What Are the Real Reasons for Sisi’s Liquidation of the Egyptian Investment Bank Secretly?

Egyptian media sites have reported on the Egyptian authorities' decision to liquidate or sell the assets of the State National Investment Bank, one of the most important arms of economic development for four decades, in a move that indicates the continuation of the Egyptian regime's approach over the past years to sell state property and assets. 

The bank owns shares in five giant companies and owns seven companies listed on the local stock exchange, including fertilizer, petrochemical, mining, cement, housing, and reconstruction companies, according to available data.

Local newspaper “Al Borsa” quoted informed sources on August 10, 2021, as saying that the government is proceeding with the plan to liquidate the National Investment Bank and is in talks with investors to sell its shares in all its companies.

Sources confirmed that the decision to liquidate or sell assets will take place within 18 months, which is part of "a reform plan agreed with the IMF in 2020".

In its review, the IMF unveiled Egypt's request for a $5.2 billion loan in 2020, a plan to mitigate the risks of the bank's financial situation, calling on the Ministry of Finance to stop lending and financing at the bank in January 2021.

About 24 hours after the news spread in most Egyptian websites, the first government reaction came from National Investment Bank Vice Chairman Ashraf Najm, denying the validity of the liquidation of the National Investment Bank.

"Work is under way to implement a restructuring plan that the government announced three years ago," Najm said in an August 11, 2021, statement.

 

Easy Target

According to its official page, the bank's assets extend to the petroleum and petrochemical sector through a 6.9 percent stake in Sidi Krier Petrochemicals (SIDPEC).

In the fertilizer sector, the Bank owns 24.8 percent of Abu Qir Fertilizers and Chemical Industries, 1.1 percent of Egypt's Finance and Industry, and 12.8 percent of Egypt Fertilizer Production - MOPCO.

In the banking sector, it owns 90 percent of The Arab Investment Bank, 40.7 percent of the Egyptian Export Development Bank and 10 percent of ADIB-Egypt.

The National Investment Bank also owns stakes in The Egyptian Media Production City and Egyptian Satellites in the media sector.

In the housing and construction sector, it owns 3.7 percent of Nasr City for Housing and Construction, as a proportion of "Reconstruction for Real Estate Finance", and a stake in "The Extraneous Pride of Steel - Alexandria", in the iron and armament sector.

In addition to shares in Suez Cement, 20 percent of Egypt Beni Suef Cement, 9.6 percent of Egypt Cement-Qena and 25.3 percent of Egyptian Transport and Commerce Services- Egitrans, own the transport sector.

In the food and agricultural industry, the Bank owns a ratio of Delta Sugar Company and shares in eFinance, the financial services sector.

According to observers, the investment bank's assets are coveted by many internal and external actors, particularly the Egypt Sovereign Fund, which is directly subordinate to the powers of regime president Abdel Fattah al-Sisi.

Enterprise Economic Bulletin, confirmed on August 10, 2021, that the sovereign fund is in negotiations to acquire 69 percent of eFinance, the bank's owned electronic payments company.

The controversial fund, which is surrounded by complete secrecy, is also seeking to acquire the shares of the National Investment Bank in petrochemical and mining companies.

The fund is also seeking to attract investors to modernize Salhia Investment and Development, whose capital is 44 percent owned by the investment bank.

Two and a half months before the bank's liquidation, on May 20, 2021, Egypt's Hermes Financial Group, together with the sovereign fund, acquired 76 percent of The Arab Investment Bank, of which the investment bank owns 91.42 percent.

Economist Mahmoud Wahba said that the sovereign fund's acquisition of the National Investment Bank means secrecy over a lot of business, equals wasting people's money and means significant financial corruption.

"Why are you setting up a sovereign fund, a long-life fund for Egypt and you have the National Investment Bank?" he asked in a Facebook post. “To answer: Because it is a private economy for Sisi alone, it allows confidentiality, and it is not subject to judicial control”.

In the absence of government transparency that prevails in the government sector and restrictions on the publication of financial statements in Egypt for eight years in which Sisi ruled, the assets and debts of the National Investment Bank are not specifically known.

Local economic press reports indicated that the results of Deloitte's financial and accounting consultancy assessment of the bank's assets commissioned in November 2019, including the size of its assets and debts, have not yet been announced.

However, a government banking report issued in August 2020 confirmed that the bank's debt amounted to EGP 652 billion to government agencies.

Economist Mamdouh al-Wali spoke about the point via Facebook on July 12, 2021, stressing that official authorities are hiding multiple Egyptian statistical data.

"The National Investment Bank, the government bank of the Ministry of Planning, does not publish its financial statements despite its large assets and diversity of activity," he said.

 

Removing its Roles

The National Investment Bank has only two headquarters in Cairo, Egypt, and its headquarters have not been built in the administrative capital despite the inauguration of a building for its Arab Investment Bank in the new city.

The Bank was established in 1980, with the aim of managing the funds of the General Authority for Social Insurance, as a non-commercial government bank that does not deal with the public and follows the Ministry of Planning.

The Bank has played important roles for 4 decades in the implementation of electricity, water and sanitation projects, roads and bridges, railways, ports, agriculture and irrigation, housing, new cities, and mining, to surprise Egyptians with talk of the bank's liquidation.

Surprisingly, IMF documents in its 2020 reviews of Egypt's latest financial loan referred to the Egyptian government's pledges to implement the National Investment Bank reform plan without mentioning the term liquidation or sale of assets.

Three months before the liquidation news, the Bank signed in May 2021 the protocol of the mechanism for resolving financial entanglements with the National Bank of Egypt and the Ministry of Finance.

Planning Minister Hala Al Said stressed the state's keenness to develop the investment bank, put it on the ranks of advanced investment banks, and continue its pivotal role as one of the important economic and investment arms of the state.

These events were preceded by actions that suggest that the national investment bank's roles in the government economy have been significantly reduced.

The first of these measures came under the Social Security and Pensions Act 2019, when Egyptian pension funds were transferred from the bank to the Ministry of Social Solidarity.

The Bank subsequently lost some of its roles in financing government agencies, sectors and companies after the latter was granted the right to negotiate foreign loans from abroad individually, reducing borrowing from the investment bank.

The bank was also prevented from issuing investment certificates, the most important liquidity resources issued by government banks on its behalf as a bank that does not deal with the public, according to a press release by economic analyst Mohamed Abu Pasha.

In January 2021, the National Bank (governmental) acquired investment certificates owned by the Investment Bank of all kinds, losing its most important sources of income.

Also, in 2020, the House of Representatives passed a law to eliminate or reduce tax exemptions on profits from permits and bonds enjoyed by some entities to harm the National Investment Bank.

On the point of removing the bank's roles, Abu Pasha told Mada Masr on August 10, 2021: "The National Investment Bank will disappear from the scene after its role has practically diminished over decades."

He noted that the IMF views the Bank as a "ambiguous" entity for offering high-interest investment certificates and financing the purchase of government permits in 2018/19, offsetting the withdrawal of foreign investors from the government debt market.

Indeed, the IMF said in November 2019: The National Investment Bank has a large portfolio of deposits of individuals and state-owned companies, which are not controlled and supervised by the central bank.

News of the liquidation of the government bank or the sale of its assets under the ambitions of the sovereign fund in its assets and after reducing its development roles after four employment contracts, has sparked a lot of controversy on social media sites.

 

Secret Sale

In his estimation of Egypt’s economy, economist Ahmed Zikrallah said: "The Investment Bank was established to provide financing for projects listed in state plans and is therefore a large development bank”.

"The Bank is one of the economic and investment arms of the state, has contributions to the capital of many projects and companies, provides it with loans and continues to carry out businesses," he said.

The risk of selling the bank or liquidating its assets is, according to Zikrallah, "not playing its part in economic and social development in light of the state's lack of funds to finance projects, which makes it resort to other sources of financing."

"What is more serious is that the liquidation or sale of assets came in accordance with an agreement with the IMF as part of an agreement on a $5.2 billion loan, i.e., this trend is dictated to the government and not by its will and therefore a prelude to greater concessions," he said.

The fate of the bank's subsidiaries is unclear, according to the Egyptian expert, who confirms that no government statement has emerged from the bank or the council of ministers on the status of the bank's property, assets and ownership ratios with state projects and companies.

"What we know is little and what we don't know is much, and what local websites have published about the bank's assets and property are some of all, so specialists and the public lack a full picture of the bank's property," he says.

In predicting who will buy those assets and the fate of the sale funds once news of the sale or liquidation is achieved, he explains that "there is a privatization plan going retail or wholesale that reportedly speaks of the transfer of many of the bank's state assets to the sovereign fund."

"If this sale is made, it will mostly be out of surveillance and away from the state budget, there is no control over Sisi's fund, and here we will not know where the funds for the sale of those assets went," he said.

"The biggest problem is the way the bank's assets are assessed, and because the sale and transfer of assets and the resulting funds will be internal to the government and the fund, no one will know how to evaluate, as if states were secretly selling their property," the economist said.

"The Fund is open to Arab, regional and foreign entities, and some of the bank's assets may be transferred to the sovereign fund, and therefore to Arab, foreign or Israeli companies regardless of whether they are strategic and important for national security and the state economy," he said.