Egypt’s State Is Retreating from Business. Who Will Take Its Place?

Egypt is embarking on a sweeping reshaping of ownership in its economy, with the state seeking to reduce its direct footprint after years of acting as investor, owner, and operator across a wide range of sectors.

The government has announced plans to sell stakes in state-owned companies and open more space for private and foreign investors. But the central question is no longer whether the state will retreat from the economy. That process is already under way.

The more consequential question is what comes next.

As state ownership recedes, what kind of economy will expand into the space it leaves behind — and who will end up owning the assets transferred out of state hands?

The distinction matters because selling state assets to widely held Egyptian companies, investment institutions, pension funds, and millions of shareholders is very different from selling them to a small circle of domestic or foreign investors. The distinction becomes particularly important when the assets in question are land, real estate, existing businesses, and long-term development rights.

That is the real question lurking behind Egypt’s privatisation and divestment plans under its State Ownership Policy Document.

Four Ways Ownership Can Change

State divestment can take several forms, and the economic consequences are not the same.

The first is an outright sale.

The state receives money immediately but gives up some future income from the asset. Whether that is a good trade depends not only on the price, but on the buyer, the terms of the transaction, and what happens to the proceeds.

A widely owned Egyptian company could deepen domestic private ownership. A foreign fund or a small group of investors could instead concentrate future returns among a few owners or send some of those returns abroad.

The second is a stock-market listing.

An initial public offering can broaden ownership. But a larger number of brokerage accounts does not necessarily mean a broader distribution of wealth. Shares can still become concentrated among large institutions and wealthier investors, with individual investors owning only a small fraction.

The consequences of a listing will therefore depend on who actually buys the shares, how much pension funds and individual investors participate, and how concentrated ownership remains after the offering.

The third is usufruct and development rights.

The state may retain legal ownership of land while giving an investor the right to use, operate, and generate income from it for decades.

That makes the distinction between legal and economic ownership crucial. Land can remain in state hands on paper while the holder of the usufruct or development right may capture most of the economic returns for a very long period.

So, asking whether the state “sold the land” is not enough.

The more useful questions are: Who has economic control over the asset? Who receives the revenues? How long does the right last? And are there mechanisms to revisit the terms if the value of the underlying asset rises dramatically?

The fourth is foreign direct investment.

Foreign direct investment (FDI) does not necessarily mean an investor buys an existing asset.

FDI can involve building entirely new projects, reinvesting profits, increasing capital, and, in some cases, mergers and acquisitions.

What Kind of Capital Will Replace the State?

When the state withdraws from an asset or company, the asset does not disappear. Nor does ownership. Someone else acquires it.

The important question is therefore not whether the state is leaving, but who is moving in.

There are three broad possibilities.

The first is productive Egyptian capital: private companies, local investors, financial institutions, investment funds and pension funds, as well as citizens who own shares directly or through collective investment vehicles.

The second is productive foreign capital: investors who bring money and expertise to build factories, technology centres, export-oriented businesses and new productive capacity.

The third is rent-seeking capital, whether Egyptian or foreign, which gravitates towards land, property, existing assets, development rights and concessions.

The debate therefore should not be reduced to Egyptian versus foreign ownership, or state versus private ownership.

The more useful question is: What kind of capital will occupy the space vacated by the state?

Suppose the government leaves a factory and a private investor takes over, doubles production, and increases exports. That could plainly be a better outcome than continued inefficient government management.

But suppose the government sells a strategic asset to a small group of investors, without broadening Egyptian ownership. Then the country has changed owners without necessarily broadening ownership.

That creates several social and economic risks.

Foreign capital is not the problem

The concern should not be the nationality of an investor alone, but the scale of the asset and the influence that ownership gives.

Nor should foreign investment inflows be confused with a lasting source of foreign currency.

A foreign investor purchasing an existing income-generating asset may bring money into Egypt at the time of the deal, but future profits can flow abroad.

A foreign investor building an export-oriented factory creates a different dynamic: the project can generate foreign currency through production and exports.

The risk, then, is not foreign investment itself. It is allowing ownership of scarce assets to expand faster than productive capacity and broad domestic ownership.

When rent-seeking crowds out production

Productive investment is harder than buying a scarce asset.

A factory requires machinery, technology, skilled workers, reliable markets and, ideally, export customers. A piece of land in a desirable location requires rather less. If its price rises quickly enough, simply owning it can produce a handsome return.

If expected real estate returns exceed industrial returns, capital, credit, and talent can migrate towards assets rather than production. An investor may prefer an asset that appreciates quickly to a factory that takes years to repay its initial investment.

That can turn a rentier economy from one sector among many into a force that pulls resources away from productive activity.

The result can look contradictory: investment rises, while productive capacity fails to keep pace.

That does not prove that an entire economy has become addicted to property. Broad economic indicators are not enough to establish such a claim.

But the hypothesis can be tested.

Compare returns across sectors. Examine where bank credit is going. Look at capital formation, industrial investment, productivity and export growth.

If property consistently offers much higher returns than productive investment, it would not be surprising if money followed.

The wealth effect

Rising asset prices make owners richer but can make it harder for non-owners to catch up.

A worker in a hotel or real estate project receives a wage. The owner of the land or property receives the profits and benefits from the appreciation of the asset.

Over time, that difference can compound.

Wealth accumulates faster for those who own appreciating assets than for those whose main economic asset is their labour.

An economy can therefore become richer without society becoming proportionately more broadly owned.

The relevant questions are straightforward: Who owns the assets? And how is ownership divided among the state, companies, investors, and citizens?

The dollar question

An economy that relies heavily on asset sales and recurring capital inflows to meet external financing needs can become vulnerable if those flows slow or stop.

On the contrary, a productive economy has another source of resilience: the ability to generate foreign currency through exports.

That is the difference between an economy that attracts dollars and one that produces dollars.

Why Land Is Different

Land is the most delicate part of any debate over state ownership. A factory can be built again. A technology company can be created from scratch. But nobody can manufacture another coastline or replicate a strategically located piece of geography.

That makes land a rather different proposition from a factory.

Egypt’s Ras El-Hekma deal illustrates the point. On 23 February 2024, the government announced an agreement with the UAE’s ADQ to develop the area for $35 billion. According to the government’s announcement, the package comprised $24 billion in new investment and the conversion into investments of $11 billion in UAE deposits held by the Central Bank of Egypt (CBE). The Egyptian state was also to retain a 35% stake in the project company.

It would therefore be misleading to describe the transaction simply as Egypt “selling land for $35 billion”. The headline figure combines several different elements: investment, development, and an ownership structure. It is not merely a cheque exchanged for a piece of land.

But the more interesting question is not what arrived in Egypt’s coffers on the day the deal was announced.

It is who will capture the value that the land generates over the next several decades.

That means looking beyond the initial proceeds to the future revenues and profits, the appreciation in the value of the land, the jobs created, the exports generated and the domestic supply chains that the project can build.

The Lebanese Warning

Lebanon offers a cautionary tale for Egypt, but the two economies are far from alike.

Before its crisis, Lebanon had built an economic model heavily dependent on capital inflows, remittances, finance, real estate, and services. Its competitiveness and productivity were relatively weak. High interest rates, dependence on foreign capital, and import monopolies further tilted the economy away from productive activity.

For a while, the model appeared to work.

Then the money stopped coming.

Lebanon subsequently suffered one of the most severe economic and financial crises of recent decades. Real GDP contracted sharply after the crisis began. Poverty increased. The currency collapsed in value and household savings were severely eroded.

Lebanon is not a forecast for Egypt. It is a stress test for one particular assumption: that capital inflows can indefinitely substitute for productive capacity.

An economy can live for quite some time on capital inflows, property transactions, and financial services. What it cannot do indefinitely is substitute them for the less glamorous business of producing goods, raising productivity, and selling them abroad.

When the inflows stopped, Lebanon discovered that it did not have a sufficiently large productive base to replace them.

That does not make real estate the villain of the story. Lebanon’s crisis was the product of a much more complicated mixture of fiscal, monetary, political, and banking imbalances. Nor does Lebanon’s experience mean that Egypt is destined to follow the same path.

But it does offer a useful metric for watching Egypt’s own transformation.

Financial and real-estate inflows cannot sustainably substitute for production and exports. When those flows stopped, Lebanon lacked enough productive capacity to replace them.

The danger is an economy in which the value of its assets grows faster than its capacity to produce the goods and services that earn foreign currency.

Eight Ways to Tell if Egypt’s Divestment Is Working

Egypt’s debate over state divestment risks becoming a familiar argument between two camps: those who see every sale as a step towards a more efficient economy, and those who see every sale as a loss of national assets.

Neither is particularly useful.

A better approach would be to judge each transaction on what it does for the economy over the long term, rather than on the size of the cheque received on the day of the sale.

That requires eight tests.

1. What exactly is being sold?

There is an important difference between transferring ownership of an existing productive company and transferring land, development rights, or a long-term concession

2. Who is the new owner?

The identity of the new owner matters, as does the breadth of ownership. How much are Egyptian investors and institutions participating?

3. What happens to production?

A successful transaction should ideally bring more than a change of ownership. It should create jobs, increase exports, improve productivity, transfer technology, and integrate more Egyptian companies into supply chains.

4. Who captures the future returns?

The government’s immediate proceeds are only the beginning of the calculation. The assessment should also consider the profits, rents, and appreciation in the value of the asset over the life of the transaction or usufruct agreement.

5. Does the transaction generate foreign currency?

Egypt needs projects that can generate sustainable foreign-currency earnings through exports, tourism and services, rather than relying primarily on transactions that provide a one-off capital inflow.

6. Does ownership become broader?

It is about whether ownership can be spread more widely, so that Egyptian citizens and institutions share in the value of these assets rather than seeing them concentrated in the hands of a privileged few.

7. Where do the sale proceeds go?

The more permanent the asset being transferred, the stronger the case for using a significant share of the proceeds to create new productive assets — industry, infrastructure, technological education, or sovereign wealth funds — rather than being entirely consumed through current spending.

8. Can the deal be scrutinised over time?

Transparency and periodic review should include key information on valuation, ownership structures, the duration of usufruct rights, implementation plans, and operating performance.

That would make it possible to measure outcomes rather than simply celebrate announcements.

These eight tests would change the nature of the debate.

The success of Egypt’s divestment programme would no longer be judged by how much the state managed to sell, or by the headline value of a transaction.

It would be judged by what each deal adds to the economy: more production, more investment, more jobs, more foreign currency and broader ownership.

That is a much harder standard.

It is also a more useful one.

After all, the purpose of reducing state ownership should not be to produce a smaller state balance sheet for its own sake.

It should be to produce a stronger economy.