The file of loss-making companies is one of the most critical issues that the Ministry of Public Business Sector prioritizes to halt the bleeding of losses and safeguard public funds in companies deemed unfeasible to reform or those requiring significant dollar investments, from the government’s perspective. This has led to some companies being offered for privatization and others for direct sale.
Decisions to privatize public companies and institutions in recent years have been controversial, resulting in the dismissal of a large segment of workers or the acquisition of significant ownership shares by foreigners in public companies. Moreover, the proceeds from privatization were not directed toward establishing new capital assets but were instead allocated to reducing the state’s budget deficit, settling the debts of these companies, and covering workers’ dues within the privatized companies as part of the early retirement program or through settling their entitlements.
In recent years, there have been instances of liquidating several public business sector companies, such as the National Cement Company in 2018, the Iron and Steel Company in Helwan in 2021, and the Nasr Coke Company in 2022. Meanwhile, the government has been making strenuous efforts to generate revenues by selling public assets amidst the decline in foreign currency reserves since the outbreak of the Russia-Ukraine war in February 2022.
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Lack of Information
According to Egypt’s Prime Minister, Mostafa Madbouly, his government generated approximately $5.6 billion from full and partial divestment of 14 state-owned companies by December 2023. In January, the government announced that additional companies would be included in its privatization program, bringing the total number of companies offered for sale or listing on the stock exchange to 60. Madbouly noted that the total sales of companies privatized for the private sector from the beginning of the year until December 2023 amounted to nearly $3 billion, with the government targeting $6 billion in sales under the first phase of the privatization program, which concluded in June 2024.
Ali Al-Adreesi, a professor of international economics and a member of the Egyptian Society for Economics and Legislation, told Zawia3 that the lack and inconsistency of information are among the main reasons for the worsening issues in the industrial sector. There are no clear official data on the number of distressed factories and companies or those that have been shut down. Moreover, there are insufficient studies to identify the causes of these problems, which range from financial crises to poor management, raw material shortages, and production issues. He emphasized the importance of establishing the necessary databases to address these issues properly, allowing authorities to take the right steps to resolve these problems and stop the losses and struggles of factories, especially those producing strategic goods. Many of these factories have shut down, forcing the government to resort to imports to meet essential needs, thus increasing the dollar burden on the local economy.
Cairo imported strategic food commodities worth $11.5 billion during the first nine months of this year, compared to $11.26 billion in the same period last year, marking a 2% increase. The list of commodities includes wheat, rice, beans, sugar, tea, corn, soybeans, vegetable oils, lentils, dairy and its products, meat, poultry, fish, live animals, and dried fruits. These strategic food commodities accounted for about 20% of Egypt’s total imports, which amounted to $57.2 billion between January and September of this year.
Al-Adreesi pointed out that the reasons for the shutdown of many factories include the liberalization of the exchange rate, which has impacted the cost of importing raw materials, and multiple fuel price hikes exceeding 25%. These factors have significantly influenced transportation, logistics, and fuel costs, which are essential for the operation of many factories, particularly local ones.
He added that the recent rise in inflation rates has led to increased commodity stagnation, prompting many small investors to turn to safe havens such as gold and real estate and rely more on foreign currencies to preserve the value of their savings.
Al-Adreesi elaborated that routine problems and bureaucratic factors are also among the reasons hindering the growth and development of industries, especially in the absence of financial facilities that would enable these companies and factories to maintain productivity. He noted that the absence of supportive industrial initiatives, which were previously introduced by the Central Bank, has led many manufacturers to discontinue operations. In response, the Ministry of Finance has attempted to provide partial support for such initiatives to offer incentives to industrialists.
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Necessary Reforms
The international economics professor stressed the need for the state to revisit the conditions of industries in general, particularly those producing strategic goods, and to introduce solutions and incentives to ensure the continuity of operations and production. Protecting local industries that safeguard the Egyptian economy is crucial, especially in light of escalating geopolitical conditions globally and regionally, which have directly impacted the global economy.
“Intense competition between local and foreign products is one of the reasons for declining production, especially with the depreciation of the Egyptian pound against the dollar by more than 200% over the past three years. While government-provided facilities exist, the primary beneficiaries are foreign investors who base their production on foreign currencies, shielding them from such impacts. Therefore, it is essential to reevaluate the competitiveness of local industries and their access to tools and expertise that enable them to compete,” Al-Adreesi said.
He highlighted the need for genuine initiatives to resolve the problems facing factories so they can sustain production and operations, especially amid the worsening economic challenges the state has faced in recent years, including currency devaluation and rising energy costs, which further exacerbate the challenges faced by small manufacturers.
Trade Balance Deficit
According to data from the Ministry of Finance in its Monthly Financial Report for February 2024, the number of companies sold or liquidated between 1993 and 2016 reached approximately 282 companies, with a total value of 53.6 billion Egyptian pounds. Among these, 34 companies were liquidated during this period.
According to a post by sociopolitical writer Ammar Ali Hassan on the “X” platform, over 100 strategic factories have been closed in the past decade, including Alexandria Spinning and Weaving Company, Delta Engineering Company, Transport and Engineering Company, Rice Milling and Egyptian Grain Mills, Beheira Rice and Oils Company, Egyptian Sugar and Distillation Company, National Paper Company, and the Egyptian Packing Paper Industry Company.
Hassan states that most of the liquidated companies were established in the 1950s and 1960s and produced strategic goods. He adds that Egypt is currently suffering from trade balance deficits in the iron and paper sectors, as the government liquidated two significant companies in these fields.
Data from the Central Agency for Public Mobilization and Statistics (CAPMAS) for 2023 indicates a trade balance deficit in rebar iron worth approximately $2 billion. Imports of rebar iron that year totaled $4.21 billion, while exports amounted to $2.33 billion. As for the paper industry, data from the General Authority for Investment and Free Zones reveals that, according to a feasibility study for the cardboard industry, Egypt consumes 600,000 tons of paper annually but produces only 225,000 tons, based on 2019 data. Egypt relies heavily on imports, with 60% of its annual demand for white paper and 90% of its newspaper paper needs imported.
Economic expert Ahmed Khattab, a member of the Egyptian-Canadian Business Council, stated that the government has recently been focusing on significantly developing local industries and reviving struggling factories across all strategic and complementary sectors. He explained that the primary issue facing Egyptian industries is the lack of a complete production cycle, especially for strategic goods. Many of these goods rely heavily on imported essential components, increasing the burden on these manufacturing plants amidst the ongoing dollar crisis affecting the Egyptian economy and local industries.
Khattab noted that there have recently been efforts to address many problems faced by factories, including restructuring tax obligations, providing necessary support, and resolving production and management issues. However, he emphasized that local industries do not achieve self-sufficiency in strategic goods, compelling the government to rely on imports to meet local demand. He highlighted that the government is pursuing a policy of balance to partially meet the market’s needs for strategic goods through local production.
He added that the companies being liquidated represented a significant share of local production in terms of both volume and quality. Despite this, these companies are being liquidated without providing alternatives, depriving the local market of their contributions. Neither the public sector nor the private sector, nor even military-affiliated companies, have stepped in to fill this gap. Khattab questioned, “How can the private sector in Egypt establish companies with the scale and value of the National Cement Company, Iron and Steel Company, or Rakta Paper Company, given their vast land areas, production lines, and skilled labor, which cost these companies millions of pounds to develop?”
According to Khattab, the government’s main concern during the liquidation of the cement and iron companies was the land, which it plans to use for real estate investments. This shift has negatively impacted local production, as transforming institutions producing strategic goods into residential complexes signifies a move from productivity to rentier practices, further increasing Egypt’s dependence on foreign imports.
In recent years, the government’s approach to liquidating companies, selling their production lines as scrap, and repurposing their lands for real estate projects has been one of the main points of contention surrounding the withdrawal of these companies from the production and labor sectors. This process began with the liquidation of the National Cement Company, followed by the Egyptian Iron and Steel Company, and more recently, Rakta Paper Company. According to Khattab, rescue plans for privatized companies or those slated for liquidation have been absent.
Financial Crises
After 56 years of operating in the Egyptian and international markets, the government decided to liquidate and close the Egyptian Metal Constructions Company “Metalco,” the largest metals company in the Middle East. A task force has been assigned to finalize the liquidation procedures.
Official data revealed that the decision to liquidate was due to the company’s growing losses in recent years. Despite measures taken to rescue it, the accumulated losses by the end of 2023 reached 1.394 billion Egyptian pounds, representing 975% of shareholders’ equity. The company also had debts amounting to 1.476 billion pounds, negative working capital of 1.335 billion pounds, and total negative investments of approximately 1.250 billion pounds.
In this context, Osama Shahed, Chairman of the Giza Chamber of Commerce and a member of the Board of Directors of the Federation of Egyptian Industries, described in an interview with us the challenges facing factories and companies as somewhat complex. He explained that these challenges involve various parties and issues, whether financial—requiring intervention by the banking system—marketing-related for the factories’ products, or technical, necessitating additional administrative support. He noted that financial issues top the list of crises facing Egyptian factories and companies, being the most difficult to resolve, especially as they clash with banking requirements and Central Bank conditions for granting financing.
He added that the textile and pharmaceutical sectors account for the majority of struggling factories. A study is being prepared to analyze these factories on a governorate-by-governorate basis. He mentioned that most of the struggling factories in Giza are concentrated in the Sixth of October and Abu Rawash areas, where more than 30% of factories in the governorate are in distress.
The Chairman of the Giza Chamber of Commerce attributed the worsening of factory issues in recent years to the inability to secure foreign currency over the past two years, from February 2022 to March 2024, to procure the production inputs necessary for achieving the targeted production capacity. This has led to declining profits and negatively impacted the overall operation of factories.
As the trend of selling and liquidating government-owned factories and companies continues to quickly generate dollar liquidity and utilize their lands, this is met with an increase in imports to meet market needs. This, in turn, amplifies the demand for foreign currency, reduces the production of strategic goods, and poses a latent threat to societal security.