US embassy cable - 05CAIRO5083

C O N F I D E N T I A L SECTION 01 OF 02 CAIRO 005083 
 
SIPDIS 
 
E.O. 12958: DECL: 07/06/2015 
TAGS: EAID, ECON, EFIN, EINV, EG 
SUBJECT: PDAS CHENEY'S MEETING WITH GOE MINISTER OF 
INVESTMENT 
 
REF: MANAMA 0705 
 
CLASSIFIED BY CHARGE MICHAEL CORBIN FOR REASONS 1.4 (b) AND 
(d). 
 
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Summary 
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1.  (C) NEA PDAS Liz Cheney met with Egyptian Minister of 
Investment Mahmoud Mohieldin to discuss the Fund for the 
Future.  The U.S. envisioned contributing $50 million to the 
Fund, Cheney explained, and would like Egypt to participate 
along with Morocco, which had already agreed in principle to 
contribute $20 million.  Mohieldin said the Prime Minister 
had given initial approval for Egypt to join the Fund. 
Mohieldin gave a briefing on the status of Egypt's 
privatization program, noting that a total of LE 5.4 billion 
had been generated from privatizations in the year since the 
Nazif administration took office.  He had also recently 
assured prospective investors that privatization would not be 
slowed by the election year in Egypt.  End summary. 
 
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Fund for the Future 
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2.  (C) PDAS Cheney met with Egyptian Minister of Investment 
Mahmoud Mohieldin on June 29 to discuss the Fund for the 
Future (reftel).  NEA Senior Advisors King Mallory and Gamal 
Helal and consultant Ahmed Dabbous accompanied Cheney and 
explained that the Fund's goal was development of the middle 
class through investment in medium-sized businesses.  The 
U.S. envisioned committing $50 million to the project, they 
said.  Mallory and Dabbous had recently arrived from Morocco 
where they had met with government officials in the foreign 
ministry, ministry of finance and prime minister,s office 
and had obtained a preliminary verbal commitment from the 
Government of Morocco to contribute $20 million.  The U.S. 
would like Egypt to join the fund and make a financial 
commitment similar to Morocco's.  Although the Fund would be 
limited to Morocco and Egypt in the short term, it could 
later be expanded to include other countries in the BMENA 
region.  Should Egypt join, it would have an individual 
account, as would Morocco.  All money contributed to the Fund 
by Egypt would be used exclusively for projects in Egypt. 
 
3.  (C) Mallory explained that, for legal reasons, the Fund 
would have to be incorporated in Delaware, but would operate 
through two offices in Egypt and Morocco.  The governments of 
both countries and the U.S. would appoint top representatives 
from their respective private sectors to sit on the Board of 
Directors.  The Fund would be run along commercial lines, but 
the Board of Directors could take factors other than return 
on investment into consideration when making funding 
decisions and evaluating the success of funded projects. 
These factors might include job creation and improvement in 
the overall investment climate, though the expectation of 
anything less than a market return would not be made public 
to avoid deleterious effects on industry economics.  The 
Board would also have discretion in determining the size of 
projects and companies to fund (i.e., how to define a "medium 
size" business) and in what sectors of the economy to 
operate.  A Board of Advisors, which would advise the Board 
of Directors, would contain government representatives and 
international investment experts.  After ten years, the Fund 
would undergo an assessment to determine whether to continue 
operations or liquidate.  In the case of liquidation, each 
government would receive its pro rata share of the 
liquidation proceeds. 
 
4.  (C) Mallory mentioned that eleven similar funds with a 
total U.S. investment of approximately $1 billion were 
established in Eastern Europe after 1989.  Those funds 
succeeded in raising an additional $3 billion in private 
capital for co-investment and in creating a quarter of a 
million jobs during their years of operation, though some of 
the funds were more successful than others.  Success was 
largely 
determined by the level of support provided by the government 
economic team, and the quality of the Board of Directors and 
management team of each fund.  Morocco and Egypt were chosen 
as the first two countries to participate in the Fund for the 
Future because of the strong commitments of their respective 
governments to economic reform. 
 
5.  (C) Mohieldin responded positively to the presentation, 
stating that he had received preliminary approval from the 
Prime Minister for Egypt's participation in the Fund.  He 
noted that the Fund would be easier to sell politically if it 
were actually established in Egypt and asked if it was 
possible to obtain Egypt's financial contribution from the 
private rather than the public sector.  Mallory responded 
that opening an office in Egypt was an integral part of the 
proposal, and that a contribution from the government budget 
would show a strong government commitment to the program ) 
however the USG was open to contributions that came from both 
on- and off-budget sources.  Mahmoud Attalla, Vice Chairman 
of the General Authority for Investment and Free Zones, 
questioned why only one Fund would be established and not 
two, since two recipient countries would be involved.  He 
also questioned why the U.S. was only committing $50 million 
to the Fund when it had committed $1 billion to the East 
European funds.  Mallory responded that two funds were not 
necessary, as the U.S. contribution to the Fund could be used 
for either Egypt or Morocco.  He further explained that the 
U.S. had not invested $1 billion in the East European funds 
up front, but over the fifteen-year-plus life of the funds. 
The U.S. could potentially make additional contributions to 
the Fund in the future, if it proved successful. 
 
6.  (C) Cheney raised the issue of including other potential 
donors in the Fund.  The plan was to unveil the Fund at the 
upcoming G-8 Forum for the Future (FFF) meeting in Bahrain in 
November.  The G-8 would therefore have to be brought into 
the planning for the Fund, which would mean approaching other 
potential donors.  Mohieldin agreed that other donors should 
be approached and said he would consider how this could be 
done.  Mallory added that a draft MOU would soon be 
circulated in Washington, Rabat and Cairo to begin preparing 
for a signing ceremony at the FFF meeting in November. 
 
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Privatization 
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7.  (C) Turning to other issues, Cheney asked how the GOE 
privatization program was progressing.  Mohieldin noted that 
the Bank of Alexandria (BOA) privatization was well underway, 
as was an audit of the other public banks.  Although the BOA 
privatization might not be completed by the 12/31/05 target 
date in the U.S.- GOE Financial Sector MOU, the process would 
be almost complete by that date.  The joint venture banks, on 
the other hand, would all be fully privatized by the target 
date in the MOU, if not sooner.  In the area of other 
financial services, the public insurance companies were being 
restructured for eventual privatization, and this process was 
proceeding even faster than the bank privatizations.  The 
World Bank and USAID would also be establishing a mortgage 
finance facility in the next few weeks. 
 
8.  (C) Mohieldin also discussed privatization of formerly 
"strategic" industries.  The Sidi Krir Fertilizer company was 
recently sold on the Cairo-Alexandria Stock Exchange and 
within days of issuing the stock, the price per share rose 
from the initial offer of LE 70/share to LE 105/share.  An 
advisor had been chosen for the planned partial IPO of 
Telecom Egypt, which would likely happen before the end of 
the year.  Mohieldin also confided that he would be meeting 
with British Petroleum and Chevron in the coming weeks to 
discuss the sale of Egypt's public petroleum companies.  In 
all, LE 5.4 billion has been generated in revenues from 
privatization in the year since the Nazif government took 
office, more than double the amount of proceeds from 
privatization from the preceding year.  Mohieldin concluded 
by noting that he had spoken with investors from the U.S., 
Europe and the Gulf, all of whom had expressed concern over 
Egypt's "lumpy" political reform.  He had assured them that 
the upcoming elections would not slow the pace of 
privatizations or of economic reform in Egypt. 
 
9.  (U)  PDAS Cheney cleared this message. 
 
 
Visit Embassy Cairo's Classified Website: 
http://www.state.sgov.gov/p/nea/cairo 
 
You can also access this site through the 
State Department's Classified SIPRNET website. 
 
CORBIN