Skip to Content
Our misssion: to make the life easier for the researcher of free ebooks.

The Performance of State-Owned Enterprises and Newly Privatized Firms: Empirical Evidence from Egypt?

Privatization has been a major phenomenon over the past few decades, and researchers continue to target it for both theoretical and empirical work. Given that most socialist and communist economies from every region in the world Eastern Europe, the ex-Soviet Union, China, Latin America, Africa, and the Middle East- have recently started implementing economic reform programs, the reduction in size of the public sector through privatization has therefore become an important part of such programs.

Between 1960 and 1990 SOEs handled most of Egypt's economic activity under the direction of various ministries. Poor management and weak capitalization of the SOEs inevitably had a negative effect on their efficiency and financial viability (Road, 1997). In an effort to improve the Egyptian economy, Egypt launched a privatization program in 1991 as a part of its economic reform program.

The first step in Egypt's privatization program was to cut off subsidies to SOEs, followed by removing them from direct ministerial control (Field, 1995). In 1991 Egypt's three hundred and fourteen SOEs were grouped under twenty-seven holding firms (reduced to fourteen by 2001) responsible for all the affiliates in a particular sector.

Under the government's strategy for divestment of SOEs, three approaches were initially undertaken: the first was to sell shares through the domestic stock market, the second was to sell strategic stakes of shares to anchor investors through public auction and another was to sell firms to employees shareholder associations (ESA) (McKinney, 1996). Besides these approaches, liquidation of firms took place for those firms that suffered from a huge debt burden and were not deemed economically viable. The number of the Egyptian privatized firms, classified according to the privatization method of sale: majority initial public offering (IPO), minority IPO, employee shareholder associations (ESA), and anchor investors , can be seen in Table 1.

Download
The Performance of State-Owned Enterprises and Newly Privatized Firms: Empirical Evidence from Egypt?