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State lays out plan to exit specific economic sectors over coming 3 years, boost private sector role

The government has laid out a plan to withdraw its arm from select sectors of the economy, including large swaths of agricultural and livestock production, construction industries and hospitality.

Its pathway to doing so is sketched out in the “state ownership policy document,” a draft framework plan that financial ministers have heralded in recent months, and of which Mada Masr reviewed a copy this week.

Calling the policy document “a map of the state’s borders in the economy” during a Sunday presser on the state’s plan to respond to the ongoing economic crisis, Prime Minister Mostafa Madbuly said it would provide a route for the Egyptian state to exit and “limit its presence in some economic sectors” and strengthen the role of the private sector.

As high global inflation exacerbated by Russia’s invasion of Ukraine propels investor uncertainty, and has sent billions of dollars in equity portfolios fleeing from Egypt’s bond market, Madbuly said the “state ownership policy” plan aims to boost the proportion of investments made by the private sector up to 65 percent of the total, compared to its current share of 30 percent.

International financial institutions have repeatedly identified the state’s role in the economy as a barrier to private sector growth and investment.

The government also aims to boost the role of the Egyptian Competition Authority to develop a regulatory environment that would facilitate the entry of private sector actors into Egyptian markets, reduce unnecessary government intervention and reinforce investments, according to the document draft. In its current state, the draft says, the competition body does not have sufficient jurisdiction to protect the private sector from state competition.

We review the main points of the draft policy document, below, including the key areas in which the state seeks to reduce its economic activity and those where it will maintain its current rates of investment or increase its role.

Over the next three years, the document lays out plans for the state almost entirely to cease, with some exceptions, its economic activity in the following sectors:

  • Agricultural and animal production, including livestock, fish farming and grains — except wheat, in which the state will increase investment. Meanwhile, the state will maintain its investment in dairy for the time being, with plans to cut back at a later stage.
  • Construction, including building and civil engineering, though the state plans to increase its investments in low to middle-income social housing.
  • Wholesale and retail trade, though the General Authority for Supply Commodities will continue to play a role in procuring goods and strategic stocks.
  • Hospitality management, including hotels, restaurants and cafes, though the state will retain the ownership of properties in the hospitality sector.
  • Engineering industries, including car manufacturing and the manufacturing of electrical appliances and equipment, but not boat and shipbuilding, in which it will increase its investment.
    Food industries including ready-made meals, oils, vegetables and complementary industries, but not the red and white meat industry, cigarette manufacturing or fodder production industries, in which it will increase investments.
  • Chemical industries, except for battery manufacturing, as well as some types of coal and recycling waste, in which it will increase its investments.
  • Textile, ready-made garments, home furnishings and carpets, except for cotton and wool spinning and weaving, in which it will increase its investment.

The state will maintain its investments in another group of sectors with the intention of reducing them at a later stage:

  • Mining and quarrying and all derivative activities, such as the extraction of petroleum and natural gas and mining-related services, as well as quarrying and coal mining.
  • Energy supply, which includes electricity generation, distribution and transmission, as well as gas supply.
  • Water and sewage, including the production of drinking water from desalination plants, but with exceptions for producing drinking water from surface sources, water pumping stations and distribution networks, in which the state will increase its investments.

In other key sectors:

  • The state will maintain its current rate of investment in all stages of education, with the intention of eventually increasing them. Pre-school education is an exception, with the government planning to decrease its investments down the road.
  • In transportation, the state intends to increase its investments in infrastructure for marine transport, railways and metros, in addition to managing, operating and maintaining railways, as well as air transport. While it will increase its investment in managing, operating and maintaining the subway and container terminals, the state will be exiting land ports and river transport — although it will first need to determine the specific body responsible for river traffic.
  • Within the information and communication sector, the state will increase investments in telecommunications, postal services, radio and publishing, while exiting television and film production, as well as programming.

The IMF has previously called on the Egyptian government to identify specific economic sectors in which state-owned companies or agencies can play a role, and to exit other sectors completely to “allow for private sector-led productivity gains,” as per the second and final review report of the US$5.4 billion Stand By Agreement that Egypt signed with the IMF in 2020.

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