<p dir="ltr" style="text-align: justify;">In this week&rsquo;s edition, we look into determinants of foreign ownership in Egyptian assets and the myth of oversized state bureaucracy&nbsp;</p>
<hr>
<h2 dir="ltr"><strong><span style="color: rgb(6, 71, 137);">What Are the Rules Governing Foreign Ownership of Egyptian Assets?</span></strong></h2>
<p dir="ltr" style="text-align: justify;">Following an array of controversial rumors, the first <a href="https://www.shorouknews.com/news/view.aspx?cdate=07022024&amp;id=7a8bfeac-c8d8-4ee5-9146-72e4978cb342">official</a> statements were finally released confirming that international investors are close to finalizing a deal to purchase 200 km of prime land on Egypt&rsquo;s northern coast. The news comes a few weeks after parliament <a href="https://www.shorouknews.com/news/view.aspx?cdate=03012024&amp;id=88d2bd9e-5bbf-4309-ab33-d2075233ffcc">amended</a> Law 143/1981 to increase the limits on the foreign ownership of desert land. The coincidence of the two stories raises questions about guidelines governing foreign ownership of Egyptian assets.</p>
<h3 dir="ltr"><strong>State assets for dollars</strong></h3>
<p dir="ltr" style="text-align: justify;">Amid its worst-ever dollar crunch, Egypt has resorted to new initiatives to meet its obligations to <a href="https://aps.aucegypt.edu/ar/articles/1354/challenges-exacerbated-by-state-policies-fdi-outflows-and-high-real-estate-prices">investors</a> and creditors; selling government assets for dollars is one such initiative that the International Monetary Fund (IMF) supports. Towards this aim, and in addition to changing some of the conditions of Law 143, Law 230/1996 was <a href="https://www.facebook.com/story.php?story_fbid=pfbid0EBKjDb3xUGY7pCT5Jy4QZtEpemdNcUqsFGzCaxFeLzcKGySZDNnv938xSiDNXzyYl&amp;id=100064812882317&amp;mibextid=qC1gEa&amp;paipv=0&amp;eav=AfZW9XfGw3IS1wZJlO7ipSnFge37y9ALCUe7XY95iANXlm8_OUv4E-88ty8ns61LlUo&amp;_rdr">amended</a> in July to remove the ceiling on foreign ownership in properties after it was limited to just two properties in two different cities.</p>
<p dir="ltr" style="text-align: justify;">Furthermore, the Egyptian Cabinet <a href="https://www.alarabiya.net/aswaq/economy/2023/07/05/%D9%85%D8%B5%D8%B1-%D8%AA%D9%82%D8%B1-%D8%AA%D8%B9%D8%AF%D9%8A%D9%84%D8%A7%D9%8B-%D8%AA%D8%B4%D8%B1%D9%8A%D8%B9%D9%8A%D8%A7%D9%8B-%D9%84%D8%AA%D9%86%D8%B8%D9%8A%D9%85-%D8%AA%D9%85%D9%84%D9%83-%D8%A7%D9%84%D8%A3%D8%AC%D8%A7%D9%86%D8%A8-%D9%84%D9%84%D8%B9%D9%82%D8%A7%D8%B1%D8%A7%D8%AA-%D9%84%D9%84%D8%B3%D8%AF%D8%A7%D8%AF-%D8%A8%D8%A7%D9%84%D8%AF%D9%88%D9%84%D8%A7%D8%B1">approved</a> the sale of specific tracts of land to foreign companies in US dollars.</p>
<p dir="ltr" style="text-align: justify;">The privatization of Egypt&rsquo;s historic hotels last summer is one of the largest divestments in dollars. The deal saw&nbsp;<a href="https://businessmonthlyeg.com/adq-acquires-over-40-of-talaat-mostafas-hospitality-arm-icon/">more</a> than 20% of the stake ending in Emirati hands after it was initially sold to an Egyptian investor.</p>
<p><img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1707670588imageEd 59_topic 2 - 2-2 EN.png" alt="" width="405" height="180"></p>
<h3 dir="ltr"><strong>The problem with foreign ownership of Egyptian assets</strong></h3>
<p dir="ltr" style="text-align: justify;">Law 143 amendments <a href="https://www.shorouknews.com/news/view.aspx?cdate=03012024&amp;id=88d2bd9e-5bbf-4309-ab33-d2075233ffcc">canceled</a> provisions that required Egyptians to own at least 51% of the capital of the company owning the desert land and limited individual ownership to 30% of the capital of the company. But <a href="https://carnegie-mec.org/2023/05/08/ar-pub-89663">selling</a> real estate or land absent specific guidelines that consider the nature of the economic activity involved, the added value to the economy, and its effect on national security, creates a set of problems and does not completely solve the dollar crisis.</p>
<p dir="ltr" style="text-align: justify;">For example, while the amendments do not <a href="https://manshurat.org/node/6428">apply</a> to the Sinai, they place no <a href="https://manshurat.org/node/8037">restrictions</a> on land ownership in other areas, such as lands adjacent to the border with Libya. Nor do they <a href="https://aps.aucegypt.edu/ar/articles/1339/not-all-plans-are-implementable-sinai-development-plans-and-local-currency-trade">restrict</a> secondary sales, which might result in territory ending up in the hands of a party that threatens Egypt&rsquo;s national security.</p>
<p dir="ltr" style="text-align: justify;">There is also a lack of transparency in privatization agreements. In the historic hotels deal, for example, the government sold a 39% stake&mdash; increased to 51%&mdash;to the Talaat Moustafa Group in partnership with an unnamed foreign investor, which means neither the nationality nor the name of one of the sides of the deal was known to the public.&nbsp;</p>
<p><img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1707670714imageEd 59_topic 2 - 3 EN copy.png" alt="" width="405" height="405"></p>
<h3 dir="ltr"><strong>Balancing foreign investments with national security</strong></h3>
<p dir="ltr" style="text-align: justify;">Foreigners&rsquo; obvious interest in <a href="https://arabic.cnn.com/middle-east/article/2024/01/15/egypt-an-emirati-sovereign-fund-acquires-the-stake-historic-hotels-company">buying</a> Egyptian real estate and privatised companies raises the question of how to efficiently manage foreign ownership of national assets.</p>
<p dir="ltr"><img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1707674228imageEd 59_topic 2 - 3 EN.png" alt="" width="405" height="404"></p>
<p dir="ltr" style="text-align: justify;">For example, the UAE <a href="https://bestlawyeruae.com/%d9%82%d8%a7%d9%86%d9%88%d9%86-%d8%a7%d9%84%d8%aa%d9%85%d9%84%d9%83-%d9%84%d9%84%d8%a7%d8%ac%d8%a7%d9%86%d8%a8-%d9%81%d9%8a-%d8%a7%d9%84%d8%a7%d9%85%d8%a7%d8%b1%d8%a7%d8%aa/">changed</a> its laws in 2020 to loosen restrictions on foreign ownership in the country to attract more foreign investment. The amendment <a href="https://bestlawyeruae.com/%d9%82%d8%a7%d9%86%d9%88%d9%86-%d8%a7%d9%84%d8%aa%d9%85%d9%84%d9%83-%d9%84%d9%84%d8%a7%d8%ac%d8%a7%d9%86%d8%a8-%d9%81%d9%8a-%d8%a7%d9%84%d8%a7%d9%85%d8%a7%d8%b1%d8%a7%d8%aa/">abolished</a> the 49% ceiling for foreign stakes in Emirati firms while giving the Cabinet the right to monitor the operations of strategically important companies.</p>
<p dir="ltr" style="text-align: justify;">The amended law also however stipulates the hiring of UAE nationals in research and development operations in foreign-owned firms, <a href="https://www.moec.gov.ae/documents/20121/359889/%D9%85%D8%B1%D9%81%D9%82+6+%D8%A8%D9%82%D8%A7%D9%86%D9%88%D9%86+%D8%A7%D8%AA%D8%AD%D8%A7%D8%AF%D9%8A+%D8%B1%D9%82%D9%85+26+%D9%84%D8%B3%D9%86%D8%A9+2020+%D8%A8%D8%B4%D8%A7%D9%94%D9%86+%D8%A7%D9%84%D8%AA%D8%B9%D8%AF%D9%8A%D9%84%D8%A7%D8%AA+%D8%B9%D9%84%D9%89+%D9%82%D8%A7%D9%86%D9%88%D9%86+%D8%A7%D9%84%D8%B4%D8%B1%D9%83%D8%A7%D8%AA.pdf/658ec0ad-fb1e-bb4c-2988-267c2c0f4212?t=1630618278163">excluding</a> the oil, gas, transport, and telecommunications sectors, and companies affiliated with the federal or local governments of the seven emirates, as well as firms in which government sovereign entities own at least 25% stake.</p>
<h3 dir="ltr" style="text-align: justify;"><strong>How can Egypt operate better?&nbsp;</strong></h3>
<ul style="text-align: justify;">
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">The price of real estate to be sold should be <a href="https://www.almasryalyoum.com/news/details/2697438">assessed </a>at its real value and made public, to better inform Egyptians about the facts of the sale of state assets.</p>
</li>
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">Local investment funds should be <a href="https://www.mubasher.info/countries/eg/funds">promoted,</a> allowing Egyptians to buy in companies offered for sale.</p>
</li>
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">Investors must be diversified to avoid the concentration of&nbsp; Egyptian assets in the hands of one or two countries, which might present a political or economic threat to the country.</p>
</li>
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">&nbsp;Parliament must be privy to deals and have the right of prior review and approval.</p>
</li>
</ul>
<hr>
<h2 dir="ltr"><strong><span style="color: rgb(6, 71, 137);">The State Bureaucracy: Excessively Employed or Structurally Dysfunctional?</span></strong></h2>
<p dir="ltr" style="text-align: justify;">President Abdel Fattah Al-Sisi <a href="https://www.youm7.com/story/2024/2/7/%D9%85%D9%86-1200-%D8%A5%D9%84%D9%89-6000-%D8%AC%D9%86%D9%8A%D9%87-%D8%B2%D9%8A%D8%A7%D8%AF%D8%A9-%D8%A7%D9%84%D8%AD%D8%AF-%D8%A7%D9%84%D8%A3%D8%AF%D9%86%D9%89-%D9%84%D9%84%D8%A3%D8%AC%D9%88%D8%B1-%D9%84%D9%84%D9%85%D8%B1%D8%A9/6472883#google_vignette">announced</a> a new increase in the public sector minimum wage, a move that contradicts demands to limit the cost of wages in the budget as part of the reform program. Calls have been mounting to reduce the size of the state bureaucracy, currently standing at five million employees.</p>
<p dir="ltr" style="text-align: justify;">Egypt has already taken great strides to meet this demand since its agreement with the IMF in 2016, reducing the administrative workforce by about 13% in one year. However many observers believe that this demand lacks a nuanced understanding of the state bureaucracy. <a href="https://www.eipr.org/blog/%D8%A3%D8%B4%D8%B1%D9%81-%D8%AD%D8%B3%D9%8A%D9%86/2015/08/%D8%AD%D9%82%D8%A7%D8%A6%D9%82-%D9%88%D8%A3%D8%B3%D8%A7%D8%B7%D9%8A%D8%B1-%D8%A8%D8%B4%D8%A3%D9%86-%D8%A7%D9%84%D8%B9%D9%85%D8%A7%D9%84%D8%A9-%D8%A7%D9%84%D8%AD%D9%83%D9%88%D9%85%D9%8A%D8%A9-%D9%87%D9%84-%D8%AD%D9%82%D8%A7-%D9%84%D8%AF%D9%8A%D9%86%D8%A7-%D8%AC%D9%87%D8%A7%D8%B2-%D8%AD%D9%83%D9%88%D9%85%D9%8A-%D9%83%D8%A8%D9%8A%D8%B1%D8%9F">In fact</a>, the problem is less about bureaucratic bloat than inefficiency and the poor distribution of human resources within different sectors.</p>
<h3 dir="ltr"><strong>Neoliberal myths</strong></h3>
<p dir="ltr" style="text-align: justify;">The assertion that reducing the government workforce is a condition for a better functioning market economy and the reform of the state&rsquo;s fiscal imbalances is unsound. A look at labor market <a href="https://www.statista.com/statistics/1235570/share-of-people-employed-in-government/">indicators</a> in developed countries with a market economy shows that in Belgium, for example, at least 18% of all workers are government employees; in Norway, more than 30% are.</p>
<p dir="ltr" style="text-align: justify;">According to <a href="https://www.capmas.gov.eg/Pages/IndicatorsPage.aspx?Ind_id=1103">statistics</a> for 2017 (the most recent data available), about 5 million of Egypt&rsquo;s <a href="https://gate.ahram.org.eg/daily/News/202619/5/647022/%D8%A7%D9%82%D8%AA%D8%B5%D8%A7%D8%AF/%D8%A7%D9%84%D8%A5%D8%AD%D8%B5%D8%A7%D8%A1--%D9%85%D9%84%D9%8A%D9%88%D9%86-%D9%81%D8%B1%D8%AF-%D8%AD%D8%AC%D9%85-%D9%82%D9%88%D8%A9-%D8%A7%D9%84%D8%B9%D9%85%D9%84-%D9%88%D8%AA%D8%B1%D8%A7%D8%AC%D8%B9-%D8%A7%D9%84%D8%A8%D8%B7%D8%A7%D9%84%D8%A9-%D8%A5%D9%84.aspx#:~:text=%D8%AC%D8%A7%D8%A1%20%D8%B0%D9%84%D9%83%20%D9%81%D9%89%20%D8%A7%D9%84%D9%86%D8%B4%D8%B1%D8%A9%20%D8%A7%D9%84%D8%B3%D9%86%D9%88%D9%8A%D8%A9,%D9%85%D9%84%D9%8A%D9%88%D9%86%20%D9%81%D8%B1%D8%AF%20%D8%B9%D8%A7%D9%85%202017%20%D9%85%D9%82%D8%A7%D8%A8%D9%84">26</a> million employees work for the state, or 19%.</p>
<p dir="ltr"><img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1707671019imageEd 59_2 EN.png" alt="" width="405" height="404"></p>
<h3 dir="ltr"><strong>Percentage of government workforce of total employment&nbsp;</strong></h3>
<p dir="ltr" style="text-align: justify;">Nor is Egypt an anomaly among other middle-income countries when it comes to the cost of the government workforce. The cost of government compensation as a share of GDP came to 8.6% for fiscal year 2021/22, compared to an average of 8.7% in middle-income countries, according to an IMF <a href="https://www.imf.org/external/pubs/ft/tnm/2010/tnm1015.pdf">study</a>.</p>
<p dir="ltr">Using another measure, government wages as a share of public spending in Egypt stood at 19.6% in the same year, which is in fact much lower than the norm in middle-income countries, where government compensation accounts for 31.8% of public expenditure.</p>
<h3 dir="ltr"><strong>Distressed sectors</strong></h3>
<p dir="ltr" style="text-align: justify;">Despite claims of bureaucratic bloat, we find that the Egyptian administrative apparatus suffers from a clear shortage in two vital service sectors, namely education and health.</p>
<p dir="ltr" style="text-align: justify;">Data indicate an annual decline in the number of teachers even as the number of students enrolled in pre-university education is consistently rising. The problem is likely to further worsen as the majority of teachers are over age 50 and thus on their way to retirement. The government tried to remedy this when President Sisi announced the <a href="https://www.masrawy.com/news/news_egypt/details/2022/1/18/2160663/%D8%AD%D9%88%D8%A7%D9%81%D8%B2-%D8%AC%D8%AF%D9%8A%D8%AF%D8%A9-%D8%A7%D9%84%D8%B3%D9%8A%D8%B3%D9%8A-%D9%8A%D9%88%D8%AC%D9%87-%D8%A8%D8%AA%D8%B9%D9%8A%D9%8A%D9%86-150-%D8%A3%D9%84%D9%81-%D9%85%D8%B9%D9%84%D9%85-%D8%B9%D9%84%D9%89-5-%D8%B3%D9%86%D9%88%D8%A7%D8%AA">appointment</a> of 150,000 teachers over five years to cover the deficit.</p>
<p dir="ltr"><img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1707671164imageEd 59_topic 2 - 1 EN.png" alt="" width="405" height="404"></p>
<p dir="ltr" style="text-align: justify;">The government health sector faces a similar challenge. The number of doctors continues to <a href="https://www.capmas.gov.eg/Pages/IndicatorsPage.aspx?Ind_id=1064">decline</a>, as the rate of resignations increases due to <a href="https://www.almasryalyoum.com/news/details/2049512">poor</a> financial returns, the lack of adequate medical protection, and doctors&rsquo; desire to find better jobs outside Egypt. This has exacerbated the already low doctor-to-population <a href="https://www.ems.org.eg/ar/news/Committees/2430?fbclid=IwAR3rCqTgo7gwX8t9-ZwWDTvzxDZsn8tCA1wwHdfpIMDUWUXnR60rG48nuqM">ratio</a>.</p>
<p dir="ltr"><img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1707671232imageEd 59_EN 1-2.png" alt="" width="405" height="174"></p>
<p dir="ltr" style="text-align: justify;">There are 8.6 doctors for every 10,000 Egyptians compared to a global average of&nbsp; 23 for each 10,000.</p>
<h3 dir="ltr"><strong>How can we take the best advantage of the government workforce?&nbsp;</strong></h3>
<ul>
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">Stop dealing with the state bureaucracy as a financial burden that requires cost-cutting or reductions in size, which may <a href="https://read.oecd-ilibrary.org/governance/public-sector-compensation-in-times-of-austerity_9789264177758-en#page40">lead to</a> the deterioration of employees&rsquo; professional level.</p>
</li>
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">Enact governance and accountability mechanisms to ensure the efficiency of the government administrative apparatus.&nbsp;</p>
</li>
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">Reform the bureaucracy by adopting a community negotiation process to serve the country&rsquo;s development vision.</p>
</li>
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">Focus on increasing state revenues, especially tax revenues, rather than cutting the wage bill or government employment. In the aftermath of the 2008 financial crisis, countries with <a href="https://read.oecd-ilibrary.org/governance/public-sector-compensation-in-times-of-austerity_9789264177758-en#page40">larger </a>state bureaucracies, such as the Scandinavian countries, faced no significant fiscal imbalances.</p>
</li>
<li dir="ltr" aria-level="1">
<p dir="ltr" role="presentation">Allocate a portion of the <a href="https://www.shorouknews.com/columns/view.aspx?cdate=30012016&amp;id=3f169587-897f-4ffb-8429-6a9cbf5d0edc">budget</a> of each unit to the training of government personnel in order to improve the level of services provided to citizens.</p>
<hr></li>
</ul>
<p dir="ltr"><em><a href="https://aucegypt.us17.list-manage.com/subscribe?u=5e42bef7fee7e6a299c3d932d&amp;id=e0d95df1c1&amp;mibextid=Zxz2cZ">Subscribe to the weekly edition&nbsp;</a></em></p>
<div style="text-align: justify;"><em>"Adasa" is a weekly policy digest by Alternative Policy Solutions. </em><em>"Adasa" provides an analysis of a select number of policy developments and their effect on inclusive development and socioeconomic change.</em></div>

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