, the Egyptian government announced the sale of state-owned assets to private sector companies worth $1.9 billion so far as part of the government offerings program. During a press conference, Prime Minister Mostafa Madbouly said: “We have made contracts with the private sector totaling $1.9 billion. The government is divesting from several companies totaling $1.9 billion,” pointing out that the net amount going to the Egyptian government from these contracts in dollars is $1.65 billion, with the rest in pounds.

Former Egyptian Planning Minister Hala El-Said said that the deals included selling minority stakes in three oil and petrochemical sector companies to Abu Dhabi’s sovereign wealth fund (ADQ) for $800 million, a deal to raise $700 million by increasing the capital of a company that owns a group of hotels in Egypt, and selling a 31% stake in Ezz Dekheila Steel for $241 million.

Before that, in 2022, the government announced that the Saudi Public Investment Fund had acquired minority stakes in four leading companies listed on the stock exchange for $1.3 billion. This came four months after Cairo announced selling stakes in five companies to the UAE’s sovereign fund for $1.8 billion, following the sale of Egypt’s stakes in two other companies to the UAE’s fund. Former head of the Egyptian and Arab Investment Societies, Hani Tawfik, commented that “the sale was forced to Saudi Arabia and the UAE due to Egypt’s need to pay its due debt installments and interests.”

The new committee appears to be entirely different from the “government offerings” program, in which the government committed to selling stakes in 32 (government) companies, covering 18 sectors and economic activities.

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Selling State Assets?

Since 2014, Egypt has enacted legal amendments allowing the government to sell assets, with the Law Regulating Appeals Against State Contracts prohibiting third parties from filing lawsuits against contracts signed with the state. This means that only the parties involved in state contracts can file a lawsuit unless any of those parties are convicted of a public fund crime.

Former interim president Adly Mansour approved the controversial law in 2014. The law was introduced after the January 2011 revolution, aiming to prevent interference in state contracts (or prevent members of the cabinet and government employees from being sued by others), as they work for the public good.

The Administrative Court referred the law to the Supreme Constitutional Court to decide on its constitutionality in a lawsuit filed years ago by employees of the Nubaria Seed Production Company (Nubaseed) against the government’s decision to privatize the company. However, the Egyptian constitution obligates the government to protect state properties and resources. Article 32 of the constitution states, “The mineral resources and natural resources of the state are the people’s property, and their revenues are a right for them. The state is committed to preserving, good exploiting, and respecting the rights of future generations. It is not permissible to dispose of state public property, and the granting of a concession for its exploitation or the commitment of a public utility by law, and for a specified period. The law determines the provisions for disposing of state private property and the rules and procedures regulating it.”

Commenting, political and economic expert Ilhami al-Mirghani describes selling state assets as a crime punishable by law and an infringement on the rights of future generations. In a Facebook post, he says: “The government announced its intention to establish an asset liquidation committee under the Ministry of Finance to achieve financial returns ranging from 20 to 25 billion pounds annually for the state’s general treasury, from the proceeds of divestment in the coming years.”

He adds: “The committee’s name, Asset Liquidation, is a crime against public money and the owners of public money. The 25 billion pounds means $500 million, while former Finance Minister Mohamed Maait stated that assets worth $6.5 billion would be sold annually, and the government’s statement mentioned about 25 billion pounds. We do not know which numbers to believe?”

He continues: “Talking about selling or liquidating assets to reduce public budget debts, all numbers are contradictory. They talked about allocating 1% of GDP and selling assets to reduce public debt. This year’s GDP is 17100 billion pounds, so 1% equals 171 billion pounds. If the local debts of the public budget bodies on 30/6/2023, according to the final account, amounted to 7119.5 billion pounds, and the external debts were 2545.5 billion pounds, then we are talking about 9.6 trillion pounds of debts. What does the 25 billion pounds represent?”

Al-Mirghani explains through his analysis that the new budget indicates that Cairo has to pay debt interest of 1834.5 billion pounds, meaning that the mentioned 25 billion pounds represent about 1.4% of the debt interest. He adds that 1606.1 billion pounds of installments are due on Cairo, making the total installments and interest about 3440.6 billion pounds. Therefore, the value of the proposed asset liquidation of 25 billion pounds will represent about 0.7% of the debt’s interest and installments.

In this context, economic researcher Wael Gamal tells us that “such decisions were previously made through committees that estimate the value of assets before the sale. This does not happen now, or no such details are announced, so the sale process lacks any transparency.”

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Widespread Anger

The government’s decision has met with widespread popular anger, with tens of thousands sharing posts and demands to stop the sale of state assets on social media platforms. Egyptian politician and writer, Engineer Hussein Abdel Hadi, wrote: “The authority has stripped away the fig leaf that it used to cover its relinquishment of state assets under false and deceitful names, and finally declared that it is about to liquidate assets. It is futile to address the seller who has lost credibility.”

He added: “I, the Egyptian citizen / Yehia Hussein Abdel Hadi, declare to all who deal with these assets, a declaration eliminating ignorance, that I have not authorized anyone to sell my share in public ownership, and that the clearance sale of Egypt’s assets is closer to trading in stolen goods than to legal sales. These sales are void according to all just local and international laws because they are made by those who do not own to those who do not deserve, and I reserve the right to recover my properties once this seller, who squats on the true owners’ chests, is gone. The sale is without authorization, and the authorization is forged.”

Mona Mina, former Secretary-General of the Doctors’ Syndicate, also wrote: “As an Egyptian citizen, I have not authorized anyone, I have not given consent, and I have not been consulted in selling my share and my children’s and grandchildren’s share in public ownership. I disown any unconstitutional and illegal contracts for selling Egyptian public property—the people’s property—that any unilateral party concludes without authorization or delegation. It is the people’s property and cannot be sold without right, and such sales are outside the local and international law.”

Ambassador Farghaly Taha stated that he was among the first to write and alert to the danger of selling Egypt’s assets, from palaces, ministries, and historical buildings and gardens. He pointed out that he rejected it at the time, adding that the sale was made without the desire, knowledge, or oversight of the people of Egypt, at the lowest prices. He added that most of the sale proceeds would eventually go to Egypt’s enemies who occupied its land and killed its sons, and they want to own it and return to it according to religious claims that it is their land.

While the issue of selling Egyptian assets met with protests on social media in Egypt, the authorities intend to proceed with their plan, without paying attention to objections from citizens or experts.

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