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Our World
Monday, February 6, 2017
EGYPT
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Tough decisions get Egypt back on track
I
n spite of the many
great challenges that
Egypt continues to face
as a nation following an
extremely tumultuous
recent period in terms of
security and economic issues,
2016 turned out be another
breakthrough year on certain
fronts.
The new reform program seeks to revive Egypt’s growth prospects by restoring stability and confidence in the economy, and implementing structural
reforms that will create jobs
“God will also judge and
so will history. All the
difficult decisions that
many hesitated to take
over many years, that
they were afraid to take,
I will not hesitate to take
for one second”
Abdel Fattah el-Sisi,
President of Egypt
If 2015 was marked by the
momentous Egypt Economic
Development Conference – a
bold statement to the world
that the country was back on its
feet again and open to business
(investment deals worth a total
of $130 billion were signed at
the landmark event), 2016 was
characterized by the implementation of the boldest reform plan
seen in Egypt since the 1980s;
reforms that persuaded the IMF
to agree to a long-delayed $12
billion loan program over three
years, intended to restore public
finances and refresh the interest
of foreign investors.
The new reform program
seeks to revive Egypt’s growth
prospects by restoring stability
and confidence in the economy,
and implementing structural
reforms that will create jobs.
As noted by IMF Managing
Director Christine Lagarde
on announcing the loan, “the
program is by the Egyptian
government, for the Egyptian
people, and to help the Egyptian economy.”
Egyptian President Abdel
Fattah el-Sisi has ensured that
he is committed to pushing
through the reforms necessary
to turn the economy around,
seemingly undeterred that one
of major facets of the plan is the
slashing of subsidies, a potentially politically troublesome
issue that previous administrations have thought best to avoid.
“It is not only you who will
judge me,” said President el-Sisi
addressing the nation on the reforms. “God will also judge and
so will history. All the difficult
decisions that many hesitated to
take over many years, that they
were afraid to take, I will not
hesitate to take for one second.”
And President el-Sisi hasn’t
gone back on his word. Just
since October 2016 the government has implemented tough
measures that successive governments had postponed, such
as imposing a value-added tax,
capping public sector salary
increases, cutting fuel subsidies, and allowing the Egyptian pound to float so its value
halved against the dollar. While
the immediate impact of these
actions has been a spike in inflation, Mr. el-Sisi has sought
to help the poorest segments
of society with cash handouts
and a government-funded food
program.
As a positive consequence of
the measures in the short-term,
the Egyptian finance ministry is
aiming for an economic growth
rate of 5% in the next financial
year, according to its 2017/18
budget (up from 4.3% in 2016).
The ministry also hopes to reduce the budget deficit to 9.5%
of GDP, and the total public
debt to 94%, while targeting
an unemployment rate of 11%,
down from the current 12.6%.
With further sound implementation of the reform program,
growth could rebound to 6%
by 2021 – similar to the levels
in 2005-2010 – according to
the IMF.
In terms of long-term economic strategy, then there is
Egypt’s Vision 2030 too, of
which the final draft was also
outlined during 2016 by President el-Sisi. The government’s
sustainable development plan
for the next decade and a half
aims to raise GDP growth to
12% by 2030 and expand the
contribution of the private
sector to 75% of GDP up from
60%. Additionally, the unemployment rate is targeted at
5% in 2030 (down from 12.8%
in 2015), while the population
poverty rate should fall to 15%
(down from 26.3%).
On unveiling these ambitious plans, President el-Sisi
pointed to the developmental
progress already made by his
government over the previous 24 months, including the
5,000-kilometer national road
network currently under con-
struction, the state’s success in
addressing its power shortage
problem (new power added to
Egypt’s national grid by the end
of 2017 will amount to half of
the country’s total generating
capacity), as well as the fulfilment of the New Suez Canal
project.
The Vision 2030 program,
which aims to revive Egypt’s
leading role in the Arab world,
is not just a purely economic
strategy however. Aside from
sustainable economic development, the program aims to
turn Egypt into a fairer, more
interdependent society, characterized by equal economic,
social, and political rights.
Whether Egypt can achieve
such lofty ambitions remains to
be seen over the coming decade
or so. But one thing that is for
certain is the immense potential the country holds. It has a
dynamic and young population,
a large market size, a favorable
geographic location, as well
as access to important foreign
markets, while the opening of
the parallel Suez Canal, large in-
“We are a nation that
has developed a survivor
culture. We’re the
only country that has
nowadays almost the
same borders we used to
have 5,000 years ago.
That’s got to tell you
something”
Mohamed S. Younes,
Chairman, Concord International
Investments
vestments in the energy sector,
and the discovery of a major gas
fields also bode well for Egypt’s
development.
Despite the many internal
and external challenges affecting the country, you can always
count on Egyptians to show remarkable grit and determination too, affirms Osama Bishai,
the Chief Executive Officer of
one of the Middle East’s leading
construction and engineering
firms, Orascom Construction.
“Egypt has always been a
country where growth expansion and achievements are
made by real hard work,” he
says. “We never had sudden
influxes of wealthy oil discoveries. It’s all done through hard
work, focusing on markets and
creating value.
“Egypt also represents a huge
consuming market of currently
90 million people. And you can
see that over the years, when its
people and organizations went
through tough times, they’ve
weathered through and sustained their existence. It is the
nature of the Egyptian people.”
Mohamed S. Younes, Chairman of one of the leading fund
managers of Egyptian securities, Concord International
Investments, agrees. “We are
a nation that has developed a
survivor culture,” he says. “We’re
the only country that has nowadays almost the same borders
we used to have 5,000 years ago.
That’s got to tell you something.”
Mr. Younes particularly believes that the key to the nation’s future success lies with its
large youth population. “We’re a
country with 90 million people;
and this is growing at a fantastic
rate,” he stresses. “Twenty-seven
percent of the population is under the age of 30, which is such a
tremendous resource. Embracing this the right way and taking advantage of it is the greatest
challenge.”
The New York-based Con
has seen first-hand the interest
of U.S. investors in the Egyptian
market.
“In the last year, Concord
generated two billion dollars
by selling [Egyptian companies] Amon and Bisco Misr,
which were both sold to U.S.
investors. It’s a matter of timing,
investors are prepared to come
to the market.
“We will keep buying the
companies and offering them,
that’s what we do. We are interested in managing money. We
want to be the best at what we
do, which is investment management, and we want to do this
by being completely focused.
So, we’re not jumping and
venturing into buying banks or
brokers, we’re not interested in
the headlines.”
A UNITED WORLD SUPPLEMENT PRODUCED BY:
Dasha Seddon, Project Director. Oscar Crespo, Editorial Director.
Jonathan Meaney, Chief Editor.
Our World Insert is produced by United World. USA Today did not participate in its preparation and is not responsible for its content
2
EGYPT
Monday, February 6, 2017
Distributed by USA TODAY
Infrastructure and construction expansion
pave the way for steel industry boom
“Because we are the
largest population of the
region. There’s no room
for failure, as the 90
million we represent, it’s
on us to push together
during hard times and
build a straightforward
and strong mentality.”
Egyptian Steel Group was one of the first to invest
in Egypt after the 2011 revolution, a bet that has
clearly paid off as the company now looks to increase
its market share to 20% and achieve a production
capacity of 2.3 million tons per year by 2018 to meet
the rising demand for steel in the country
A
country that only
five years ago
was in the midst
of experiencing
political turmoil
and revolution, Egypt has
come a long way in the last
half of the decade. Last year,
the Minister of Trade and
Industry approved an 820
million EGP ($92 million)
plan to establish an industrial
zone in South Sinai that will
create jobs and attract foreign
investment to the Peninsula.
A vocational school will be
set up as well as low-cost
housing units that will be
made available for workers.
The
Ministry
of
International Cooperation
also announced last year that
with the almost $6 billion in
aid accumulated from the
Arab entities, major efforts
in urbanization of almost
620,000 acres is planned
to link Sinai with the Delta
area,
concentrating
on
infrastructure, roads, water
and sewage plants. These
developments coincide with
the boom of the Suez Canal
Zone project that has the
potential to double revenues
in the next ten years.
The Suez Canal has long
been the prominent economic
stream for Egypt and is
expected to represent 30-35%
of the country’s improving
economy. What the zone also
does is create an opportunity
for even more industrialization
to develop the surrounding
areas and to draw in attention
from investors from across
the globe to the potential of
this region.
The rise in construction
and focus on infrastructure
is bringing into existence
a higher demand for the
production of steel, an
industry in Egypt that has
been expanding since the
1950’s. In the brief period of
time between 2004 and 2010,
steel consumption in the
country rose from 3.4 to 8.5
million tons due to the rising
population and the need for
rapid urbanization as a result.
The construction sector
continues to be affected
positively by the growth of
government projects and
private expenditures. And
though the unrest in 2011 did
cause some stagnation within
the industry, production has
been steadily increasing and
is expected to continue to do
so with the recent sanctions
announced by the Ministry of
Industry.
In March 2016, the
government reduced the price
of natural gas to steel and iron
factories from $7 to $4.50 per
million thermal units. By
doing so, the government
has given companies within
Egypt a much-needed break
on domestic production since
the conversion of raw material
into steel plates is a high gasconsuming process.
The reduction of the price of
natural gas for steel producers
will cost the state an estimated
EGP 1.2 billion ($135 million),
but is expected to increase
the export of steel to $600
million. The current price
of steel ranges between EGP
4,500-4,800 per ton and will be
carefully watched as the dollar
is revaluated. As the industry
continues to evolve, companies
like Egyptian Steel Group
are focusing on eco-friendly
technology and the long-term
conservation of resources.
Ahmed Abou Hashima,
CEO, Egyptian Steel Group
“Egypt has a high
percentage of poverty,
and I can’t see myself
not supporting my
community and my
people, as we try
to improve lives by
helping address the
problems they face
from the position we
are. I think it’s all about
sustainable growth,
generating profits but
also caring about the
environment and the
next generations”
Ahmed Abou Hashima,
CEO, Egyptian Steel Group
Egyptian Steel Group
was established in 2010 and
despite the turmoil in 2011,
has in a few short years
become a leader in the steel
industry and corporation
with a social responsibility
program that is improving
the lives of the Egyptian
population as well. As Chief
Executive Officer Ahmed
Abou Hashima puts it, “We
decided to go in and bet on
the country on the hardest
times, just after the big
turmoil. We invested on this
market after the revolution,
when everything was on
standby, and now the results
are there.”
And indeed, like Mr. Abou
Hashima says, this investment
has given the company room
to grow and to support the
community where he believes
it matters most. “Egypt has
high percentage of poverty,
and I can’t see myself not
supporting my community
and my people, as we try
to improve lives by helping
address the problems they
face from the position we are. I
think it’s all about sustainable
growth, generating profits
but also caring about the
environment and the next
generations.”
Egypt looks to the future
as it recovers from the
unrest of 2011 but if many
of the people involved with
the private sector adopt the
same attitude as Mr. Abou
Hashima, the country will
be propelled forward in a way
that builds confidence from
local investors first, and then
engages the global economy
to further participate.
When asked why the
Egyptian economy and
people are so resilient, Mr.
Abou Hashima says, “Because
we are the largest population
of the region. There’s no room
for failure, as the 90 million
we represent, it’s on us to push
together during hard times
and build a straightforward
and strong mentality.”
And that is what the
company intends to do.
Revitalizing the economy is
based on their will to work
and produce, and combined
with the corporate social
responsibility
program;
Egyptian Steel will pursue
planned expansion projects
that play a vital role in the
success of their industry in
the country.
Part of what makes
Egyptian Steel a leader in
this sector of the economy
is the focus on meeting
domestic and international
needs. They have contracted
the Italian Group Danieli to
operate production plants
that reduce waste of rolling
mill lines. The introduction
of new technologies like the
preheated scrap charging
systems are energy saving,
optimize scrap utilization
and have ultimately increased
productivity in factories all
over the world.
Egyptian Steel is developing
a world-class business model
and corporate governance
structure that hopes to
achieve a production capacity
of 2.3 million tons per year by
2018. Reaching 20% of market
share in the steel market
will position the company
as one of the leading rebar
manufacturers in the country
with the ability to export
quality products to other
markets around the globe.
The cooperation between
the public and private sector
is vital to the future expansion
of the Egyptian economy and
it’s clear through the visions
of groups like Egyptian
Steel that the industrial
sector is on the right path to
stimulating growth. As Mr.
Abou Hashima sees it, “We
have an absolute role in this
campaign. The Government
organizes things, but it is
our responsibility to take
the bet on the country. The
private sector is the engine
that portrays the economic
wellbeing of Egypt. If we do
manage to invest at the right
moment, at the right time,
our returns and profits will
convince everyone else that
this market is solid.”
Construction industry ‘most
prosperous’ in MENA region
U.K.-based bank HSBC
named Egypt’s construction
industry, which is predicted
to grow by more than 8%
annually, in the Middle East
and North Africa
E
gypt’s development
aspirations in the run
up to 2030 will depend
heavily on the nation’s
builders.
Building
a sustainable and diversified
economy and a better future for
the Egyptian people, as envisaged in the Vision 2030 plan, requires building new roads, power
plants, schools, affordable housing and even entire new cities.
Since President Abdel Fattah elSisi came to power in 2014, a large
number of construction mega
projects have been launched,
attracting billions of dollars of investment from abroad. One of the
country’s flagship projects entails
building a brand-new capital city
28 miles east of Cairo. In October,
the Chinese state-owned China
Fortune Land Development
Company signed a deal to provide $20 billion of the total $45
billion needed for phase one of
the project, which commenced
in February 2016.
In January, U.S. investors traveled to Egypt to look at opportunities at another grand venture
of the el-Sisi administration –
the New Suez Canal Economic
Zone (SEZ), an enormous project which aims to transform the
land around the newly expanded
Suez Canal – an important global
shipping waterway connecting
the Red Sea and Mediterranean
Sea – into a transport, logistics
and manufacturing hub.
Megadevelopments such as
the SEZ and the new capital
city, as well as a number of other
large-scale housing, transport and
power projects, are why Egypt’s
construction industry has been
named the “most prosperous” in
the Middle East and North Africa
(MENA) by British-based bank
HSBC in a regional construction
report released in January. Another report by Timetric released in
August predicts that the Egyptian
construction sector will experi-
ence average annual growth of
8.24% between 2016 and 2020.
“The growing number of publicprivate partnership (PPP) projects
and the increasing pace of foreign
investment will also drive industry growth over the forecast period,” the report stated.
Also driving growth is
Orascom Construction. The
largest construction company in
Egypt, Orascom has a diversified
project portfolio, and is heavily invested in the power sector,
supporting the nation’s rapidly
growing demand for electricity.
In January it was announced that
Orascom will form part of a consortium to develop the Assiut and
West Damietta combined-cycle
power plants, costing a combined
$650 million. Orascom is also involved in the $8 billion New Capital power plant project, which
will have a generation capacity of
4,800 megawatts once completed.
Orascom’s CEO Osama Bishai shares particular praise for
the el-Sisi government’s success
in enticing investments in the
power sector. “Investment in
power generation has been successful because the government
understood that in order to drive
the growth in power availability
and resolve the power problem
in Egypt, they needed to be able
to promote Egypt as the center of
attraction for major manufacturers. They closed one deal after another to generate this climate that
attracted investors and manufacturers. So, I think the challenge
here is how to replicate this in all
the other segments of infrastructure development,” he says.
Beyond Egypt, Orascom’s
project portfolio expands across
the MENA. The company also
has business interests in the U.S.,
where the company has witnessed significant growth since
2012.
“Right now, we have two subsidiaries in the U.S. One of them
is working for the U.S. government. The other subsidiary was
acquired from a U.S. construction company back in 2012.
And, in fact, this company has
doubled its revenues over the
last four years.”
Darwish Hassanein, CEO, Secon
Another builder, Saudi Egyptian Construction Co. (Secon) is
one of the largest companies operating in the real estate market. In
January, it announced that it plans
to pump over 2 billion Egyptian
pounds (approx. $130 million)
into its projects in Egypt this year.
Luxury developments make up
a large part of Secon’s portfolio,
but the company is also developing affordable housing. “We have
chosen to invest in South Egypt,
but we are not creating luxury
projects for luxury people,” says
CEO Darwish Hassanein.
“We have to take social requirements into consideration. Yes, we
have to make a profit, and we are
doing so, even with this project in
South Egypt, but also, we have to
put our social responsibility into
perspective.
“I really hope that in the next
five years, we would have solved
the problem of Egyptians living
under unsuitable conditions. Of
course, we will achieve this by
either improving areas where
people are living or building new
areas for them to live. Existing
areas can be improved, and new
housing projects carried out to
prevent similar problems in the
future. In this sense, I believe
there is a 500,000 low-cost housing project currently in progress.”
Our World Insert is produced by United World. USA Today did not participate in its preparation and is not responsible for its content