Sustained Economic Growth and Expanding Investment Opportunities
Two decades ago, the Egyptian government controlled 70% of the economy of this North African country, a legacy of the era of nationalization. Then, in 1990, a decision was made to fundamentally change the economy. Today, it is the private sector that controls 70% of the economy. This dramatic transformation is underpinned by legal, regulatory and market reforms across the economy that have improved the business, banking and investment environments; encouraged wide-scale privatization; set a growing role for public-private partnerships; and led to widely praised fiscal and monetary policies that have brought the country through the recent financial crisis with real GDP growth of 4.7% in 2009 and more than 5% in 2010.
Following the recent inauguration of political reform, there is consensus that not only will this reform path be maintained, it likely will open up new investment opportunities and further solidify Egypt as home to one of the region’s most dynamic entrepreneurial business cultures.
With a strong demographic engine—Egypt’s population is 82 million, and those under 15 years of age represent one-third of the population—and a solid macroeconomic position reflective of institutionalized expertise in managing the economy, Egypt offers myriad opportunities for domestic and foreign investors alike.
Mobinil: Egypt’s “Egyptian” Telecom Operator
“The opportunities in mobile services are enormous in an emerging country like Egypt, where these services are even more valuable than in more developed markets,” says Hassan Kabbani, CEO of telecom operator Mobinil. Kabbani wants to make it clear that his company, with more than 30 million customers, is Egypt’s “Egyptian” network. As such, the operator is always keen to do whatever it takes to make its relationship with its customers deeper and more intimate than those of its competitors.
The company’s branding is proudly Egyptian, and its advertisements appeal to Egyptian tastes both visually and musically. Mobinil also offers Egypt-centric services on its network platform by working with local software firms to develop network-specific mobile services. One example is a social networking platform called “ME,” which is accessible only via a Mobinil cell phone.
These services also reflect Mobinil’s business model, which is to serve as a “smart” medium for consumers who want to reach a large number of Egyptians through the trusted Mobinil network.
Not only does the operator have one of the largest subscriber bases in the region, it also has more than 100 branded shops, making it the largest technology retailer in the country; 15 distributors managing 12,000 point-of-sale locations, giving it the largest distribution network in Egypt; and a call center with 1,500 permanent and temporary employees, one of the largest in the Middle East.
Mobinil offers a unique platform in that it generates new sources of revenue as people increasingly look to their cell phones to provide not only communication but also instant access to news, entertainment, healthcare information, banking and other business services.
However, Kabbani is clear: “I don’t want Mobinil to become a bank; I don’t want it to become a TV station. What I want is to partner with organizations looking to provide these services over the Mobinil network.”
Dorra Group: Pioneering Diversified, Value-Added Real Estate Development in Egypt and the Middle East
The Dorra Group—one of the first two real estate development companies in Cairo to capitalize on building Greenfield residential complexes in the new satellite cities—is breaking ground for Egypt’s first professional business park to be built by the private sector. Its architect is the renowned Hazel Wong of global design firm RMJM, the designer behind the widely admired Emirates Towers complex in Dubai.
The group, which began in the contracting business in 1943, has grown its real estate assets to include a range of residential, retail, leisure, commercial and educational properties today. The focus, though, is on more “sophisticated and diversified” types of projects, as Managing Director Omar Dorra puts it, such as schools, hospitals and business parks.
Capital Business Park, in the western Cairo suburb of Sheikh Zayed City, ultimately will have 100,000 square meters of office and retail space, with phase one scheduled to open in early 2012. In addition, construction is under way on the Dorra Group’s first hospital, a 60,000-square-meter facility that will be run by a European hospital management company, set to launch in 2014. The group’s first school—the American International School, which serves 2,000 children—opened its doors in 2009.
The goal is to build a series of schools, hospitals and business parks in Egypt—and later abroad—while continuing residential development and other areas of activity. These projects are valuable not only because they offer business opportunities, but, more important, as Omar Dorra emphasizes, because “our passion is to give back to the community” by bringing world-class education, healthcare and business park environments to Egypt.
The hospitals, for example, will “fundamentally raise the benchmark of healthcare in Egypt,” says Dorra.
In line with its mandate to serve the community, Dorra points out that the group builds housing and other real estate projects for many different income groups, always ensuring high quality and a unique community feel.
Ultimately, the Dorra Group’s vision is to provide Egyptians with homes, healthcare, education, an international quality workplace and even vacation homes.
All of this naturally will require capital, and so this family-owned group is restructuring its real estate operations—and, in the future, its contracting operations—into a freestanding holding company. This holding company will own the Dorra Group’s nine real estate companies operating in Egypt, the UAE, Qatar and elsewhere in the region. In addition to real estate development, the holding company specializes in facilities management and real estate marketing and sales.
Anticipating an IPO for this holding company in two or three years, the Dorra Group will invite outside investors to take a minority stake in this real estate entity. It will follow suit for its contracting arm a year or so later.
Over the long term, the Dorra Group aims to bring its construction expertise and its partnerships with world-class operators to markets such as Europe and North America.
CI Capital: A Relationship-Centric Investment Bank and Gateway for International Capital
Karim Helal, Group CEO of CI Capital, says he is an “old-fashioned” investment banker who sees his business as being “about relationships and about contributing to the real economy.” As such, CI Capital, which is the investment-banking arm of publicly traded Commercial International, is both client centric and Egypt centric. This dual focus is likely to serve the bank well in 2011 as it steers investors through a prolonged period of political transition to an end, Helal says, that will leave Egypt “stronger, freer, a better place to do business and more attractive to investors.”
Although many investments are on hold until the political waters clear, and FDI will certainly suffer in the short term, Egypt is still thriving in many other ways. For instance, it enjoys a compelling demographic story; a key location, including control of the vital Suez Canal; the very real possibility of political transparency; and a resolution of the succession issue. CI Capital remains committed to building long-term relationships and helping smaller Egyptian companies, while positioning itself as the financial partner of choice. It will continue to support the country’s economic development by helping channel global capital—particularly capital from Asia—to two critical segments of the Egyptian economy: small and medium enterprises (SMEs) and infrastructure development.
Though a reduction in economic growth in 2011 is inevitable given the recent disruption, Helal suggests that support for SMEs and the commitment to develop the country’s infrastructure should remain the same. SMEs provide about 75% of private-sector employment and 80% of the nation’s GDP, while infrastructure requirements total some $40 billion.
In addition to being the first Egyptian investment bank to set up an SME-focused unit, CI Capital initiated the country’s first private equity fund focused on the SME sector, raising more than $40 million. CI Capital then identified Riyada Enterprise Development, the SME arm of Dubai-based private equity firm Abraaj Capital, as its general partner.
On the infrastructure front, CI Capital is developing an infrastructure fund with a target size of $500 million to $1 billion. Helal says that although Egypt’s banking system is increasingly sophisticated, strong and liquid, it can’t finance the total amount.
The firm’s brokerage business serves local and international institutions, while its asset-management arm has $2.05 billion in assets under management, including some top-rated funds supported by the largest equities coverage in Egypt. Its annual Egypt Book is the definitive research document on Egypt, providing macro and industry-focused analysis as well as coverage of 43 listed companies.
Helal sees CI Capital using its strong relationships both in Egypt and abroad, particularly in Asia, in two primary ways: “One, we are an Egyptian financial partner for Asian and other international investors and institutions looking to invest in the country; and two, we are a gateway for Egyptian companies looking to expand, enter into joint ventures or make acquisitions in Asia and elsewhere,” he explains.
As a wholly owned subsidiary of Commercial International Bank, one of the country’s largest and most respected banks, CI Capital is equally well connected within Egypt. As such, it is perfectly positioned to help drive the next phase of the country’s economic growth story.
Banque du Caire: Financing Egypt’s Enormous Potential
Banque du Caire has made Egypt’s continued economic growth a top priority by contributing much-needed credit to financial sectors such as microfinance, SME lending and consumer loans. The bank also is participating in several government- related initiatives to provide stimulus to the local economy.
“Egypt is a green market with huge potential, especially in consumer finance,” says Mohamed Kafafi, Vice Chairman and CEO of Banque du Caire, which has the third-largest branch network in the country, a $7.98 billion balance sheet and 1.9 million retail customers. He points to statistics showing that only 7.5 million Egyptians have loans, and that the ratio of retail lending to GDP is 8%, compared to between 50% and 100% in more mature markets.
As a result of the bank’s lending push, its loan portfolio grew to $2.3 billion (net of provisioning) by the end of 2010, more than double what it was just 18 months ago, giving the bank one of the fastest-growing loan portfolios in the country.
The bank’s market-leading microfinance program has 113,000 clients, more than 20% of whom are single-woman heads of households, for a total portfolio of $72 million.
The bank’s support for SMEs also is growing, with a new personal-business banking loan product that lends up to $17,100 to small businesses and requires only simple documentation. Meanwhile, its two-year-old SME-dedicated department has already built a loan portfolio of $96 million.
Government-owned Banque du Caire, which has undergone a major restructuring, also is making a big push into retail lending, with the launch of a half dozen new products in the consumer and personal loan segment, and is laying the groundwork for several others.
In mid-2010, the bank launched its first car loan product, and it has become one of the top players in that sector, processing 600 loans worth nearly $4.3 million. In addition, the bank has entered consumer financing arrangements with two major Egyptian retailers.
In January, the bank launched a $17.1 million joint-venture automobile finance company with Egypt’s leading carmaker, Ghabbour Auto. It also is assembling stakeholders to establish a mortgage finance company.
All these activities are delivering benefits to its bottom line, its customers and the economy.
Concord International Investments: Strong-Performing Egyptian Funds for Sophisticated Global Investors
Based in New York, Concord International Investments is currently managing $1.3 billion in international investments in Egyptian publicly listed securities and private equity through more than a dozen open- and closed-ended funds. Concord is focused almost exclusively on this market, providing sophisticated investors with world-class investment opportunities in one of the most investment-friendly emerging market economies.
This spring, Concord is taking its first step outside of Egypt with the launch of a Turkish fund. This open-ended fund has a target size of approximately $50 million and will be supported by Concord’s own in-house research staff—which consists of 11 professionals and almost 75 support staff—reflecting the firm’s policy of only investing in securities that it researches itself.
Concord’s high standards were reflected in a 2010 Morningstar report on Egyptian funds, which awarded four of Concord’s funds with a five-star ranking. “We deliver these results because we are focused, and because we do in-depth research,” says Mohamed S. Younes, Concord’s Chairman and Founder.
Founded in 1988, Concord provides investment strategy, corporate finance, strategic planning and asset management to qualified individuals and institutions, including the European Investment Fund; DEG, Germany’s development finance institution; Kuwait’s Public Institution for Social Security; several Abu Dhabi institutions; and Egypt Post.
The firm has $1.018 billion in listed Egyptian securities; $305 million in fixed income and equities in the U.S. and other countries; and another $281 million in three Egyptian private equity funds, mostly invested in industrial firms, as well as in one real estate fund focused largely on commercial real estate and tourism projects.
Younes cites other ways the firm has supported the Egyptian market: his two terms on the board of the Central Bank, and the firm’s managing director’s tenure as Chairman of the Egyptian Exchange.
“We’ve done a lot beyond just manage money,” he says.
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