SCAF-amended investment law used to reconcile Shebin El Kom

A controversial law on investment pushed through by the ruling military council in January is being used to reconcile a dispute between the state and private investors in the Misr Shebin El Kom Spinning and Weaving Company.

Amendments to the investment law that were passed by the army prior to the formation of Parliament state that all criminal charges will be withdrawn from private sector investors involved in corruption cases if they agree to pay back the difference in price between what the asset was purchased for and what its actual value was at the time of purchase.

Prime Minister Kamal al-Ganzouri, head of the military-appointed cabinet, has put Planning and International Cooperation Minister Fayza Abouelnaga in charge of the portfolio for reconciling such disputes, Al-Masry Al-Youm reported in late March.

Abouelnaga is said to have requested the sales contract and file of Shebin El Kom, which was returned to the state last September by a court order that found the company and land were sold at a below-market price in 2007. Workers allege that the factories and workers were mismanaged by Indonesian investor Indorama Group. The minister is preparing to reconcile the dispute with Indorama, Al-Masry Al-Youm reported.

“This means the private investor in the Shebin El Kom case will only need to pay back LE22.5 million, despite having owned and got the benefit out of the factory for the last five years,” says Heba Khalil, a researcher at the Egyptian Center for Economic and Social Rights. The center has been heavily involved in the case.

Khalil said it was in fact illegal to sell the state-owned company at the time, because it was profitable.

“The year before it was sold to the Indonesian investor, the company made net annual profits of LE12 million,” she said.

Indorama is accused by the factory’s workers of letting the company’s standards deteriorate over the years — particularly in its production output — and of mistreating workers. Many workers were let go over the years, and those who remained were made to work for longer hours and lower wages. One factory was converted into a tobacco production facility, which Khalil said was also illegal.

“Workers associate the state with job security, and the private sector with hunger, poverty and no security,” Dalia Musa, the Egyptian Center for Economic and Social Rights’ media coordinator, also said. She is in touch with workers’ demands and has helped put together a video of worker testimonies.

Shebin El Kom employees say their conditions as workers were better when it was a public sector company.

“They had an autobus to take them to work, job security, and they used accessories in the factories that were made in Egypt, not imported as they are now,” Musa added.  

Musa said the workers are willing to take on running the company and bringing it back onto its feet to make sure it stays in public sector hands rather than be handed over to the private sector again.

“They’re saying, give us the raw material and we will make the company work,” she said.

But the government is also keen to return the company to the private sector given the strain on public finances. This is one of the reasons lawyers and analysts have said the Supreme Council of the Armed Forces pushed through the law so keenly; it is one way for the government to start retrieving some cash quickly and bring hesitant investors back to the table. This comes in the context of fast-declining foreign reserves, a looming currency devaluation, an increasing budget deficit, and investors that have so far shied away from the Egyptian market amid political turmoil.

Shebin El Kom is still the subject of a court case, the latest of which has been postponed until 15 May. The government has been appealing the decision to return the company to the state, and scenes of disappointed workers clashing with military police have become commonplace outside the courtroom. 

The State Council is also hearing similar cases involving public sector companies that were sold in corrupt deals by the former regime to private investors. These include: Al-Nasr for Steam Boilers, department store Omar Effendi, and Tanta Flax and Oils Company.

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