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Al-Ahram Weekly 22 - 28 June 2000 Issue No. 487 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 22 - 28 June 2000 Issue No. 487
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Focus Opinion Culture Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters For whom the 'warning' bell tolls
By Aziza Sami
Recent problems encountered by the market -- namely, the shortage in liquidity and the accompanying standstill in business activity -- have highlighted the need for private investors to reconsider their decisions, and specifically whether their funds are working to stimulate economic growth. The private sector has shown a marked tendency to invest in real estate and tie up billions of pounds in frozen assets; this begs the question whether Egyptian private-sector investors are aware of the importance of projects being launched on the stock market and therefore partially funded through public subscription in addition to bank support.
Speaking to Al-Ahram Weekly, Onsi Sawiris, the chairman of Orascom Construction Industries, said there must be "more honesty in addressing the fact that the Egyptian private sector in general needs to be educated and prepared [to contribute to the economy's growth]."
The business magnate, who is one of a few not cited as having run into debt with the banks, said that private-sector practices in Egypt are still not aligned with the principle of entrepreneurship whereby a businessman assesses a project based on personal profit as well as its benefits to the economy. Although "the business community is primarily to blame for what happened," in Sawiris's opinion, the state as well as the banking sector are also guilty of adopting a short-sighted approach to investments.
Experience has shown that few private-sector investors have exercised the necessary "cautious judgement, as well as soliciting financial managers who can make financial forecasts, and assess and warn against potentially risky loans."
To buttress his argument, Sawiris cites a well-known example. "When large areas of land were made available to investors in 6 October City, Sheikh Zayed, and Al-Obour, they all rushed in to invest in real estate. When one project failed to yield the expected results, the investor would build another housing project. And still, the banks extended credit which could not be repaid while assets worth billions were frozen in concrete."
Private investors have been lured into imitating one another, he added, in such industries as real estate or ceramics. "The result was failed projects, frozen liquidity, and a tightening of bank credit -- for which successful businesses are now paying the price."
In Sawiris's opinion, Egyptian banking practices have deteriorated, although they have traditionally supported entrepreneurial projects. "When a bank gave a loan, it was like marrying someone. The groom's credentials, his case history, would be scrutinised. No bank would ever give credit to a gambler, for instance But the banks no longer apply these rules; they never even looked into the history of individuals requesting loans."
In the absence of scrupulous checks, he believes, outright adventurism has characterised many investors "who are professionals at securing large loans. Their mal-intent was clear from the very start. They were not qualified to administer large investments; they did not follow proper management practices, or conclude the right partnerships. And despite all this, the banks gave them loans. As a result, they are now left with billions in default."
Sawiris, a self-made man whose family was cited by Forbes magazine as one of the world's wealthiest, started his business empire in the cement and construction sector and heads a holding company running affiliates in construction, telecommunications and tourism sectors. His company, Orascom Construction Industries, was included in the Financial Times 2000 index of the world's leading companies; in the section on the Middle East, Orascom Construction Industries was assessed as one of the strongest companies in the region, which applies world-class practices in administering its investments.
Proper marketing in the construction sector is a requisite for any project's success, said Sawiris. "An investor in construction must 'study' any prospective client carefully, whether he has the liquidity, if his loans are well covered. So our company goes into projects where money and liquidity are available, like the construction of oil and gas pipelines."
According to Sawiris, his construction company has not been affected by the liquidity squeeze because it "has not been involved in any state projects" and so was unaffected by government debts. "Any projects we have gone into have been ones where the client buys the enterprise -- or those funded by economic assistance."
Despite the government's announcement that it would inject approximately LE2.5 billion into the market every month to repay its debts to construction and state authorities, "as far as I can judge, nothing has actually been done. Where are the results? The government is in debt. Will it pay or not? That is one question. But [the liquidity squeeze] is temporary, not a permanent problem, since the economy's growth levels are reasonable."
The real question that the government must address, Sawiris emphasises, is: "What is it doing to resolve the economy's other problems? The focus should be on improving the trade deficit and encouraging the banks to undertake development efforts in all sectors. The government should solicit the advice of advanced countries [on how to solve its problems] even if such advice costs money."
The private sector may lack awareness of corporate culture, but so does the state, said Sawiris. He cautioned against "privatisation for privatisation's sake. The government's role is not only to sell companies," but also to follow up on companies after privatisation, in order to ensure that they will be properly managed by private investors.
Some companies "have actually deteriorated after being privatised" he added, "because the investors who bought them lacked good management skills and took no measures to improve their companies' performance and production."
The sluggish pace of privatisation has compounded the market's slump, he feels. "Things are moving at a snail's pace, though there is a lot on the agenda. There are also many contradictions in government announcements [on privatisation]. Officials must realise the danger of contradiction and the negative impact on the highly sensitive capital market."
Sawiris feels that more privatisation is necessary in companies that will activate the market. Furthermore, he argues, "small investors should be encouraged to buy stock."
The government should also be aware of the problems faced by foreign investors who carry out transactions on the stock market but then encounter difficulties in transferring their money abroad.
As for privatisation in the cement sector -- non-Egyptians acquired public-sector companies at the beginning of the year, arousing considerable debate -- such developments, Sawiris said, will not affect the local industry. "Cement by definition is not a commodity that can be stockpiled, then sold at higher prices later. The cement market cannot be manipulated by a cartel."
Still, due to saturation in the domestic market, Orascom Construction is expanding into Algeria, where it is building a cement factory, as well as Gaza. The company is also involved in "developing the construction sector in the Gulf region."
Sawiris, who has given his three sons free reign in running their businesses, nevertheless supervises their operations closely by monitoring the financial results. "I am satisfied, let's say 80 per cent satisfied, by how they are managing. They have the advantage of youth and courage and have taken new decisions and steps I would not have ventured to take."
Referring to Orascom Telecom's expansion into the Middle East and Africa, Sawiris said this will "ultimately create a national Egyptian company in telecommunications, which will become regional. [The company] is now venturing into markets global telecommunications companies would not risk going into, because they will not risk their capital. But Egypt is an Arab and an African country and hence the region is our 'natural' market."
In Yemen, Orascom Telecom beat France Telecom in the bid to install a mobile phone system. "It makes me proud that an Egyptian company, not a multinational, will become the regional telecom operator," said Sawiris.
The secrets of his success? "A businessman must always be ready with the right money and the right personnel. In the end, you cannot blame the government for everything. Qualified consultants have been instrumental to our business's success. I have no qualms about resorting to 'foreigners' for advice; as well as Egyptians [Orascom employs], they are all appreciated, and receive salaries surpassing even European standards."
Ultimately, there is a word of advice: "It is important that every minute, an adviser be there to sound the warning bell. However bitter the advice, we act on it."
