In a series of exclusive interviews, EFG-Hermes CEO Yasser El-Mallawany gives bt a peek into the regional economy's crystal ball
One of the few perks of being managing editor of a family of magazines is not having to break a sweat to get an interview. Odds are, if you're interested in interviewing the person, one of two things will happen. Most often, you call the source (or their PR person or office manager or whomever) and explain your interest. Reporters labor to get past the receptionist managing editors get the next available appointment. Other times, the PR people or the office manager are the ones calling you to ask; "wouldn't it be interesting if you interviewed Mr. X or Mrs. Y?"
Well, those God would humble he first makes proud, right? Last summer yes, the summer of 2007 I asked for an interview with Yasser El-Mallawany, the chairman and CEO of EFG-Hermes. The largest investment bank in the Middle East, EFG was then in the midst of its rocket-like climb up the bt100 and I thought El-Mallawany would be an interesting interview.
While El-Mallawany gave a near-immediate okay for the interview, what followed was a black comedy of mutual rescheduling, miscues and appointments interrupted by emergencies you name it that stretched for the better part of eight months.
Finally, this spring, we touched base in El-Mallawany's office surprisingly modest for the chieftain of the Arab world's premiere investment bank the first in a series of interviews that stretched over two months and two cities.
In preparing for our interviews, I had read just about everything that has come out of or been written about EFG-Hermes in the past decade or so, but El-Mallawany, like Co-CEO Hassan Heikal, was still a bit of a cipher to me as a person. I knew him only as a physically imposing guy with a penchant for Cuban cigars and vintage watches. What made him tick as a leader? I had no clue.
The firm was large when El-Mallawany joined it in 2001, having orchestrated its purchase by Flemming-CIIC, of which he was then managing director. In the dog days of recession, EFG-Hermes' shares were worth virtually pennies and the firm was losing talent to more buoyant markets in the Gulf and beyond.
In the years since, EFG-Hermes has emerged as the largest investment bank in the Middle East, with four offices in the UAE and one office each in Saudi Arabia, Oman and Qatar.
We're totally focused on turning EFG-Hermes into the financial services group. We're adamant that universal banking is the future full stop. We're the largest investment bank in the region. Our target is to be in the top 10.
Most recently, it climbed five places to close at number 18 on the this year's bt100 with revenues in excess of LE 2.6 billion last year. Its net operating margin for 2007 rose 66.7% to LE 1.55 billion adjusted for bonuses paid. Having started operations in Saudi Arabia only in the third quarter of 2007, it still finished the year as number two of nine non-bank brokerages in the Kingdom. Its research department pulled first place in nine of 14 categories in a Middle East survey conducted by Euromoney magazine. Total assets under management swelled to $7.5 billion (LE 40 billion).
On the investment banking front, EFG executed Citadel Capital's sale of the Egyptian Fertilizers Company to Abraaj Capital, sold Al-Watany Bank of Egypt (bt100 number 40) to the National Bank of Kuwait, executed a partial sale of Al-Habtoor Engineering to Leighton Holdings and carried out both the IPO and private placement of the Talaat Moustafa Group (bt100 number 24).
Admittedly, it faces a sharp challenge from Beltone Financial, the regional investment bank founded by EFG-Hermes veterans Alaa Saba (founder of Hermes Financial, which merged with the Egyptian Financial Group to create EFG-Hermes in 1996) and Ali El-Tahri. While EFG remains the undisputed IPO leader in the Middle East, Beltone our research partner for the bt100 beat the firm in the beauty pageant to run the IPO of GB Auto (bt100 number 8). EFG-Hermes closed 2007 as the top broker in Egypt and the UAE, but Beltone recently overtook the firm in this year's Egyptian league tables to-date. EFG-Hermes' lead across the region isn't insurmountable, but it is considerable.
As El-Mallawany himself admits, investment banks are proxies for the economy at large, so the star actor in the turnaround of EFG-Hermes is undoubtedly the renaissance of the Egyptian economy since 2003. It is more difficult to pin down the role of El-Mallawany the consummate backroom player -- in the firm's remarkable success. His fans give him the lion's share of the credit, while detractors who find EFG-Hermes or El-Mallawany just a bit too powerful counter that the firm is a monopolistic talent machine that moves forward on its own momentum.
After our series of interviews, here's my take: It all comes down to vision and political acumen. El-Mallawany saw the inherent synergies and potential competitive advantages of a merged CIIC-EFG, which put him in the driver's seat during merger talks. Even then, he had a vision for what the firm is now on the cusp of becoming: The premiere universal bank in the Middle East. And just as important, he has the political skills to make it happen to court regulators, woo clients, keeping EFG-Hermes happily in the orbit of the regional powers-that-be without flying so close to the sun that its wings of wax melt.
Those, I think, are the themes that come through crystal clear from our discussions, edited excerpts of which follow.
How do we address the image problem of business right now?
We absolutely have to work on the image of business in this community, and the only way to do this is to be engaged.
What you're seeing today is an economy that is growing at a record rate more than 7% for the second year running, almost into the third year and yet the feeling among the population at large is not overwhelmingly positive. The street isn't exactly supportive of the reform agenda, which is a problem.
What choice do we have, though? In recent years, the country hasn't exactly been lucky on the economic front, and we had to go back to basics: the tax cuts, customs reforms, the emphasis on industry, you name it. That got us moving after what were, in my opinion, years of stagnation. The reality is that we need growth to spike consistently well above 7% to create the hundreds of thousands of jobs we need each year, and that growth along with the more than $10 billion (LE 53.5 billion) in foreign investment we're attracting each year has coincided with global inflation that has slammed into key commodities and other necessities.
There's a lot of talk among knowledge workers and the educated elite about the trickle-down effect and how the growth we're now seeing in business will eventually reach the nation's poor. And I don't think that theory is invalid. The problem is that the poor are feeling the punch right now due to the imported inflation driven by the food imports, which makes people feel their welfare has been compromised.
This is where business has to step in, this is where we need 10 times the effort we now see on corporate social responsibility [CSR].
CSR is the answer to poverty alleviation?
Yeah, in a way. Here comes corporate social responsibility, which in my opinion must be part of the agenda of every businessman today. We need to spend collectively, not just individually, and we need to spend more than just time: We need to spend cash, too. The key is that it can't be tossed away we have to spend on what I call 'smart solutions.'
What are smart solutions? And do you really think corporate-level solutions can make a difference in a national problem such as poverty?
I do think corporate-level solutions can make a difference. Not overnight. But absolutely they are the only sustainable way forward. Government can't do everything.
There are lots of effective models to consider. Look, for example, at what Mona Zulficar is doing it's the closest thing we have in Egypt to the Grameen Bank, a poor bank. Okay, she doesn't have a license to operate as a bank, but it's the next-best thing, and through these micro-loans she's really helping people become self-sufficient, to lead their own lives and support their own families.
We believe in this to the point that the EFG-Hermes Foundation has now spent more than LE 15 million on CSR initiatives, and we are committing an additional LE 16-20 million to similar projects that alleviate poverty. These initiatives all have the goal of helping people who can't make ends meet become productive.
How worrisome is the income disparity, the widening gap between rich and poor?
What I think has happened in the last four years or maybe moremaybe in the last five to seven years as been a major accumulation of wealth. Yes, the numbers on economic performance are marvelous. The wealth creation has been tremendous, absolutely tremendous. But out of a population of 80 million, there is a great number of people who have yet to feel anything.
There are things the government must do and that I think they have started taking measures to improve the mechanics of wealth distribution.
A side note may be in order here: When El-Mallawany talks about "The government should" or "The government will have to", he's doing so from an insider's perspective. A ranking member of the governing National Democratic Party (NDP), he travels regularly with members of the Cabinet economic team. As a member of Gamal Mubarak's influential policy secretariat, El-Mallawany has sat at the table to craft the economic reform package now being implemented.
In a moment, he will answer a question about what mechanisms the government could access to redistribute wealth. At least one of them would be made law within two weeks of this conversation, the first of three interviews we conducted this year.
And Mona Zulficar? El-Mallawany isn't just making passing reference: Within a month, he will tell me that she has accepted the firm's offer to become its first non-executive chairman, a title El-Mallawany seems quite happy to relinquish in the name of good corporate governance.
So what mechanisms should the state be using to redistribute wealth?
Quite honestly, capital gains on the sale of real estate are very appropriate. Raising registration fees on luxury cars would be a strong step in the right direction, and increasing the price of gasoline and other petroleum products, particularly to those who use it the most, is appropriate.
The recent move to decrease registration fees for property makes sense, but so do realistic capital gains taxes on the sale of real estate. Cutting registration fees will bring more and more people into the formal economy which is important when you consider that informal or semi-formal activity makes up as much as 50% of GDP so it's a good opportunity to raise revenues. We've seen this work with income tax, so it could work with capital gains, too. Moreover, finalizing the national ID card will help give the government a clear database linked to personal finances, bringing more of the informal to formal and reducing tax evasion.
But really, I think one of the biggest things is for the government to crack open the subsidy system and rationalize how things are done there. They need to ensure that the subsidies reach those who need it most. As long as you have any kind of subsidy, it opens all kinds of avenues for corruption, so maybe right now a cash subsidy system isn't the way to go. The situation at the moment doesn't allow you to do that. If we weren't under the pressure we are under today, a cash subsidy system might work. But for the moment, we need to look at other measures.
And, in the meantime, business has to step up through CSR.
It's the rage now, CSR. It seems everyone has a foundation, but how do you get them working on projects that have maximum impact?
Instead of fighting each other or trying to show off, businessmen need to collectively say, "Okay, there are problems out there let's address them."
And it's possible, but you need clear leadership. Look at the work Mrs Mubarak is doing with the schools initiative. Lots of businessmen are piling in under that umbrella. The initiatives can come from anywhere, but the key is leadership and moving the business world to focus on initiatives that are needed in each unique community across the nation.
How do you build public awareness that business maybe isn't evil, then? That business leaders aren't at the root of every problem now plaguing society?
By changing reality by showing positive change, by making a positive difference in people's lives. At the end of the day, forget about the speeches and the ads it's about reality, about before and after.
Say you got a call from Mrs. Mubarak this afternoon and she says, "Okay, it's your ball. Run with it." What's the first thing you do?
I will start with a poverty bank, the 'Grameen model,' with a parallel focus on education, education, education.
Why do you think banks back off from lending to SMEs or establishing Grameen-type banks?
First, it's a different business model. Second, I think there's an embedded fear of risk after the problems the system had with bad loans years ago. The country passed through some very rough years in terms of banking and the restructuring of banks. The Central Bank of Egypt has done a super job in restructuring the whole system, imposing the capital adequacy regulations, the know-your-client rules and getting us off the FATF money-laundering blacklist.
We now have a system that is open to new dimensions, new directions. It will not erase deposits overnight again, and the system will continue to be well-managed. But while the system is now quite mature the guidelines and safeguards are there it will be a while before people are comfortable innovating.
What are the most common questions foreign investors are asking you about Egypt? The most obvious one.
Yes, one of the first questions is definitely that of developments on the political scene. But it's not the first question. The first question is usually about the sustainability of reform are the reforms sustainable, do they have legs and the next is generally about administrative infrastructure and whether the reforms are penetrating downward into the bureaucracy. Some also ask about popular sentiment today.
How do you address those questions? One by one.
On the issue of how the reforms are sitting with the people, the answer is simple: We have all the challenges of a modern economy in transition, of a society transforming itself into an open, capitalist economy. We've never before seen as much positive change as we've seen in the last 24 months: There's more freedom of speech. There are opposition newspapers. People are very, very free to criticize sometimes criticism without borders and one of the targets of that criticism is the fact that the reforms still haven't trickled down. There's definitely a social transformation happening.
This country is definitely on the right path, and there are few other countries in the Middle East or Africa that can boast the level of stability that we have in Egypt. Why? Because we have incredibly stable, strong institutions. We are a republic made up of different peoples we have our occasional local tensions maybe, but they are that: local tensions and we do not have the factions that you see in Iraq, that you see in Lebanon.
We are a nation in which institutions and the rule of law ultimately prevail. The army stands for the republic and the Constitution, the judiciary stands for the republic and the Constitution, the court system upholds the law.
The institutions in this country are so strong that risk exposure for a foreign investor is so mitigated as to be a non-concern.
Are we sitting on the cusp of social change driven from the bottom up? No. The priorities of the people are to improve their standards of living, and we don't have the radical right or radical left needed to whip up sentiment.
Ultimately, though, foreign investors are dealing with Egypt as a politically stable environment and are making investment decisions based on the economic fundamentals. There may be a political dimension to the overall country risk, but it's very manageable. The proof: Look at how the offerings coming out of Egypt are being covered. It's too early to talk about the numbers on Maridive [bt100 number 65] and Palm Hills, but I can tell you this: Foreign investors are piling into those offerings.
As we talked, EFG-Hermes was running simultaneous public offerings for oil services player Maridive and Mansour-owned real estate developer Palm Hills, the first time any investment bank has run twin IPOs down the tracks in the Arab world. Both closed on high notes just before the correction that slammed the market in mid-May.
What about the reforms? Are they sustainable?
Sustainability? I think the government at the moment is under immense pressure to minimize their exposure. Look, they are moving very fast and moving very well and they have been faced with major inflation with respect to commodities and pressure on industry.
The reforms are, generally speaking, unpopular as most reforms are by nature. So you are now in a squeeze, and the government needs to communicate this to the market, to the poor, to the working class. The trick the very fine balancing act is to make sure you don't over-stress people or the system. That's one of the things that worries me about the inflation we're seeing in commodities today. I know they're working on it, but to see average household spending on food skyrocket up maybe 50% since the beginning of year is a worry.
You're sitting in the back of a car with one of the ministers today and you're asked, "What do we do next?" What's your counsel to the minister?
It's difficult to say this in some respects, but I think I could live with a slower reduction in the budget deficit if it meant we could work on easing poverty. I would be relaxed with respect to how we cut the subsidy budget. We could definitely keep that line item as it is or even spend a bit more provided we are rationalizing the system at the same time.
The private sector is the engine of growth right now, big time, and it can continue to carry that burden. Though privatization can add momentum to the machine, direct investments led today by the private sector are more important.
I would focus on infrastructure. Egypt has the potential to attract an influx of $50-60 billion [LE 268 - 321 billion] in new investment in infrastructure over the coming six to eight years. Look, Egypt has this great competitive advantage in its geographic location. Egyptian companies are now harnessing it, and so are others: Turkish and Chinese companies are looking to set up here to do the same thing. There are capacity constraints around the world, and Egypt is in a great position to serve as a hub for value creation, for the place where the value is added to manufacturing and services. We need to invest in infrastructure not just to create job opportunities, but also to sustain our growth levels.
From across the region, you're seeing an influx of tourism and business coming to Egypt. If you grow the infrastructure, you capture the benefit of that investment for the long term. And don't tell me about a road or a power plant. No, look at Egypt as a hub for value creation.
How do you do this?
A master plan there's no escaping it. We don't need a patchwork, a hodgepodge of investment. We need a plan that sees major highways linked to rail linked to ports linked to industrial zones. This creates new efficiencies, this locks in growth, this creates jobs. And the people who are looking for the trickle-down? They'll understand it when they see the benefits of rational investment in infrastructure.
And the knock-on effects of infrastructure investment are enormous. Better infrastructure leads to better urban planning, better business opportunities. All of it positions Egypt to attract more service-oriented businesses, which is human capital dependent.
What else would you focus on?
Education. Definitely education. I would involve civil society as a manager or keeper of education.
It's being done now through a limited number of CSR activities, isn't it?
In a way, but what I'm talking about isn't bricks and mortar. That's important, but it's not the focus. What I'm proposing we focus on is the content. Look at what Mrs Mubarak's initiative is doing in Minya that's a model to follow. That's community leadership of schools.
We don't really emphasize that leaders in Egypt are grown as much as they are born. Do we need to do more to cultivate leadership in the country?
I suppose we do as a business community, but things are not as dire as they seemed in terms of political leadership or business leadership just a few years back. We now have people in charge who get that training is important, that training is an ongoing thing, and they're leading change effectively and with skills.
Look at the National Democratic Party, for example. They have committees and are formulating real policies that are being acted upon and turned into legislation. That's leadership, that's institutionalization.
Yeah. You know they're getting serious when they start issuing white papers
Exactly. Look, business is booming, and that is really helping the country address the leadership thing. Wealth creation is improving, and it is attracting back the people who left the country six, seven, 10 years ago.
EFG played an indirect role in that, didn't you? Or maybe not indirect just not the role you would have chosen for yourself. You were a school for many people who used success at EFG-Hermes to catapult themselves into new positions in London, Dubai, wherever.
Absolutely. Everywhere you go today, you find talented Egyptian professionals, But today, the brain drain is reversing, and we see Egyptians coming back from Dubai, from London, from New York to do business. They're bringing new approaches and ideas with them. And you know what is keeping them here when they return, despite the frustrations involved in adapting to moving back home? It's the fact that change is running deep. Even here at EFG-Hermes, we have attracted many Egyptians to return, but we never would have lured them back if we didn't have real systems in place, if we didn't have a strategy, a vision, that is supported by all the corporate checks and balances you would expect.
And you know something? Those checks and balances will attract new human capital from around the world. Do you think it is only Dubai that has the potential to attract talented professionals who aren't Egyptian or Arab? Hardly. Egypt is starting to do the same starting to do it as we once did. Look at Egypt as recently as the 1950s: We had Greeks. We had Armenians. We had British and Italians -- we had everyone. They called Egypt home and contributed to its development.
And with that, our longest interview came to an end. Although our initial agreement was that the interviews focus as much on macro-topics as they did on EFG-Hermes, El-Mallawany ultimately wound up speaking at length about the company he has transformed from a large Egyptian investment bank into a regional giant by any measure the largest investment bank in the Middle East and North Africa. With surprisingly little prodding, he agreed to a second interview.
We next caught up just hours after EFG-Hermes' annual general meeting.
So what's new since we last spoke?
Basically, we're in the midst of a paradigm shift. We're in Saudi Arabia, we've opened Oman and by year's end we should be in every Gulf Cooperation Council country, which will be a big expansion of our geographical footprint.
EFG has become a factory with the depth and maturity to handle two IPOs at the same time. Maridive has now closed 32-times oversubscribed, and Palm Hills will close at month's end also oversubscribed. Both companies will trade before deadline: This shows the depth and muscle that our distribution network now has. It's a milestone not just for us, but for any investment bank in the Arab world. It's never been done before.
The other thing is that while we have been ahead of the market in terms of corporate governance for a long while we're bringing everything up to the leading edge of international standards we did something noteworthy today. At the AGM a couple of hours ago, we split the chairmanship from the executive by appointing Mona Zulficar as our first non-executive chairman, while my partner Hassan Heikal and I retain the CEO's position.
As you know, she's one of the country's top corporate lawyers from Shalakany Law Office, and she'll bring new energy to the Board and empower it with her unique expertise on issues of corporate governance, checks and balances. We think she'll be particularly helpful on the audit committee, for example.
When does she start?
Today.
Do you have any advice for her?
For Mona? No! She doesn't need my advice she's been in on some of the biggest deals, some of the biggest M&As we've done. She's a people person. She doesn't need my advice.
Anything you're going to miss about being both chairman and CEO?
No, not really, you know. There's too much to do leading this firm, and there couldn't have been a better time to do this. Global interest in the region is exploding, and Egypt is probably the hottest market in the Arab world.
It's like someone at the top of Morgan Stanley said the other day: It's Shanghai, Dubai and Mumbai -- or Bye-Bye. Well, we're the dominant player in one of those three and we think Egypt is as hot as Dubai. We're the top brokerage in Dubai, we're a leading investment bank there [EFG has handled IPOs including the offering of du, the Emirates' second mobile network operator]. We're the leading investment bank in Egypt. We're trailblazers in Saudi.
The change in our governance structure is to capitalize on that opportunity the Capital Market Authority issued guidelines calling on listed companies to have 70% non-execs on the Board and we're the first to have complied. We did so because it will help Hassan and I focus going forward.
Mona gives us more firepower and frees us to focus on sourcing and execution.
So what's next for you?
Today, the CEOs, myself and Hassan, we're totally focused on turning EFG-Hermes into the financial services group. We're adamant that universal banking is the future full stop. EFG-Hermes is moving in that direction. We're the largest investment bank in the region, but we're the twenty-eighth by profits among all banks. Our target is to be in the top 10, and we're competing here with the SAMBAs and the NBKs, not with the investment banks.
Universal bank? As in full-service?
Absolutely. Look, the region is underbanked, which gives a particular advantage to a consolidated group that has a complete regional footprint and that can cross-sell and leverage the competitive advantages of each of its arms. It's a milestone we have to look at the HSBC model or the Citi model.
Today, we cover 12 markets directly and indirectly, but we have to be there physically. To do that, we need to leverage our relationship with Bank Audi, and I think there is interest there in taking the partnership to the next level. We need to see more what they think, but that's the direction we're moving in.
So you're talking about joint operations? A merger? Cross-selling? Are we likely to see the emergence of a single corporate identity?
Certainly cross-selling, but it's premature for me to say a merger or joint operations.
A few days later, Bank Audi will announce that it has just started merger talks with EFG-Hermes, which owns 28.9% of the Lebanese financial institution. Although based in Lebanon, Audi is rapidly rolling out a presence in Egypt and has a reputation as one of the best-managed and best-governed banks in the Middle East and Africa. Audi also has branch networks in Syria, Jordan and Saudi Arabia.
What's the biggest challenge for EFG-Hermes right now? Is it retention? Is it managing growth?
Both. Our strength isn't Hassan and me only it's the full team. I'm not exaggerating or trying to make anyone feel good when I say this, but each and every person sitting at the table for an executive committee meeting could be the CEO of an investment bank. Every single member of our executive members.
That's the model it's all about human talent. Nationality doesn't matter.
But you're still working hard to bring in Egyptian talent working abroad.
Of course we are, but their nationality isn't the point. We're looking for talent the best there is, preferably Arabic-speaking. And of course the challenge isn't just recruiting, it's retention, full-stop.
The other big challenge for any company growing as fast as we are is how to manage it at the systems level: How to create the infrastructure, the decision-making apparatus, the MIS support to make it all happen and keep it sustainable going forward all without compromising on our culture or our quality. That's one of the reasons we spend so much time on recruitment. In fact, if we're adding a really senior person to the team a top caliber then that's a collective decision of the executive committee. This is across all job functions, not just the front line. All senior staff pay attention to the recruitment of any senior person, whether it's in compliance, legal, IT, whatever.
We have a fast-paced culture that values quality, and that's why we keep attracting top talent. We just lured three top people away from [one of the world's top investment banks]. Our chief risk officer has 20 years of international experience.
So what are your priorities going forward?
As I said, definitely the GCC. Like it or not, that's where the liquidity is and some of those countries are becoming hubs in specific fields. Nothing is graven in stone, but if it makes sense to move, we move --and we'll have all the GCC by year's end.
In North Africa, we're interested in Libya. That's a possibility. Syria and Sudan that's where we leverage Bank Audi. More than that and we're talking two to three years out, so it's a stretch to say what's next.
How do you feel about the region going forward?
The future looks very positive. As the Arab economic bloc continues to grow, so will international interest. National companies will grow at the same time, and many of them will become regional players --this is great news for us. There are the usual economic risks: spillover from mature economies, for starters. The slowdown in the UK property market: British homeowners are being hit by fallout from a credit crunch sparked by the sub-primes in the United States, and the Brits were among the top foreign investors in the Gulf. That's just one example of how regional spillover can hit some markets.
There are definitely inflation risks across the region, too, but the rest of it is country risk. And let's set Iraq and maybe Syria aside, okay? Otherwise, I think the risk premium is already built in across the region.
So foreign funds are as interested as ever?
One hundred percent. Look, on Maridive alonelet me do some math here the foreign side covered the entire offering by more than 12 times. Funds are buying.
The hot sectors going forward?
I see another paradigm shift here. We're diversifying to areas other than oil and petrochemicals. Industrial growth is through the roof because of demand not just externally, but within the region. Services are booming, so are commercial goods. Real estate will remain hot, especially in still-developing markets, and obviously anything energy-related.
Look, investment banks across the region are doing really well, and we're proxies for the economy at large. Just look at where we're sourcing our business and you'll see where the economy is going and what the hot sectors are.
Egypt announced plans last year to start a small- and mid-cap exchange called the Nilex. Does EFG-Hermes have any interest?
Sure. We're certain to become a nominated advisor because we have to be wherever there is an opportunity. [Under the Nilex's rules, any SME looking to list will need a nominated advisor to sponsor and mentor it, fulfilling most of the functions of an investment bank along with a range of consulting and business advisory work.
Our Technology Development Fund has hosted plenty of entrepreneurial ideas.
Do you have strong expectations of the more sophisticated trading instruments the CASE is looking to implement later this year and next year?
Not immediately. They'll take time to take hold. Margin trading is a done deal and now we're looking forward to short selling. We think there're great things happening there, and it will be interesting to see how those instruments play out on other markets, too. But we'll see the real impact of those tools more in 2009 -- 2008 is the soft launch.
Speaking of other markets: EFG-Hermes was tapped a few years back to run the roadshow to solicit listings for a Pan-Arab Stock Exchange. Whatever became of that?
Look, the problem is competition from within. Few Arab stock markets want to see an Arab Stock Exchange.
So it's a dead issue?
Interest has softened, you can say that much. Whether it goes anywhere or not is a question of political will.
Okay, last question for the day: At what point does EFG-Hermes become a takeover target?
Look we're huge. Look at how our market cap is developing. It would take very deep pockets to make us an offer and we're not on the market. We're all owners here, so as long as the management team is happy, we're happy with things the way they are.
El-Mallawany's final sit-down with Business Today Egypt was supposed to be a couple of days before the World Economic Forum (WEF). On our way in to the meeting, CEO Hassan Heikal came flying out of the elevator. We hit El-Mallawany's floor to the sound of his feet running down the stairwell. Off to put out a fire? To chase after an emergency? The investment bank's head of PR and marketing isn't telling.
We caught up with El-Mallawany for a final talk on the sidelines of the WEF in Sharm El-Sheikh.
Inflation has ratcheted up a couple of notches since we last spoke in the wake of a raise for public-sector employees followed by fuel-price hikes. Where are we headed?
I don't think the situation is that bad, but it is challenging. As we've discussed, we have a major challenge in respect to inflation and the redistribution of wealth and making sure that the masses are able to confront the massive inflation that we are currently witnessing in Egypt. The positive thing here is that the government is funding its pay increase from new resources on the other side, not through the budget deficit. It's proof the government is working with a target, that it isn't haphazard.
Some of the decisions that they made on energy prices and commodity exports have not been investor friendly, but I think the government is trying to remedy problems of the past. Let's be very honest: Some contracts, particularly in the energy sector, have been generating 80-90% margins for the companies the government had signed with.
The answer, then, is stay the course. Rationalize the delivery of subsidies and focus on sustaining growth by making a major investment in the nation's infrastructure.
It's all about the infrastructure.
The CASE30 Index had its biggest single-day loss in nearly two years on May 15 amid fears that higher energy prices would curb profits. Any thoughts?
We were very lucky to have closed Palm Hills before what happened, but what I would like to tell you that what happened in the market was because of a change in fundamentals. The market didn't just go down because of a correction it went down in a reaction to some fundamental changes that were beyond anyone's control.
Is a minimum wage the answer?
It is important it's like a social safety net. I do agree with it, but it's difficult to implement. Still, it's doable provided the government completes the national ID card project.
It's all about the process and the management and I think we are moving in that direction.
By Patrick FitzPatrick
© Business Today Egypt 2008
