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Egypt's privatization moves may boost economy

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      By Emerging Markets Debt Team, Eaton Vance Management

      Boston - Egypt began its new initiative last week to privatize state-owned enterprises, with the partial privatization of the already-listed Eastern Tobacco. Privatization has been under discussion by authorities for the past couple of years, and in early 2018 the government announced its intent to raise $4.5 billion by selling stakes in 23 state companies.

      Eastern Tobacco is the first of the five state enterprises cited last July to offer shares through minority offerings on the Cairo exchange, including Alexandria Mineral Oils Company, Alexandria Container and Cargo Handling, Abou Kir Fertilizers and Heliopolis Housing.

      Last week's announcement was followed by comments from two ministers that provided something close to a timeline on how this will proceed: From now until May, we can expect more partial privatizations of already-listed stocks. After September, the second phase of privatization is scheduled to begin, including new listings.

      Egypt has completed a successful lending program with the International Monetary Fund (IMF) that has reduced fiscal imbalances and sparked economic growth. Foreign currency reserves have increased, while headline inflation has subsided. Egypt's Zohr offshore natural gas field - the largest in the Mediterranean - began pumping in 2017, and is a major step toward the country's goal of energy self-sufficiency. The financing profile forecasted by the IMF assumes no privatization proceeds, so a successful exercise program, possibly catalyzed by Eastern Tobacco, could be a further boost for the economy.

      While we are realistic about how much can be accomplished in the near term, Egypt needs to take further steps to shrink the size of the public sector and the government bureaucracy.

      Bottom line: Egypt still has a ways to go to reduce its dominance of the economy, but its privatization progress is a pleasant and welcome surprise.