Chapter

Comment

Editor(s):
Saíd El-Naggar
Published Date:
June 1989
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Author(s)
Abdul Aziz Hegazi

The study concentrates on the development, role, constraints, problems, and prospects of the public and private sectors in Egypt in the context of the new developments taking place in the world at large. Such developments take the form of privatization, liberalization, deregulation, open-door policy, or restructuring of the economy or the nation as a whole politically, economically, and socially. Such changes are a result of policies adopted, experiences gained, results achieved, and hopes for the future.

In determining the role of the public and the private sectors in Egypt, emphasis was placed on

  • the role of the Government and the private sector, that is, the scope of activities, its finance, the regulations and controls versus market forces and private initiatives;

  • the management of the economic activities (state versus business); and

  • the social aspects of economic development.

The writers believe that the move toward liberalization, privatization, or deregulation takes the form of

  • transferring ownership of publicly owned enterprises totally or partially to the private sector or increasing the share of the private sector in the implementation of the economic development plan;

  • improving management;

  • reducing and simplifying public control and freeing market forces.

Such adjustments in the economy have their social and political implications. The writers believe that there are difficulties of definition of terms and scope of activities but there are also some general criteria such as national security or social justice. Definitions are often affected by ideology. The forms of privatization are widely known and explained and are not dealt with in their study. The writers concentrated on the historical development of the Egyptian economy since 1952, exposing the results of performance in the business sector, explaining the possible consequences of privatization and the need to improve the environment for investment, and finally presenting the different scenarios for future prospects.

In the study of historical development in Egypt, they outline the main internal and external economic problems resulting mainly from accumulated inappropriate policies and contend that reform needs restructuring and foreign assistance. Conclusions were reached by a critical analysis of the development of the Egyptian economy before 1956 and from 1957 onward. Their analysis showed a strong trend toward the domination of the public sector over the economy in general, with the exception of agriculture. In the late seventies an increased relative share of private participation was noticed in the business sector with better performance economically and financially owing to better management, effective incentive systems, private interest, and personal responsibility for the efficient functioning and achievements of enterprises. Although both sectors suffer from general policies, the Egyptian economy requires a comprehensive economic reform program; privatization is only one policy toward this end.

I think the authors of the paper could have done more justice to these developments if they had discussed the motives, actions, and results achieved during the various stages, which I think should have been divided into the following stages:

  • the period of Egyptianization (1952–59)—when the objective was national independence and self-integrity.

  • the period of socialization (1959–66)—when social aspects took first priority to afford equal opportunities and justice to the poorer classes.

  • the period of war economy (1966–73)—when ideology was not the issue, but the financing of the war economy and the liberation of land had priority.

  • the period of liberalization (open-door policy, 1973–80)—when the need for an increasing role for the private sector was recognized to adjust the imbalances in the economy.

  • the period of consolidation (1980–87)—when the necessity for realization of the open-door policy became urgent.

  • the period of recovery (1987–94)—when it is necessary to overcome past problems and build up a productive policy to be implemented by both public and private sectors in service and in commodity activities in a plural democratic system.

Because of lack of comparative information and uniform criteria to assess performance, the results presented (as stated by the authors) are rudimentary and inconclusive. It is my belief that policy changes have not been fully implemented and, therefore, general results could prove deceptive. A micro analysis of individual public and private enterprises over longer periods may show a trend of the rates of performance, something which was not carried out by the authors. Different factors affecting both sectors have not been taken into consideration; to mention a few, forced employment, price controls, wage and incentive schemes, cost biases, profit ratios, foreign trade restrictions, exchange rate policies for each sector, and many others. Profitability or surplus criteria cannot be the only performance ratios to be adopted. Productivity, income distribution, social aspects, and many other strategic or national objectives should also be taken into consideration. Uniform systems of accountability are necessary to interpret results.

In the second part of the paper the authors concentrated on the consequences, requirements, and prospects of privatization in Egypt. They summed up the problems of the business sector and referred to conditions and attitudes that were prevailing in the 1950s and 1960s and the changing policies of the 1970s and 1980s to stress the move toward privatization in Egypt. It would have been beneficial to analyze the reasons and motivations which led to the open-door policy to clarify conflicts between the various schools of thought about privatization that are still challenging the policymakers in Egypt. They should have analyzed the objectives as outlined in the paper of October 1974 and the results of its implementation to expose the gaps and constraints that hinder the process of privatization and create an atmosphere of unrest and criticism of the open-door policy. I believe that the imbalances in the Egyptian economy were a result of improper policies—particularly in the definition and scope of sectoral activities as well as in the changes that should have been made to carry out services. Spasmodic changes without a clear framework of necessary adjustments in national policies, plans, and programs undoubtedly created a climate of confusion and conflicts. The leadership of Egypt continuously stresses the fact that we implement a mixed economic policy involving the public and the private sectors as two faces of one coin, but I believe that the rules of performance in each sector within a defined framework of philosophy, discipline, or economic order are still unclear. As rules of a sport are defined and announced, so should the rules of economic operation in Egypt be identified and presented publicly to the nation and to prospective and interested parties who wish to participate in Egypt’s development. Successes and failures and profits and losses are known in public, private, and joint venture enterprises in Egypt at present and in most developed and developing countries, but concentration should be on the standard and quality of management performance and the defined rules of operation in each sector and in the economy as a whole.

The writers conclude their study by presenting two scenarios: one depending on existing positions (continuation of current policies) and the second on the prospect that stability and security could reasonably be achieved. The shift from the first to the second scenario may happen in a succession of steps that bring changes in policies, behavior, and attitudes. The writers believe that a hasty move toward privatization, or a delay in its implementation, might produce repercussions or deprive the economy of greatly needed resources.

It is also their belief that the public sector is unlikely to grow in the coming years, and that the private sector must take steps to gain the confidence of the savers and small investors. This should go hand in hand with the action to correct imbalances in the current macro-economic positions. The door is open for private investors in Egypt to participate in the existing investment plans, or to take part in existing public sector financing when the Government turns part of the public sector enterprises over to the private sector, or even any complete takeover of the public sector by the private sector. The opportunity is also there for Arab and foreign participation. It is my own belief that a more defined objective is needed, with priorities to achieve a sufficient standard of living for the population before we can embark on a wider forum of policies to implement an advanced consumer society. This cannot be achieved totally by government intervention or only by private participation. The need is for a balanced system in which both the public and private sectors can participate. This is a challenge before policymakers.

To conclude, I agree with the authors that privatization policies will find their way into the Egyptian economy both in service and commodity sectors, but they may develop gradually. There is a need for changes in mental attitude and behavior through the presentation of facts and objectives. The political parties should agree on the major issues relating to privatization and draw a balance between the role of the sovereign government and the role of the private sector. I think that an understanding of the Islamic concepts of public and private roles can help to consolidate future policies, taking into consideration the failure experienced by some Islamic investment companies—which took the axiom of Islam but misused the Islamic order and lost the confidence of the people. There is a greater need in Egypt to build up once more confidence and creditworthiness in the private sector. The challenge to future economic development is great, and we have to live up to it to achieve the welfare society. We are looking for and should choose the policy that can bring this to life.

To achieve this we have to tackle the following problems:

  • Demography

    We have to study carefully the vital items of demography, especially population statistics (male and female) and their distribution between urban and rural areas, their occupational interests, the growing trend of migration, and many other fields. The private sector should participate in creating opportunities for the increasing unemployed in Egypt.

  • Development

    To rationalize development plans, we have to set priorities according to objectives and take into consideration the distribution of income groups and their needs without neglecting the targets for export to satisfy the need for hard currency. Sectoral priorities and balances between productive, service, and infrastructure sectors should be carefully studied to avoid imbalances. The role of the private and public sectors should be carefully defined.

  • Deficits

    To face the problem of deficits whether of the budget, the balance of trade, or the balance of payments, we have to set a program of adjustments in government expenditure and revenues and in the structure of visible and invisible imports and exports. The private sector could play an effective role in minimizing deficits through policies of minimizing subsidies and increasing production capacities and tax revenues.

  • Debts

    To tackle the problem of indebtedness through a long-term program of rescheduling and creating new sources of revenue that can help correct the imbalances of finance in earlier periods and try to build a sound policy of finance with reasonable dependence on short-term commercial loans. Egypt has to build its credit-worthiness, and the private sector could help in this direction.

  • Defense

    The need for financing defense expenditures should be studied to minimize the impact of such budgets on economic and social development. Mobilization policies should be under consideration and dependence on aid and soft loans for hardware should be encouraged. Arab cooperation in this field seems logical, and the private sector could help in the production of hardware.

  • Drugs

    A sizable amount of hard currency is spent on drugs. A national and regional policy has to be drafted to minimize the impact of such expenditure on hard currency. Preventive programs have to be drawn up to combat such waste, and the private sector could discourage the use of drugs.

  • Dollarization

    Recent years have shown that too much stress has been put on the dollar vis-à-vis the national currency (the Egyptian pound) so that it became the universal currency. We should overcome the problem of demonetization (diminishing the value of local currency).

  • Data

    No efficient development can be achieved without a proper data base to help in planning, to make choices or adjustments, and to implement and control performance. Detailed research studies depend on information and this depends on the use of computers, data processing, and many other fields of operational research.

  • Democratization

    The elements of democracy (the participation of people, the Shura, and free speech) are all needed for proper decision making. The people’s interests, participation, and dedication should be taken into consideration in national issues such as privatization.

  • Discipline

    We have to set disciplines (economic and social) for the operation of both the private and the public sectors. Simplified procedures and regulations should be developed if we seek higher standards of performance.

  • Decentralization

    It has been proved that central planning for every aspect of life cannot achieve objectives. The variables are great and their control is beyond human capacity. That is why there is a move toward decentralization and deregulation in most of the eastern countries.

  • Dedication

    No progress in development can be achieved unless people are dedicated to working according to certain desired objectives. Whether in government (public) or private sectors, progress will depend mainly on the dedication and devotion of the people, their standard of education, culture, and values, and their ability to work efficiently.

This section benefited from the following studies: I.S. Abdallah, Organization of the Public Sector (in Arabic) (Cairo, 1969); A. S. Badawi, Managing the Public Sector in the Egyptian Economy (in Arabic) (Cairo, 1973); A.S. Hussein, The State and the Public Sector (in Arabic) (Cairo, 1985); M.S. El-Itriby, The Establishment and Evaluation of the Public Sector in the Egyptian Economy (supervised by Dr. Fouad Moursi, and published by the Arab Center for Political and Economic Studies, 1968); World Bank, Arab Republic of Egypt: Issues of Trade Strategy and Investment Planning, (Washington, 1983) (especially Part III on industry); and R.S. Dahlan, Introducing Business Management Practices in Public Revenue Sectors in Saudi Arabia (unpublished Ph.D. thesis, Cairo University, 1987).

Egypt, Center for Information on the Public Sector, Basic Data on Public Sector, 1985–87 (in Arabic) (Cairo, 1988).

This is a well-recognized observation; see, for example, Stephen A. Marglin, Public Investment Criteria (London: Allen and Unwin, 1967).

Other measures of the performance of the public sector companies in Egypt are shown in Said El-Naggar, “Prospects and Problems of Privatization: The Case of Egypt,” paper presented to the Thirteenth Annual Symposium, Center for Contemporary Arab Studies, Georgetown University, Washington, April 1988.

The increase in the surplus ratio was due mainly to the big jump in rice prices. The same ratio remained very low for marketing companies of rice (2.1 percent and 2.5 percent for the years 1986 and 1987, respectively).

A paper by Professor J. Tinbergen concludes that the type of ownership is not the crucial factor for efficiency; it is the quality of management (Jan Tinbergen, “Development Cooperation as a Learning Process,” in Pioneers in Development, ed. by Gerald M. Meier and Dudley Seers (Oxford University Press, 1984), p. 326).

Robert M. Solow, “A Skeptical Note on the Constancy of Relative Shares,” American Economic Review (Nashville, Tennessee), Vol. 48 (September 1958), pp. 618–31.

The same results were shown in a detailed study on the public sector by the Research Center, Faculty of Commerce and Academy for Scientific Research and Technology, Summary Results of the Study on the Public Sector in Egypt (1986).

For an excellent study on the subject, see Egypt, National Specialized Councils, A Report on the Financial Problems of Public Companies (in Arabic) (Cairo, 1988).

It is interesting to note the words of the Finance Minister of Sri Lanka on the subject, “We feel that privatization is not a panacea for all ills. We feel the magic is not in the ownership but in the management; … Privatization is seen as part of a general process of liberalization and deregulation in Sri Lanka, not an end in itself. It is part of a general programme of economic reform in which we are trying to give a new place to market forces and reduce the role of the state in economic life.” (Ronnie De Mel, “Privatization in the Developing World,” in The Mechanics of Privatization, ed. by E. Butler (London: Adam Smith Institute, 1988), pp. 68–69.)

The latest statement was published in Al-Ahram (Cairo), August 25, 1988.

Center for Information on the Public Sector, “Basic Economic Data” (unpublished report (in Arabic), May 1988).

See, for example, Raymond Vernon, ed., The Promise of Privatization: A Challenge for U.S. Policy (New York: Council on Foreign Relations, 1988).

Joe S. Bain, Industrial Organization (New York: Wiley, 2nd ed. 1968), pp. 135–36, quoted in Jesse W. Markham and others, Horizontal Divestiture and the Petroleum Industry (Cambridge, Massachusetts: Ballinger, 1977), p. 3.

Some writers, however, doubt that privatization would lead to these benefits. J.A. Kay and D.J. Thompson, “Privatisation: A Policy in Search of a Rationale,” Economic Journal (London), Vol. 96 (March 1986), pp. 18–32.

See, for example, T. M. Ohashi and T. P. Roth, Privatization: Theory and Practice (Fraser Institute, 1980); Asian Development Bank, Conference on Privatization Policies, Methods and Procedures, Manila; T. Kolderie, “The Two Different Concepts of Privatization,” in Public Administration Review (1986), pp. 285–91; and C.B. Blankart, “Limits to Privatization,” European Economic Review (Amsterdam), Vol. 31 (February/March 1987), pp. 346–51.

Objections on this ground might not be very strong at present in view of the wave of new policies applied in the socialist countries on deregulation and allowing wider scope for the private sector. This is shown in the open-door policy of China and “restructure” in the Soviet Union.

This problem has been dealt with in L.P. Jones and others, The Economics of Divestiture: Ex-Ante Valuation and Ex-Post Evaluation, World Bank Discussion Paper No. DRD295 (Washington: World Bank, April 1987).

These aspects are emphasized in the case of Turkey; see, for example, Roger S. Leeds, “Turkey Rhetoric and Reality,” in Raymond Vernon, ed. (cited in fn. 13), pp. 149–78.

This has been emphasized by El-Naggar in his study on Egypt (cited in fn. 4).

One of the authors of this paper estimated these funds at $60 billion. See S. Abu Ali, “A Scenario for the Next Five Year Plan,” L’Egypte Contemporaine (in Arabic) (January–April 1987), pp. 5–22.

This actually happened recently in one or two sectors.

These figures were published in Al-Akhbar (Cairo), August 25, 1988.

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