While the government has been quick to publicize liberalization in the capital markets, banking and telecommunications sectors, in the last five years, it has much more quietly privatized the cement sector, weathering accusations that the commodity could become too expensive for the domestic market in hopes that private, international management would ultimately add value to the industry.
"It has been totally opened," says Omar Mohanna, chairman of Suez Cement. "All the international players are in Egypt now. [Cement is] an industry that is open to the world and open to the best technologies.
Egypt, first of all, has three main elements that are the best components for any cement industry: It has very good quarries, reasonably priced energy and labor costs, and a fantastic location."
Mohanna has the distinction of having attracted the last of the big multinationals to Egypt: Italcementi and its foreign arm, Ciment Francais, in a 2001 consortium that purchased 25% of Suez Cement (bt100 number 13). He says they invested "about $500 million one week after 9/11, which was very indicative of their commitment to the investment. [As they] gradually got the feel of the market last year, we managed to put together the consortium with affiliated companies and a group of Arabs and Egyptians, with Ciment Francais having a majority, and they took over about 80% of Suez Cement. Suez Cement also owns 66-67% of Torah Cement."
Despite the fact that Egypt is the world's largest exporter of cement (1.2% of world production, but 8% of exported production), according to Mohanna, "Cement is not an exportable commodity. It's an industry where you have to meet domestic demand first. It's not just the social responsibility of the company, but a fact of life: You have to meet domestic demand first, then you export the balance. Overall exports represent something like 28% of our company and of the market at large.
"We do balance it," he continues. "They used to say that cement was a strategic industry, it shouldn't open up and 'watch the international players, they will come and they will play with pricing.' [The public sector companies] used to sell at prices 30% less than the market, but the end user never made use of the 30% discount. It was always the traders and the middle men who made use of it. It's a fallacy, in fact."
Through his financial background, Mohanna firmly believes the growth necessary to curb unemployment will only come at the cost of higher investment.
"We all know that Egypt has a very low savings rate 16-17%," Mohanna says. "To create the job opportunities that you need, you need 25% of your GDP in investment to fill in the gap, the only way would be to attract foreign direct investment. I think that's the real challenge for the Cabinet, that's the reason why some of these people left their very successful businesses, because they felt like they owed something to society, they had a contribution to make.
"If Egypt has a real competitive advantage, it's really in tourism. You wake up, you never wonder what the weather will be like. You don't do that anywhere else," Mohanna says with a laugh, adding, "Plus, it's very good for our business, cement.
"I think [allowing foreign ownership of real estate] is going to make a tremendous difference, and we're starting to see foreign demand for real estate on the Red Sea and in Sharm El-Sheikh and Taba. Spain allowed foreigners to own this is the best way to ensure the repetitive tourism. If you own a place, you feel like you have invested in it; it ensures that you'll come again and again."
Omar Mohanna (57)
Chairman, Suez Cement
EXxperience: After more than 20 years in banking, Mohanna turned around Accor's Egyptian holdings as managing director starting in 1998; he introduced ACE Life Insurance to the domestic market and is currently a board member.
Best business advice: When you talk about windows of opportunity, there is always the risk element, but if you see an opportunity, seize it and go after it.
Brand Egypt: As an exclusive tourism destination: We could have done better in labeling special zones. I think Upper Egypt, Luxor and Aswan are unique spots. They should have been the most expensive destinations, but this would have required major investments. This might have even led to fewer numbers visiting, but [of] higher value, and it would have been another way of protecting the temples that are there from contamination and mismanagement.
By Eric Schewe
© Business Today Egypt 2006
