Egypt announces $1.9bn sale of state assets

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Egypt has announced the sale of $1.9bn of state assets to Egyptian investors and a UAE wealth fund, its first significant privatisations aimed at raising foreign currency to shore up its pound, which has been under pressure for more than a year.

The sell-off, which includes stakes in oil companies and historic hotels, is part of an ambitious plan to raise billions of dollars by privatising 32 state owned-companies, a move announced in February that stalled amid reported disagreements with Gulf investors over the price of the assets.

Of the $1.9bn raised, some $1.65bn was in foreign currency and the rest in Egyptian pounds, said Prime Minister Mostafa Madbouly on Tuesday. Some weeks ago he said the government was aiming for $2bn in asset sales by the end of June. 

The announcement by the government appeared to be aimed at emphasising its commitment to reforms under a $3bn IMF agreement seen as crucial to unlocking billions of investment, mostly from Gulf states wary of pouring money into Egypt before an overhaul of the economy.

Gulf investors have mostly held back from buying Egyptian assets because they expect a further drop in the pound, which has lost half its value against the dollar after a series of devaluations since March 2022. Analysts expect another devaluation this year.

Abu Dhabi Commercial Bank chief economist Monica Malik said the asset sale was “a positive sign” that Egypt was making progress. But she said it was not expected to be enough. “More foreign currency liquidity is needed to meet pent-up demand and address the imports backlog. Some $5bn to $10bn is likely needed to clear the backlog and anchor the Egyptian pound when another devaluation happens.”

Egypt has been in the grip of a foreign currency crisis since Russia’s full-scale invasion in Ukraine in February last year sent commodity prices soaring and prompted foreign debt investors to pull $20bn from the country in a flight to safety. As the pound plummeted against the dollar, inflation soared to a record 35.7 per cent in June.

Egypt’s agreement with the IMF requires it to move to a flexible exchange rate under which the value of the pound is left to market forces rather than set by the central bank. President Abdel Fattah al-Sisi recently appeared to rule out another devaluation warning of its impact on prices in a country where 60 per cent of the population is classed as poor or vulnerable.

The privatisations announced on Tuesday include the sale of minority stakes in three oil and petrochemical companies to ADQ, the Abu Dhabi sovereign wealth fund, for $800mn. They also include a $700mn investment in a portfolio of seven prestigious hotels by Icon, a subsidiary of Talaat Moustafa, a major Egyptian real estate developer. This is in the form of a capital increase jointly with unnamed foreign investors.

The state has also sold its 31 per cent stake in Al Ezz Dekheila Steel for $230mn. Madbouly said asset sales worth another $1bn would be announced soon.

Egypt’s planning minister Hala El-Said said on Tuesday that work was under way on deals to sell a state-owned wind farm and a Siemens-built power station. But Malik warned the dollar crunch would only ease after the Egyptian currency has been floated.

“To secure wider inflows, Egypt will need to move to a flexible exchange rate,” Malik said. “These won’t come as long as the currency is perceived as overvalued.”