09 NOVEMBER 2021

Structural Reforms in Egyptian State Owned Enterprises (SOEs)

Minister explains reforms in state-owned enterprises

During AmCham Egypt's monthly luncheon on Nov. 9, the Minister of the Public Business Sector, Hisham Tawfik, talked about the formidable task of turning around money-losing subsidiaries operating under eight state-owned holding companies.

His plan focused on regulatory and administrative reforms to cut costs, settle debts, finance the changes, and secure partnerships with the private sector.

SOE sector

Tawfik said part of the state-owned enterprise (SOE) sector is eight state-owned holding companies and 119 subsidiaries, operating via 299 joint ventures in 16 industries. "They are only 20% of the state-owned enterprise sector in Egypt," he said. Those are known as "public business sector enterprises."

Meanwhile, 107 affiliated companies follow the same laws as public business sector enterprises. "Those are 'public enterprise companies', and they represent 50% of SOE revenues and employment," said Tawfik. Then there are 40 "public sector companies" regulated under a different law.

"We have 40 economic authorities," said Tawfik, including the Suez Canal Authority and New Urban Communities Authority. "Some make money, but the majority don't," noted the minister.

Most of those SOEs were profitable when they were established in the 1960s. "They were seemingly doing okay for 16 years until the government passed new laws in 1976 to encourage the private sector and importing goods," said Tawfik.

As a result, a significant number of SOEs started losing money during the following 30 years, until the current law passed. "By that time, there was a hefty decline in revenues, profits, and market share in all sectors," he said.

Ministry's focus

According to Tawfik, his ministry is responsible for" public business sector enterprises." One holding company is responsible for SOEs working in chemicals, including fertilizers, tires, tobacco, springs, salt, and paper. Another owns steel, aluminum, cars, trucks, buses, glass, porcelain, and mining companies.

The third holding company specializes in pharmaceutical products, including packaging, trading, and distribution in local and foreign markets. The fourth owns cotton, trading, ginning, spinning, weaving, dyeing, and finishing SOEs.

The other holding companies oversee hotel development, real estate, construction, container handling, and logistics. The eighth owns insurance, reinsurance, and investment firms.

To make them profitable after decades of losses, Tawfik tackled three significant problems: dealing with ineffective senior executives, oversized workforces, and lack of capital. "We had multiple other problems, but those stood out," he said.

One of his first tasks was introducing legislative reforms to help SOEs make money once more. He also revisited payment plans and incentives based on performance and increased pay for senior staff and management. The Ministry also restructured 48 loss-makers, out of 120 SOEs, to become profitable. Tawfik said only five of those unprofitable companies were shut down.

Tawfik also established centralized departments in each of the eight holding companies to handle their subsidiaries' marketing and investment plans. The next step was to invest in an Enterprise Resource Planner (ERP) software system to ensure streamlined and secure operations.

One significant challenge facing Tawfik was paying for those reforms. "We couldn't rely on the treasury," he said. "So we used those companies' unused assets, including empty plots, which we repurposed from industrial to multipurpose real estate."

The other major challenge was settling overdue loan payments with banks and other disputes with the private sector. "We solved them while realizing a profit," he said.

In conclusion, Tawfik highlighted efforts to develop the cotton, manufacturing, logistics, and real estate sectors. "There are a lot of opportunities for the private sector to partner with the Ministry," he said. "And we will always welcome any partnerships with local and foreign partners."