Oil firm cuts stake in Egypt as private investment dwindles

September 08, 2013 - 12:58:02 am

CAIRO: Since sinking its first oil well in Egypt’s Western Desert in 1994, Houston’s Apache Corp. has locked up exploration rights for nearly 10 million acres and become the largest US investor in the country — a corporate symbol of America’s stake in Egypt’s success.

Last week, amid what company executives said was uncertainty about the country and a shareholder call to “validate” its presence there, Apache announced it would sell a third of its Egyptian operation to China’s Sinopec and invest the $3.1bn payment elsewhere.

The sale, Apache said, was part of a broader shuffling of its business, not solely a decision to divest from Egypt, where it will continue to manage the joint venture with Sinopec and maintain a 9,000 person workforce.

But it’s also a sign of the difficulties ahead as Egypt tries to heal its deeply divided society, a process considered critical to US interests in the region. Facing a collapse of new foreign investment, growing debt and a multitude of economic constraints, the decisions made by companies like Apache in coming months could prove critical to whether the existing military government or any successor is able to improve conditions, generate jobs — and succeed where ousted president Mohammed Mursi failed.

Business officials acknowledge it will be difficult to undo the damage of the past year’s turmoil, and revive the country’s ability to grow on its own. According to the latest World Bank data, foreign firms globally were investing about $11bn a year into Egypt as of 2007. But in 2011, they took $500 million out of the country.

“Anybody looking at Egypt now is saying wait and let’s see what happens and that is completely understandable,” said Hisham Fahmy, head of the American Chamber of Commerce in Egypt. “It is going to take a bit more work.” The Apache sale does not necessarily augur an exodus of other US firms from Egypt. 

Chevron did recently announce the sale of its network of gasoline and fuel stations in the country. But Fahmy said that other large US investors — firms like General Motors, Proctor & Gamble and Microsoft — said in recent meetings that despite the country’s troubles they had no plans to scale back.

U.S. government statistics indicate an economic relationship in limbo. According to Bureau of Economic Analysis data, US companies have continued through two years of political and economic turbulence — from the popular uprising that led longtime president Hosni Mubarak to leave office through Mursi’s ouster — to keep local earnings there, whether to reinvest or because of US or Egyptian tax laws.

The total value of private US holdings in Egypt actually rose over the past two years, from $14bn to more than $17bn. But the increase was more than accounted for by the locally generated earnings from existing investments, and concentrated in the oil and gas sector.

Elsewhere in the Egyptian economy — in the manufacturing, chemical, technology and other industries the country is hoping desperately to expand to generate jobs and growth — money has been trickling away. Major international banks and investment firms, have been quizzing local executives about whether the country is a safe place to invest, or one where security conditions and economic policies will remain erratic.

Hard currency has become so scarce the Egyptian central bank auctioned dollars and other major currencies this week so import firms could pay for staple goods like milk and wheat. 

Since Mubarak’s fall from power, Egyptian judges have invalidated prior sales of some state owned assets going back as far as 15 years on the grounds that they were sold too cheaply in deals that proved the corruption of the prior regime. The government is supposed to again take over those companies. While the investors are supposed to get their money back, the rulings have been a blow to any image of Egypt as a predictable place to do business.

There is a strong nationalistic streak in Egyptian economic debate, stemming from the epoch when military leader Gamal Abdel Nasser nationalised much of the economy. Apache Corp executives did not explicitly raise that risk in announcing the sale. But in a recent call with analysts chief executive G Steven Farris acknowledged the pressure from stockholders to justify a continued stake in Egypt.