1/Q: Mr. Mubarak, could you give our readers a historical background of your company?
I have been working in banking since I graduated. I started with the Bank of America in Egypt. They used to have a big operation in Egypt for 5 or 6 years. I was then transferred to London, also with the Bank of America but on the investment banking side. I spent six and a half years in London. Then, I branched out with a few of my colleagues in London. We set a small investment banking operation in London. We started out by doing corporate finance business, which is very much related to the Middle East and Africa. That was the region that we used to cover in the Bank of America. We have expanded in the past two years and we set up an office in Egypt. A year and a half ago we set up a private equity fund that is purely dedicated to Egypt, i.e. to invest in an Egyptian fund equity. This has been our main activity in Egypt in the past year and a half. The fund had an investing base from Egypt and the Gulf area. It is very much modeled on the U.S private equity fund system. We have partners with us in the management fund EFG private equity. We have a U.S. private equity management firm in the U.S., which is only specialized in the United States but we got them because of their technical expertise. So, between the private equity and between some corporate finance advisory for private sector companies that are now going global or overseas and trying to base funding and project finances from international markets in particular. These are the two main areas of focus that we have.
Our operations are mainly based in London. We have a small head office in Cairo but we also have a full-time office assisting us in the private equity. So, I have been mainly in the financial world since I graduated. I went through different phases from commercial banking in Egypt to investment banking in London.
2/Q: Is your company undergoing a process of diversification or rather specialization?
Investment banking is quite a broad area and obviously for a relatively small entity like ourselves we have to focus. We can not afford to be in each and every area of investment banking. We have to grow gradually. One and a half-years ago, we branched out into private equity, which was a new venture that we have been thinking about for a while. This business itself can grow. We started with a fund in which we raised $54 million and this has been our initial fund. We believe that this business is going to mature and grow, whether it grows as a fund in Egypt or regionally is something that we still have to decide. But, I believe that there is more room for expansion in the private equity side of the business, not only in Egypt but also in the region. We have our hands full with expanding the private equity business and maintaining our advisory corporate finance. Obviously, as you have seen, the way things have been progressing in Egypt, the financial side is at the core of activities. There is a lot of room for products and services in that particular industry.
3/Q: A number of leading companies are starting to pay more and more attention to the Egyptian market creating a very competitive environment. What are Medinvest’ strongest assets to compete?
We very much welcome a lot of multinationals and foreign investment banks or foreign firms in the financial services to come to Egypt. I really believe that the commercial banking business has really opened up to the outside world in the seventies and has been gradually improving. The investment banking side has not really been in the forefront because there has not really been much of investment banking products and services that were required because of the structure of the economy. Now, there is an opening up that we have been witnessing in the last couple of years. There is a lot of assistance that we need from foreign firms in terms of technology, products and services, human resources training and so on. The fact that Egypt is an emerging market and is opening up, I think the real potential is not realized or witnessed yet by the market. There is a lot of room for more players whether domestic or international players or foreign companies coming in and setting in houses here.
On the private equity side there are a number of advantages. First of all, we started relatively early. One and a half years ago people were not really focused on private equity. They were very much geared towards the securities market because the Stock Exchange was still developing and evolving. The mutual fund business and offshore funds that were investing in the Egyptian Stock Exchange was the name of the game at the time. We decided to start a little bit early in the private equity because it is riskier and not liquid because you do not really invest in liquid stocks, at least in the initial stage.It was therefore not that easy to place because you were dealing with an investor who was used to a liquid market. Our strong point was the management group that we had, including myself and my colleagues. We all had experience in international markets. EFG has grown to be a successful regional investment banking company and the third group which is a purely private equity management company in the U.S. They do not know Egypt very well, so they help us by bringing a purely technical and impartial view to our deals. With private equity, I believe that the key success factors are deep flow and the ability to make prudent decision at the proper time. We have a very solid investment base in our fund that is both Egyptian and from the Gulf. They give us the opportunity to take a look at some of their transactions. A lot of the companies that you have seen are going public, so we do try to work with them. We are also competing in the market and we are trying to do good deeds at the right time and make sure that we make the right decisions.
4/Q: Keeping in mind that the old financial and banking sector is at the threshold of major changes. How do you think that this will affect the Egyptian economy?
As I said in the beginning, the financial sector in general and not only in Egypt but also in any developing or even developed economy is the backbone of growth and stability. You can see this in Asia and the U.S. The banking sector, from the commercial banking standpoint has been very much open to the outside world. Since the seventies, we had a lot of joint venture banks and many foreign banks had operations in Egypt. It has benefited the industry very much. Now we are moving into a more expanded role and a more wider horizon with the activities of the stock exchange that are in need of investment banking sophisticated products. The financial sector expands to the insurance market. I believe that the insurance market in Egypt is lagging a lot. It has not witnessed the king of progress and openness that the banking sector did in the seventies because the laws and regulations have not been at par in terms of being liberalized as the banking sector has been. The insurance sector being a very important part of the financial sector, I believe that it needs a lot of restructuring and opening up to the outside world. An integral part of the Government policy is to increase the savings rate to be able to allow the Egyptian economy to maintain the kind of investment rates required to achieve sustainable high growth rates. So, enhancing the savings rate in the domestic economy is a key factor and the key players are in the insurance sector. Being such an underdeveloped sector of the market, I believe that if it is well restructured and well opened up and foreign know-how is allowed to come in, there is tremendous opportunities to boost savings rates, which I think is a key element in the success of the Egyptian economic program in the coming years.
What has already been achieved?
No one can deny that a lot has been achieved. If you look at the past 6 or 7 years, by opening up, restructuring and solving the debt crisis, having a sustainable prudent macro-policy, fiscal and monetary policies on the Government side, opening up opportunities to the private sector and having the Government moving out of areas which we believe that the Government should not be involved in. The government has been privatizing and more importantly it has not been investing in new projects. This gives the private sector, foreign and local, the confidence that the government will not be crowding them in different industries and services. There is always the perception that the government will subsidize. The government made it very clear that it will not invest in new projects. We can look at the past six or seven years and we can look at the confidence that the Egyptian private sector has regained and how this has been transformed into high investment rates,and high growth rates.The number of private sector companies in terms of numbers and investments in the past two years has rapidly increased. The success of the Egyptian private sector has attracted foreign partners and has boosted in these past years. I do not want to paint a rosy picture. We still have to face a number of challenges but at least I believe that we have come a long way moving from a process of reform, restructuring and macro-stabilization to the process of setting the pillars for sustainable growth, which is the ultimate objective of the reform program.
5/Q: What further measures would you recommend to attract more foreign investors?
What we have done in the private sector was to start by listening to foreign counterparts on different committee. We believe that the market is becoming a global village more than it has ever been. We start by talking to these companies, that obviously have opportunities. Their ultimate objective is to grow and to achieve their growth objectives they can not remain hostage to their domestic market no matter how big those markets are. We ask them about the elements that drive them away from certain markets. There has been a list of issues over the past several years that we have been listening to. I have to say that most of the difficulties that those companies had concerning business in Egypt have been reduced. Obviously, bureaucracy and dealing with government agencies come at the forefront. There has been a lot of effort by the government to cut down red tape. I have to say that by the experience of Egyptian and foreign investors, there has been a lot of progress. There is still a way to go but at least there is progress and a considerable effort by the government to address those issues as much as possible.
The issue that I believe is coming more and more to the forefront at present as we move from a phase of restructuring and reform to a phase of growth, is human resources. If I candidly look down the road to the coming five years, I think that one of the challenges that we have is to be able to attract foreign investors and to transform that investment and local investment into sustainable quality growth that can lead to creation of quality jobs and hopefully pull the entire economy together. The challenge will be human resources. Obviously it starts from education, which is a long-term process. But, we can not sit around for eight years while the education system bears fruit. There is a need for post-university education, training, courses, whether overseas or by updating some of our institutions that we have in Egypt. People continue to complain that there is a lack of good human resources in the Government, but it is not only a government problem. I believe that the problem is less acute in the private sector but it will be more acute in the coming 3-5 years in the private sector unless they maintain the level of development and training because we are opened up to the outside world. We believe that this is the opportunity for us to grow and with the opportunity there is the challenge. With challenge there is always competition. The main ingredient is human resources; you have the management caliber, the worker caliber and the middle management, which is very important to be trained, aware of what is going on overseas and know how to deal with the competition in international markets. | It is a challenge and I know that many people in the private sector share that same point of view. A lot of them are investing now whether it is in-house training or sending their management overseas even to the extent to get MBAs overseas or training in certain disciplines in some multinational companies that happen to be their partners or offer those services for outsiders. You can look at a whole set of challenges, but this is the one that if I were in an area of responsibility I would try as much as possible to draw resources to focus on that. A good phenomenon that we have seen over the past few years that professional Egyptians who have been working overseas have been coming back. This has given confidence in the market that these professionals who have been overseas for 10 or 15 years are now seeing Egypt opening up, as it has never had in its history. I have seen real potential and opportunity but it is lacking manpower. They are coming back despite the adjustments they have to make. I, myself, came back to Cairo from London, although I spent there 7 or 8 years and part of my job was covering the area. I was here on a frequent basis. I never lost touch with the economic and business climate in Egypt. It took me sometime, from a professional standpoint, to adjust to doing business in a different way. If you look at people who have finished college and worked overseas you have to assume that the adjustment process will not be that easy. Despite that, they have been coming back. That is a good sign in itself. Still, there are some Egyptians living abroad who can either return to Egypt or transfer a part of their savings here. A big bulk of the search of investment in the past few years has been in the capital flight or domestic savings being put into investment. The percentage of foreign direct investment has still been very modest by Egyptian or other emerging market standards which means that there is still a lot of room to attract FDI.
6/Q: There is still more room for foreign direct investment. You work in investment banking. What is your opinion on this?
Absolutely, yes. I have been a member in committees, forums and joint councils as many key figures in the private sector have, over the past two years. Our two main objectives were to try to explain to the outside world, especially to the kind of investors that we are targeting, that the perceptions that they had about the economic situation and business climate in Egypt in the late 80s and early 90s is not what is actually on the ground today. They still believed that rules and regulations have not changed much. We had a task starting from the MENA conference that was held in Cairo in November 1996. We used this as a launch to start an aggressive campaign to tell the world that Egypt is different today from the business and economic standpoint, the laws and regulations are different and that the private sector is more vibrant and that there are more opportunities. I believe that this was a turning point because it started to bear fruit as the macroeconomic figures started to change. So, we had a story to tell that was backed by figures and results and a commitment by the government to continue along that route. We have been doing this for the past three years and we have to continue to do so because there is increasing competition form other markets to attract foreign technology or open markets for exports, which are the two pillars of the phase of sustainable growth. I believe that the two pillars are general investment, domestic or FDI, and exports.
7/Q: You are a member of the Presidents’ council. Is it part of your mission to target the United States?
Yes. The three targets that we are working on are investments; to attract foreign investments into Egypt, and technology transfer, which can obviously come through investment and trade. The balance of trade between Egypt and the U.S. is not in our favor. We have a big deficit but a big part of it is due to the USAID program that is geared towards importing from the U.S. Our objective is to make sure that the government has the necessary climate to attract foreign companies to help us export to the outside world, whether to the U.S market or the EU, which is our biggest trading partner. A British-Egyptian council has been recently set up, which shows you that the private sector is also paying a lot of attention to the European market.
8/Q: As we say in the USA, ‘contacts often mean contracts’. What is Egypt doing to encourage greater contacts?
There is not much that we do directly in our professional capacity through my colleagues that goes and targets specific foreign and U.S. companies to invest in Egypt. We try to do this through the different forums because it does have more credibility and it goes more into details because to be able to be credible enough you have to talk a lot about government policy. We act as a professional government sector body. We do not go out there to try to attract specific investors that can deal with one of the members of the board that happens to be in a certain industry. We try to be as impartial as possible because we are part of a bilateral framework. But, we try to promote Egypt. If it happens to be that one of the members is a specialist in a particular industry, they are then more qualified to make the case more than others. For example, I tried to make the case with other members in the council in the financial sector who have been trying to work on the government on one side and to explain to U.S companies, in this case, what changes are taking place in the insurance sector and why we believe that the insurance sector has a lot of potential and there are a lot of opportunities for American insurance companies to have a more careful and serious look at the insurance sector in Egypt. In the banking sector we also have been supporting the government efforts in taking out the limitations on foreign ownership in Egyptian banks. There has always been 50% limitation. We have also supported the government effort in the past year to introduce legislation that has passed through Parliament to remove the restrictions and we hope that this would make our job easier when we go out in the framework of the Council to tell them that the government now does not mind that they go in and set banks or acquire majority in banks and introduce a whole range of products and services. This is how we craft our laws, supporting government initials in some areas and trying to use those initials to highlight to the foreign investors what the reality of the situation is in different sectors. We want to move from the macro picture, which has been important, to the micro level to talk about specific sectors and industries because I think that this will be the engine for growth.
9/Q: Is your company planning on heating up on further international markets?
We do not have investments in New York. We have partners who are based who are members of the management team of our private sector company. They are based in Miami. We are based in London. The experience of my colleagues and myself has been in the Europe, Middle East and Africa division. As I work in Egypt, I cover that division for London and so on. We believe that there is tremendous opportunity to grow and provide the kind of services that we do in that region. For example, as Egypt is opening up, a lot of private sector companies need to go overseas, either to attract partners or to raise funding. Funding is now required for large projects like telecommunications and power plants. There is no way that the private sector will be able to raise the amount of funding or equity by relying only on the domestic market no matter how much the domestic market grows. They need to go overseas. This market was completely shut to the Egyptian private sector in the past. It was only opened up to the government before in the 80s. The private sector’s role has been minimal whether in share issues overseas that we have seen in the form of GDRs or even project financing. We believe that because those companies have not been exposed to those markets before, they will need some of the services that we and other companies like ours, can provide to advise them on how to approach those markets and how to negotiate with investment banks. The service is also needed in the outside markets.
10/Q: If I had $100,000 to invest in Egypt, can you give me an investment advice for free?
People have to be selective in any market. There has been a reality check in the market more than a year ago because people became more sophisticated, companies now are obliged to issue quarterly reports that they were not required to do before. There is a more professional look now at the market. The shocks that took place globally have affected Egypt in the same manner because foreigners who were active players in Egypt as an emerging market, a year ago, cut down their exposure when emerging markets were hit a year ago. So, Egypt, by default, has been hit. Now, we are in a relatively mature market now. Individual players who used to just dump money in the stock market, seek more professional advice than before. People are becoming more selective. So, I believe that the Egyptian market is undervalued. It does not stand up to the macro performance. The market is worth much higher in terms of FDI and foreign portfolios. I am not upset that foreign portfolio flows have seen a reverse last year. This was a blessing in disguise. Treasuries and the Stock Exchange have been in net negative contribution, which is not bad. Egypt has absorbed those stocks. We are now starting from a level where the foreign involvement in the Stock Exchange and treasury stocks is not that high. At the same time the level of FDI is starting to pick up, not at the growth rates that we anticipate, but it is at least starting to pick up and we do understand that it takes time. We hope that this balance can be maintained in favor of FDI. So, despite all the shocks, whether it had to do with Egypt or with emerging markets, the Egyptian economy has absorbed those shocks. The economy did not have the pillars and diversity to absorb such shocks ten years ago. This is why I believe that the reform program has worked. People can criticize that it is not as fast as it should be but nevertheless, it is going in the right direction.
11/Q: What is your final message to our readers?
First, companies that have worked in Egypt in the 70s and 80s and then withdrew and are not following Egypt very much, need to have another closer look because the environment is totally different. They need to come here and look for themselves. Second, companies that have not dealt with Egypt before and are expanding and looking for growth markets, Egypt is a growth market in this part of the world by the size of the market, reform of the vibrant economy and the opening up of the market. You can not think about this region from an economic standpoint without taking Egypt very seriously. We like to position Egypt not only as a big domestic market but we are trying to make every effort to use Egypt as a launch pad for exports towards the region. For companies who have been in Egypt and had a bad experience in the late 80s and early 90s, I invite them to have a new look at Egypt. Furthermore, the government is becoming more and more business friendly and listens more to the private sector. This is an achievement in itself because the market was closed and the government was very dominant. 70% of total investment is by the private sector as opposed to 70% by the government in the early 1970s. |
EGYPT
