EGYPT: Opposition Protests Plans for Bank Sell-Off

By Adam Morrow Reprint | | Print |

Adam Morrow and Khaled Moussa al-Omrani

CAIRO, Jul 25 2007 (IPS) - Earlier this month, the government announced its intention to sell a majority stake of Banque du Caire (BDC), Egypt’s third largest state-owned bank, to a strategic investor. But the planned sell-off, which comes as part of the technocratic government’s much-vaunted privatisation programme, has come under heavy criticism by the political opposition.

“Our chief reason for opposing the sale is the lack of transparency governing the privatisation process,” Gamal Fahmy, managing editor of weekly newspaper al-Arabi al-Nassiri, the mouthpiece of the opposition Nasserist Party, told IPS.

On Jul. 10, the government announced its plan to sell 80 percent of BDC to the highest bidder. According to reports in the state press, another 15 percent is to be offered publicly on the stock exchange, while the remaining 5 percent will be allocated to bank employees.

BDC is Egypt’s third largest state-owned bank in terms of total asset value. According to official estimates, it enjoys a roughly six percent share of the Egyptian banking market.

While no specific date was given for the sale, government sources quoted in the state press said the deal would likely be concluded within six to eight months. Interested parties, sources added, would be invited to submit bids within coming weeks.

According to the government daily al-Ahram, proceeds from the transaction would be allocated to pay off outstanding public sector debts and to support badly needed housing projects for limited-income citizens.

CBE Governor Farouk al-Okda attributed the timing of the announcement to strong foreign investment interest in the Egyptian banking sector. “There is an obvious desire on the part of several Arab banks to enter the local market,” he was quoted as saying on Jul. 17.

Al-Okda also reaffirmed the government’s intention to keep Egypt’s two larger state banks, Bank Misr and Bank Ahli, under state ownership. Together, those two banks are estimated to enjoy a 41 percent share of the local market.

The move comes less than a year after the majority sale of another major state-owned bank, the Bank of Alexandria. Purchased by San Paolo Bank of Italy for 1.6 billion dollars last November, the Bank of Alexandria represented the first major state-owned bank to be privatised.

Some Cairo-based analysts, however, question whether the government will be able to make as much on BDC, particularly in light of the bank’s crippling number of non-performing loans. At the end of last year, BDC’s non-performing loans reportedly constituted 73 percent of its total loan portfolio.

“Because BDC is so weak, getting the price that the government is asking – between 2 billion dollars and 2.5 billion dollars – is a tall order,” Simon Kitchen, an economist at Cairo-based investment bank CI Capital told IPS. “There might be a lot of interested parties, but they won’t be willing to pay that much.”

Meanwhile, given historical public sentiment against the privatisation of state assets, popular opposition to the move was quick in coming.

On the same day as the announcement, a movement calling itself ‘No to the sale of Egypt’, established last year to oppose the privatisation drive, condemned the scheduled sale. In a statement, the group urged BDC depositors to withdraw their funds in protest, comparing would-be foreign buyers to “merchants who deal in stolen goods by exploiting the political oppression of the people.”

The decision also met with considerable resistance in parliament.

At a Jul. 18 parliamentary session, opposition and independent MPs blasted the intended sell-off. Although the debate was downplayed in state media, it made front-page news in much of the opposition press.

‘Revolution in parliament over bank sale’, read the next day’s headlines of liberal opposition daily al-Wafd. ‘MPs warn of bank falling into hands of foreigners’.

“Members of the parliamentary economy committee revolted in the People’s Assembly yesterday, expressing anger over the planned sale of BDC,” the paper reported. “Parliamentarians warned against selling the bank off to foreign interests, lest Egypt return to the age of foreign capitulations.”

The paper went on to report that several opposition and independent MPs urged that shares of the bank be offered exclusively to Egyptian investors rather than to foreign or multinational parties. Other parliamentarians suggested that the issue be decided by way of a nationwide referendum.

Prime Minister Ahmed Nazif, a leading proponent of the privatisation programme, quickly moved to allay popular fears of economic neo-colonialism.

“There is no prospect of foreign domination over the Egyptian banking sector,” he was quoted as saying in the Jul. 19 edition of independent daily al-Masry al-Youm. Nazif went on to reiterate the government’s commitment to keeping Egypt’s two biggest state banks – which he called “pillars of the national economy” – well within the public fold.

Kitchen agreed that, given BDC’s limited market share, the looming spectre of foreign dominance was exaggerated.

“The sale of BDC will hardly amount to foreign domination,” said Kitchen. “There’s already a considerable foreign presence in the local banking sector anyway, and this sale isn’t going to tip the balance.”

Opposition figures, however, say that much of their objection to bank privatisation is less about market share and more about the availability of public financing for national development.

According to the Nasserist Party’s Fahmy, private banks are simply less inclined to finance unprofitable, albeit badly needed national development projects.

“Most of these projects, like housing for the poor, offer little in the way of big returns on investment,” Fahmy said. “If a bank goes private, it will look for other ways to turn a profit.”

By way of example, he pointed to agricultural projects, which, although they provide valuable produce and numerous job opportunities, are not particularly lucrative. “Projects like these will be neglected by a private bank in favour of more profitable ventures in other sectors, like telecommunications,” he said.

“Poverty and unemployment are at levels unprecedented in Egypt’s modern history,” Fahmy added. “This has only compounded the need for a responsible public banking sector that will put the national interest over mere profit seeking.”