Sunday, 26 June 2022

FMCG players think the state’s privatization plans have merit — but want to see additional clarity + some changes

What do food industry players think of the state’s privatization plans?: The government last week held the second of a series of public consultations over its state ownership policy document laying out privatization plans, according to a cabinet statement. The focus of the session was on food industries, with industry reps laying out their recommendations on how best to bring the private sector on board, and giving their feedback on what the sector needs.

What sessions, you may ask? Every Sunday and Tuesday will see workshops on how privatization plans will affect specific industries. These come as the government wants to double the private sector’s role in the economy over the next three years, and aims to raise USD 40 bn over the next four years by selling stakes in state-owned assets to local and international investors. Look for detailed coverage on the talks in EnterpriseAM or across our various industry features. You can catch our coverage of last Sunday’s workshop on agriculture here. You can find more details on the schedule of the meetings here.

So what did private sector food companies say they want to see? Well first, the state needs to set clearer guidelines for the private sector’s involvement. The state needs to be clearer on how big of a stake it wants to offer the private sector, alongside conducting studies to assess how these transactions could impact the market, said Atayb Elbader head Saeed Badr during the session. The private sector will also need clarity on how the state will evaluate bids from investors to ensure that evaluations are as transparent and fair as possible, Edita CEO Hani Berzi told Enterprise separately.

State-owned companies might need to reprice their assets: The state may not be able to exit some sectors easily because some sectors just aren’t that attractive economically at the moment, vice chairman of Domty Mohamed El Damaty told the gathering. But the government can make assets in this sector more attractive by getting the pricing right, which could need the help of foreign advisors or the Sovereign Fund of Egypt, Ayman Korra, chairman of Cairo Oils and Soaps, said.

The onus is also on state-owned companies to set long-term strategies to help investors make informed decisions. Companies need to work to set a long-term strategy that includes KPIs, new products, and plans on how to fill in gaps locally and internationally, Macro Group Managing Director Hisham Wasfy told Enterprise.

Expanding the state’s exits across the value chain is also important: Private sector participants at the workshop urged the Madbouly cabinet to expand the state’s ownership policy to include supplements, production inputs and other parts of the food value chain, like fisheries.

The Madbouly cabinet is on top of it: The importance of sourcing local production inputs as opposed to importing featured heavily in the discussions. As the war in Ukraine continues to roil global supply chains and markets, the government has been working to encourage the use of local components by industry, most recently by introducing additional customs reductions for manufacturers based on their percentage of local components.

Competitive pricing and better products: Prices for products, such as hand soap, need to be more competitive and comparable to products we get from abroad, Wasfy told us. Companies also need to rethink their branding to make them more visually appealing to consumers when on display, Wasfy said.

Let the private sector manage and operate food state food factories, such as with the hospitality industry, Eslam Salem, managing director at Canal Sugar, told Enterprise. PPPs that allow companies to independently run an asset are much more appealing to investors, though we do not see many of them in the sector, he added.

Regulatory and legislative stability is a must: Private investors will need a stable legislative environment to allow them to properly plan ahead before making any investment decisions, Mohamed Anwar, chairman of supplements maker Organix, told Enterprise. “Laws should be fixed and stable for a period of at least ten years,” Berzi also tells us. “As an investor, I cannot conduct feasibility studies and make decisions based on a specific legislative and regulatory framework, only to have them upended due to sudden export bans or changes in taxation laws, for example,” he added.

Macro concerns also weigh heavily on private operators: “For there to be significant, long-term investments in the industry from the private sector, there needs to be a more encouraging investment climate, and the current local and global financial climate is difficult,” Barzi added. Former general manager of Savola Egypt, tells Enterprise that fears of a potential FX liquidity crunch are also hurting our appeal to foreign investors.

We’re getting a sense that the local private sector could be interested: Macro Group could look at investing in local companies if it is in line with their strategic direction for growth, Wasfy told us. “If they reach a target market or segment that we don’t, it could be a chance for us to expand our market share and bottom line,” he added.

Your top industrial development stories for the week:

  • Abu Qir Fertilizers is looking to build a USD 1.2 bn industrial complex that will include facilities producing ammonia, nitric acid, and granular ammonium nitrate.
  • Egypt signed 14 investment agreements with Saudi Arabia worth USD 7.7 bn: The agreements cover key sectors including energy, tech, food, and pharma and were signed during a meeting of Egyptian and Saudi companies and key officials.

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