On adapting state-owned firms to a changing economy
What are the ministry’s priorities with respect to restructuring the public sector, and taking steps to improve efficiency and boost profitability?
HISHAM TAWFIK: The ongoing economic reforms that began in 2016 have had a positive impact on the overall economic situation. The effect of the reforms on individual companies has been dependent on the strength of their business models and the extent to which they were export focused.
With the decreased value of the Egyptian pound, Egyptian products became more competitive internationally, while businesses reliant on imports struggled as their costs jumped. At this point companies have adjusted to the new market conditions and there are many opportunities for growth.
As such, it is important to ensure the real profitability of companies under the umbrella of the Ministry of Public Business Sector, so a restructuring is under way to minimise losses and focus on the core areas of companies’ profitability. We began with an in-depth SWOT analysis of each company to tailor solutions to their specific needs, whether involving a change in management, human resources training, adjusting the business model or scope of the business, adopting restructuring, or maintenance and upgrade. We are also looking to regulatory reforms, including labour and compensation policies that would allow for a more liberal sharing of profits, in turn helping to encourage the cultural shift we need by creating a sense of ownership among employees through linking compensation to performance. We also need to get the best from management as we want to push these individuals to lead their companies to profitability.
How do you view the role of state-owned companies in Egypt’s economy compared to the role of the private sector?
TAWFIK: Both public and the private companies are operating in the same environment and should offer products and services according to the needs of the market. However, it is necessary for the private sector to play a leading role in creating jobs and the economic growth required to improve Egyptians’ living standards and the country as a whole. As such, we are aware of the importance of the private sector and, rather than competing directly, we are cooperating in various forms, such as supply chain linkages, operation and management and partnership through joint ventures. In addition, public sector enterprises are operating in the areas that support the private sector and help it to succeed.
The whole textile industry – including cotton ginning, spinning, weaving and garment manufacturing – is extremely important to Egypt, so there is a focus on ginning, spinning and weaving, as the public sector accounts for 60% of Egypt’s cotton production. We are therefore helping to supply ready-made garments manufacturers in the private sector with quality inputs, strengthening their ability to quickly adapt to market and fashion demands.
We are also focusing on export-oriented transport, logistics and warehousing to fill the gap in the market and help Egyptian Private exporters open new market abroad, especially in Africa. Downstream petrochemicals and fertilisers are another area where public sector enterprises have significant capacity. This sector has the potential to expand a value-added industry founded on the basis local supply of oil and natural gas.
To what extent are international partnerships important for state-owned enterprises?
TAWFIK: International cooperation, like foreign investment, is important, whether it is in the form of continued long-term relationships with suppliers, like those we have in Switzerland, Italy and Germany, or in the form of joint ventures or operations and management agreements. It is necessary to focus these ties on the areas where additional tools, know-how or expertise is required. We will work with our partners – both local private sector firms and international ones – to acquire these tools and build our own knowledge base. This transfer of knowledge is important for improving the efficiency and quality of Egypt’s labour force and ensuring that public sector enterprises are productive and provide solutions that strengthen the market.