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 RAYA Holding Company
Interview with:
Mr. Medhat Khalil ,
Chairman & CEO
Cairo, March 22th, 2000
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Could you provide us with a brief history of Raya Holding?
I used to work for IBM for almost 15 years, then I resigned in 1993 and I established a small company, Protech, where we used to work in telecommunications and computer networking. At the time we found that many Egyptian organizations stocked a lot of PC's and computers but did not acquire good technology to connect them, so I thought it was a good opportunity to start brining to Egypt expertise in networking technology and new technologies to connect computers in a more advanced way.
We were the first company in Egypt to implement new techniques like structural cabling systems and new techniques for wide area networks and local area networks and we succeeded in implementing several sophisticated networks. Actually most of the multinational companies like oil companies worked with us at the time to establish their networks. In 1997 we realized that the IT and telecommunications business was on its way to really take off in Egypt, and I believed that we would not be able to benefit from this boom using classical models of growth, so I talked to several Egyptian businessmen working in the field of IT and telecom. I was convinced that we had to establish much larger national companies in order to compete with multinationals and also to be able to seize the opportunities in the IT and telecom sectors. Several Egyptian companies liked the idea and subsequently we merged together and established Raya. We established Raya Holdings as the largest national holding company to be working in the activities of IT and telecommunications. This is how we started Raya.
We first began with around 300 employees, and today we are around 500 and actually the last year and a half was the first financial year for us. We are very happy to have overachieved all of our financial targets in terms of revenue and profit, and this year we are planning to issue an IPO and have a real dramatic increase in our capital.
Today we own 10 subsidiaries, we completely own 7 of them and partially own the remaining three. We have a company called Tritech, the largest national system integrator now in Egypt. We have a second company called Mega, we own a software house, we have two companies working in distribution; one for consumer electronics called Protech and the second called Unitech for IT related equipments. We have a company called InFocus working in IT solutions, specific to the finance sector. We own 50 per cent of a company called Oratech, specialised in the implementation of Integrated Business Solutions, and the remaining 50 per cent is owned by Orascom technology systems. We also own another company called Horizon, where we also own 50% and Orascom owns 20% and other Kuwaiti investors own the remaining 30%. Lately we have formed a company called ProNet, specialized in telecom services and established in cooperation with Nortel Networks. We actually represent Nortel in the carrier business and we created this local entity to attract all possible sub-contracting from Nortel and to offer them the professional services which they need in the country.
It must be a difficult process to merge various companies under one single holding.
We did not really merge the seven companies but we actually merged three companies into Tritech, our system integrator, and this was a very painful process although in the end it was quite successful. The remaining companies where restructured, we gave them more support in terms of financial and organizational support.
So we did not take a very dramatic step in merging the seven companies in one company, but we are doing this at a much slower pace. We are just trying to consolidate these companies and merge very similar activities.
You mentioned that last year you not only reached financial expectations, but surpassed them. What are some important financial results of Raya Holding?
We grew by 200% in 1998. Our revenue reached 276 million Egyptian pounds in 1999 and our planned NBT (net profit before taxes) was actually 18 and we have achieved 30.5, so we have achieved more than 30 million instead of 18. This are still very humble figures if you compare with large European companies, but what is nice here is the rate of growth because this year our target is to double again, so we believe that we will reach more than 580 million this year in terms of revenue and we will exceed 60 million Egyptian pounds, so the size of business is small but the rate of growth is very good.
I imagine that this rate of growth is quite important in the IT sector to allow you to compete internationally. With the upcoming GATT agreement in 2005, do you think that the IT sector in Egypt will be ready to compete and meet this challenge?
I am sure we will be ready and that others will follow. There are already others who are following in our footsteps. We are a pioneer in this area and we will certainly be ready to face the competition.
In which areas of your market services do you expect increased growth, and in which area are you focusing on?
We are very aggressive when it comes to IT and Telecom, and as a holding company we are focusing on any investment opportunity in information technology and telecommunications. We are exploring all opportunities in this area, in software development, telecom services and professional services.
What is your strategy for diversification?
We believe that there are quite enormous opportunities specifically in the telecom business. The Egyptian market is far from being saturated and we are heavily investing in this area. Specific fields which we are pursuing include data networks, internet services and software outsourcing. We are developing internet services which will include infrastructure to provide access, building business-to-business communities, as well as business-to-consumer marketplaces.
We are spreading our activities within the telecom and IT business, which is booming. That is why we are trying to grow through acquisitions as opposed to simply building up our companies.
What is the contribution of Raya Holding to the development of the companies it acquires?
It is quite significant. When we acquire small businesses we add all the needed support to develop this business as aggressively as we can. We built very strong central functions at Raya Holding where they can share expensive resources which they could not be able to afford by themselves, such as human resource functions, IT functions, finance and business planning.
One of the most important benefits of bringing together our companies is the synergy which is created among them, which develops strength in diversity. Between our companies, we have the whole spectrum of expertise to build and develop successful IT projects.
It saves a lot of time to acquire new companies, because the market cannot wait and it will not wait. The market is growing by more than 35% in telecom and IT, so if I do not grow by more than 35% then I loose my market share. In order to capture the market we set an aggressive target to double our growth in the first two years and then to grow by more than 35%.
| What is the agreement between Nortel Networks and Raya Holding?
Through our partnership with Nortel, they succeeded last year in the Egyptian market by actually winning a very significant project to provide approximately 310,000 fixed lines. This is was a very good project to start building their name in Egypt. The potential is huge and that is why we have decided to spin off all telecom services to a company dedicated entirely to Nortel. We see that in the near future that Nortel would be interested in acquiring a part in ProNet and going into a stronger strategic partnership with us. It is a very good opportunity for both of us.
What is the extension of your partnership with Orascom?
Orascom is a strategic partner because we have formed a couple of strategic companies which were very successful. It was the first time really for Egypt to form a company like Oratech which does not only resell equipment or software but also produces all local services, so its specialized in the implementation of Integrated Business Solutions, and this is where the real value for us is.
I think that Egypt has an outstanding relative advantage when it comes to people. I think there is a great potential which is untapped, in software development and in professional services. We have many, many talented young people with a good education, and with some good coaching and training I think we can add a significant value to the economy and we can really expose those people to the surroundings and the European countries.
What should be the contribution of the private sector to the development of the IT sector?
The government is definitely taking a very aggressive steps in supporting IT and telecom and in pushing more and more business to the private sector in these areas. We are very much interested in large national projects and in the telecom business, where we believe all data networks and maybe voice in the future will be tender-based and this is one of the reasons that we are aggressively increasing our capital to prepare for such investments.
We are hopeful the government development will be allocating the required budget in order to ensure that large national IT projects materialize. All in all, I believe they are working towards this direction, and taking serious steps towards the development of the sector. For example, this year we have seen concrete steps in the establishment of a new valley for technology, which represents an important action by the government.
I also have a lot of confidence in H.E. Mr. Ahmed Mosik, personally. I worked for him for many years when I was in IBM and I was helping them to build the RVC Center and I believe he is a quite serious and honest man. He comes from the industry, and I believe he will fulfill his promises.
As far as taxes are concerned, do you think that the measures which were adopted are sufficient?
I don't think that lower or higher taxes will really help the IT business to grow. If you really want the IT business to grow then you have to push the government to automate, making sure the government will use technology rather than giving me 5% or 10% discount. What will help is to expand the market by using new technologies in government entities. If they are serious they must take proper steps to make sure that the market will grow and to provide a healthy environment. This is much more important than giving us some financial advantage to us.
Here in Raya we spent millions and we will continue to spend millions and we do not mind a couple of million plus or minus. We are looking for the market to grow and the right environment to build in. Transparency, large projects, commitment - this is much more important than giving out some financial breaks.
Certain companies have established joint agreements and launched IT funds. Are you looking to set up a similar fund?
We have a couple of strategic alliances, and one of them is with EFG Hermes. They are a partner with us and we are raising our capital significantly this year with their help, which will provide us with enough funds to grow by acquiring smaller companies and giving them much more financial and organization support. We are more or less establishing a similar IT fund, but in a different way. I think you would find many, many talented young technical guys in the Egyptian market but without the management skills to put them on the right track for growth. What we try to do is to help them by providing them with management guidance and support.
Regarding the issue of training, there is still a large computer illiteracy in Egypt. How can we help change this phenomenon?
We need to launch a national program for training and education and I know that Ahmed Nazif is already taking serious steps in launching national training programs. Maybe the government needs to outsource a few of the national projects.
The problem with the government is that their salary structure does not allow good people to stay. So either you change the salary structure of the government employees or you find more creative ideas. The first option, I believe, is not possible in the next few years, so the next option might be a more practical one, which is to outsource. For national projects you need expertise and you need talented managers to manage. When you outsource, you will enlarge the IT market by supporting private sector companies. It is much better than trying to do it yourself - even the large multinational companies are outsourcing.
What is Raya Holding's market share in Egypt, and what are you plans for expansion? Are you thinking of going regional?
Our market share is almost 10%, and we feel that the opportunities here are good enough for us to grow. If the IT market inside Egypt is growing by 35%, why should I go outside Egypt as long as I have enough opportunity here?
There are numerous opportunities in the Egyptian market, and we think that our greatest growth will come from increased market penetration in Egypt. However, we do see two specific areas that we can attack regionally; these are in professional software services and outsourcing.
What we are also trying to do is build this organization, build a proper infrastructure, and be in a position to really grow and control the industry. I would rather concentrate on the local market for the next couple of years and build my infrastructure where I can control the business before I venture in outside markets. Right now I think I will make much more money here in Egypt than anywhere else in the world.
You seem to be optimistic and confident about the future of Raya Holding and the IT industry. Are you just as confident about the future of the Egyptian economy?
Yes. Certainly we have a lot of problems and we complain all of the time, but personally I am investing all my money in Raya, so I have to be 100% convinced that the economy will continue growing. |
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© World INvestment NEws, 2000.
This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine. August 7th 2000 Issue.
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