Pyramids And Privatization?

Egypt just may follow through on its intentions this time

Egypt was one of the first developing countries to try to throw off the yoke of state socialism. But its free-market reforms, begun under the late President Anwar Sadat in the 1970s have bogged down for years. Now there are signs of renewed life. For the first time, the government has used the revived stock market to sell off a majority stake in a state company. Seventy-five percent of Nasr City Company for Housing & Reconstruction, a real-estate developer, sold briskly on May 13, raising about $50 million. Foreign interest is said to have been strong.

While not huge, the sale is a sign of Egypt's commitment to the new privatization program announced earlier this year. The government plans to sell stakes in 120 companies, valued at $4 billion. "They are more serious than at any other time," says Mohamed Taymour, chairman of Egyptian Financial Group, a local investment bank. It handled the sale along with Egyptian-American Bank, which is partly owned by American Express Co.

TOP PRIORITY. To be sure, doubts linger about Cairo's ability to follow through on its intentions. Public-sector managers are still a powerful lobby, and Egypt still has a socialist streak.

But what seems to have happened is that President Muhammad Hosni Mubarak realized that if he didn't push ahead with reforms, Egypt faced the prospect of being left hopelessly behind. With peace gradually taking root in the Middle East, business ties are springing up among Israel, Jordan, and, to an extent, the Palestinian areas. Egypt wants to be included but worries about not making the grade with investors.

Earlier this year, Mubarak brought in a new Prime Minister, Kamal al-Ganzouri, and told him to give economic reform top priority. Even before the recent changes, Egypt's management had markedly improved. The once huge deficit is down to less than 2% of gross domestic product, and inflation is around 7%. The economy is expected to grow at 4.9% this year, following a similar performance last year. Political instability is a concern, although Mubarak seems to have gained the upper hand on Islamic militants responsible for many terrorist attacks in recent years.

Other companies likely to be sold include Al-Ahram Beverages, brewer of Stella Lager Beer, a brew that is both beloved by local fans and notorious for erratic quality. Building materials, food, textile, and tourism companies are all attracting investor interest. With by far the Arab world's largest population, 61 million, Egypt could be a hot market--if Mubarak can keep the lid on terrorism and reform on track.

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