Egypt’s state companies face liquidity constraints

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CAIRO: Egypt stopped production at three companies affiliated with the Holding Company for Spinning and Weaving on Thursday, in anticipation of possible self-liquidation.

Due to lack of liquidity, production was halted at El Sharkeya Linen, Port Said Spinning Company and General Jute Company, according to a report by, and will most likely undergo self-liquidation and shut down.

The Holding Company, overall, lost LE 31 million in 2010 compared to another LE 82 million from last year, according to the report, despite a corporate restructuring plan.

Made up of 32 affiliated companies, the holding company has lost LE 980 million over the years, according to the report.

The news has brought the question of privatization in the spotlight, with some economists saying a reformed privatization plan is a solution to liquidity problems even though the issue continues to raise the ire of public opinion.

The political unrest over the past year has taken a heavy toll on the economy, devouring almost half of the state’s foreign reserves, which are currently at $16.1 billion and widening the budget deficit. However, experts said national companies have been suffering long before the uprising caused a slow down in the economy.

“The holding company had prepared a study of corporate restructuring, spending about LE 120 million from the restructuring fund before the revolution, in order to develop companies like Mahalla Spinning, but it was not completed due to lack of liquidity,” Abdel Hafeez Al-Toukhi, spokesperson for the Holding Company said in the report on Tuesday.

Hoping that parliament will address this ominous topic, Magda Kandil, executive director of the Egyptian Center for Economic Studies (ECES), told Daily News Egypt that these ongoing problems have continuously affected state-owned companies as well as their employees.

Kandil pointed out that the one solution, which has been overlooked lately, is privatization.

But with the recent political changes in the country, economic reform has been on hold, as are privatization plans, which are also quite contentious to implement.

State-owned companies have long been characterized by inefficiency, mismanagement, lack of resources and overstaffing.

“They have been doing what they could, but these companies have come to a halt due to liquidity constraints. They should have been targeted for privatization, but the privatization program has not pressed ahead for a comprehensive agenda and it came to a halt even before the revolution,” she said.

Monette Doss, senior analyst at Prime Group, said, “I support the idea of privatization, but the state is unable to implement it because they have contradicting policies.

“Minister of Planning Fayza Aboul Naga previously said the state would stop privatizing, then they changed their minds again and she announced that we welcome the idea; they have very vague policies.”

Doss stressed that with the “flip-flopping” ways of the current government, private investors would be afraid to buy local companies, fearing that laws or stipulations could easily change overnight.

The former regime’s privatization program was heavily criticized for selling state assets at undervalued prices as well as sidelining workers’ rights. Protests over the past months have seen an increasing number of workers demanding better wages, more rights and an end to privatization.

Nonetheless, Kandil says a solid privatization plan that addresses the needs and rights of workers is long overdue in Egypt. With the kind of regulations that will work towards social justice, ensuring former and current employee rights, a readjusted privatization plan can boost these factories.

“Right now we are suffering from the same problem we tried to solve by not privatizing because the idea was looked down upon due to a lack for workers’ rights,” she said. “In the right political environment, privatization can work successfully.”

Given the current liquidity constraints and the bulging deficit, Kandil foresees more factory and company closers in the coming months.

The ECES will reach out to the current parliament in order to discuss progressive economic strategies, she said. “If we are called upon by the parliament, we would gladly contribute, in the meantime we are trying to engage in an outreach strategy with them,” she said.

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