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EDITORIAL
 
Trouble over sale of a chain in Egypt
William Wallis
3/21/2006
 

          MAHMOUD Mohieldin, Egypt's investment minister, has had a relatively smooth ride since relaunching a stalled privatisation programme in 2004.
The state has divested itself of joint-venture banks, sold cement and power-generating companies and floated 20 per cent of Telecom Egypt. This month the Bank of Alexandria, one of the big state-owned banks until recently off limits, is coming on the block.
But the sale of Omar Effendi -- once the "grande dame" of Egyptian department store chains but now, in the words of the state alAhram weekly, a "faded high-street diva" -- has prompted the kind of backlash usually reserved for more strategic assets.
This is the fifth time since 1993 that the government has tried to sell the chain. The latest offer by the Saudi Anwal group, at E504m ($88m, euro72m, 50m), is the best. But the difference in two government-sponsored valuations -- one using discounted cash value close to the Saudi offer and one based on much higher net asset value -- has provided those opposing the deal with the opportunity to cry foul, exposing obstinate divisions over Egypt's future.
The head of a sister company has filed a legal complaint against Mr Mohieldin, alleging that he is conspiring to cast off Omar Effendi at a knock-down price. Nationalist members of parliament are threatening to block the deal. The impending tussle will test the government's mettle and its appetite for more painful reforms down the line.
In its heyday in the first half of the 20th century Omar Effendi drew well-heeled Egyptians prepared to pay for elegant surroundings and products of mark. Like society's upper crust, the stores have since weathered nationalisation. in 1957, competition and prolonged recession. While the upper crust has proved resilient, Omar Effendi has been less so. Mismanagement and overstaffing- the chain employs nearly 6,000 - have taken a toll.
After four years of losses, it made a E2.2m profit last year. Given that there are 83 Omar Effendi stores in prime positions, it might have done better in a year of 5.7 per cent GDP growth.
In 1908, when Omar Effendi's flagship outlet was built, it was the Galeries Lafayette of downtown Cairo. But one day last week it was empty. Hard times are reflected in price tags, with 80 per cent off some items. The television department charges up to 25 per cent more than informal vendors on the same street. It makes do, according to a shop assistant, courtesy of bulk orders from other state enterprises.
The chain does have its loyal followers. A less grandiose version added in the 1970s in the bustling neighbourhood of Mohandiseen was doing brisk sales in cookers, carpets and sundry other items this week.
Young employees, who start with salaries of just E120 a month ($21) before sales bonuses, are enthusiastic about change.
"At the moment we are not selling anything. With a new owner it might get better," said Adel, next to a jumbled rack of trousers.
It is with an eye on the Adels of Egypt -- a vast pool of potentially troublesome Youth -- that Hosni Mubarak, the 77-year-old president, has relaxed his cautious approach, placing the private sector nearer the centre of reforms he hopes will generate 4.5m jobs in six years.
But an older generation, and parts of the vast bureaucracy, have not stopped pressing their case. Mustapha Bakry, the MP who has led the parliamentary revolt, says the chain's trademark is worth a third of the asking price; its architectural landmarks alone are worth more than the deal.
He drew parallels with the recent US backlash against Dubai Ports World's deal to manage US container terminals: "This concerns us equally. The government is planning to sell some of the most necessary assets of Egypt. They are planning to sell our fortune, our blood."
Hadi Fahmi, the chairman of the state holding company driving the deal, said the Saudi group will be required to retain 80 per cent of staff for 10 years and maintain the same activities in most stores. It has pledged E300m towards a facelift.
Mr Fahmi is hoping such details will cool emotions when they are presented to parliament this week. But he is not underestimating the threat. "It is serious. If you are an investor you have to consider this a sensitive environment."
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Under syndication arrangement with FE

 

 
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Trouble over sale of a chain in Egypt
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