Egyptian state-owned companies are “eclipsing” the private sector despite IMF-backed structural reforms designed to reorientate the economy toward private sector growth, Reuters writes. Revenues at 17 non-oil, public sector holding companies more than doubled from July 2016 to June 2019 to EGP 60.6 bn, while income after tax more than quadrupled, according to Reuters calculations using Finance Ministry data (pdf).

Meanwhile, in the private sector: Non-oil private sector activity expanded in only five of the 36 months during the same period, Reuters says, pointing to the IHS / Markit Purchasing Managers Index.

Ready for the caveat? It’s a bit of an apples to oranges comparison, as the PMI does not measure revenue or profit, but is a “composite gauge” that reflects the sentiment of purchasing managers at 400 private-sector companies. The gauge dipped into contraction territory in December after edging into expansion the month before.

And please don’t get us started on the many ways to gin up paper profits at moribund state holding companies…

Still, Reuters is picking up on a theme the World Bank touched on recently, writing in a report last month that tax exemptions and weaknesses in antitrust legislation as applied to state-owned businesses have a dampening effect on private sector growth. The economic reform program, it said, is yet to make a meaningful impact on private investment, which continues to lag behind the historical average despite strong economic growth.

Market effect plays a role here: There’s been a pullback from foreign direct investment globally in the past four years amid turbulent conditions. Consider this: FDI in Egypt fell between 2016 and 2017 (and paused again in 2020 thanks to the pandemic), but the country’s share of global FDI rose at the same time even as the global market for investment shrank.

High interest rates — necessary to lure in the carry trade and rebuild FX reserves — have been a big brake on private investment. With rates sky-high after the float of the EGP, we’ve seen a three-year period in which it has made no sense for private-sector companies to take on debt to finance capital expenditures. Conventional wisdom among bankers is that capex borrowing will only start to stage a comeback later this year as rates continue to ease. And in the 12-18 months before the float, private investment stalled because FX simply wasn’t available at the official market rate.

The USD 5.2 bn standby loan agreed with the IMF last year is partly conditioned on the government making it easier for private firms to compete against SOEs and improving the transparency of public sector organizations.

The story also notes that the privatization program is yet to deliver the goods, largely due to poor market conditions, most recently thanks to the slump in investor interest in emerging markets that accompanied the global pandemic.

A new plan to bring the private sector into the fold? “The government plans to allow the private sector to manage several SOEs on behalf of the public sector in the transportation, tourism and housing sectors,” a Finance Ministry spokesperson told Reuters. Meanwhile, the Sovereign Wealth Fund is shopping military-owned companies to private investors at home and abroad, starting with Wataniya Petroleum and bottled water producer Safi. The two subsidiaries of the military’s NSPO could be fully privatized and will likely see 70-80% stakes offered to the private sector.