Egypt’s announcement that it is to sell off 80 percent of its third largest public sector bank, Banque du Caire, has revived old fears that privatisation is heralding the return of colonialism.
“Selling this bank will bring back the era of foreign capitulations,” independent MP Mustafa Bakri thundered at a meeting of parliament’s banking committee, joining a rising wave of discontent after the government’s July 9 decision.
Newspapers since then have been filled with condemnations by employee unions and stories of panicked depositors rushing to pull out their funds from the bank’s 220 branches.
Despite international praise for Egypt’s privatisation programme, launched in 1991, it has also been criticised by opposition leaders for selling off the country’s wealth at cut rate prices in sweetheart deals to regime cronies.
The issue of the banks is especially sensitive.
“There is a lot of nationalist sentiment, because the (state-owned) National Bank of Egypt, Banque Misr and Banque du Caire are all landmarks,” Hatem Alaa, a banking analyst with HC Securities, told AFP
Egypt’s quasi-independence from Britain in 1922 and subsequent development was partly fought through finance with Banque Misr, the first Egyptian-owned bank, leading the charge.
The bank, started by nationalist economist Talaat Harb in 1920, helped build the country’s industrial base until the British-run National Bank of Egypt brought about its collapse and took it over during World War II.
Banks were later nationalised by the socialist-minded government in the 1950s and even as public sector industries were sold off in the last decade, state-owned banks were left untouched.
Economists have advised Egypt to privatise some of these public sector banks which have been plagued with outdated internal structures, poorly trained work forces and massive non-performing loans.
The price tag for restructuring Banque du Caire is estimated to be nine billion Egyptian pounds (1.6 billion dollars, 1.15 billion euros).
“They say that around 73 percent of the bank’s loan portfolio is non-performing, but the bank hasn’t released financials for quite some time,” said Alaa. “It has its problems.”
Egypt’s Business Monthly journal has estimated the bad loans, made in the profligate 1990s mostly to private businessmen who later defaulted and fled the country, to be in the neighbourhood of 12 billion Egyptian pounds.
The decision to sell was also helped by last year’s sale of 80 percent of Bank of Alexandria which netted the government 1.6 billion dollars and highlighted international interest in the banking sector.
It is hoped the Banque du Caire sale will raise a similar sum.
“The central bank is not offering new licenses, so the only way to enter the market is to buy up an existing bank,” said Alaa.
Egypt’s privatisation programme, stalled by a recession for much of the late 1990s and early 2000s, received a shot in the arm from the 2004 reform-minded cabinet of Prime Minister Ahmed Nazif whose policies have doubled the annual growth rate to seven percent in the last few years.
The rest of the world has taken notice and the Organisation of Economic Cooperation and Development earlier this month gave Egypt’s investment environment a glowing report.
“Foreign direct investment inflows increased 12-fold between 2001 and 2006. They reached nine billion dollars in the first three quarters of its 2007 fiscal year, up from just over half a billion in 2001,” the OECD said on its website.
But increased foreign investment has yet to truly trickle down to most Egyptians, who continue to suffer from high unemployment and inflation rates — and also remain highly suspicious of foreign influence on the economy.
“I have never heard of a foreign bank entering into investment projects or giving loans to small projects,” scoffed ruling party MP Sherine Ahmed Fuad.
“Foreign banks, unfortunately, are just out for quick profit and don’t concern themselves with the other matters.”