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Pros & Cons of Privatization in Egyptian Banking System. Dr. Fouad Shaker Secretary General Union of Arab Banks. MENA - OECD Investment Programme National Investment Reform Agenda of Egypt workshop Cairo - Egypt – 17 May 2006. The Specificities of Privatization
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Dr. Fouad Shaker Secretary General Union of Arab Banks
MENA - OECD Investment Programme
National Investment Reform Agenda of Egypt
Cairo - Egypt – 17 May 2006
1- Should be managed within a declared vision based on a national strategy.
2- The privatization management process should be ready to deal professionally with rational and/or irrational rejection, be it in a good faith or vice-versa.
3- In principle it should be preceded by firm commitment from both political leadership and acceptance in principal from labor unions.
4- Should be implemented in a highly transparent manner according to set-up legal rules approved by concerned authorities.
5- Should consider the interests of the labor power in the present and the future.
Chronology of major socio-political events concerned banks privatization in Egypt
1952 - Military coup D’état
(July 23 revolution)
(The six principals)
“Terminating the control of capital on ruling” came as
one of the said principals.
Where capital at that time was totally owned by private
1956 - Suez Canal Company nationalization
mobilization of public opinion against foreign investment
deepening the public perception against foreign investment in the financial system even for the Arab ownership.
1960 -Nationalization of banks and insurance companies.
New role for banks to finance the first national plan 1960-1965 without competition among them and no role for private ownership in financial institution.
1961 -Mass Nationalization across the board for most of the companies in all economic sectors.
(Services, Trade, Industry, Agriculture)
Announcement of socialism as a system for economic management in Egypt.
1964 -Merging 32 banks, to have only 5 banks each of them allocated to serve specific companies working in specific activity.
Endeavoring to implement control by the unit of currency like control by the role implemented in the Soviet Union at that time.
1972 -The establishment of Arab international bank.
In the form of private off-shore bank exempted from all regulations other banks are subject to.
In spite of the commitment of the government to start on aggressive privatization plan including banks specifically one of the public sector banks, the implementation results were disappointing (few companies only).
Much to ones surprise the formal address to people from officials was not expressing a favorable opinion towards privatization.
1- Negative cultural perception for privatization among people.
2- Normal resistance from opposition and labor force.
3- Investors fears from the usual instability of laws and regulations in Egypt.
4- The strong dominance of public sector as investor in market place which always threats leveling the playground.
Privatization: Reforming State – Owned banks
8- Weaknesses of financial soundness indicators average against other emerging markets.
9- The increasing government budget deficit because of subsidy, specially in energy prices which conduced to investment distortion.
1- For the first time, new faces with no “socialist background, which means capable decision makers for change management as required in strong and transparent manner without being hindered by precedent social commitment.
2- Widely involvement of private sector in the economic reform policies, explicitly and without a hidden agenda.
3- Young internationally experienced and well educated decision makers.
4- Full political support of the ruling national democratic party (NDP).
5- The aggressive banking reform plan, which includes, inter alia, strengthening regulatory framework, good corporate governance, selling or merging weak banks to well capitalized and strong investors.
6- The Existence of well prepared privatization program, that is consistent with the overall economic reform program and preserve the rights of all parties.
7- To the first time, strong formal commitment towards privatization (between July 2004 and March 2005, 17 non financial companies were privatized, generated proceeds of LE 2,35 Billion.)