CAIRO: The privatization of monopolistic and highly profitable Eastern Tobacco S.A.E is not in the cards for the foreseeable future, according to a company insider.
The source, who preferred to remain anonymous because they were not allowed to speak to the press, told Daily News Egypt that there were currently no plans to privatize the company, nor were there plans to privatize it in the future.
“The decision to privatize the company has been delayed, there is no talk about it currently, the source said, “especially in light of the massive project currently underway of moving all the company factories to Sixth of October city. There is currently no room of discussing this.
Talk had circulated late last year of privatizing the company to help slash the budget deficit and reduce ever growing inflation, which has topped 12 percent.
The Eastern Tobacco Company, also known as Al-Sharqiya lil Dukhan, produces all the local cigarettes in the market, from the cheapest Cleopatra brand to the upscale Merit and Marlboro brands.
“We don’t need to privatize the company. It is a monopoly with its own unique set of circumstances. It is a government decision not to privatize and it will be the government that decides if it will be privatized, the source said.
The government faced widespread opposition in parliament over talks of the company’s privatization in the past, but it seems to have changed tack.
Speaking at the annual NDP conference last Sunday, Minister of Investment Mahmoud Mohieldin said that not all public sector companies would be sold off.
“The fact is that we are not going to sell off all state-owned companies, he said, adding that the assets of public sector companies determine whether they will be sold off.
Rather than selling profitable companies, Mohieldin talked about management changes that took place in 70 percent of public sector companies. The government also allocated LE 3.5 billion to improve the financial standing of these companies.
However, Mohieldin stressed that there was need for more foreign investment in Egypt to meet the increasing demand for jobs imposed by a 1.9 percent annual population growth rate.
Market investors have been interested in finding out whether the company would be privatized. Currently, the price of the company stock stands at over LE 400 a share and the stock is highly illiquid.
A market source previously told Daily News Egypt on condition of anonymity that “the privatization of Eastern Tobacco is not as simple as the companies on the government’s privatization list for many reasons.
“Firstly, this is a profitable company as opposed to your usual public company that operates at a loss. Secondly, tobacco is a strategic good and we are the highest consumers in the Arab world, the source explained.
“There are fears that if the company is privatized, the prices may be hiked and you don’t want to tell Egyptian smokers that the price has increased in this environment of high inflation, [especially] after the increase in oil prices.
Egyptians are the biggest consumers of tobacco in the Arab world. Total consumption in 2003 was 61.8 billion cigarettes and is expected to rise by eight percent, according to Euromonitor International, a global market research and analysis company.
A joint subsidiary company, the Eastern Company was established in 1920 and made LE 500 million profit after tax for the year ending June 2006, according to its financial statements.
Its cash receipts from customers totaled over LE 7 billion.
