Osama Bishai, CEO of Orascom Construction, discusses Egypt’s competitive advantages and the long-term aims of its mid-sized projects.
What is your point of view on Al-Sisi’s administration and how its changes will affect the general private sector and Orascom?
The scenario has changed for the private sector, but the main success of this change is the stimulation of the market by adding more projects on the infrastructure side. Our market needs this kind of infrastructure stimulation for developing the growth and the potential of Egypt.
One thing we would like to highlight is that this administration is supporting local contractors. They are encouraging businesses to use Egyptian contractors, which means that Egyptian companies can contribute into the region’s and country’s new growth. In the past we could appreciate a preference for foreign contractors, but nowadays the support for local contractors is getting more renown not only by us, but also by the whole construction market. We also appreciate the effectiveness, precision and size of the projects that are being implemented, because in the past we were used to seeing a lot interference and bureaucracy between the decisions and the implementation of those decisions. We hope this continues because they are stimulating the market, creating dynamic and instant job opportunities, which translate into positive signs for the construction market.
Some investors are concerned about the ability to maintain the value of the Egyptian pound on a long term, as the $12.5 billion GCC deposits are seen as a temporary solution. While others consider that a wise depreciation will help to induce the exportation businesses in the economy as well as incentivize investments.
Of course, that is a public concern, but either way the private sector is also concerned. We can see that the stability of the currency is also connected with revenues and US dollars entrance. In particular, Egypt is suffering from a lack of revenues on the tourism side and from foreign direct investments. To improve these sectors, security and stability are the key factors needed at the moment due to the political stability that we are reaching.
On the other side, it’s also important to mention the fact that our country is having huge expenses related to wheat, oil products, hydrocarbons, and the lack of natural gas, among others, which places the country in a vulnerable position in terms of US dollar acquisition. In the private sector, we also have this kind of shortage in certain areas, in which we need to import items to build new power plants and we have to face this kind of situation.
Of course there is a lot of pressure on the Egyptian pound, but we need to acknowledge that its devaluation is not only bad news. This devaluation also makes Egypt more competitive on the global market, making it a more attractive country for international investors.
In your opinion, how important are these contributions from the GCC nations and what posture should the government and private sector take in this regard?
They provide foreign currency for particular strategic imports, which help relieve the pressure on the Egyptian pound. Although we have received big help from them, we need to acknowledge that it is now time to start getting worried about how we can manage to do this alone. I think this is the main challenge Egypt will face in the following years.
Orascom is involved in many of the mega-projects that people believe will be the icons of this new Egypt. Are you proud to be entrusted with this task?
Yes, of course. In first place, Orascom is an Egyptian company. Although we are a regionally and internationally recognized company, our headquarters and major participation is in Egypt. Secondly, as developers, contractors or engineers, you always tend to walk around and see your fingerprints, which will always make you feel proud of your creations.
We have always been strategically involved in the local projects that involve new commercial or technical challenges. We are now building the Grand Museum, which is a very special place for the country’s culture. And also we are a key player in the fast-track program that the Ministry of Electricity has, which involves us and makes us feel that we are part of the solutions Egypt needs for the growth and development of its economy.
We are very proud of being a major investor and a major employer. Our goal is to leave meaningful fingerprints on the economy that contribute to a more sustainable value. Even when we haven’t changed our policies in the ‘80s, ‘90s or even in the 2000s, when we entered the stock market, we have always been consistent and supportive of the country’s development.
Orascom has a major role in many sectors of the Egyptian economy, contributing and impacting on the lives of many people, and of course in helping the government to meet the demand for electricity. As a construction company and also as an investor, what would you say about the reforms of the new energy law?
The trends created by the government allow people to take initiatives and investments in the private sector. We like that because we think the private sector is a very promising area from a commercial standpoint.
We are not a non-profit organization; our objective is to have income for our people. We like energy investments because we see the long-term sustainable impact not only for the shareholders but also for the country. In the same way, we also like to invest in infrastructure, because when you own the facilities you have built you are not only contributing to the country’s economy but also promoting its continuous development.
I think the law has provided the right environment for allowing investors to optimize the economy and services. We are really happy and enthusiastic about this, because if you want to attract foreign investors you need to demonstrate that the local people and companies are confidently investing money in their own country. I think that the government should use these initiatives to encourage even more the national investors and providing them tools for attracting new partnerships.
What would be the message for the investment community regarding the expansion of the Suez Canal being fundraised by local investors?
As I’ve mentioned before, people tend not to see the financial part of this. This is a 12% tax-free return, which is a great and good business which allows for a model that can actually benefit people by creating at the same time a sustainable value for the shareholders and the country itself.
Business is business and that is why the Suez Canal is working with great success.
Was it easy for Egypt to implement the construction of it in a profitable way?
The Suez Canal model is very serious business-wise, as research and as a project. This is a sustainable business that earns $5 billion for the economy every year. This is why we need to look at this example from the economic point of view for other business and future projects to.
The Arab world has always been united and supportive of a modern and successful Egypt. In this prosperous scenario, the entire region is looking to invest here. You expressed that “the Middle East investors really understand the construction sector”. Do you see more collaboration with Gulf companies in the near future?
Many of our shareholders are international and foreign funds or institutions. These companies want two major things: In first place, they want to have a good productive and flexible economy with a stable juridical system. In second place, we wanted to be in the Middle East because we felt the developed world didn’t have a favorable look towards the construction business in the region, so we thought that being in the Middle East would bring more value to our work than in the rest of the world. Mentioning these two points, we think we are in the right place to attract worldwide investors, not only because there are good business conditions, but also because we have the people and companies to invest here.
What are your strategies for the near future towards this market in terms of partnerships and institutional investors?
From an operational point of view we are focusing on populous countries such as Egypt, Saudi, Iraq and Algeria. These countries have crucial and potential needs for infrastructure in roads, water, sea and power generation. We are talking about 200 million people who have basic necessities associated with sustainable growth.
It is also important to analyze that the construction sector is cyclical and it is constantly changing. Currently, Egypt is passing through a boom while Saudi Arabia is doing fine, Iraq is on hold, and Algeria is slow. As an example of this too, in 2007 Egypt was slow and the rest of the countries were having big movements. So as I mentioned before, everything changes suddenly, but what we also see in the upcoming years, is that Egypt and Saudi Arabia will be the most important players in the Middle East region as Orascom has 80% or 90% of its Middle East business in Egypt and Saudi Arabia.
What is Orascom’s most representative case for the private sector? And what is the case in the GCC?
Particularly in the GCC and in Saudi we are assuming the position that we are a contractor and we are not much interested in mega projects. We focus on the medium-sized projects, which are not very common in the Middle East. Usually this middle size is technically more challenging due the fact that it is either an investment plant or an infrastructure project which needs a lot of commitment from the contractor. We want to keep our focus on that market, because there are not many companies in this sector and it is our blue ocean. In Abu Dhabi everyone likes to build huge and tall buildings and we don’t compete with that. I think that, due to oil price levels, the Middle East will go back to the concessions model as it was before in 2006-2007.
Our model of development is to do our construction, with the cash flow for building something that will bring a good investment value.
Taking into consideration that our report will be published in the GCC countries. What would be your message to our readers about what is happening in Egypt?
Egypt is a great place for investments and it is becoming a hub for services and businesses. We know we do not have much technology, so the Middle East needs to focus on services opportunities. Our prices and costs are very competitive, and we have many natural resources and touristic destinations for exploitation in every sector. It is also the most populous country in the region allowing investors to have a big differential and competitive workforce.
Due to the proximity and cultural similarities, for Arab countries this feels like home, so I strongly believe that the GCC countries should invest in the country not only by the opportunities the country has itself but also for the great potential to create a well-trained and long-termed workforce.