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Egypt in Brief

 
A t first glance, Centamin Founder and Chairman Sami El-Raghy may not seem like the archetype of a success story. He returned to his native Egypt after having spent three decades working in the mining fields of Western Australia, and since his return he has spent more than ten years trying to foster a local gold-mining industry. He entered an arena marked by Nasser-era mining codes designed to discourage rather than attract investors.

Before being shuffled to the Ministry of Petroleum after Rachid Mohamed Rachid became minister of trade and industry and admitted that mining is a resource extraction activity, not an industrial one, El-Raghy’s operation was completely shut down. His equipment was held up in customs. Work came to a halt for two years when his company was denied permits to even visit the land his mining lease covered. The drilling company he had hired left him, and it was only after a lawsuit that he was finally allowed to return to his prospective gold mine.

Although the gold mine has proven reserves already north of LE 23 billion, Centamin has yet to produce one ounce.

In this climate, outside investment was hard to come by, and El-Raghy and his family were funding operations with their personal money.

“Of course I feel vindicated,” he nearly laughed when we caught up with him late last month. “I have been trying to get these laws updated for more than 10 years. I can’t help feeling a little responsible, too.”

The source of his pride: a memorandum of understanding (MOU) signed last month by Minister of Petroleum Sameh Fahmy and the International Finance Corporation (IFC), the private arm of the World Bank.

“The current [mining regulations] can’t push us forward,” Fahmy said at the signing. “But we have the potential and we must push forward.”

Later, in response to a question, Fahmy said that at the moment, Egypt is “squandering its [mineral] wealth, letting it just sit underneath the sand.”

Gulrez Hoda, an official with the IFC, says his organization’s “expectation is that within a year, we will come up with something substantive in terms of a mining code that will be attractive to both local and foreign investment.”

The nation’s current mining laws are set up under a profit-sharing system. As El-Raghy explains it, the formula has stifled any serious interest in exploring Egypt’s vast mineral resources.

“Basically,” he says, “the government is getting 51 or 52% of one limited operation, when they could easily be getting around 30% [the normal corporate tax] of at least 10 huge operations.”

For starters, these operations would be on what may be the largest gold reserve in Africa. Sukari Hill, the main area of exploration for Centamin, is already the fourth-largest gold reserve in the world, and the known reserves are growing daily. This is only a tiny fraction of Egypt’s known mineralized areas.

In a figure quoted by nearly every speaker at the MOU signing, gold could mean around $10 billion a year to the Egyptian economy in taxes alone, or 11% of last year’s estimated GDP. Industry experts say the $10 billion figure only scratches the surface: Gold mining is very labor-intensive and would create hundreds of thousands of jobs, not counting the supporting industries including manufacturing and transport that grow up around mines.

Australian Ambassador to Egypt Robert Bowker, who also attended the signing, hailed what he called, “a landmark agreement.”

“It is obvious to us,” he said, “that Egypt has the potential to be one of the largest gold exporters in Africa.”

“I think it’s great — not just for us, but for Egypt,” El-Raghy says. Then, reiterating what he’s been saying for ten years and has finally heard repeated by someone other than a blood relative: “This could really change the whole economic situation in Egypt.”

Wake Up and Smell the Coffee

Local players say Starbucks’ long-awaited entry to the market doesn’t have them quaking in their boots

G lobal coffee giant Starbucks put an end to nearly six and a half years of rumors about its imminent opening in Egypt by serving its first cup of coffee in the nation last month from its inaugural outlet at City Center in Nasr City.

Starbucks has come to Egypt under MH Alshaya Group, the Middle East franchisee for Starbucks and several dozen other top retail brands including Footlocker, Boots, H&M, The Body Shop, Debenhams and Mothercare —some 42 brands, at last count.

Officials at Alshaya, contacted through their local representatives and public relations company, were unable to make a representative available for interview by press time, but industry analysts expect the group will open 10-12 Starbucks in Egypt over the next 12-24 months in major centers including Cairo, Alexandria and Sharm El-Sheikh.

Starbucks’ long-awaited entry is sure to ramp up competition in the specialty-coffee industry currently dominated by Cilantro, a home-grown chain started in 2000 by Maher Maksoud and Nader Lahzee. The two entrepreneurs “started to educate the coffee market,” according to Nadine Beshir, Cilantro’s current general manager. The pair perceived a need for a casual café serving fresh — but not fast — food along with gourmet coffee.

(The founders have since sold the Cilantro brand to El-Sewedy Foods, and Maksoud has since gone on to take a senior management position at SODIC, where he helped engineer that company’s merger with Palm Hills. See related story page 34.)

Now, with more than 26 branches nationwide, Cilantro says it isn’t worried about competition from either local or international brands.

“We respect our competition, whether Starbucks or any other brand. We never underestimate the competition,” Beshir says. “You’re not comparing apples to apples. Starbucks is more about the to-go brand; we’re more about the comfortable setting. We can’t really compare [ourselves to them].”

Beshir, like many other entrepreneurs, welcomes competition because she believes that Egypt’s market is still young and has plenty of potential. Cilantro, however, doesn’t plan to remain local for long: The company claims it has plans to expand throughout the region and, eventually, internationally.

“We believe there’s a lot we can develop on. We’ll always work to enhance,” Beshir says. “We need to put into perspective [that] there’s room for everyone. We need to focus on doing what we do, be true to ourselves, be honest to customers and nobody should worry.”

Also aspiring to grow is Lebanese-owned Casper & Gambini (C&G)’s restaurant-café, which is now expanding in Egypt. C&G opened its first branch here in April 2006 at CityStars and its second branch five months later at the Orascom group’s Nile City Towers.

While Cilantro is all about coffee and casual food, C&G targets a more adult audience with casual dining. “We are an all-day concept,” said Mark Khalifé, director of operations at C&G, which its their customers to have coffee or a three or four-course meal.

Khalifé echoes Beshir’s confidence, saying there isn’t any direct competition in the market at all.

“Our customers are loyal to us because we offer good quality five-star service and food,” Khalifé states, saying he, too, welcomes healthy competition to keep his people on their toes.

As intimidating as global retail juggernaut Starbucks may seem, it isn’t impossible to compete with the java giant. Many businesses seem to be holding their ground, including the homey L’Aroma coffee shop.

Ahmed Gaafar, L’Aroma’s chief executive, says the key to the company’s success was “to just focus on our product and [reach] a reasonable mix in [terms of] price, size and taste. We tested it [and] people liked it.”

L’Aroma, like many other local coffee places, finds it has an edge over the larger franchises in its cozy atmosphere. Gaafar recounts that after the launch of two other franchises (which he declined to name), L’Aroma saw “some turbulence,” but after two weeks its loyal customers returned, saying L’Aroma was more comfortable and had more menu options.

Multinationals abide by strict formulas for their coffee, whereas L’Aroma is more than happy to change its recipes to cater to its clientele, who are often involved in pilot tests for new menu items or formulas. Gaafar added that while L’Aroma offers a place to sit, relax and feel like you’re in “your living room,” global giants are more “on the go.”

“There is a difference between McDonald’s and a restaurant. You don’t just get [your coffee] and continue your day [at L’Aroma] — you sit in and relax,” said Gaafar.

Locals also have better local knowledge, he adds. “We have succeeded in winning on the personal platform, which we are very proud of. If we lose this we can never get it back.”

And while we might have o’det el-khawaga (a preference of anything foreign), we are also emotional by nature and easily get attached to what we can relate to. As Gaafar says, Egyptians prefer local products and businesses when they offer international quality.

A Commodities Exchange, Anyone?

Mohieldin to explore opening a commodities exchange, CASE inks deal with European leader OMX to develop and sell regional IT systems for bourses

M inister of Investment Mahmoud Mohieldin revealed in December plans for an Egyptian commodities exchange. The market will be set up with the help of American and Indian experts with assistance from other global commodity exchanges to ensure a world-class institutional and legislative environment, the minister said.

Prior to the 1950’s nationalization campaign that saw the Alexandria General Produce Association — the commodities bourse at the time — seized by the government, cotton, cotton seeds and cereals were traded on spot and futures markets.

Mohieldin’s announcement came during a speech to the Egyptian Securities Association on the future of the Egyptian capital market. The minister did not specify what commodities he thought would be traded on the exchange.

The minister has previously told Business Today Egypt that he plans to announce the set up of a stock market for small and medium enterprises. That announcement came after a year of draft regulations and legislation that would allow the Cairo and Alexandria Stock Exchange to introduce new trading instruments including short selling, margin trading and same-day trading, among others.

The CASE has also recently signed an agreement with Scandinavian technology vendor OMX to provide next-generation trading systems to overhaul the bourse’s systems.

CASE chief Maged Shawky told reporters last month: “We needed a technological overhaul because of our rapid growth, combined with what we expect to be dramatic changes in the Egyptian securities industry in the next few years.”

OMX and the CASE signed a letter of intent in January 2006 to set up a joint venture that would sell, develop and support IT systems for financial markets in the region.

Haidylena Blood Bag Scandal Continues

Business leader and MP Hany Sorour asks that his parliamentary immunity be lifted so he can face questions and clear his name

G overnment officials say the case of the bad blood bags was over almost before it began, but the political and public-health fallout continues to rock the nation.

The scandal started when two Ministry of Health and Population employees went to the police with documents they alleged proved foul play in a LE 4 million deal between the ministry and MP Hany Sorour, a member of the ruling National Democratic Party and senior member of the People’s Assembly’s Economical Affairs Committee.

According to the documents, Sorour’s company, Haidylena for Advanced Medical Industries, had allegedly sold the Health Ministry some 250,000 blood bags which did not conform to specifications and posed a danger to public health. After receiving complaints from two hospitals, the ministry asked Dr. Faten Moftah, director of the National Center for Blood Transfusion Services, to examine the bags. She reported finding visible defects, fungus and bacteria.

Looking into accusations that Haidylena had squandered ministry funds, the Public Funds Investigation Office uncovered a letter to Sorour from the United States Food and Drug Administration. The letter denied Haidylena an ISO certification for which it had applied, after the FDA’s 2005 inspection of its facilities revealed that its devices appeared to be adulterated.

The letter also stated: “ your firm was unable to provide a validation report proving the sterile packaging used for the dialyzers and bloodlines can maintain the sterility of the devices throughout their five-year shelf life. In fact, a report from a third-party laboratory showed seal failure in one out of 10 packages tested.”

Prosecutor General Maher Abdel Wahed has asked Parliament to lift Sorour’s immunity to allow for an investigation. At the same time, Sorour denied the claims and even seconded the request for his immunity to be lifted so he could clear his name. Haidylena officials claim the blood bags were contaminated by the Health Ministry’s inadequate storage conditions.

The Health Ministry has not emerged as an innocent victim: Preliminary investigations revealed that the ministry had allegedly punished some of its employees by transferring them to different jobs because they had tried to halt the supply of contaminated bags.

Health and Population Minister Hatem El-Gabali first told the press that, in light of the accusations, the ministry has to-date not paid Sorour any money for the blood bags. El-Gabali later clarified that the ministry had stopped all dealings with Sorour the minute it received the first hint that the bags may have been contaminated and also immediately stopped distributing bags manufactured by Haidylena. The bid for the blood-bag deal, he said, took place in December 2005, the supply orders were issued in February 2006, the supply started in June, and on July 11 the minister ordered all distribution stopped.

El-Gabali acknowledged that his ministry failed to issue comprehensive product specifications in the tender for the blood bags. Last May, the minister ordered that a committee be formed to write exact specifications for all the products the ministry buys from suppliers. The work of the committee will take two years, as the ministry buys more than 20,000 different products from external suppliers.

As the political and legal wrangling continues, blood donations have decreased dramatically amid false rumors that the tainted blood bags could cause donors to pass out. Moftah told bt’s sister publication, Egypt Today, that if donations don’t increase, the blood-transfusion center faces a shortage that will eventually affect thousands of patients. (For more on this story, see “Paying in Blood,” in our Egypt Today, February 2006, page 40.)

National Awards for Excellence

T he Industrial Modernization Center recently recognized seven businesses with National Awards for Excellence, which honor industrial enterprises for not only excelling in the local market, but also reaching international standards in quality, export and innovation.

The NAE for Quality assesses an enterprise’s overall structure and the extent to which concepts of leadership, strategic planning, process management and efficient use of resources are smoothly integrated to achieve aimed business results.

Apollo Print Media and Frank Noe each won a NAE in Quality in the small-enterprise category. Apollo is a privately owned pre-press company that specializes in the industrial production of color-separation films for both traditional and digital printing industries. Although a dominant player in its market locally, Apollo has also proven itself an export success as it has tapped both regional and international markets. (Full disclosure: Apollo provides pre-press services for IBA Media, which publishes Business Today Egypt and sister magazine Egypt Today.)

Serving the Egyptian market since 1985, German-owned Frank Noe has specialized in manufacturing and supplying an extensive range of plastic packaging for pharmaceutical, diagnostic, cosmetic and engineering industries nationwide.

The quality award for medium-size enterprises went to New Salheya Olive Press. In the large enterprise category, Procter & Gamble took home a NAE in Quality for its Sixth of October plant producing industrial detergents.

The NAE in Export Award recognizes companies whose export orientation, strategy and overall built-in export infrastructure enable them to sustain good performance indicators and support long-term export objectives. Alex Tiles won the NAE in Export in the medium enterprise category. The company manufactures marble, limestone and granite tiles, slabs and strips. Sidi Kerir Petrochemicals (bt100 number 14) won the export award for large enterprises.

One NAE in Innovation was awarded to the medium-size enterprise Alfa Electronics, which makes magnetized cards. The innovation award looks at how a company’s innovation process is part and parcel of the enterprise’s system, has an impact on its overall performance and the economy as a whole.

For the latest round of awards, 112 companies submitted applications from across 12 governorates and eight sectors. The evaluation process took a total of six months.

Under the award criteria, small enterprises employ fewer than 50 people and have average annual sales of less than LE 5 million; medium-sized enterprises have 50–500 employees with average annual sales of less than LE 50 million; and large enterprises have more than 500 employees with annual sales exceeding LE 50 million.

At the awards ceremony, Minister of Trade and Industry Rachid Mohamed Rachid announced that almost 1,400 Egyptian factories have received international quality certifications.

Egypt’s industrial exports topped LE 19 billion in building materials last year, LE 10.4 billion in chemicals, LE 7.5 billion in ready-made garments and LE 4.3 billion in food products, the minister added.

Roadside Teasers

F or the past few months, a series of eight billboards along the Cairo-Alexandria Desert Road has displayed feel-good messages including “Life is short, live the moment,” “Enter the garden of earthly delights” and “Make your weekends last a week.” Each message ends by encouraging passersby to “Have a great day.”

The billboards are part of a teaser campaign by the Sixth of October Development and Investment Company (bt100 number 76), which has since merged with Palm Hills to create Palm SODIC Developments. Company officials say the campaign is laying the groundwork for an upcoming project that will be revealed later in spring. (See related story page 34).

“We wanted quotes that were like fortune-telling — but mild ones,” says Hanan Sultan, SODIC’s assistant marketing manager. “[It’s] more about being optimistic, cheerful and thinking of the value of life.”

Sultan explains that the company logo was deliberately left off the billboards to keep people wondering about who they belonged to and what it all means.

According to Sultan, the gate of the new project will be opened at the billboard that reads, “When opportunity knocks on your door, answer.”

Orascom Reportedly Eyes UK’s Tarmac

The UK’s Sunday Times reported last month that the “Orascom Group” has presented an offer to British mining giant Anglo American to buy its aggregates business Tarmac for £1.5 billion (LE 16.8 billion).

The offer was initially turned down, the paper said, but the parties are returning to the negotiation table after Cynthia Carroll, former president of Alcan’s primary metals business, assumes her position as CEO of Anglo American in March. Anglo American had bought Tarmac seven years ago for £1.2 billion (LE 13.4 billion).

The report does not specify which Orascom company is allegedly looking at Tarmac, the expectation is that it would be Orascom Construction Industries, which has been acquiring overseas assets in related industries. Although there is an informal Orascom group of companies in the sense that members of the Sawiris family are top shareholders of a range of companies branded Orascom, there is no legal entity known as the Orascom Group.

An Orascom acquisition of Tarmac would be yet another tendril in the European market: In June 2005, Orascom Telecom (bt100 number 1) purchased Italian communications giant Wind in June 2005 for £8 billion (LE 89.4 billion). In September 2005, the cement group of Orascom Construction Industries (bt100 number 2) bought a 51% stake in Spain’s Cementos La Parilla for £70 million (LE 782 million).

Higher Suez Canal Fees Could Harm Revenues

The Suez Canal Authority has decided to increase passage fees for all ships as of April 2007. The rate hikes vary by ship, ranging from 1.14% for passenger ships to 3.73% for oil tankers and average 2.84% across the board.

The SCA’s fee hike has raised claims abroad that ships could divert their routes to the Pacific Ocean rather than through the Canal, with several leading shipping companies claiming the increase is excessive.

At this point in FY06-07, the SCA recorded a 2.1% increase in the number of passing ships, a 9.7% increase in cargos and a 10.6% jump in revenues compared to the same period the year before. The authority recorded revenues worth $3.82 billion (LE 21.84 billion) over the last six months with 18,580 ships passing through and carrying some 736.8 million tons of cargo.

The SCA last raised its passage fees by 6% across the board two years ago in what was then its first rate hike in eight years. Maritime experts say the SCA should be focusing on increasing the Canal’s depth to more than 62 feet (18.9 meters) to attract larger ships.

Maritime Contracts Company Not for Sale

The Maritime and River Transport Holding Company has refused suggestions from the National Bank of Egypt, which is the lead arranger for the sale of Suez Canal Maritime Contracts Company, to sell the entirety of SCMCC to a strategic investor or a consortium.

HCMRT President Mohamed Youssef said last month that 20% of the company would be floated on the Cairo and Alexandria Stock Exchange soon, but did not set an exact date.

Youssef explained that the company has delayed the offering because the market was sluggish in 2006. He also confirmed that there was no intention to raise the company’s capital as had been done for Arab Shipping and Containers.

Nine Million Tourists for 2006

Minister of Tourism Zohair Garana announced that approximately 9.08 million tourists visited Egypt in 2006, a more than 4% increase over 2005’s 8.6 million tourists and a new record.

The average since 1995 has been 6.5 million tourists per year.

European tourists continue to lead the charge. The top tourist-exporting countries to Egypt are the United Kingdom (1.03 million), followed closely by Russia (998,000) and Germany (966,000). Next up are Italy (786,000), Libya (443,000), Saudi Arabia (388,000), France (372,000), Palestine (228,000), the United States (228,100) and the Netherlands (210,500).

British Airways Relocates Cairo Office

After 70 years in Tahrir Square, British Airways has relocated its main office in Cairo to the InterContinental Residence Suites in CityStars, Heliopolis.

The new location allows BA customers to access a full range of services at one of the largest malls in Egypt, just 15 minutes from Cairo International Airport.

The office opening was attended by British Ambassador Sir Derek Plumbly and BA Commercial Manager in Egypt Mervat Alfy (the first Egyptian woman to hold her position), among others.

BA has been active in Egypt for eight decades. The United Kingdom is the largest single source of tourists to Egypt, with more than 1 million people from the UK visiting here each year.

EgyptSat1 to Launch From Kazakhstan

Egypt is preparing to launch its first scientific space satellite, EgyptSat1, built in cooperation with Ukraine’s state-run Yuzhnoe Design Bureau.

EgyptSat1 will be launched on a Dnepr rocket from Kazakhstan’s Baikonur Cosmodrome and will be used for observation and research of the Earth, relaying multi-spectral and infrared images of the Middle East to an Egyptian ground station.

Local media have been dueling with the Israeli press over EgyptSat1 after the latter claimed the orbiter would be used for espionage and information gathering over Israeli territory.

Egypt is planning to launch another satellite, the Italian-made DesertSat, in 2007 with 12 Saudi mini-satellites.

The 100 kilogram EgyptSat1, designed to orbit the earth at an altitude of 668 kilometers, was constructed under the bilateral space-sphere cooperation agreement signed between Ukraine and Egypt in late 2005.

Ro’ya Lands Nivea Campaign

Ro’ya Marketing & Advertising, the local office of TBWA Worldwide advertising agency, may be handling the Nivea cosmetics account in Egypt.

TBWA Worldwide is a subsidiary of global advertising, marketing and corporate-communications company Omnicom Group Inc., whose media-buying arm OMD has been awarded Beiersdorf Middle East FZCO’s media-buying and planning account for 2007 onwards.

Nivea is BME’s most lucrative asset.

Ro’ya services include advertising, brand-strategy development, business to business communications and pre-press studio services to the likes of Nissan, Henkel, Adidas, Dreamland and Bank of Alexandria.

KFAED Funds Egyptian Power Station

The Kuwait Fund for Arab Economic Development (KFAED) has approved a $102 million (LE 581.4 million) loan to finance a power station to be built in several phases west of the Delta.

The station will add up to 750 megawatts to meet rising electricity demands and the need to improve the country’s power-generating network. The new power station includes two gas-powered units producing 250 megawatts each and a steam turbine with capacity for another 250 megawatts.

This is the twenty-eighth loan the KFAED has extended to Egypt, bringing the total to $1.3 billion (LE 7.5 billion). Additional assistance worth $3.8 million (LE 21.7 million) has funded feasibility studies and economic-reform programs, while grants worth $16.6 million (LE 94.7 million) have been directed towards reconstructing schools destroyed in the 1992 earthquake.

Egypt Woos US FDI

Minister of Investment Mahmoud Mohieldin was in Washington, DC, last month to make the case for increased US investment in Egypt.

At a luncheon hosted by the National US-Arab Chamber of Commerce, Mohieldin offered business leaders insight into the Nazif cabinet’s efforts to improve the foreign investment climate in Egypt.

Among the achievements the minister touted was the new One Stop Shop for foreign investors, a coordinating body between various ministries that allows foreign businesses to be registered and launched within 72 hours — down from an estimated 140 days in 2000.

The audience, by accounts, was very impressed. “Dr. Mohieldin had an important message to convey to US investors today,” said David Hamod, president and CEO of NUSACC. “Egypt’s economy is reinventing itself as an investment destination, and the international marketplace is responding very favorably.”

KIPC Builds Container Terminal

Kuwait International Ports Co., a subsidiary of Kuwait and Gulf Link Transport, is preparing to build a new $1 billion (LE 5.7 billion) container terminal in Damietta with a capacity of four million containers.

The project is scheduled to begin in March 2007 and should take two years to complete. According to the project’s managing director, KIPC will construct quays on 2,500 square meters for large vessels during the first stage of the project.

New Qatari Industrial Zone Soon

Minister of Trade and Industry Rachid Mohamed Rachid is visiting Qatar to complete protocol procedures for the construction of a Qatari industrial zone in Egypt with investments worth LE 2.5 billion.

The industrial zone, which will be built over 8.5 million square meters, will be run by the Egyptian and Qatari private sectors and will include a state-of-the-art complex that meets the latest international standards.

The zone is expected to include factories, laboratories, labor-training centers, technological shipment centers and storage facilities.

Port Said Petrochemical Factory

Uhde GmbH, the chemicals subsidiary of global steel giant ThyssenKrupp, was awarded a $720.9 million (LE 4.14 billion) contract to construct a petrochemical factory in Egypt.

The facility, to be located in the Port Said tax-free zone, is being built under contract with the Egyptian Propylene and Polypropylene Company, 25% of which is owned by the Oriental Holding Group.

The factory will produce polypropylene, a plastic widely used in packaging, textiles, manufactured goods and automobiles.

The factory is slated to annually produce over 400,000 tons each of propylene and polypropylene, with 65% of production earmarked for export at a value of at least $500 million (LE 2.85 billion) per year, based on press-time market prices of over $1,100 per ton.

Talking Trade: Liberalization with EU — Plus the Latest Figures

Minister of Trade and Industry Rachid Mohamed Rachid received a proposal in early January from European Union Commissioner for Agriculture and Rural Development Mariann Fischer Boel to initiate talks on further liberalizing trade between Egypt and the EU.

The talks, part of the “Rabat Roadmap” aimed ultimately at creating an EU-Mediterranean free-trade zone by 2010, will focus initially on trade in agricultural, fishery and processed agricultural products.

EU states collectively represent Egypt’s largest trade partner, purchasing 42% of Egypt’s exports worth 4.6 billion (LE 34 billion) in 2005. Agricultural products made up over 10% of this trade. The EU is also the source of 37% of Egypt’s imports.

Trade between the two countries is currently governed by the nearly six-year-old EU-Egypt Association Agreement.

Meanwhile, Central Bank Governor Farouk El-Okda announced a 15.7% increase in Egypt’s trade deficit for FY05-06, which rose to $12 billion (LE 68.5 billion) from a FY04-05 figure of $10.44 billion (LE 59.56 billion).

Total exports surged by 33.4% to $18.4 billion (LE 105 billion) in FY05-06, compared with $13.8 billion (LE 78.75 billion) in FY04-05. The rapid growth was fueled largely by the booming global market for commodities, with ‘traditional’ Egyptian exports of energy, construction materials, textiles and agricultural products all in high demand.

However, the value of imports also rose by almost 27% to $30.4 billion (LE 173.5 billion).

El-Okda named the US as Egypt’s largest single trade partner, accounting for 23.3% of the country’s foreign trade in FY05-06. Analysts noted encouraging signs of growth in trade with emerging markets including Russia, Turkey, India and China, along with solid growth in the export of services such as information technology.

Lower QIZRequirements for Israeli Inputs?

Meeting with its American and Israeli counterparts, Egypt’s delegation to the Qualified Industrial Zones committee meeting renewed its request to reduce the percentage of Israeli inputs required by the protocol from 11.7% to 8% to match the percentage dictated in Jordan’s QIZ agreement, local press reports claim.

The Egyptian delegation reportedly pointed out the benefits from the increasing growth in numbers and output of QIZ factories, noting these factories are adversely impacted from having to up their imports of Israeli inputs relative to their Jordanian competitors.

QIZ manufacturers have complained that the Israeli components are more expensive than Asian alternatives; there are also complaints about the time it takes to transport them from Israel to Egypt’s QIZs.

The committee has reportedly agreed to cut the percentage of the Israeli component to 10.5%.

Egyptian-Kenyan Trade Talks Revived

An Egyptian delegation arrived in Nairobi to revive talks with Kenyan government officials, a continuation of the Egyptian-Kenyan commission established in 1984.

The talks will address strengthening economic and trade ties, without bringing up the controversial Nile Basin Treaty Egypt had signed with the British government in 1929, which earmarks the lion’s share of Nile water resources for Egyptian use.

The Kenyan delegation is bringing to the table economic issues including trade, tourism, roads, public works, information, communication, water, irrigation, energy, agriculture, livestock, fisheries and transport. Closed-door meetings will also address social-sector issues on education, health, gender, sports, culture, social services and housing.

The commission held its first meeting in Nairobi in 1987, followed by another in Cairo in 1996, but activities had stalled over the past decade.

Egyptian Fertilizers for Sale

The Egyptian Fertilizer Company is preparing to issue 48 million shares (or 15% of its equity) in a private placement on the Cairo and Alexandria Stock Exchange during 1Q07. The placement, managed by EFG-Hermes (bt100 number 26), is valued at an estimated $150 million (LE 856 million).

Saudi Arabia’s Savola, which already holds 30% of EFC, had been negotiating to buy the remaining 70% for $800 million (LE 4.57 billion), but negotiations have since broken down.

According to Citadel Capital, this led investors to acquire a 70% stake in the company last year in a deal worth $700 million (LE 4 billion). The placement will be followed by an increase in capital from $320 million (LE 1.8 billion) to $387.5 million (LE 2.2 billion).

The capital increase will finance EFC’s local and regional expansion goals. EFC plans to increase its production capacity from 1.3 million tons per year to 170 million tons per year, and to begin production of new urea-based products.

The company’s international expansion plans include establishing a joint company in Algeria with an annual output of 100 million tons of urea. The new company will be 51% owned by EFC and 49% owned by Sonatrach, Algeria’s state-owned oil company.

Egypt Seeks Indian Investors for Fertilizer Sector

Minister of Social Security Ali El-Moselhi sought increased Indian investment in Egypt’s fertilizer sector in remarks delivered at the inter-ministerial summit of the Afro-Asian Rural Development Organization in New Delhi last month.

Rapidly growing Indian demand for agricultural fertilizers such as urea, a key source of nitrogen for farms across the world, has led to a production shortfall of over 5 million tons in India.

El-Moselhi said he hopes Egyptian exports can help make up for that shortfall.

Although long-plagued with domestic shortages, the Nazif government’s efforts deregulate the local fertilizer market and a number of new high-profile fertilizer ventures have seen local production and exports grow. Early last year, trade officials reversed a ban on fertilizer exports to allow producers to take advantage of spot markets.

El-Moselhi believes that through direct investment, “a suitable buyback arrangement can be easily worked out so that Indian farmers get fertilizers at cheaper prices.”

The minister’s comments came at a time of increased interest in economic cooperation between Egypt and India — El-Moselhi was the fourth Egyptian minister to visit India in a period of just six weeks. These visits have been complemented by Orascom Telecom (bt 100 number 1) chief Naguib Sawiris’ recent trip to India, and the expansion of Indian firms into Egypt. Among the newcomers are IT services giant Satyam and Marico (see “From Mumbai, With Love,” page 48) into the Egyptian market.

Sahl Hashish Welcomes Serrenia

Look out, Dubai: Egypt is now the proud owner of the world’s most exclusive address, say backers of an ultra-luxury residential city slated for the Red Sea.

Serrenia, as the new project has been dubbed, will be the largest development in the Red Sea town of Sahl Hashish, 21 kilometers south of Hurghada.

Serrenia first came to life on the drawing board about two years ago when Vantage Real Estate Development CEO Khaled Shaheen and KATO Group CEO Ibrahim Kamel wanted to create “something that’s never been replicated before,” as Shaheen put it last month.

The $3-billion luxury resort compound will sprawl across 2.5 million square kilometers, with a total 1,216 units in the form of mansions, villas and apartments. Serrenia will also feature a private marina, 18-hole golf course, a “seven-star” hotel to rival the Burj Al-Arab in Dubai, helipad and private runway.

That it is targeting an A-class client base is something of an understatement: The development’s website (www.serrenia .com) bills it as “The World’s Most Exclusive Waterside Address” and quotes commute times from Cairo by private helicopter and form major European capitals by private jet.

Prices start as low as $370,000 for a 150-square-meter two bedroom apartment and range as high as $11.02 million for a three-to-four bedroom villa.

Shaheen, Kamel and Red Sea Governor Maj. Gen. Bakr Al-Rashidy laid the resort’s cornerstone to kick off construction on January 23 — Red Sea Day. Slated for a 2010 completion, Serrenia involves a group of 14 companies, including world renowned architects Foster and Partners and contractor Dar Al-Handasa.

“We invited Lord [Norman] Foster to Egypt, and he was very interested in taking part in the project,” said Shaheen. “We picked this place in particular because it is strategic and because we feel that this is the most beautiful place in the world.”

Although officials say that none of the property had been pre-sold, the units became available to the market on the day of the groundbreaking. Shaheen declined to comment about potential buyers, saying only that, “We received dozens of phone calls from high profile figures. We’re keeping it a surprise.”

Ain Sokhna’s Therapeutical Spa to Be

Twelve Egyptian and Gulf-based companies have submitted bids for the Al-Ain El-Sokhna Hotel property, put up for sale by Egyptian General Company for Tourism and Hotels. EGOTH is seeking investors to turn the 714,000 square meter plot into an international therapeutic spa resort.

Local contenders include Hassan Allan’s Misr Tourism Investment; Ramco, owned by Adly Ayoub, which had previously bid for Sidi Abdel Rahman; SODIC (bt100 number 76); Tenth of Ramadan Real Estate Investment Development; the Egyptian Company for Tourist Resorts, owned by businessman Ibrahim Kamel; and Al-Ahly Real Estate Development.

From the Gulf, Saudi-based Amwal El-Khaleej; Semiramis Hotels (70% owned by Saudi investors); Damac UAE; and Egypt’s Gazelle (owned by Saudi investor Fahd El-Shobokshy) are all bidding for the land.

Tenders will be opened in mid-April 2007.

The three-star Al-Ain El-Sokhna Hotel was built in the early 1960s, but operations were interrupted by the 1967 and 1973 wars. It reopened with 122 rooms in the 1980s and closed again at the end of 2001.

The popularity of the resort town of Ain Sokhna has exploded since the new El-Sokhna Highway has cut commute times from the nation’s capital to just over an hour. Cairo residents have since flocked to the northern Red Sea resort to snap up weekend homes in gated communities.

New oil fields discovered in Egypt

Several international companies have announced new oil discoveries in Egypt’s Gulf of Suez, Eastern and Western Deserts and the Mediterranean over the last six months, the Ministry of Petroleum announced last month.

The new discoveries rang in at a combined 140 million barrels of crude and condensed oil and promise to increase gas reserves by 42.48 billion cubic meters.

Discoveries by what the ministry referred to as “a Greek company” in the Western Desert’s Karam 1 and Karam 2 fields promise significant reserves, with oil and gas layer thickness ranging from 61 to 73.15 meters deep.

Meanwhile, the Khalda Petroleum Company, a joint-venture company between the Egyptian Gulf Petroleum Company and Arizona-based Phoenix Resources, has announced oil discoveries in the Western Desert and the Mediterranean area off the shore of Matrouh (Gad 1) with a reported thickness of 102.41 meters

The Texas-based Apache Corporation announced in January major new oil and gas finds at five concessions in the Western Desert, totaling more than 32 million cubic feet of new natural gas deposits and additional oil reserves of over 4,000 barrels per day. This is in addition to the company’s current proven reserves of two trillion cubic feet of natural gas and 65 million barrels of oil.

Apache is one of the largest foreign investors in Egypt, where 18% of its revenues and output, worth over $1.7 billion (LE 9.7 billion), are produced. Egypt is also home to over 12% of Apache’s global proven oil and gas reserves.

Prize Petro Eyes Devon Oil Blocks in Egypt

Indian exploration firm Prize Petroleum, a Hindustan Petroleum Corporation joint-venture company, will bid for the acquisition of US-based Devon Corporation’s four oil-producing blocks in Egypt.

Half of the blocks’ production is owned by Devon, with the balance held by the Egyptian General Petroleum Corporation. Producing about 7,000–7,500 barrels per day, of which Devon’s share is approximately 4,800 barrels per day. The blocks are considered small as far as exploration blocks go.

Devon’s decision to offload its solid production base comes in line with the company’s strategy to redeploy its resources to operations in and outside North America. The Oklahoma City-based company is offering interests in four Western Desert concessions and another four in the Gulf of Suez, covering a total area of 3.7 million acres.

EKHO Buys Shell’s Stake in Fayoum Gas

The Egyptian Kuwaiti Holding Company (bt100 number 82) has bought Shell’s 51% stake in Fayoum Gas Company for $6 million (LE 34.2 million). The move brings EKHO’s total stake to 78%.

EKHO had been at the negotiation table with PICO Petroleum Services and Investment Company for talks on the possible sale of EKHO’s 27% stake in FGC as well as Shell’s 51%, valuing the company at a total $12 million (LE 78.4 million).

EKHO changed its negotiation strategy at the last minute, opting to buy Shell’s share rather than sell its own stake to PICO. Before this latest deal was finalized, FGC held 51% of Shell and EKHO owned 27%, while Indian investors and several other small holders held the balance.

Channeling FDI to Oil and Natural Gas

While official statistics show that foreign direct investment in the Egyptian economy grew 57% to $6.1 billion (LE 34.8 billion) between FY04-05 and FY05-056, FDI in the oil and gas sector fell 28% from $2.5 billion (LE 14.3 billion) to $1.8 billion (LE 10.3 billion) during the same period.

Minister of Petroleum Sameh Fahmy recently announced plans to extend Egypt’s natural-gas grid in the south, furthering a decade-old campaign to expand FDI in the oil and gas sector, particularly with investment from emerging global energy players such as Russia and China.

The Egyptian Natural Gas Company has been upgrading and expanding the domestic natural-gas grid, in part with European Investment Bank loans. Natural-gas exports have grown by 400% since 1990, and legislative changes in 1997 have led to private-sector investment in downstream natural-gas operations.

Russian state-run monopoly Gazprom is looking into investing in Egypt’s natural-gas sector; in a separate investment, the European Investment Bank is committing to a $65 million loan for a gas pipeline in the south of the country and a $340 million loan for two power plants in the north.

Egypt has 3.7 billion barrels in proven oil reserves and 58.5 trillion cubic feet in natural gas reserves, ranking sixth worldwide for the production of liquefied natural gas, according to the US Department of Energy’s Energy Information Administration.

Tunisiana Hits 3 Million Subscribers

Tunisian mobile operator Tunisiana, a partnership between Orascom Telecom (bt100 number 1) and Kuwait’s Wataniya Telecom, announced on January 15 that it had exceeded 3 million subscribers.

Founded in 2002, Tunisiana competes against the Tunisian state-owned Tunisie Télécom, which operates a mobile network under the name Tuntel. With a market share of 46.6%, Tunisiana looks set to remain a profitable venture for some time. The outlook may not be as rosy for Wataniya, though.

In May 2006, OT commenced proceedings aimed at forcibly acquiring Wataniya’s 50% stake in Tunisiana. OT officials claimed the move was spurred by a material breach of agreement by Wataniya. Details of the alleged breach remain private.

Sawiris Ups Weather Stake

The Sawiris family has almost acquired full ownership of Weather Investments, the financial vehicle that purchased Italian telecommunications company Wind in 2005.

The Sawirises owned approximately 71% of Weather, when, in late December, the family purchased an additional 26% stake from Enel, the Italian energy giant and the world’s third-largest energy supplier.

Telecoms magnate Naguib Sawiris bought Wind from Enel in 2005 in the largest leveraged buyout in European history. Sawiris executed the deal through Weather, which owns Wind and 50% plus 1 share of Orascom Telecom (bt100 number 1).

Enel acquired its stake in Weather Investments in a series of transactions that saw the Sawiris family acquire control of Wind. Their 26% stake was sold for a reported 1.9 billion (LE 14.4 billion).

This play effectively gives the Sawirises total ownership and control of Wind, Italy’s third-largest mobile operator. Wind has more than 14 million mobile subscribers and recorded revenues of $4.8 billion (LE 27.4 billion) in the first nine months of 2006. It represents the largest cash-generation vehicle of part of the Orascom group, which itself reported group-wide revenues of $4.2 billion (LE 23.7 billion) in 2005.

In other good news for Orascom, on January 2, Iraqna — its fully-owned mobile operator in Iraq — was given an extension on its license until March 31, 2007. With more than 2.5 million subscribers in the war-torn country, Iraqna is an unsung star of the Orascom group.

Yellow Pages on Nokia Mobile Search

Egypt Yellow Pages has released a new search plug-in for Nokia Mobile Search, a service available on some Nokia mobile phones. The program allows users to directly access EYP’s website and its 80,000 business listings. The plug-in works in both English and Arabic.

EYP is the official publisher of Yellow Pages products in Egypt. In addition to its website, the company publishes 155,000 copies of its Cairo directory, 30,000 for Alexandria and the Delta and 30,000 for the Sinai and Red Sea.

A Yellow Pages plug-in was launched in the United Arab Emirates in November 2006 at the annual GITEX conference in Dubai, while the Saudi Arabia Yellow Pages plug-in was launched simultaneously with Egypt’s.

Egyptian-Malaysian ICT Cooperation

Egypt is reaching out to Malaysian firms for cooperative assistance on large-scale information and communications technology projects. While visiting Malaysia, Minister of State for Administrative Development Ahmed Darwish said the planned projects were in the areas of railroads, smart cards and upgrading the national ID card from using bar codes to SIM cards.

Many Egyptian companies are investing in enterprise resource planning, e-government and automation; with cooperative agreements involving knowledge-transfer with Malaysia, Egyptian companies could expand into several African and Arab countries.

“It is extremely useful, and fruitful actually, to share the experience, to learn about the obstacles and challenges faced by both sides and see which areas could be further improved,” Darwish told reporters during his visit.

Islamic Financier Targets Local Housing Market

Dubai-based Amlak Finance has announced it will open an office in Cairo under the name Amlak Finance and Real Estate Investments, making Amlak the first Emirati UAE Islamic home-finance company to expand internationally.

Egypt currently has a deficit of 2.5 million housing units and an anticipated increase of 1.5 million people each year; Amlak projects a need for approximately 350,000 additional housing units annually.

The financier will offer Shariah-compliant home-finance products to locals and foreigners. The company will initially launch ijara (rental) and istisna (installment plan) products over long-term tenures of up to 20 years. (For more on Islamic banking, see our stories “Accounts With a Conscience,” December 2006, and “Answering to a Higher Authority,” December 2005.)

Public SME Financing Company

Minister of State for Economic Development Othman Mohamed Othman announced the establishment of a company specializing in loans, marketing services and economic feasibility studies for small and micro-enterprises.

Often operating unofficially, small and micro-enterprises make up almost 40% of the economy. The new company will not only provide these enterprises with financing, but will also help the government keep track of their operations.

This is part of the ministry’s LE 1.2-billion budget earmarked for small-business lending. The new company will also provide small loans to help low-income individuals pay for basic needs such as health-care services and education. Another portion of the budget — LE 450 million — will be directed towards infrastructure projects.

Loan distribution will take place via dedicated offices at post offices. Officials hope to annually issue 60,000 loans worth LE 5,000–LE 10,000 each.
 

 

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