As Egypt struggles to revive an economy battered by last year’s uprising against Hosni Mubarak, private lawsuits are attempting to overturn the sale of state assets during his rule. The court actions present the new government with a dilemma: It’s trying to attract foreign investment while addressing the demands of a population that stages protests and strikes almost weekly. Many protesters demand the return of former state companies to the government, or a renegotiation of the prices of old deals. “I pity them,” says Hisham Fahmy, chief executive of the American Chamber of Commerce in Cairo, of Egypt’s new rulers. “They’re coming on the shoulders of a popular movement and, being the government, they owe it to the public to make sure there is social justice, and that’s hard to balance.” Potential investors are clearly concerned about the safety of investments. Foreign direct investment for the latest fiscal year was down 84 percent from its 2007 peak.
Most of the disputes relate to a privatization program, started in 1991, that critics of Mubarak say is one of his most corrupt legacies. What ordinary Egyptians especially resent is that the new owners of the privatized companies often forced workers into early retirement, a hot-button issue in a country with high unemployment. While Prime Minister Hisham Qandil has said the contracts will be respected, “this remains to be seen,” Mona Zulficar, nonexecutive chairwoman of Egyptian investment bank EFG Hermes, told an investor conference on Oct. 9. In all, 382 state companies were sold for 57.4 billion Egyptian pounds ($9.4 billion) from 1991 to 2009.
At the eye of the storm is Khaled Ali, a labor lawyer and activist who ran unsuccessfully for the presidency this year. He says he has compiled hundreds of documents to get courts to overturn the investments of many of the foreign companies that bought state assets. In a preliminary hearing in September, Ali persuaded a Cairo court to make a provisional ruling that Mexican cement company Cemex relinquish its majority stake in Assiut Cement for failure to pay a fair price back in 1999. “Privatization meant workers’ rights were undercut, companies were sold under value, and Egyptian production was destroyed,” Ali says. Sergio Menendez, Cemex Egypt’s CEO, who is contesting the ruling, says the litigation “generates a climate of uncertainty.”
In September 2011 an Egyptian court stripped Indo Rama, a large Indian manufacturer of artificial fibers, of its local unit, a textile producer it bought from the government in 2007. The court supported Ali’s claim that Indo Rama underpaid, forced workers into early retirement, and failed to improve production. Indo Rama disagrees and has sought arbitration at the Washington-based International Center for Settlement of Investment Disputes. “We see better opportunities elsewhere,” says Vishnu Swaroop Baldwa, chief financial officer of Indo Rama.
Some cases are so high-profile that the government gets involved. Damac Properties, a Dubai developer, filed for arbitration at the International Center in June 2011 after the transitional government seized land the company purchased in 2006, and a court sentenced its chairman in absentia to five years in prison, with hard labor, for corruption. The chairman had dealt with Mubarak’s minister of tourism, who himself has been convicted of corruption. Egypt has a bilateral trade agreement with Dubai and the other United Arab Emirates, which are important investors in Egypt. The government, so far unsuccessfully, has tried to settle with Damac.
Local investors are getting stung, too. Cairo developer Talaat Moustafa Group’s Madinaty project—Egypt’s biggest property development, with 120,000 homes—now faces an uncertain future. In July a panel of judges recommended the annulment of a Mubarak-era sale of the land, saying the sale was not done through public bidding as required by law. Talaat is appealing the ruling in a local court. Ali says his Egyptian Center for Economic and Social Rights has won seven suits since the 2011 uprising. He promises “more to come.”