Egypt

An Attractive Magnet for International Capital

Despite the global economic crisis in 2009, Egypt managed to sustain a 4.7% growth in GDP – an enviable rate for most countries – largely due to strong growth fundamentals, effective market reforms and a proactive government stimulus.

Egypt’s population of 80 million – the second-largest in the Middle East and Africa – is looking to find its way in an evolving economy in which transportation, telecommunications, retail trade and real estate helped stabilize the country’s economy.

But it is the country’s clear commitment to market reforms and economic liberalization that is unleashing the potential for local entrepreneurs and international investors to tap into the many opportunities in this ancient land, which lies at the intersection of continents, commerce and culture.

Egypt: A Land of Opportunity in a Region of Opportunity

Ask any regional investment house or large merchant family where they see long-term growth and opportunity in the Middle East and North Africa, and their answer will almost always be Egypt. Egypt offers tremendous potential for investors and entrepreneurs from around the world because of its large and fast-growing population, rising incomes and increasingly business- and investment-friendly legal and regulatory environment.

As the third-largest Arab economy, Egypt felt the effects of the global economic crisis. However, it has withstood the headwinds better than most, managing a 4.7% growth in GDP in 2009 and forecasting growth of 5% and 5.5% for 2010 and 2011, respectively. Sectors such as real estate, consumer goods, telecoms and even banking and finance were impacted far less in Egypt than in other regional and international markets. Furthermore, Egypt’s oil and gas sector continues to provide strong support to the national economy.

The IMF said that five years of reforms and prudent macroeconomic policies, along with appropriate fiscal and monetary stimuli, allowed the government to proactively respond to the global financial crisis and cushion the local economy from the worst effects.

Those reforms afforded the banking sector much resilience. The industry has registered strong growth in loans, assets and its balance sheet as it attracts more first-time customers into the banking system.

The young and growing population is one factor contributing to the vibrant real estate industry, which is building new developments in Cairo’s growing suburbs and new cities, as well as along the Mediterranean and Red Sea coasts and beyond.

Demographics also are driving growth in the telecom sector, where operators are delivering a range of added services and content to meet their customers’ needs.

The country’s competitive environment has created a large number of family-owned and publicly traded companies that originally may have served the local Egyptian market, but have expanded regionally and globally. Some have maintained private status, while others have sought to list their shares locally or on European exchanges. Egyptian firms are operating in countries around the globe, including North Korea, Iraq, Siberia, the Central African Republic, Italy and Canada.

Another common factor among many Egyptian firms is their prudent debt management. The government has likewise behaved responsibly during the past five years, which the market is rewarding by pricing sovereign and credit-default swaps at rates below pre-Lehman-collapse levels and, on average, below other emerging markets.

All together, Egypt has abundant opportunities for investors eager to enter a market that is an increasingly important and visible component of the region and global economy.

Banque du Caire: A Fast-Growing Bank Serves Egypt’s Fast-Growing Banking Sector

In Egypt, only half of the 30 million “bankable” customers are part of the formal banking system. Banque du Caire, with one of the strongest balance sheets in the region and the third-largest branch network in Egypt, is ideally positioned to capture many of those potential customers.

The bank serves 1.9 million retail and corporate customers through 229 outlets and branches across the country. It has a leading position in a wide range of retail- and corporate-banking services, including trade finance, and more than 100 correspondent banking relationships to serve Egypt’s increasingly international business community.

Banque du Caire also is the top lender of loans against salary transfers, totaling $669 million to approximately 375,000 borrowers. In 2009, it launched a small and medium-size enterprises department, a vital sector of the Egyptian economy and the government’s development plans. In addition, Banque du Caire is the top Egyptian banking institution providing micro-finance in the country, with a current loan value of $65 million and 100,000 participants. The service, which has had a total turnover of $616 million since its inception, is a high priority for the government, as it seeks to help people out of poverty and support a growing private sector.

All of these endeavors are supported by a dynamic top-down restructuring of the bank’s entire organization, which began in late 2008. All first- and second-tier management positions are filled, and a revamped and robust risk management department is in place. Customer service is a crucial component of these efforts. Major resources have been put into training programs, which, along with operational changes at the branch level, have reduced the average wait time for a teller to ten minutes.

The bank has a capital adequacy ratio of 17%, a liquidity ratio of 45% and a loan-to-deposit ratio of 30%. In one year’s time, its balance sheet has grown to $7.5 billion from $6.7 billion and its loan portfolio to $2.2 billion from $1 billion, the fastest loan-portfolio growth in the country.

In the overall Egyptian banking sector, deposits made to the country’s 41 banks have risen to $153 billion from $118 billion over the past two to three years, according to Mohamed Kafafi, Vice Chairman and CEO of Banque du Caire. Total banking sector loans have risen to $79 billion from $67 billion during the same period.

Kafafi says the bank plans to evolve its corporate identity to better convey its key attributes: trustworthiness, a 58-year tenure and customer-centric focus. And that’s just what customers, both new to the formal banking sector and those long familiar with it, will want to hear.

Mansour Group: A History of Success Across Industries, Geographies and Generations

It’s the kind of family history that books are written about: The grandfather, who studied at Cambridge, was the largest private cotton trader in Egypt in the mid-1900s and successfully competed head-to-head with European giants. Today, his three sons lead the $4 billion family-owned Mansour Group with operations on three continents, including a soon-to-open family office in Knightsbridge, London.

The family office – a mid- to large-cap private equity fund – is the third phase in the company’s development strategy, which began in 1975 with the signing of the GM distributorship in Alexandria, Egypt. Today, Mansour Automotive Company (MAC) is the largest GM dealer in the world, selling 83,000 units in 2009. Furthermore, GM holds a 10% equity stake in MAC. MAC also is the largest Egyptian shareholder in the country’s first private-sector automobile manufacturing plant, which is a joint-venture operation between the Mansour Group and General Motors Egypt.

In 1977, Caterpillar selected Mansour as its authorized dealer in Egypt. Since then, through its MANTRAC subsidiary, the Mansour Group has grown the business into nine countries in Africa and the Middle East, as well as gas-rich Siberia.

Thinking Long Term

The Mansour family took a great risk when it began MANTRAC Vostok, given the situation in Russia, in the year 2000. But Mohamed Mansour, President of the Mansour Group, says the opportunities were there for those who could see them.

“The territory is home to 30% of global gas reserves, and I said there will be a time when Russia picks up. We’ll take that territory and invest in it for the long term, because that’s how the Mansours think; we don’t think short term. And then we broke even the first year.”

In 1996, MANTRAC bought the Caterpillar dealership from Unilever in six African countries for $60 million, making MANTRAC “one of the first private-sector companies in Egypt to cross borders and make acquisitions,” Mansour says.

As a result, today MANTRAC is one of the largest Caterpillar dealers in the Middle East and Africa. It also is the distributor for a number of other blue-chip global brands, including Samsung Consumer Electronics, Michelin, Microsoft, IBM, HP, Dell and Xerox.

In 1992, Mansour Distribution Company, which is run by brother Youssef Mansour, was launched, and today it markets, distributes and – through a third-party manufacturing facility – produces Phillip Morris-brand cigarettes. This business unit also owns Metro, the largest supermarket chain in Egypt, and a range of juice, water and dairy products. Manfoods is the group’s fast food division, which operates the McDonald’s franchise in the country and has captured a 33% share of Egypt’s fast-food business through its 69 outlets. This subsidiary of the group is chaired by other brother Yasseen Mansour.

Private Equity

In 1997, the Mansour Group moved into the second phase of its development by launching a private equity arm, MMID, which is focused on investments within Egypt and the wider region. Today, the fund, which is also managed by Yasseen, has a net asset value of approximately $2.3 billion, with investments in areas such as real estate, financial services, construction and manufacturing.

MMID’s investments include Palm Hills, one of the country’s leading developers and the second-largest owner of real estate in Egypt; and Credit Agricole Egypt, a top-ten bank by assets that offers retail, corporate and investment-banking services.

Family Office

The family office in London will provide the Mansour Group with a platform for global investments. The fund will leverage the group’s 35,000 employees, management depth and 35 years of experience building businesses to help portfolio companies expand and move into new territories. “We have a lot of experience in that,” Mansour says.

Furthermore, after helping these portfolio companies grow and operate more efficiently, Mansour Group may have the option to retain them within one of its existing business units.

While the geographic scope of the fund is global, the initial sector focus will be in areas in which the family already has a great deal of experience, such as real estate and industry. At a later stage, it may look at mining and commodities opportunities, Mansour says.

What’s clear is that the Mansour Group has made its mark – and even made history – in Egypt and the wider region. Now, through its family office, it seeks to bring this legacy to companies on a much wider scale and leverage its history of success across industries, geographies and generations.

Orascom Telecom: Operating on a Global Scale, One Customer at a Time

Orascom Telecom is developing a service in Egypt for downloading full length Arab movies to mobile phones, legally and without cost. Through its subsidiaries and affiliates in Egypt, the Middle East, Asia and Canada, the holding company is piloting mobile advertising; in Pakistan and Bangladesh it is testing mobile banking; and in Canada and Egypt it is rolling out “software as a service.”

These software services are available to small and medium-size enterprises (SMEs) for lease instead of purchase, meaning SMEs don’t have to make large capital investments in information technology. It’s an example of how the company is looking beyond delivering just voice and data connectivity to SMEs and “more and more to be their IT service provider,” says Khaled Bichara, Group CEO.

The company will retain its core role as a provider of high-quality, high-value mobile services and fixed-line, broadband and VSAT connections. But there also are opportunities to build on “the existing relationships we already have with customers and our knowledge of them, to be more valuable to them by adding these additional services,” Bichara says.

Global Scope

Orascom Telecom operates directly and through affiliated companies in 11 countries. It is publicly traded on the Egyptian Exchange and has a GDR on the London Stock Exchange.

Orascom Telecom owns assets in Egypt, Algeria, Tunisia, Pakistan, Bangladesh, Canada and North Korea, and through its subsidiary Telecel Globe, it operates in the Central African Republic, Namibia, Burundi and Zimbabwe.

Its parent company, Weather Investments – an investment company whose chairman, Naguib Sawiris, is the Executive Chairman of Orascom Telecom – also owns operations in Italy and Greece. Unquestionably global in its scope, the group has determined that its success depends on becoming more valuable to each of its customers.

125 Million Subscribers

The leading telecom operator has grown from 200,000 mobile subscribers in Egypt to more than 125 million customers in North America, Europe, Africa and Asia by building the business organically in companies it owns, as well as through the acquisition of Greenfield licenses and existing licenses and operators. A clear ownership and decision-making structure “allows us to be much faster in making strategic decisions,” Bichara, Group CEO for Orascom Telecom and Weather Investments says.

The group understands that, due to the current economic environment, it won’t grow its global subscriber base as fast over the next ten years as it did during the past decade. So, “more and more, our focus is on finding new services for our 125 million customers,” Bichara says.

The Egyptian Exchange: The Oldest, Most Open and Innovative Exchange in MENA

With origins dating back to 1883, The Egyptian Exchange is the Middle East and North Africa (MENA) region’s oldest, most open and innovative exchange. In 2009, it was also the best performer, realizing 35% gains over the year and a market capitalization of $90 billion at the end of 2009. Currently, it is preparing to launch the region’s first ETF and will introduce market making and short selling. Derivatives trading also is under consideration. These new products will complement the exchange’s existing asset classes: equities, government and corporate bonds, and mutual funds.

In March, the exchange worked with Standard & Poor’s and CRISIL to launch the S&P/EGX ESG Index, which charts environmental, social and corporate-governance activities. On June 3, 2010, it began its NILEX platform, the first exchange in the MENA region for small- and medium-cap firms.

EGX has recently implemented the Millennium IT Software Limited’s Trading Surveillance System, which quickly spots market abuses. Soon it will roll out EGX FIX HUB, which will expand market liquidity by increasing cross-border trading in the region through a unique connectivity feature. This will provide connectivity services for Egyptian and international brokers, and open up new revenue streams and opportunities for brokers and investors.

Furthermore, the exchange boasts attractive benefits such as competitive listing and trading fees; listing rules that enhance the market’s depth and governance; no restrictions on foreign investment; repatriation of capital or profits; no dividend or capital gains taxes; and equal treatment of foreign and Egyptian investors. All this makes EGX a distinguished exchange positioned as the primary gateway for investment in MENA.

Orascom Development: Building Towns in Europe, the Middle East and Africa

The Orascom Development business strategy is simple: Be the first mover in any place you go. Orascom builds towns in scenic locations untouched by tourism or leisure development. With its mantra in mind, it made history by becoming the first Middle Eastern company to list its shares on a European board when it entered the Swiss Exchange in May 2008. It was a strategic move for the company, demonstrating its high level of transparency, good governance and sound compliance with world-class regulations and development standards.

Today, Orascom Development has a land bank of approximately 144 million square meters spread over nine countries: the U.K., Switzerland, Romania, Montenegro, Jordan, Morocco, the UAE, Oman and Egypt. Its flagship development, El Gouna, started over 20 years ago and encompasses a total land area of 36.8 million square meters, 11.2 million of which have been developed. El Gouna is now a self-sufficient resort town with 25,000 inhabitants and 15 hotels.

Other projects include Taba Heights in Egypt and The Cove in the UAE – both resort developments – and Haram City, a budget housing development in West Cairo that is home to more than 20,000 people, with an aim to reach 200,000 over the next 10 years.

Amr Sheta, Vice Chairman and Co-CEO, says that governments and municipalities are the company’s biggest partners because they see the benefits of an Orascom Development town project. “They might want to create a new town, provide housing for the masses or place their city on the niche traveler’s map,” he explains.

An Orascom Development town combines hotels, private villas and apartments with leisure facilities such as golf courses and marinas, as well as the supporting infrastructure to provide a fully integrated resort town.

Because perceptions about the future are intrinsic to the real estate business, having a solid reputation among buyers and other partners is crucial. Sheta attributes the company’s reputation to its strong balance sheet, consistent delivery record, and commitment to a “systematic and phased approach to building its towns and a focus on setting simple milestones.” The company uses pre-sales to fund development combined with a phased approach to building. This resulted in approximately $510 million in revenue, $121 million in profits, total assets of $1.75 billion and a leverage ratio of about 0.78 in 2009.

Though Orascom Development is not the largest real estate developer in the region, its global footprint is indeed significant. Says Sheta, “You don’t need to be the largest; you need to be the most diversified, because real estate is a cyclical business and you don’t want to be going in the same cycle in the same place if all your projects are in the same country.”

Naeem Holding: Regional Leader in Brokerage, Asset Management and Investment Banking

In the years leading up to the global economic crisis, Naeem Holding was aggressive in its investment strategies across MENA. But in early 2008, its research and asset management teams began to see troubling indicators. In mid-2008, Naeem exited its proprietary and client positions in Dubai real estate, stopped all leverage and moved out of equities.

It hasn’t made any new investments since that time, says Youssef El Far, Co-Founder and CEO of Naeem Holding, because “this region is a long-only market. When it’s going down, you can’t short the market; you can only step aside and wait,” as there are almost no derivative contracts or ETF products, and regulators don’t allow short selling.

As demonstrated by its early warning on the global crisis, Naeem Holding has one of the best research departments of any regional investment bank, providing clients with broad coverage on a variety of asset classes. Its asset management is equally strong, having registered the best performance in the region for nearly 12 consecutive quarters between 2003 and 2006. The firm also provides a huge advantage to its international clients looking for a single window and regional partner.

Most clients are international and regional institutional and high-net-worth investors. The firm is listed on the Egyptian Exchange, has $1 billion in assets under management and employs 350 people in its Egypt headquarters and Dubai and Abu Dhabi offices. It plans to add a Doha office and representative office in Libya this year.

Although El Far predicts that “the second wave of the crisis is going to be aggressive,” he expects the firm to be fully invested in MENA public and private equities by year-end. “From September on will be the best time to invest,” he says.

Palm Hills Developments: Pioneering the New Look of Real Estate in Egypt

In 1997, when Palm Hills Developments began construction on its flagship community in 6th of October City, it was operating in uncharted territory. The land, approximately 45 minutes from downtown Cairo, was remote by the standards of the time, and no developer had previously set foot there. But the company had a vision to create a master-planned community with lush landscaping, a members-only club and other facilities that would make it a refuge from the hustle and bustle of life in one of the world’s largest cities. Called Palm Hills October, the project has set the benchmark for up-market, luxury developments across Egypt today.

Palm Hills Developments has experienced impressive growth, and today enjoys the largest and most strategically diversified land bank in Egypt, which was independently valued at $6.9 billion as of November 2009. Its vertically integrated business model includes an in-house construction company; it is the only developer in Egypt to have one.

The firm has launched over 20 projects in Egypt (and two projects in Saudi Arabia), including 10 that are currently under construction. Among the most distinctive is Palm Hills Botanica, which, as the name implies, will integrate a residential community within a lush, man-made botanical garden. Also, the company’s Palm Hills Mall in East Cairo will feature unique, natural-light-infused architecture and a one-of-a-kind retractable roof.

With several leading Egyptian holding companies as major investors, Palm Hills Developments enjoys a strong reputation with banks, customers and strategic partners, including Coldwell Banker, Taj Hotels, The Ritz-Carlton, Nikki Beach and Nicklaus Design. The firm operates across residential, commercial and hospitality sectors, and in both the high- and upper-middle-income residential construction sectors in Cairo’s East and West axis, on the Red Sea and the Mediterranean Coast.

“This gives us relative stability in cash flow and helps us overcome seasonality. And because we have a strong sales team and the ability to make off-plan sales, we have well-diversified revenue streams,” says Yasseen Mansour, Chairman and CEO of Palm Hills Developments.

The company also is actively diversifying its recurring revenue streams. For example, it acquired a 60% majority stake in the hotel and tourism operator Macor in February.

Palm Hills Developments, which is traded on the Egyptian Exchange and through a dual listing on the London Stock Exchange, has found success in fundraising, having raised $194 million in syndicated loans from local banks and $124 million in a rights issue that closed in April. Most investors are Egyptian, with a growing share of Gulf Arab (3.4%) and foreign (9.6%) investors, Mansour says.

However, no matter how diversified the company becomes, Mansour explains, a few key characteristics apply across all its projects: “Simplicity, luxury, spaciousness and comfort.”

This project was produced by Intermedia, Dubai Managing Director: Vivienne Davidson Project Directors: Amy Boeker and Veronica Landry www.forbescustom.com/egypt All monetary figures are stated in U.S. dollars unless otherwise indicated.