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Qalaa Holdings: Shaping the future of Egypt and Africa

Interview - July 31, 2019

The Worldfolio sits down with Ahmed Heikal, Co-Founder and Managing Director of Qalaa Holdings, an African leader in energy and infrastructure that is building businesses in core industries that will define the region’s future. In this interview he gives his insight into the economy and investment climate in Egypt.



How would you define the current investment climate in Egypt for foreign stakeholders as a result of the structural reforms?

In the coming period it will be crucial for the Egyptian government to ensure that it is able to attract both international and local capital. At Qalaa Holdings, we are investing opportunistically, mainly in areas that can increase the efficiency of Egyptian economy. For example, energy is a key sector for Qalaa, by investing in projects that increase the efficiency of energy utilization, the Egyptian economy becomes much more competitive.

You can have cogeneration of electricity and steam that raises the energy efficiency to between 80 and 85%, you can invest in insulation so that individual households consume less energy, you can utilize the Nile River as a main energy-efficient mode of transport as opposed to trucking. Look at the Mississippi corridor, and you’ll see a lot of transportation that is taking place because river transportation is the cheapest and most economic ways in transporting goods.

We are investing in exactly those types of ideas in addition to solar power plants and waste to energy solutions as a substitute for coal in the energy mix for heavy industrial consumers of energy. All of these things boil down to higher efficiency for the Egyptian economy as a whole and a higher utilization of Egyptian resources to generate a dollar of GDP.  All of those investment opportunities are made possible by the structural adjustment approach because once you remove subsidies, people will be forced to utilize resources in a much more efficient manner.

They will also go to the cheapest and most suitable way to generate a particular part of area like people who go to solar rather than diesel fired power plants. There you can generate electricity at 3 cents per kilowatt hour, and the other by 9 or 10 cents per kilowatt hour. If you have a subsidy then a 10 becomes 3, and the different between solar and diesel doesn’t really matter. Once you start pricing ever single product at its own price, at that point in time, people will see a variety and start to utilize that energy in a much more careful way. The same goes for water, electricity, petroleum products and so on. Everything will be utilized properly, and people will make the proper trade-off.


The World Bank estimates 230 billion dollars over the coming 20 years by the private sector for infrastructure needs, financing gaps. I wanted to get your opinion on the PPPs in Egypt and the ability of the private sector to come up with 230 billion.

The financing model we have used for ERC is one that can be emulated, meaning that you have the export credit agencies (ECAs) and the development finance institutions (DFIs). The Japan Bank for International Cooperation (JBIC), Export-Import Bank of Korea (KEXIM), European Investment Bank (EIB), and African Developing Bank (AfDB) came up with a substantial debt package along with sovereign wealth funds from the Gulf to finance a very large USD 4.3-billion project.

The Egyptian government understands this now and are refusing categorically to give government guarantees for either the public or private sector. I think this is a stance that they should continue to adopt. The challenge will be finding private sector players not just in Egypt but on the entire African continent that are credible enough to go and get this quantum of debt on a non-recourse basis. In fact, the continent will face a serious problem down the line because of the number of debts. We’re back to the old habits of very high debts.

The African continent will face serious difficulties for a very long period of time. They were saved by the resource boom in 2003-2008. China is out with normal growth potential so industrial output is out in China. The story is one of services and not the service sector or the industrial sector. The industrial sector is not growing as much as it’s declining. That means that the resource prices globally are coming to another level of normality.


You mentioned this in the beginning which is investing in increasing efficiency not only in terms of revenue generation that decreases the need for imports, improving the environment. How important is that project not only economically but also socially and environmentally for the development?

We always look at any investment through four prisms. If one of those prisms doesn’t exist, we forego the project. First, it has to make economic sense for the shareholders. I’m not interested in projects that don’t make economic sense. Second, it has to be good for the country. In other words: is it in line with the general policy direction of the Egyptian government? If not, we also step away. Third, it has to be beneficial for the community. Does it provide employment, environmental benefits, quality of life improvement, educational benefit, etc. We work a lot on education and human capital development. Fourth, it has to make good sense for our employees so that they can also benefit. We create value for our employees through bonuses, salaries, and meaningful projects that contribute to the overall development of the country. The government obviously needs tax revenue, a variety of prism of shareholders, government, local communities, and employees. Any project must withstand the scrutiny of these four dimensions before we decide to move ahead with it.


You’ve mentioned that you’re going to invest 32 billion Egyptian pounds over 3 years, and you expect Qalaa to be one of the top companies in Africa in five years from now. What can we expect in terms of the next megaprojects?

You have to remember when I said we signed ERC, the MOU in January 2006. Egypt during this time hasn’t been the positive place for stability. Seriously, it’s our tenacity that allowed us to take ERC to where it is today. Production is set to start in 4-5 months’ time. It stretched us tremendously. This is a very big project. Normally, we don’t do deals of this size. Our original capital allocation in Qalaa to this project was 70 million dollars. We ended up investing 300 million dollars during a period of time that was very difficult to raise any sort of financing in Egypt – 2008 until 2014.

First because of the global financial crisis followed by the Egyptian revolution.That has stretched our resources tremendously. After we finish this project we’ll need to go back to something else. Take our breaths. I did not take enough vacations with my kids during this period of time from 2006-2018. It was always after ERC was going to be finished. 2 months ago, my youngest child said we need to go for vacation somewhere, and so I said after ERC. When we started she was 6 years old, now she’s 20. So she said, I’ll get married soon, and you’ll miss your opportunity to have a long vacation with me. I need to go back to normal for a little bit, and so I left my work and went to Maldives!