Egypt, new dimensions, new frontiers

Dr. Mohamed Taymour, Chairman & Managing Director of EFG Hermes

EFG Hermes Holding S.A.E.

Interview with:

Dr. Mohamed Taymour
Chairman & Managing Director

May 9th, 2000

58, El-Tahrir street, Dokki, Giza 12311,
Tel: (202) 338 36 17
        (202) 338 36 18
Fax: (202) 338 36 16
Could you give us a general overview of the economic situation here in Egypt, especially in regard to recent privatisations and IPOs?

The Egyptian economy has changed considerably since this time last year. We had a change of cabinet in October, and last year there were a lot of mega projects under way, which was beginning to lead to a problem of scarcity of exchange rates, but these problems are behind us now.

The new cabinet, which was appointed in October, started out with some strong statements about privatisation, and they have implemented some strict fiscal and monetary policies that have brought the demand down for foreign exchange. We have also seen revenues rise, both from increased numbers of tourists visiting Egypt, and improving oil prices.

For the last quarter of last year and the first quarter of this year we have seen improvements in the capital account through increased investment from foreign portfolio managers. All these have provided sources of foreign exchange.

However, there was a down side too. I do not think that we will be able to achieve the 6% growth rate that was planned. This is a logical consequence to a more strict fiscal and monetary policy. It was a necessary medicine that had to be taken, and the Government acted quite bravely in implementing these measures which, although necessary, are never very popular. The result of all this has been the restoration of balance in the foreign exchange markets.

At the same time, we have seen a drop in the prices of Egyptian equities. From the beginning of October to the end of February 2000 prices went up, but since then there has been something of a downturn. Some investors have been reluctant to invest with exchange rates as they are, and they are waiting for a clearer picture to develop before committing their money.

Last year was positive in the fact that the Government demonstrated its ability to solve these problems, and we are now looking forwards to a more consistent and long term exchange rate policy. There is a price to be paid - with the slowing down of the economy. Growth will probably be around four percent this year as opposed to the 5.5% last year, but this is necessary for us to enter next year on a solid base.

Can you tell us a little about the way that EFG Hermes has grown in recent years?

We have grown substantially. A comparison of our 1998 results and our 1999 results demonstrates this. Our profits increased from LE 42 million in 1998 to between LE 62.25 million in 1999. This is a result of our efforts to bring new companies into the market, and our expansion outside of Egypt. We have started working in Algeria, Jordan and in Turkey, where we have completed two deals so far, and we are also expanding into sub-Saharan Africa, which is proving to be a profitable venture. We are concentrating more and more on the IT, media and telecom sectors as well. Recently we have concluded a number of deals in this field, and we still have many more up our sleeve, so to speak.

Could you tell us a little bit about security brokerage and your strategy to increase your market share in this area?

The Security and brokerage market can be split into two parts: institutional and high net worth individuals on the one hand, and small investors on the other. Previously, small investors formed only a very small part of the market, and we concentrated mainly on serving foreign institutional investors and high net worth individuals, these being mainly Egyptians and Gulf Arabs.

Our market share in this field is still increasing, in spite of some strong competition that is emerging through foreign companies who are setting up operations in Egypt, such as Fleming and ABN-AMRO. We have never really concentrated on the small investor - it is not a profitable business for us, we leave this to the smaller brokerage firms.

In the last six months we have seen a surge in the number of small investors, mainly concentrating on two companies, Mobinil and the Media Production City. In conclusion, our market share has decreased over recent months, not because we are loosing our major market share among institutional investors, but because the smaller investor market has grown.

We have very little interest in breaking into the smaller investor market, except with our e-trade project, which will hopefully be ready by October. Unfortunately there are legal hurdles for the stock market to overcome, and this may cause delays. Once this project is up and running we hope to have a significant impact on the small investor segment.

Will you be the only company in the region with an E-commerce investment plan?

No, I doubt it. It is no secret that we have started work on the project, and we are hoping to have it ready for the fall, in the hope that the regulatory framework of the Cairo Stock Exchange will be ready in time.
Looking at the mutual fund group, you have a division in the UK to organise offshore funds. Could you tell us about this project?

We have three off shore funds at the moment, in listed securities, plus two that we are managing for other companies. We have the Egypt Fund, the MEDA (Middle East and Developing Africa) Fund, and the Regional Telecommunications fund, as well as the High Growth Investment Fund which is highly aggressive. We also manage two small funds of an Islamic nature. We have nine mutual, local funds.

I read that EFG Hermes is adopting the concept of investing in ideas. Could you tell us about your involvement in

This is part of our private equities operations. We have an offshore group called Egypt Fund Partners, which manages a private equity fund called the HORUS fund, and an investment company which is really a private equity fund, called the Arab Investment Company. We are in the process of developing a regional private equity fund that will have a high tech focus. The investment in is part of this strategy.

You have recently signed a partnership with CitiBank. How this is going to effect your operations?

Citibank's acquisition was through a combination of buying existing stocks, and a capital increase, which amounts to 20% of the company. It is a strategic alliance, with no participation in management, but they will have two seats on the board. We believe that this will be a great opportunity for both of us.

The association gives us prestige and credibility outside Egypt, and at the same time the Citibank platform can be used to launch our operations in the area. They have many good contacts, as they have been operating in the region for a long time. They will benefit a great deal from our investment banking capabilities which have been proved both at home in Egypt and abroad. They also have Solomon Smith Barney, and we are co-operating with them very closely in order to develop our investment banking capability outside Egypt. There is also the finance issue - it is good to have a partner that can provide finance quickly in response to new deals.

And this fits into your strategy of expanding into Africa, does it not?

Our main objective is, in 2001, for fifty percent of our revenue to come from outside of Egypt. At the present, around 20% of our income comes from abroad.

Do you think that this is where your future growth will stem from, or are you looking at expanding and diversifying into other areas as well?

We serve the whole spectrum of investment banking; we are involved in brokerage, asset management, corporate finance, private equity and privatisation too. Unless we go into other areas such as insurance or commercial banking, then we will concentrate on our present business areas. We are expanding within our existing spheres of interest into the information technology sector, as I mentioned earlier.

Success stories are often a result of the development of innovative ideas into new business opportunities. What have been your greatest success stories in latest years?

Last year we had our first highly contested takeover, in a direct offer situation. It was a long battle, but our client got the deal in the end, and we are proud of that. We have also put together a company called Raya Holding, which is a high tech holding company with telecom, network and IT interests. We merged four smaller companies to make one large one that is growing very fast indeed. We hope to have an IPO some time this year, and already the evaluations are several times greater than they were at the start.

We are also putting together the Orascom Telecommunication deal - this company owns part of Mobinil, a majority of the GSM operations in Jordan, and has just acquired a huge African mobile telecom company. We hope to have an IPO for this company, with any luck, before your supplement is published in Forbes Global. We also put together the IPO of OCI (Orascom Construction Industries), which was well received by the market and has increased its worth considerably. Our asset management firm is moving into more aggressive and advanced funds such as the telecom fund and the developing Africa fund.

In light of recent developments, such as the CitiBank deal, would you say that EFG Hermes is set to become one of the leading powerhouses in the region within the next ten years?

I would say that we already are, but we certainly aim to be the leading investment bank in Africa and the Middle East.

  Read on  

© 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.
Developed by AgenciaE.Tv