 Shifting towards the private sector
Egypt has a broadly diversified industrial base with large industries including cement, chemicals, fertilizers, steel, textiles, tobacco, food processing, automobiles, flour milling, pharmaceuticals, construction, ceramic tiles and high technology. The government has targeted industry as a growth area and is in particular encouraging exports. In 1997-1998 industry grew at a rate of 7.9 %, compared to about 5 % for the economy at large. Industrial exports reached $3.4 billion that year, up from $1.8 billion in 1994, according to the American Chamber of Commerce report on the Egyptian economy.
Cement is one of Egypt’s biggest industries and is undergoing major structural changes this year as the government privatizes its remaining large cement companies. One company was sold to Lafarges in the early part of 1999 ; two more companies are in the pipeline for sale. Growth in construction is fueling huge demand for cement and Egypt has had to import cement to cover the gap. However capacity is being expanded and cement production is expected to reach 27 million tons this year. The industry hope that this figure will be enough to launch exports in the next couple of years.
The pharmaceutical industry in Egypt is the largest in the Middle East, with sales of over $900 million, and exports of about $25 million. There are 28 companies
– some are run by the government, some are private and some are multinationals like Squibb and Pfizer. Glaxo Wellcome’s acquisition of 90 % of a domestic company called Amoun Pharmaceuticals for 400 million pounds in December 1998 is one example of positive growth in this sector.
The Egyptian automotive industry is well established and growing. There are about 15 factories with a total capacity of 216,000 cars annually and a labor force of
20,000. General Motors, Chrysler, Suzuki, Peugeot, Citroen, Mercedes Benz and BMW all have assembly factories in Egypt.
A key potential growth industry is high tech. Egypt has the fastest growing market in the region for personal computers with a 35 % growth rate. Egypt is also the second fastest growth rate for computers in the world, after China. In 1998, 200,000 computers were sold; this number is projected to grow to 1 million in five years.
Finally Egyptian cotton is the finest in the world and until recently Egypt had about two thirds of the world’s high quality export market. The industry exported about 107,000 tons of cotton in the current season, bringing in about $200 million. The country has a large textile industry with hundreds of spinning and weaving mills, most of which are still in government hands because of debts and large labor force pose difficulties in finding investors.
Much of the country’s industry is still run by the government, but as the privatization process continues, all of it is eventually destined for private hands. The government’s "holding companies" are getting prepared for their privatization by evaluating the assets, reducing the work forces through early retirement programs, restructuring debts and in some cases modernizing production. "We have been working on restructuring for a number of years. Now we have five companies to be offered for privatization," explains Engineer Adel Danaf , chairman of the metallurgical industries holding company . Seven thousand employees in his group of companies have already been offered early retirement and another 7,000 workers will be offered packages to retire. "This was a sensitive issue that was handled by the government," says Danaf. "It is not easy to lay off such a large number of workers and to do it smoothly". The over staffing in all the state run companies stemmed from the government policy to give jobs to graduates regardless of whether the companies needed more employees, and without considering the effect that thousands of extra workers would have on efficiency. The Holding Company for Metallurgical Industries, to name one, is not only seeking investors for two of its cement companies -- one in Alexandria and one in Upper Egypt – but for their engineering companies specialized in producing railway coaches and other railway materials, steel pipe company, ductile iron pipe company, aluminum company and iron steel complex. Some of these companies are already partly in the hands of private investors who purchased shares on the stock exchange when the government offered 10 or 20 % of the shares. Moreover two cement companies will be offered to investors on the stock exchange in the first six months of 1999 and the government has high hopes for both of them.
One of the government’s partially privatized success stories is Eastern Company , a tobacco company that makes Egypt’s famous Cleopatra cigarettes. In the last few years the government has sold 34 % of it on the stock market and has retained the rest of the shares, allowing it to share in handsome profits the company has experienced since privatization. Nevertheless there are plans to introduce an extra 6% on the stock market. Eastern Company is the only cigarette manufacturer in Egypt and claims a 85 % share of the market, with the rest going to international brands. Chairman Mohamed Sadek Ragab says privatization has been "like preparing the plane to take off." Net profits for
1998-99 are forecast by EFG Hermes to be 225 million pounds, nearly $66 million, and there are no signs that Eastern’s profits will diminish Eastern is consolidating all of its warehousing and manufacturing facilities at one of the new towns outside Cairo called Sixth of October City. Ragab says the consolidation will enable the company to get involved in different activities. "My major interest is to try to diversify the activities of the company from only producing cigarettes and some other tobacco products to offering a set of different activities. You can not put all your eggs in one basket. We have already started some activities in real estate but we are walking step by step, because it is new for us", remarks Ragab. The company has already set aside 40 parcels in its industrial area for real estate development. Eventually the company will also profit from the sale of high-value downtown land it is vacating. Ragab says profits from the sale will pay for its consolidation and relocation. Indeed the only financing he needs for the consolidation is short term bridge financing. "I believe this project is the most important project for Eastern Company since it was formed in 1920," he says.
Another partly privatized company is Alexandria National Iron & Steel Co ., (ANSDK). Established in 1986 ANSDK operates an integrated steel mill and currently dominates the sector with $400 million in sales last year. The company is 46 % privately owned and is expected to reach 50 % by 2000, according to Chairman Ibrahim Mohammadain . From its start ANSDK has had Japanese investors through a joint venture with NKK, Kobe Steel of Japan and Tomen. The company imports iron oxide from Brazil, refines it into pure iron using natural gas from offshore fields near Alexandria, and transforms the iron into steel billets. It exports about 20 % of its steel to neighboring Arab countries such as Saudi Arabia, Tunisia and Algeria and provides the local market with about 35% of its needs of rebars. ANSDK started at a nominal production of 750,000 of rebars per year. Within 12 Years it doubled the production to reach 1.8 million tons last year. The steel industry in Egypt produces mainly reinforced steel bars, also known as rebars. Now the company is ready for the next stage of expansion and is building a flat steel plant that will be finished by the end of 1999.
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Ezz Group , another old family company that dates back to the 1950s, is also in steel manufacturing, infrastructure development and ceramic tile manufacturing. With 2,200 people and a turnover of $470 million a year, it is one of the largest private steel producers in the Arab world. The group is currently building the first modern flat steel product facility in Suez with European partners, which is an investment of $620 million and that will be completed by the year 2002. This will enable the company to reach a total production of three million tons of steel. The group, like Orascom, is one of the core investors in the new industrial zone project in Suez. The purpose is to develop the infrastructure and the facilities and services in this area, and to promote direct investment in manufacturing by multinational companies in this area.
Foreign competition and dumping by several Eastern European countries have largely affected Egyptian steel companies’ profits. Consequently the government has been working on introducing anti-dumping fees on steel rebars from those countries. This will likely result in relieving pressure on prices of locally produced rebars and increase growth in a market which offers tremendous opportunities.
Many industries in Egypt are in the hands of entrepreneurial family groups such as the Ghabour Group, which is in automotive manufacturing, or the Lakah Group , which has widely diversified activities, mainly in medical equipment and services, construction, and steel making. At 100 years old it is one of the oldest, and with a worth of 1.2 billion pounds one of the largest paid-in capital groups in Egypt. Lakah’s holding is traded on the Egyptian Stock Exchange under various company names, and now Lakah Group president Ramy Lakah has applied for ADR listing on the New York Stock Exchange. "We want investors and not brokers or gamblers. We want people who can see our progress and the future of our company," says Lakah. Lakah Group is very much export oriented, and represents Toshiba Medical Systems through the Middle East, and is a distributor of Hewlett Packard products in Greece. The group has 7,000 employees and an annual turnover of almost 2 billion Egyptian pounds. Their core activity remains construction, particularly hospitals. Nowadays Ramy Lakah is planing to get involved in other activities such as aviation. Lakah says he would like to form alliances with other U.S. companies like it has with Hewlett Packard. "We would like very much to find an American company that can assist us in forming an alliance with us and who can believe in a growing Egyptian company, knowing that it is extremely difficult to have a license of flying to the USA," Lakah says. Under the name of Midwest Airlines, Lakah says,
"our partner would help us in developing two or three lines to the USA, North America and South America." The group is also looking to open new relations with an American lightbulb company to form a joint venture "to get their experience in manufacturing and our experience with our market share to increase bulb production. Confident about his company and his country’s future, Lakah says, "To penetrate the Arab market, Egypt is the key."
Another mega-group that is involved in a variety of industries is the Orascom group of companies , run by the Sawiris family. With holdings in real estate, tourism, construction, technology and telecommunications, the family believes that the opportunities for business in Egypt are enormous for investors.
"The right time is now and not 3 or 5 years," asserts Naguib Sawiris, chairman of Orascom Technologies. "Our policy is always to attract multinationals and create partnerships with them. We can provide what is locally needed and they provide the management, expertise and know-how." Orascom Technologies represents many international names including ventures with Hewlett Packard, Compaq, Microsoft, Oracle, Lucent Technologies, in such areas as the internet and computer software. "Our challenge is only to hold on to our position as we have the largest market share in most of our activities," he says.
"We are restraining ourselves from expanding any further. We prefer to expand our market share now." Orascom Tourist Development pioneered the concept of planned self contained tourism development in Egypt with a Red Sea resort called El Gouna. An area that was barren desert has been turned into an oasis of six hotels, 500 residential villas, shopping and restaurants, a hospital, golf course and marina. Having achieved enormous success with El Gouna, now Orascom is going to create another community at Taba on the border with Israel. The new resort will have six hotels, 200 villas and apartments, a golf course and other amenities. In Cairo Orascom is working to modernize the capital’s dowdy office space with a new financial center called Nile City. "We hope to create the first Manhattan look alike plot in Egypt," says Naguib Sawiris. Nile City is located next to the modern World Trade Center and the newly finished Conrad hotel, also built by Orascom Construction Industries. "Don’t wait" concludes Naguib Sawiris. Egypt has a population of 60 million people, it is situated in between Asia an Africa, it counts three waterways, the Red Sea, the Mediterranean and the Nile River, making Egypt a geographically unique market.
Though many groups have diversified, others have focused in their core businesses. Among them, Ghabbour Group , which started in
1946, is mainly operating in the automotive industry with enduring alliances such as Scania, Volvo, Mitsubishi, Hyundai, and Mazda. Under the management of the holding company, it operates in manufacturing, assembling, importing and distributing. The company is currently establishing a new factory that will enable it to increase its bus manufacturing fivefold as it mainly targets export markets. "We are definitely planning to expand our exports especially now that we are building a new factory. It is far beyond the local market requirements" says chairman Raouf Ghabbour . With sales of 1.5 billion pounds per year and 3,500 employees, it claims
20 % of the car market, 30 percent of the heavy truck market, more than 50 % of the bus market and 15 % of the tyre market. Among the group’s short term objectives, by mid
1999 the Group is planning to be open to domestic and international investors to maximize its ability to invest in and upgrade its operations. Indeed, with his new factory, Ghabbour is planning to become a production platform for third countries. He is also investing in providing his domestic customers with after sale and service centers.
"If we are able to supply our customers with a financial package that suits their incomes, and if we have a complete infrastructure to support a healthy collection, the sky is the limit." he says. |
EGYPT
