Egypt-Al-Ahram v3.indd

Transcription

Our World
#EgyptTheWorldfolio
#TheWorldfolio
Thursday, August 6 , 2015
EGYPT
Official media partner in Egypt
This supplement to Al-Ahram was produced by United World Ltd., Suite 179, 34 Buckingham Palace Road, London SW1W 0RH – Tel: +44 (0)20 7305 5678 – [email protected] – www.unitedworld-usa.com
Nation engineers new channels of growth
With the overwhelming success of the Egypt Economic Development Conference, the opening of the New Suez Canal and a reform-minded
president one year at the helm, Egypt is living a true watershed moment – a moment defined by the creation of new opportunities
T
he keystone
of the Middle
East and a major player in
regional and
world politics, Egypt is emerging from one of the most tumultuous periods of its recent
history, with President Abdel
Fattah El-Sisi looking to continue down the road to recovery
since celebrating his first year in
office in May.
Much like his predecessors,
Hosni Mubarak, who reigned
for 30 years before being deposed in the wake of the Egyptian Arab Spring in 2011, and
Mohamed Morsi, the leader
of the now banned Muslim
Brotherhood, President from
June 2012 to July 2013, President El-Sisi’s core challenge can
be summarized in two figures.
Two thirds of 90 million Egyptians are under 35 years old, and
a quarter of the population lives
under the poverty line, according to the International Monetary Fund (IMF).
It’s the frustration and aspirations of a vast and predominantly young population that
fuelled the revolution of 2011,
threw it into the arms of a cunningly populist “brotherhood”,
and now spurs President ElSisi’s government’s drive for
economic reforms that are just
as essential to domestic peace
as they are to regional stability.
Speaking at the World Economic Forum in Davos, Switzerland, earlier this year the
Egyptian President said, “there
is no doubt that sustainable
development is an issue of
paramount importance” and
that “Egypt is fully aware that it
needs to open up to the world
to realize its ambitions.”
With strong financial backing from the Gulf countries,
which have pledged or given a
combined total of $35 billion
in the past year with the aim
of strengthening an ally they
consider crucial to counter the
Islamist threat, the government
of President El-Sisi has already
accomplished a lot to recover
from the economic wreckage
of the past four years.
While it has been experiencing recent difficulties, the
Cairo Stock Exchange beat all
of its competitors around the
world in 2014, with an index
that grew by nearly 30% in dollar terms, and offering the best
returns for investors.
But the key word in Cairo is
not so much economic growth
but rather inclusive development. Indeed, President El-Sisi
President Abdel Fattah El-Sisi gives a speech at the
Egypt Economic Development Conference in March
is acutely aware that the economic well-being of millions
of impoverished families is the
safest way to ensure political
stability and prevent radicalism. One of his key reforms
was to gradually suppress subsidies on food and energy that
weighed heavily on the State’s
budget – Egypt spent $3 billion
a year on wheat imports, making it the largest importer in
the world – and were a source
of corruption.
“The authorities
have embarked on
an economic reform
program to raise
growth, create jobs,
and contain fiscal and
external deficits and
the loss of foreign
exchange reserves”
Christopher Jarvis ,
IMF Mission Chief for Egypt
An innovative initiative in
this sense was the introduction
earlier this year of a smart card
system for subsidized flour
and bread. Reuters news agency reports “under the new system, families are issued plastic
cards allowing them to buy
five loaves of bread per family member per day. Buyers no
longer have to queue. Bakeries are paid for the subsidized
loaves they sell, rather than being given a fixed allotment of
cheap flour, making it harder
to siphon off subsidies.”
This measure “has freed up
billions of dollars in the government’s budget so that we can
now invest more in education
and health care programs for
those who really need it,” says
the Prime Minister, Ibrahim
Mahlab. “Working on creating
a social safety network is perhaps the most important thing
we are doing right now.”
The
government’s
2015/2016 draft budget envisions a 12% increase in spending on social programs at 431
billion Egyptian pounds ($55
billion), or nearly half of total
public expenditure, and a deficit of 9.9%, lower than the current 11%. The budget is based
on encouraging indicators:
growth rose to an annualized
5.3% in the first half of this fiscal year, compared with 1.2% in
the same period the year before.
Unemployment, a particularly
pressing issue, is still achingly
high at 12.8%, with 55% of all
those unemployed aged 15 to
24, according to national statistics (2013), but it is falling from
its January 2014 peak of 13.4%.
The IMF has lauded the
reforms implemented so far:
“Egypt has chosen a path of adjustment and reform which, if
followed resolutely, will lead to
economic stability and growth,”
it stated in February. “For a number of years, Egypt has suffered
from large fiscal deficits, rising
public debt, fragility in the balance of payments and, hence,
losses of foreign exchange reserves. But the authorities have
embarked on an economic reform program to raise growth,
create jobs, and contain fiscal
and external deficits and the loss
of foreign exchange reserves,”
added Christopher Jarvis, IMF
Mission Chief for Egypt.
On the expenditure side of
the budget, the government
started to reform the system
of energy subsidies. It also
started to get a grip on the
public sector wage bill. On
the revenue side it introduced
measures such as higher tax
rates for high earners. “Those
measures have already made a
big difference in curbing the
unsustainably high fiscal deficit,” said Mr. Jarvis.
The fiscal program also includes enacting a long-awaited value-added tax which,
if implemented successfully,
“can greatly boost government revenues and, hence,
improve the country’s fiscal
position at large.” Last but
not least, “the authorities are
pursuing structural reforms
and developing measures to
protect the poor, increasing
cash transfers and spending
on health, education, and infrastructure,” the IMF summarized in its report.
In parallel to reforming a
notoriously bureaucratic and
cumbersome economic system, the El-Sisi government is
wooing foreign investors, well
aware that it needs foreign
money to compensate its deficit and its debt, which stands
at 95% of the GDP. The new investment law presented a few
months ago goes a long way
towards achieving this.
“When we began reform in
June 2014, we had a very clear
vision based on three pillars:
structural adjustment and fiscal
consolidation; an investment
stimulus plan with the launch
of mega-projects and incentives to the private sector; and
“There is no doubt that
sustainable development
is an issue of paramount
importance…Egypt is
fully aware that it needs
to open up to the world
to realize its ambitions”
Abdel Fattah el-Sisi , President of
the Arab Republic of Egypt
improving the investment climate,” emphasizes the Minister
of Investment, Ashraf Salman.
The objective of the new investment law is to streamline
regulations and facilitate investment and job creation. Up
until now, an entrepreneur had
to obtain 85 different permits
in order to set up a company,
a process that could last up to
five years. Now, they will be
able to manage all the paperwork through a one-stop agency. “This is a major change and
it will take some time to implement it,” adds Mr. Salman.
Although it will certainly
take time, investors have already voted with their purse
and their feet. No less than
2,800 international political
and business leaders flocked
to the Egypt Economic Development Conference (EEDC)
held in March in Sharm El
Sheikh. The event had been
carefully designed by the
Egyptian authorities to send
a message to the world: we
are open for business. “Egypt
is going towards the future.
Egypt is welcoming investors who are seeking to use
the chances given to them by
Egypt and giving a better life
for Egypt,” said President ElSisi in his opening address.
The conference was a resounding success from both
a political and a business perspective. Aside from the U.S.
Secretary of State, John Kerry,
and Managing Director of
the IMF, Christine Lagarde,
the conference gathered the
Italian Prime Minister, Matteo Renzi, the Crown Prince
of Saudi Arabia, Muqrin bin
Abdulaziz – whose country
offered $4 billion in funds
to Egypt – and the United
Kingdom’s Foreign Secretary,
Phillip Hammond, who came
leading a strong British delegation of businesses, including British Petroleum (BP),
which signed a $12 billion
investment deal in the West
Nile Delta, the single largest
investment deal in Egypt’s history. In total, the conference
garnered more than $130 billion in direct investment and
signed commitments.
Concerning mega-projects,
and apart from the opening
today of the New Suez Canal,
which was financed by a public
bond transaction that “raised
$8.5 billion in eight working
days”, as the Minister of Investment proudly notes, the
government unveiled at the
conference plans for a sprawling new capital city to be built
28 miles (45 km) east of Cairo.
The government hopes this
new $45 billion development
will create 1.5 million jobs.
However, in his closing address, President El-Sisi called
for more foreign investment
and said that his country
needs “no less than $200 to
$300 billion to have real hope
for the 90 million Egyptians
to really live, really work, and
really be happy.” If Egypt delivers on the promises made
at the conference for reforms and stability, President
El-Sisi’s objective seems definitely attainable given that before 2011, Egypt was emerging
as one of the world’s top destinations for foreign capital.
A UNITED WORLD SUPPLEMENT PRODUCED BY:
John Kirlin, Editorial Director
Julia Maeda, Project Director
James Kinnersly, Project Coordinator
Our World Insert is produced by United World. Al-Ahram did not participate in its preparation and is not responsible for its content
Egypt-Al-Ahram v3.indd 1
31/07/15 14:47
EGYPT
Deals worth $130bn secured
The media and
the new consensus at landmark conference
2
Thursday, August 6, 2015
by Mohamed Abdel-Hady Allam,
Editor-in-Chief of Egypt’s AlAhram newspaper
E
gyptian society is
passing through
a critical phase
of its current
history. In the
aftermath of the popular uprising against the
former president and the
outlawed Muslim Brotherhood, the Egyptian political and economic elites
have focused their efforts
on building a new consensus around the principles
of both the January 25 and
June 30 revolutions.
At the heart of current
developments, the Egyptian media plays a major
role in cementing the advancement towards a real
civic state that should be
based on full citizenship
and equality of all citizens as a premise of a new
paradigm before the whole
world. The Egyptian media
has enjoyed a margin of
freedom that allows different voices to express
their opinions. At the same
time, professional journalism came to the conclusion not to give a space to
frantic or violent voices
that caused a national rift
in the recent past.
Part of pushing the country along a path of prosperity is building a consensus
around the new national
economic plans that aim at
enhancing the living conditions and quality of life for
all Egyptians. Media could
be a central component of
such an endeavor.
The Egypt Economic
Development Conference
(EEDC) offered Egypt a
real chance to explain the
“The EEDC has also
prepared the global
stage for a new Egypt
that will rise from the
ashes of the Middle
East to build a new
regional consensus
towards freedom
and development for
everyone”
Abdel-Hady Allam, Editor-in-Chief,
Al-Ahram newspaper
challenges that businesses
face. It was a great venue
to get the international media to understand the deep
changes that the majority revolting against the former rulers have made. The
EEDC has also prepared the
global stage for a new Egypt
that will rise from the ashes
of the Middle East to build
a new regional consensus
towards freedom and development for everyone.
Indeed, it is time to communicate with the right audiences with a sound message and the perfect tone.
Distributed by AL-AHRAM
The $130 billion of investment agreements signed at the Egypt Economic Development Conference,
which is set to become an annual event, serves as a clear testament to the international investment
community’s confidence in the new Egypt
T
he Egypt Economic Development Conference (EEDC),
which
took
place in Sharm El-Sheikh on
March 13-15, allowed Egypt
to scoop an impressive $130
billion worth of direct investment agreements and signed
commitments from some of
the world’s leading companies.
And even though President
Abdel Fattah El-Sisi said in his
closing remarks that his country needs more to “really be
happy”, this is an achievement
that serves as a clear testament
to the international investment community’s confidence
in a rejuvenated Egypt.
Titled “Egypt the Future”,
the event was attended by
2800 foreign investors from
88 countries and 23 international organizations, who
listened to speeches by some
of the world’s leading politicians and businessmen and
schmoozed informally on the
new business opportunities in
the nation of 90 million as it recovers from four years of turmoil. Amongst the dignitaries
was IMF Managing Director
Christine Lagarde and U.S.
Secretary of State John Kerry.
In its opening message to
conference-goers, included in
the official brochure, the government said it is: “committed
to pursuing policies aimed at
achieving inclusive and sustainably high rates of growth,
creating an attractive, predictable, fair and internationally
competitive business environment, and addressing the
needs of Egyptian citizens. [...]
The aim is to reengineer the
economy through a coherent
set of policies, programs and
projects to ensure that future
growth is high, sustainable
and inclusive.”
2800 foreign investors from 88 countries attended the EEDC
Commenting on the progress already made, Ms. Lagarde said, “Over the past
few months, there have been
promising strides on the reform front. [The government]
did a lot to prepare the country and beginning this process
was a major achievement.
Continuing it will be equally
important, and completing it
for good, the ultimate goal.” For
his part, Mr. Kerry said, “how
Egypt develops in the coming
years ... is strategically important to this region and to all of
us who are looking for stability,
for a better standard of living
and greater inclusivity.”
On the business side, the
EEDC proved that international investors are very keen to go
back to the giant Middle Eastern nation. Some of the most
notable investments made as
a result of the conference include a BP energy deal worth
$12 billion to fund the West
Nile Delta gas project, the largest single foreign investment in
Egypt’s history; $10 billion from
Siemens for the construction of
two power stations; a concession agreement with Italian energy firm Eni worth $5 billion;
and $6 billion from the Suidan
Group, which will be used to
establish logistical centers for
seed storage in Damietta and
along the Suez Canal.
In total the Ministry of
Electricity signed 15 agreements totaling some $35.7 billion, claiming the lion’s share
of total agreements signed at
the EEDC and reflecting the
priority of the government
to meet growing power demand. Besides Siemens, other
companies that committed
to building new power plants
were Orascom, which will
build a 3,000 MW coal-fired
plant, Saudi Arabia’s ACWA
Power, which committed $3
billion for power plant developments, and $5 billion from
Canada’s SkyPower Global for
the development of 3GW of
solar power.
Deals in construction and
real estate included: a pledge
by mall developer Majid Al
Futtaim to invest $700 million
in the development of eight
malls in the next five years; $3
billion by Emirati Mohamed
Alabbar to construct residential housing on the North
Coast, a project that will create 14,000 jobs; and $30 billion for the New Cairo and 6
October City projects.
In the food and beverages
sector, both PepsiCo and Coca
Cola have pledged to invest
$500 million each to expand
their Egyptian operations in
the coming years, while Beyti,
the milk and juice company
PepsiCo owns with Al-Marai,
will invest $525 million to
build a new factory.
One of the most notable
deals was the Aviation Industry of China’s commitment to
invest $700 million in a brand
new electric train from Alexandria to Abu Qir. Meanwhile
the Gulf States, which had already donated billions of dollars in aid, pledged to invest a
further $12.5 billion in several
new projects as well as deposits in Egypt’s Central Bank.
The improved business environment and political stability also prompted Moody’s
to upgrade Egypt’s credit
rating, raising the country’s
issuer and unsecured bond
ratings one level from Caa1
to B3, six levels below investment grade. “This expected
level is based on an assumption that domestic political
stability will continue, as will
improvements in the business environment, which in
Moody’s view will be conducive to higher investment levels,” it said in a statement.
Following the success of the
EEDC this year, the Egyptian
government plans to make the
conference an annual event,
with President El-Sisi stating
that the country would need
an extra $200 to $300 billion in
order to see real change.
31/07/15 14:47
EGYPT
3
New Suez Canal project
to generate $100bn a
year and 1 million jobs
While the New Suez Canal will double the capacity of the 146-year-old waterway, the canal expansion is just the beginning of a much more ambitious
scheme that aims to turn the environs into a world-class transport, logistics
and industrial hub
W
hen one
thinks of
E g y p t ’s
g re ate s t
e n g i neering feats, perhaps the
Great Pyramids first spring
to mind. However, equally
impressive is the Suez Canal,
a man-made waterway connecting the Mediterranean
Sea and Red Sea. Opened
in November 1869 after 10
years of construction, the
canal revolutionized world
trade – dramatically cutting
transit times from Europe
to Asia by eliminating the
need to sail around Africa’s
Cape of Good Hope. It has
served as the lifeblood of
Egypt’s economy for almost
150 years, now generating
billions of dollars in annual
revenues, and a profound
source of national pride.
Officially inaugurated on
August 6, the New Suez Canal, the first major expansion of the waterway in its
146-year history, has been
hailed as the “megaproject
of the century” and a symbol of the new Egypt. Construction time was initially
estimated at three years.
But last year President Abdel Fattah El-Sisi promised
in a televised speech that it
would be completed in just
one year. He has managed
to keep this promise thanks
to a hugely successful and
well thought-out financing
strategy, as well as the hard
work and diligence of the
41,000 workers involved in
its construction.
“We will lift our country
on our shoulders,” President
El-Sisi told the nation in his
televised address, promising that “Egyptians will experience a new economic
era that will depend on the
strength of people and the
project will be owned by
Egyptians.” The president
invited the public to have
a direct stake in the New
Suez Canal. As a result the
Egyptian people completely
funded the project, investing $8.5 billion dollars in just
eight days through the purchase of tax-free investment
certificates offered by state
banks for as little as 10 Egyptian pounds (around $1.30).
The new 45-mile lane
will allow ships to travel
simultaneously in both directions for the first time.
This will double the daily
vessel capacity from 49 to
97 and reduce total navigation time from 22 hours
to 11 hours. Mohab Mameesh, Chairman and Managing Director of the Suez
Canal Authority, has said
the new canal will more
than double annual revenues from $5.4 billion to
$13.5 billion by 2023.
But the canal expansion is
just the beginning of a much
more ambitious scheme.
The master plan for the
Suez Canal Zone (SCZone)
project is a comprehensive
long-term
development
strategy that aims to turn
the waterway’s environs
into a world-class transport,
logistics, commercial and
industrial hub. The government believes that over the
next fifteen years, the SCZone will have the potential
to create one million jobs
and generate $100 billion in
annual revenue.
“The Zone should create
an industrial awakening,”
says Yehia Zaki, Director of
Operations at Dar Al Handasah, the Lebanese-based
engineering and consulting firm that developed the
master plan.
In order to turn the area
along the Suez Canal into a
logistics and industrial hub,
the master plan focuses on
three main development
sites: Port Said at the northern mouth of the canal
opening onto the Mediterranean; the city of Ismailia
and its surroundings; and
Ain Sokhna, situated on the
southern end of the canal
along the Gulf of Suez.
According to the General Authority of SCZone,
both East Port Said and Ain
Sokhna Port will be transformed into thriving gateway ports with dedicated
multi-modal logistics facilities. Furthermore, around
4,000 thousand hectares
around each port have
been earmarked for light
and medium manufacturing activities.
At Ain Sokhna Port, a
further 2,260 hectares will
be allotted for heavy industries including oil refining,
petrochemicals and energy
component manufacturing.
The highlight development
in this industrial zone will
be local company Carbon
Holding’s $7bn petrochemical complex, which is expected to create approximately 100,000 direct and
indirect jobs and generate
annual revenue of $6bn.
“By moving into the industrial zone south of the
Suez Canal, you are looking at many logistics operations being based there.
The fact that there is logistics means there will be
warehousing – meaning
that eventually, there will
be manufacturing. For a
company like ours that
produces a variety of petrochemical products, these
manufacturers are going to
require the products that
we produce,” says Carbon
Holdings Chairman and
CEO Basil El-Baz, who believes that the SCZone “is
not just a very good project, but a necessary project in this specific time in
Egypt’s history”.
In the third development
node, Ismailia, the focus will
be on hi-tech activities such
as R&D, ICT and renewable
energy development. Agriprocessing, logistics centers,
a dry port and other light
manufacturing facilities will
also be developed just north
of Ismailia in Qantara.
There is no doubt that the
SCZone project is Egypt’s
most ambitious development project to date – a
project that is going to require substantial investment
from the private sector. But
with so many free trade
zones, shipping hubs and
special economic zones in
the region and around the
world available to investors,
what makes the Suez Canal Expansion Project and
Suez Canal Zone stand out
amongst the competition?
“Firstly, among our studies that examined other areas around the world with
similar projects, a certain
study in particular gives assurance about the viability and attractiveness of the
Suez Canal Expansion and
Zone Project.” replies Mr.
Zaki. “Secondly, investors
have been knocking on our
doors and asking about it
from an early onset. Everyone is quite interested and
eager. There are a number
of industrial developers
that are holding their deci-
sion to build a new factory
as they are waiting for the
Zone to be integrated. Interested parties have done their
homework, which makes us
feel more confident.”
Perfectly positioned to
prosper from the billions of
dollars being pumped into
the construction of the SCZone and its related infrastructure work is Suez Cement, the country’s leading
cement manufacturer.
“Cement is the backbone
of any production and for
a country like Egypt that is
on the verge of taking off,
you will find that the construction business is the
first that shows a result,”
says Suez Cement Chairman Omar Mohanna.
As the SCZone becomes
one of the world’s premier
transport and logistics hubs,
local companies offering
freight services also stand to
benefit greatly from the project’s development. One such
company is Reliance Logistics – a subsidiary of Reliance Investments – which
will be in a prime position
to offer logistics, maritime
freight and trucking services to the influx of potential
new clients operating along
the Suez Canal corridor.
“Logistics is an important sector that needs to
be developed in Egypt and
as a group we have a mission to try and develop new
concepts of logistics in a
number of sectors and industries,” explains Magdi
Moheb Kassabgui, Chairman of the Board of Reliance Investments. “As far as
the Suez Canal is concerned,
we believe that we need to
look at it with a different
concept. Warehousing is
going to be extremely important there. We need to
create a logistics hub in the
Suez Canal region where we
can serve several industries.
“We have a number of
projects that are surrounding the new Suez Canal expansion project. We expect
the impact of the project to
be very large for both the
country and our company.”
Like Suez Cement, Reliance Investments is also set
to take advantage of the demand for locally produced
cement as construction of
the SCZone project goes
into full swing – through
its subsidiaries Reliance
Ready Mix and Reliance
Cement Trading.
“There is optimism and
appetite to focus on the
opportunities in Egypt,”
adds
Mr.
Kassabgui,
“whether they are related
to infrastructure, logistics,
or the Suez Canal. The latter is opening doors for
many projects.”
“The Zone should
create an industrial
awakening. In
different locations, we
have a total area of
460 square kilometers
that we’re developing”
Yehia ZAKI,
Director of Operations, Dar Al
Handasah
“We have a number
of projects that are
surrounding the new
Suez Canal expansion
project. We expect the
impact of the project to
be very large for both
the country and our
company”
Magdi Moheb Kassabgui,
Chairman of the Board, Reliance
Investments
“We took advantage
of the dormant period
in activity here in Egypt
to equip ourselves for
better days. Those
days are coming”
Omar mohanna,
Chairman of Suez Cement
31/07/15 14:47
4
EGYPT
Spending on construction and
infrastructure to reach $7.3bn in 2015
The Suez Canal Zone development, the New Capital City and a string of other large-scale construction projects will form the foundation of the new Egypt and
ensure that the country’s building boom will last for years to come
P
erhaps not for
thousands
of
years has Egypt
experienced
such a boom in
construction like that which
is taking place today due
to plans for unprecedented
public and private investment encouraged by the
government of President
Abdel Fattah El-Sisi.
As in ancient times, new
structures are popping up
all over the country. Not to
erect towering pyramids,
columned temples and
luxurious palaces for rulers
and priests, but rather mega-construction projects
– civil, residential, industrial and leisure – aimed
at helping to usher tens of
millions of Egyptians into
the 21st century.
According to industry analysts, spending on Egypt’s
construction sector should
top $7.3 billion by the end of
this year, with much of that
– $6.7 billion – earmarked
for non-residential projects
like the expansion of the
Suez Canal and developing
75,000 square kilometers
(30,000 square miles) of
land along the strategic waterway’s route for industry
and infrastructure.
And this global figure was
calculated even before the
Egypt Economic Development Conference was held in
March, where additional mega-projects were announced,
such as plans for a new Egyptian capital city projected to
cost up to $70 billion.
At the conference, also
attended by U.S. Secretary
of State John Kerry, Minister of Housing Mostafa
Madbouly said the new
capital project was necessary as Cairo’s current
population of 18 million
was expected to double between now and 2055.
While these governmentsponsored projects are underway, at the same time,
private sector investment
is pouring into factories, office blocks and major shopping centers that are springing up across the country, all
of which will create jobs for
Egypt’s burgeoning youth
demographic now and for
many decades to come.
In one project alone, retail developer Majid Al
Futtiam of Dubai has announced plans for a $2.3
billion investment over the
next five years for four mega-malls and almost three
dozen hypermarkets which
will account for a total of
40,000 new jobs.
Housing is also a top priority for the Egyptian government as demand for
home ownership increases
among the growing middle
class. In 2015, an estimated
$600 million will be spent
on residential construction
spurred by new government
initiatives to ease housing finance and the development
of new residential areas.
Construction
firm
Arabtec of the United Arab
Emirates, for instance, last
year said it would erect one
million affordable homes
costing $40 billion with the
backing of the Egyptian and
Abu Dhabi governments.
Meanwhile, one of the
Middle East’s leading construction and engineering
firms, Orascom Construction
Limited, is expected to play a
major role in many of the new
projects being promoted by
the government which should
mean fresh opportunities for
local operators, argues CEO
Osama Bishai.
“Personally, I’m very optimistic from a business and
construction perspective
as there is a strong focus
on stimulating the economy through infrastructure
projects and developing a
better platform for foreign
investment.
“The current administration has a tendency to encourage local contractors
which will create more experience within Egypt rather than forcing the sector to
become dependent on foreign contractors regarding
technical skills,” he says.
Mr. Bishai states that the
challenge lies in sustainabil-
ity with the country needing a long-term plan utilizing a model for at least four
to five years. As a contractor, Orascom can only plan
ahead for a period of 18 to
24 months, the usual lifetime of a project.
“We hope that within the
next few months there will
be a master plan for the
next five to seven years outlining where to invest and
how much money should be
earmarked for various projects,” he explains.
Orascom is well positioned for the future, thanks
to its vast experience in the
market as well as its global
connections.
Founded in 1950 as a
small construction firm in
Upper Egypt, it grew swiftly and made its first foray
overseas in 1985 when it set
up the Contrack company
“We are not an outsider
who has been invited
to look into Egypt... We
know Egypt, we are
committed to Egypt and
we are bullish about
Egypt and for us the
expectation is to attract
more foreign direct
investors.”
osama bishai,
CEO of Orascom Construction
in McLean, Virginia to pursue U.S. AID and U.S. government-financed projects
in Egypt.
A series of successes followed, including an initial
public offering on the Egyptian Stock Exchange to become the largest company
on the bourse, an ambitious
overseas expansion cam-
paign and the winning of a
range of contracts on some
of the most prestigious projects in the Middle East.
Now, thanks to the ambitious initiatives proposed by
the El-Sisi government, the
group is eagerly looking forward to the opportunities at
home and the chief executive is confident Orascom
will benefit.
“We are not an outsider
who has been invited to
look into Egypt,” Mr. Bishai
says. “We know Egypt, we
are committed to Egypt and
we are bullish about Egypt
and for us the expectation
is to attract more foreign direct investors.
“As a contractor, when
these investors come in, we
realize that these firms will
need to build something
at some point so even if I
am not a direct beneficiary
of this construction, it increases the overall market
share which allows me to
gain more work whether
through this opportunity
or another.”
Along with sustaining
Egypt’s growth, the CEO
says the second most serious challenge will be maintaining the fiscal discipline
to manage FDI, spending,
foreign currency and reducing subsidies, among
other issues.
“But from a business
standpoint, I think our biggest challenge is the availability of talent and human
capital within the next five
years as there has been a
talent drain flowing out of
Egypt to the rest of the Middle East, Canada and the
United States.”
New $45bn capital city to rise out of the desert
Government unveils an ambitious plan to build a
smart-city the size of Singapore that aims to solve
Cairo’s overcrowding issues. Officials boast it will
include an airport bigger than London’s Heathrow,
1.1 million housing units, and 10,000 km of boulevards, avenues and streets
T
he
moment
was not lacking in drama
at last March’s
g roundbre aking Egypt Economic Development Conference, when
the host country’s Housing
Minister, Mostafa Madbouly,
unveiled a to-scale mock-up
of what is someday going to
be the country’s brand new
capital. Planned to be built
up from scratch in the desert
east of Cairo, about halfway
between the current sprawling capital and the Suez Canal Development Corridor,
the new city is meant to absorb the population overflow
and bulky administrative apparatus of government and
finance that the swollen, pollution-wracked Cairo can no
longer accommodate.
“We are committed to the
first phase,” Mr. Madbouly said
in an recent interview. “We already have a very clear plan.”
One may be forgiven for
wondering if the government
of President Abdel Fatah ElSisi is out to make a big political splash by pledging to
achieve the impossible. On
the other hand, it could be
rather a serious attempt to
come to terms with the relentlessly inevitable, since demographers and planners all
agree that Greater Cairo is on
course to double its current
population to top the 40 million mark by mid-century.
What its promoters describe as “a momentous endeavor to build the national
spirit, foster consensus and
provide for the country’s sustainable long-term growth” is
a full-function, futuristically
post-modern city covering
700 square kilometers, roughly the size of Singapore, that is
to be grown from and remain
attached organically to the
mixed-use megacity develop-
ment of New Cairo, which has
been in operation for more
than a decade.
Residents will be free to
make use of amenities that include a theme park “four times
the size of Disneyland” an international airport larger than
Heathrow, over 1250 mosques
and places of worship, 663
hospitals, 10,000 km of boulevards, avenues and streets and
1.1 million housing units.
Commentators,
meanwhile, have remarked that
the capital’s proposed skyline
looks a lot like Dubai. In fact,
the master planning and execution is to be carried out
by Capital City Partners, a
private investment fund led
by Mohamed Alabbar, the
Dubai financier at the head of
the consortium that financed
and built the emblematic Burj
Khalifa tower in Dubai. Nobody can say how much the
Egyptian project will end up
costing, but sums between
$45 and $300 billion have
been mentioned. Who’s going
to pay for it? Authorities insist
that private investment capital
from the Gulf region and elsewhere will cover everything.
Regardless of who picks up
the tab, public opinion has
not settled on whether this
is a case of unjustifiable extravagance for a country with
Egypt’s current problems or an
essential and overdue reform.
Supporters point out there’s
nothing inherently wrong
with changing capitals; Pakistan, Nigeria, Brazil and others have done it without going
bust or disrupting the delivery
of government services. And
whatever may or may not happen out there in the desert,
the original, inimitable Cairo
will still be where it always has
been for the past 1,000 years, a
20 minute ride by car or electric train from the new capital
of a very old country.
31/07/15 14:48
31/07/15 14:48
6
EGYPT
High-rise demand for Egypt’s property developers
With 8 million housing units needed to meet demand, the real estate sector is forecasted to grow 14% annually, while the government’s Social Housing Project
aims to extend the property ladder to include lower-income families
“
Modern, moderate and
a beacon for freedom in
the Arab world,” is the
future that Nobel Peace
laureate Mohamed El
Baredi envisages for Egypt one
day. Meanwhile, Egypt remains
a “developing country” in terms
of its efforts to meet the urgent
needs of its 90 million inhabitants. Roughly half are young
and either at or approaching an age in which the usual
thing is to get married and set
up a household. The result is
a yearly shortfall of 500,000 to
800,000 residential housing
units in the major urban areas,
affecting all price categories
and giving rise to a situation
that makes Egypt’s real estate
and construction sector an extremely promising target for internal and foreign investment.
Residential property is the
primary focus of Egyptians’ relentless hunger for real estate,
with prices increasing across
the board for apartments and
villas at a rate of 20% per year.
How could prices not be shooting up in a country where 96%
of the people live on roughly
4% of the land? But on a per
capita basis, Cairo remains one
of the most underserved capitals in the world, says Alsherif
Wahdan, a Harvard trained
civil engineer who manages the
Egyptian portfolios at Capstone
Advisory Services.
That fact duly noted, other
types of property have posted
extremely positive results for
the first quarter of 2015. In the
commercial category, turnover
in new office space has been
particularly brisk in the satellite
towns on the outer periphery
of the capital where digital connectivity, parking, housing and
services are easy to come by.
Developers have promised to
deliver another 37,000 square
meters of offices at the New
Cairo City complex, to cite just
one example. In the center of
the capital, government dependencies occupy virtually all the
existing office space, making
it not uncommon to see older
apartments reconverted for
use as office complexes. Meanwhile, the scramble for retail
space has been eased somewhat by a number of newlybuilt in-town and out-of-town
shopping malls.
14% sector growth in 2015
In uncertain times, owning
property is seen as the fail-safe
fallback option. It will still be
there when things return to
normal and very likely to have
increased in value. “Real estate
gets sick, but it never dies,” the
saying goes. Timing matters
greatly, though. That’s why it
should be emphasized that all
evidence suggests that the current government has succeeded in winning the confidence of
Egyptians and foreigners alike,
as is evident from the upgrade it
received at the beginning of the
year from all the international
ratings agencies. That is the
confidence that explains why it
took all of eight working days
to finance the $8.5 billon Suez
Canal Expansion Project, with
many small-time investors and
everyday Egyptians purchasing
low denomination bonds issued by the government.
Housing and construction is
expected to attract some $7.3
billion in direct investment over
2015 and continues to generate
a 20-30% Internal Rate of Return
(IRR). Demographic indicators
suggest that up to eight million
more units still need to be built
just to catch up with the demand
curve. In short, the climate
could hardly be more favorable
than it is now in a sector poised
to maintain growth of 14% a
year, while at the same time providing employment (through
related sectors like cement, utilities, infrastructure, furniture and
household goods) to an estimated 8% of the workforce.
Beating bureaucracy
Given those numbers, an optimistic view of the market
seems neither perfunctory nor
undue. However, that is not to
suggest that the path ahead is
smooth and uniform. One ma-
“The private sector, whether locally, regionally or
internationally anchored, will take the lead in driving
the economy forward. The government, being the
regulator, will maintain an environment that makes
doing business easier”
mohamed el alfy,
Managing Director of Engineering and Investment, Housing and Development Bank
jor obstacle to doing business
is a bloated bureaucracy that
feeds on a plethora of outdated
laws and niggling regulations. It
is a situation that Hassan Dorra,
Chairman of the Dorra Group,
says that the government is now
acknowledging needs change.
“At the top levels of the current government, officials are
doing all they can within the
available resources and time
frame. The improvement has
to be at lower levels where civil
servants should move projects
forward rather than wrapping
them with red tape,” says Mr.
Dorra, whose company also has
a strong presence in the United
Arab Emirates.
“The government now realizes it has to make many
legislative and administrative
upgrades and modifications.
Some have already been completed, like the latest investment law, and other reforms
are in the pipeline,” adds the
chairman of the 70-year-old
firm that has signed on to build
elements for the Suez Canal
Expansion project and preparing for the second phase of the
Capital Business Park in the
Cairo suburb of Sheikh Zayed
City, where the outer walls are
sheathed in shimmering panels
of Belgian glass.
Mr. Dorra does not regret
the fact that the playing field, as
it was known to his father, the
group’s founder, has changed
its contours. He sees it not as
change for its own sake but
change for the better. “We
have hope,” he says. “The government is open to ideas. In
the past, we could not suggest
anything. Now they will listen.
This is one of the most important things that must be kept in
mind. They are very receptive
to ideas and suggestions.”
Social Housing Project
Architectural showpieces like
the Capital Business Park are
not the solution to Egypt’s housing crunch. It is unfortunate
that in a country where half the
population meets the UNESCO
criteria for “poor,” most new
construction is designed and
priced for upper middle to upper income buyers. The middle
class is poorly served, and low
income families all but shut out
of the market. This is where
the Egyptian government has
stepped in with a series of initiatives mostly aimed at encouraging developers to take a more
active role at the lower end so
as to attract families that would
otherwise remain outside it.
“We have launched the Social
Housing Project and established
a national fund with the goal of
creating one million housing
units over the next five years,”
says Egypt’s housing minister,
Mostafa Madbouly. “Right now
we have 240,000 units under
construction and expect to finalize 170,000 of them by the end of
this year. I used to work for the
UN Habitat program so I know
this is one of the world’s largest
projects of its kind.”
As one would expect, an initiative on this scale has an immediate impact on the larger economy, since the authorities have
made a point of contracting out
the work to local, mainly small
businesses. At least 250,000 direct jobs have been created under the project, according to Mr.
Madbouly who notes “When
you are in a recession, the best
thing you can do is invest heavily in infrastructure and big projects like this one.”
At the same time, the government is reaching out to lowincome families by drawing on a
special fund in which 10 billion
Egyptian pounds ($1.3 billion)
provided by the country’s Central Bank has been earmarked
for mortgage financing and
guarantees. That may sound
fairly routine, but the fact is
mortgages are not at all common as a means of home financing in Egypt, where transactions
involving property are almost
always off the books and in cash.
Mr. Madbouly believes this
is going to change, and the uptick in mortgage lending will
be apparent when the numbers
are in for this year. “Prior to
the action of the Central Bank,
no one benefitted from mortgages except the very affluent
who could prove their income
and pay very high interest rates
of 14%. Under this initiative,
though, low income families
will be eligible for 40-50% of the
mortgages written.”
Housing & Development
One bank that supports the
government’s interest in expanding the market and thinks
that good social policy can also
be good business is the stateowned Housing and Development Bank. Managing Director
for Engineering and Investment
at the bank, Mohamed El Alfy,
was very much encouraged by
the attitudes he observed at the
Egypt Economic Development
Conference (EEDC) held in
March at the Red Sea resort of
Sharm el Sheikh.
“The EEDC restored confidence and pushed a reset button
that lined up the entire international community alongside
Egypt to support reforms in the
investment, business, economic
and political spheres,” says Mr.
El Alfy, whose bank posted ex-
ceptional results that last year
earned it a place on the country’s top ten banking list.
“The private sector, whether
locally, regionally or internationally anchored, will take the
lead in driving the economy forward,” underscores Mr El Alfy.
“The government, being the regulator, will maintain an environment that makes doing business
easier, rather than overcrowding
the market or competing in it.”
The Housing and Development Bank itself plays an important role in driving socioeconomic development. Many
people who apply through the
bank for social housing benefits become first-time bank
customers – no small matter in
a country with only 10 million
bank accounts for a population
of 90 million.
“We welcome our social
housing clients, and we are
probably the first bank they
will have had any dealings
with. We encourage them to
open accounts, even if just
for a small sum, inform them
about the products we offer
and show them how the system works,” he adds.
Under legislation that took effect at the beginning of the year,
property developers can take
advantage of a new mechanism
that allows the government to
swap land it owns for a stake
in the equity or in the revenues
generated by whatever is constructed on it.
Granted, disputes will inevitably rise over the assessed value
of the land in question, but both
sides have too much at stake to
let that become a deal breaker.
Land in Egypt is almost as hard
to obtain as is the permission to
build on it. Cairo visitors have
commented on the unseemly
vacant lots and weed-tangled
parcels of neglected land at intervals along the banks of the
Nile. That is just land being held
as part of the family patrimony,
often untouched from one generation to the next.
The
Government-owned
Housing and Development
Bank is a special case in that
projects in need of financing
come to them from developers
and the bank itself directly intervenes in the market to see them
carried out through a number
of affiliated, subsidiary or sister
companies that are active players in the sector.
“The only way to go is up,” Mr.
El Alfy assures us. “The support
we received showed unanimous
international support for Egypt
which was translated into the
mega-projects that were recently announced.”
Indeed fueling the surge in
new housing developments
are the mega-projects unveiled
at the EEDC in March, where
public officials, foreign investors and local private sector
decision-makers conferred over
how to get the best return on
their money, exchange knowhow and sign memorandums
of understanding. The government made the scope of its ambitions clear when it unveiled
its Suez Canal enlargement
and development plan. It is to
be structured around a special
economic zone 100 kilometers
wide that will include custom
“At the top levels of the
current government,
officials are doing all
they can within the
available resources
and time frame. The
improvement has to be
at lower levels where
civil servants should
move projects forward
rather than wrapping
them with red tape”
Hassan Dorra
Chairman, Dorra Group
built logistics and handling facilities buffered by a 400 square
kilometer industrial zone.
Megacities
However, arguably the true
show stopper at the EEDC
conference was when Housing
Minister Mostafa Madbouly
unveiled a mock-up new city
that will be spawned out of
the existing Egyptian capital
known as “New Cairo”. The
city will increase hugely in size
as it develops in a rational, ecologically sound and sustainable
manner until it becomes a fully
mixed community of 70 million
inhabitants, eventually replacing Cairo as Egypt’s capital.
But why should Cairo have
to be replaced, you may ponder. It’s crowded, chaotic and
beloved by the many who live
there, and that means one in
every four Egyptians. So what’s
not to love about noisy, lively,
and colorful Cairo? For its 18
million inhabitants (who make
it Africa’s largest unitary urban
space) life is still articulated
around the local mosque, yet
living space is pricey, pollution out of control, workplace
access complicated, and traffic
beyond congested.
These drawbacks were serious enough for the authorities
to start building “satellite cities”
out in the desert as long ago as
the early 1980s. But completion of the prototype high rises
brought no big rush to relocate.
Only a few people were initially willing to trade up to running water, sewage treatment,
schools, hospitals and a reliable
supply of electricity, plus access
to global consumer brands that
never would have made it to
the family-run shops and suqs
in the heart of the old city.
Little by little, that has been
changing over the years. By
now some one million Cairo
residents are said to have
moved out of town to resettle
in 6th of October City, located
about 45 km west of Cairo. By
now there are over 20 hybrid
developments not yet overtaken by Cairo’s metastasizing sprawl. Shopping malls?
Of course they have shopping
malls. 6th of October City also
has several universities, a couple of tech start-ups and (you
guessed right) Starbucks.
The question is whether these
multiple-use residential-commercial-leisure complexes are
no more than a haven for the seriously well-to-do. Actually, the
government has been at pains
to include a substantial percentage of low-income units in new
developments such as Al Obour
and Al Shorouk, scheduled for
completion in 2017.
Regulating real estate
Mamdouh Badr El Dine is chairman of the Badreldine for Real
Estate company, which came
to occupy a secure share of the
market in the post-1995 bonanza years when it won fame for
ensuring that the mostly highend buildings reflected and enhanced the cultural specifics of
the community they were built
for. This includes pioneering
developments in Sheikh Zayed
in the suburbs of Cairo, as well as
the 6th of October City.
His idea now – indeed, his
priority – is to help organize
an independent Federation of
Realtors that would act as an
intermediary mechanism for
resolving disputes should they
arise between developer and
buyer. Since almost all transactions in Egypt are in cash,
unregistered and unreported,
today’s homebuyer has little recourse if delivery dates are not
met or the faucets fall off the
bathtub, other than taking his
complaint to Egypt’s jammedto-the rafters and borderline
dysfunctional court system.
Similarly, proponents of the
Federation would like to see it
create an administrative body
to assume some basic regulatory functions such as assessing
and approving plans and specifications for new construction,
issuing habitability certificates,
appraising pre-owned properties and verifying land title. Mr.
Badr El Dine, who is supported
by other important industry
executives in this venture, says
“Establishing the federation will
improve the performance and
benefits for all the players.”
Financing for Egypt’s extreme
makeover as well as the knowhow required to make it happen has been directed at Egypt
from many countries in the
region, particularly members of
the Gulf Cooperation Council.
The same consortium of UAE
investors that helped put up the
emblematic Burj Khalifa tower,
are involved in the planning for
substantial parts of Egypt’s new
capital city. SECON, a SaudiEgyptian joint stock company
has been active in Egypt since
1975. The CEO, Darwish Hassanein, is pleased to think he will
still be at the helm when the firm
enters its newly-acquired niche
in the hotel and hospitality sector. “Two out of three current
projects are in hotels and tourism area, including a hotel with
256 rooms and suites in Maadi,
an affluent Cairo suburb with
privileged views of the Nile, and
also at New Damietta, on the
Mediterranean, where we are
building a 90-room hotel.”
Asked if he could disclose
the secret that has kept a business with two equal partners
representing different cultures
and national interests thriving
for four decades, Mr. Hassanein
said, “the company is focused
on the details that matter to
its customers by choosing sites
very carefully and taking into
account the technical and environmental aspects of the place.
You could probably say that it
all comes down to location, location and location.”
31/07/15 14:48
EGYPT
7
Palm Hills Developments builds
on success in real estate sector
The real estate developer signed two Memorandums of Understanding with the Egyptian Ministry of Housing at the Egypt Economic Development Conference in March
R
apidly cementing its position
as Egypt’s leading real estate
developer; Palm
Hills Developments now retains one of the largest land
banks in the country. The
company’s vision of creating integrated and selfsufficient communities has
yielded remarkable results.
Palm Hills not only possesses an impressive collection of eighteen nationwide
residential, commercial and
tourist projects but has also
achieved spectacular sales
and profits growth. In the
first quarter of 2015, yearon-year net profits rose by
almost 260% reaching EGP
218million ($28.6m). In addition, year-on-year sales
figures for the same period
also doubled achieving EGP
1.35 billion.
Building upon this success, Palm Hills recently
signed two Memorandums
of Understanding (MOUs)
at the Egypt Economic Development
Conference
(EEDC) in March, for two
major projects in partnership with the Egyptian Ministry of Housing (MNHD).
The first project is for a 500
feddan gated community development in New Cairo.
This is an area in which
Palm Hills has a lot of past
experience and expertise, as
Tarek Abdel-Rahman, the
co-chief executive officer of
Palm Hills Developments
explains: “It will be similar
to our usual compounds
servicing the upper-middle
class and above. This is our
bread and butter, and we do
know how to do it.”
The second project is an
altogether more ambitious
and historic undertaking.
A 10,000 feddan develop-
“Our 10,000 feddan
project will be based on
wellness and education.
It will have a very
strong theme that will
drive the economy and
the town.”
Tarek Abdel-Rahman,
Co-CEO of Palm Hills Developments
ment in West Cairo, it brings
together Palm Hills Developments and UAE’s Aabar
Investments. It will constitute the largest ever private
joint venture in EgyptianEmirati history.
“The 10,000 feddan project is completely different
because it is the development of a town. It will have
to include low-medium and
high density housing with
a strong theme underlying
the whole town.” Mr. AbdelRahman explains. “We are
thinking that our 10,000
feddan project will be based
on wellness and education,
but we are not quite set on
a theme yet. However, it will
have a very strong theme
that will drive the economy
and the town so that people
can live and work there, and
we have currently initiated
the conceptual master-planning phase,” he adds.
Situated in the 6th of October area of Cairo, the project will complement rather
than compete with the government’s The Capital Cairo
project. “They are both on different sides of the city, so they
won’t necessarily compete,”
says Mr Abdel-Rahman. “Our
understanding is that the government wants the whole 6th
of October area to be the residential, entertainment, and
tourism hub.”
Both projects were signed
at the global three day Egyptian Economic Development Conference in March.
Aimed at re-affirming international investor confidence
in Egypt, it was according
to Mr. Abdel-Rahman, an
important success. “The
conference was extremely
important because it signaled that Egypt is open for
business. The quality of the
speakers was unbelievable.
In which conference do you
see the CEOs of GE and
Siemens along with senior
people from Pepsi and Coca-Cola, Christine Lagarde,
Tony Blair, Albert Speer and
delegations from the Gulf
countries together? This signals again that foreign investors are interested in Egypt
and that Egypt is courting
foreign investors.”
The need for housing
projects in Egypt is apparent. The present cumulative
housing gap in the country
stands at 8 million units and
is growing by 3,000-4,000
units per year. Whether or
not the gap can be closed is
uncertain, but it certainly
demonstrates the continued real demand for real estate development in Egypt,
supported by the country’s
compelling demographics.
“I’m not so sure that we will
catch up,” says Mr. Abdel-
Rahman. “Where do you get
the infrastructure to build 8
million units? How long will
it take you to build 8 million
units, and what is the gap going to be then? Last year, we
delivered 980 units. The other competitive developers
probably delivered roughly
4,000 units. Let’s assume
that all the other developers
developed 10,000 units. It’s
still insignificant compared
to the demand driven by real
need for personal usage.”
International
investment is a key priority for
the company. Listed in both
the Cairo-Alexandria Stock
Exchange and the London
Stock Exchange, Palm Hills
has already proven its ability
to attract foreign capital. In
November last year for example, UAE based Aabar Investments PJS bought a 5.1%
stake in the company.
Palm Hills hopes to attract
more international investors
this year, as it undertakes a
capital increase with a new
share issue worth EGP 1.65
billion. Mr. Abdel-Rahman
explains: “It’s being offered
to existing shareholders at
two Egyptian pounds per
share, but in Egypt, the right
to subscribe trades is separate from the share itself. If
you are a shareholder that
doesn’t want to subscribe,
you can actually sell that
right to someone else who
can buy it and subscribe in
your place.”
In support of the share
issue, the company has
recently completed a successful road show tour targeting international institutional investors. “We did
the road show in London,
New York, Washington,
Dubai, Abu Dhabi, Johannesburg and Cape Town,”
says Mr. Abdel-Rahman.
“It was a very positive road
show and we met some of
the top-tier investors in the
world who were willing to
listen to our story and were
very excited about Egypt.”
31/07/15 14:48

Egypt-Al-Ahram v3.indd

Transcription

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