Technical Assistance Project for Privatization, Enterprise, and Banking Sector Reform Report No: ; Type: Report/Evaluation Memorandum ; Country: Egypt; Region: Middle East And North Africa; Sector: Institutional Development; Major Sector: Public Sector Management; ProjectID: P005167 Arab Republic of Egypt: Technical Assistance Project for Privatization, Enterprise, and Banking Sector Reform (Credit 2402-EGT) The Egypt Technical Assistance Project for Privatization, Enterprise, and Banking Sector Reform, supported by Credit 2402-EGT for SDR6.6 million (US$9 million equivalent), was approved in FY92. The credit was cancelled at the request of the Government of Egypt in November 1996 at which time only US$455,000 had been disbursed. The project was supported by five cofinanciers. The Implementation Completion Report (ICR) was prepared by the Middle East and North Africa Regional Office. Coming after the Bank’s Structural Adjustment Loan (SAL) and an IMF Standby Agreement in FY91, the Technical Assistance Project (TAP) was designed to help improve the overall efficiency and productivity of the economy through privatization and the reform of the policy environment in which public sector enterprises operated. The project also intended to support the Government’s efforts in carrying out banking and financial sector reforms. Specifically, the project had three objectives: (i) institutional development of the Public Enterprise Office (PEO) and the Central Bank of Egypt (CBE) to design and implement the public enterprise reform and privatization programs and the banking sector reform program, respectively; (ii) training of the PEO’s Holding Companies’ (HCs) and Affiliated Companies’ (ACs) executives and board members; and (iii) preparation of strategies and plans to privatize or restructure Public Enterprises (PEs) and assistance with specific privatization transactions. The project had several components: (a) consulting services to assist with the preparation of privatization of 65 ACs’ major assets; (b) developing the capabilities of the PEO over a 5-year period and recruitment of an international team of experts to help with the design and monitoring of privatization and PE reform programs; (c) training and seminars for senior and middle managers; and (d) design and implementation of a comprehensive banking sector reform program. At the request of the Government, the project components were refocussed in March 1995 and the Credit proceeds reallocated largely to PE restructuring. The project failed to achieve most of its objectives. All the risks envisaged at appraisal materialized: once the debt crisis had passed and in the face of political difficulties, the Government’s commitment weakened; institutional development proved to be more time-consuming; the PEO and the CBE could not develop sufficient capacity to carry out very complex operations; and, the privatization target proved to be highly ambitious. Despite repeated urgings by IDA, the PEO was never given sufficient authority to carry out the privatization program. Notwithstanding the aforementioned problems the PEO provided a focal point where donors, experts and all other parties interested in the privatization process could communicate their views. Utilizing grants from other donors, the Government carried out some training courses as well as contracting for professional advisory services for privatization and restructuring. Some progress was also made in the implementation of the banking sector reform component for which IDA played a limited catalytic role in facilitating two organizational studies. Based on the findings of these studies, funds are provided by the European Union to support a modernization effort at the CBE. Even though the PEO’s formation and progress was initially very slow and tentative, it became more active towards the end of 1996, utilizing funds from other donors. According to the latest Country Assistance Strategy, dated May 5, 1997, out of the 31 PEs privatized, 6 were sold to strategic investors, 15 through the stock market and 10 to the employee shareholder associations. A further 11 have been liquidated. Recent reports indicated that privatization may be accelerating somewhat, with nearly 100 enterprises brought into the privatization process during 1997. The sales to date have, however, mostly involved smaller companies or minority stakes of larger companies. OED agrees with all the ICR’s ratings except for the IDA performance which is rated as unsatisfactory. Not only did IDA give in to the pressure to quickly approve the TAP because it was part of an overall drive towards debt relief, thereby weakening the conditions for institutional development, it also refused to cancel the project long after it had become clear that no useful purpose was being served and that there was no hope of the credit being disbursed. The outcome is rated as unsatisfactory, sustainability is rated as likely, and the institutional development impact as modest. In addition to the need for Government commitment in technical assistance projects, the key lessons are that: (i) when the risks in a TA project are known to be high from the outset, the design should be adjusted to mitigate the risks; (ii) non-performing projects should be canceled in good time; (iii) project objectives and quantitative targets should be commensurate with a realistic assessment of the Borrower’s implementing capability; and, above all, (iv) complex TA projects should not be formulated under time pressure. Even though the ICR could have contained supplementary information such as comments by the Borrower and cofinanciers, or the Aide-Memoire, its quality is rated as satisfactory because it deals candidly and comprehensively with the implementation experience and the reasons behind the disappointing outcome. No audit is planned.