THERE ARE promising signs that, after several frustrating delays, the Egyptian government is now prepared to move more aggressively to enact its economic reform programme. Much of the groundwork has now been completed to realise an ambitious privatisation programme which is to be the centrepiece of those economic reforms.
Last year, most of the government's substantial industrial assets (representing 85% of Egypt's manufacturing capacity) were placed under 27 new holding companies, which control 314 subsidiaries with assets exceeding $21bn. This follows enactment of a series of laws and structural changes, reforming the nation's economic infrastructure. New laws liberalise labour relations, foreign investment procedures and banking.
Now the government is starting to create the facilities and venues in which former state holdings will be sold and traded. A Capital Markets Authority (CMA) is now examining plans to revamp Egypt's stock exchanges, which are expected to play a major role in the privatisation process.
"We are working to build up a proper mix of institutions and tools, to create a good, functioning capital market in Egypt," says CMA's chairman, Mohamed Hassan Fagannour. Among the institutions and tools being considered are mutual funds "and all sorts of other collective investment vehicles", and introduction of derivatives (futures and options) trading.
At present, Egypt's two stock exchanges in Alexandria and Cairo are quiet institutions with one or two hours' trading a day. Although total capitalisation exceeds $1bn, the markets rarely see trades exceeding 100,000 shares in a given day. In 1991, the most recent full-year accounts show that less than 200m shares were traded, in about 7,500 individual transactions, with a value of $105m.
The new Capital Markets Law No 95 is intended to revolutionise the trading environment. Fagannour points out that "it will pave the way for private corporate institutions to operate in the capital markets, rather than individual brokers, as is now the case".
Institutional trading will be necessary to generate the funds needed to purchase shares which holding companies are expected to put on the market in coming years. Consider the requirements of just one holding company and its affiliated companies. The Holding Company for Housing plans to sell its shares in joint companies, and its ten affiliated companies plan to sell between 5% and 10% of their shares. Without reforms, the stock market would...