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Suez Canal Zone to contribute 25% of GDP in next 25 years

Interview - May 11, 2015

Hussein Sabbour, the preeminent Egyptian figure in real estate and consulting, speaks of his firm's involvement in the Suez Canal project and the growing appetite from foreign investors to capitalize on manufacturing opportunities in the SCZone.


As one of the leading private sector businessmen in the country, what is your outlook on Egypt at the moment and how optimistic are you?

I am very optimistic for many reasons. First of all, when Abdel Fattah al-Sisi took over, he started to promote huge projects, which Egypt lacked during Mubarak’s time. The number of projects that are going to be undertaken in the near future is quite high. Sisi is concentrated on boosting the economy.

Other countries are trying to invest in Egypt again. For example, the Russian embassy requests meetings with the representatives of the major projects at least once a week. There is a 1 billion EGP project where they will finance the equipment and want us to provide the engineers, as well as use international contractors.

There are other Russian companies coming to our office every week in order to fund major projects like this.

The Chinese, on the other hand, are coming to the market at a slow but steady pace. They received 6,000.000 square meters from the government in front of the Sokhna Port, where they can install industrial factories in which to manufacture their products. These are branches of Chinese companies in Egypt that will export all of their production to Europe.  In fact, nothing would be sold here.

We are optimistic because now the government is launching major projects, and we see there is substantial interest from outside Egypt for financing them. The President issued that all foreign companies would have to get money from their countries, and not from Egyptian banks. He also said that these companies should use Egyptian inputs, which will increase the production of local building materials.

Do you think Egypt is prepared to handle this level of investment? We are talking about  130 billion EGP in contracts.

Egypt may not be ready at this very instance, but it will be. For instance, our production of cement is 60,000,000 tons per year. If our demand exceeds this, we can build a new factory within three years. In fact, we have several factories that manufacture the raw materials needed for producing cement. The 60,000,000 was the consumption of cement before the revolution. Now, we can export if local demand slows down.

We have a 13% idle capacity, which is quite high. Before the revolution, the idle capacity was 8%, which means 5 percentage points were added in the last four years. This means more jobs were created for Egyptians and even for workers coming from Libya.

The current reforms that the government has put in place since President Al Sisi came to office have been very successful, and have been well received by both Egyptian and foreign investors. In what areas do you see that still needs more reforms?

Industry still needs much reform.  We used to have car-assembling factories, but we do not want that. We want a factory that can build a car from scratch, from A to Z. Of course, car manufacturing needs so many supplies.

Several years ago, General Motors came to Egypt and started negotiations with the government, but these did not end successfully. They wanted to set an Opel factory with the capacity to produce 70,000 cars per year, and feeding industries that could produce inputs for 250,000 cars. Some of the production would be sold to Opel Egypt and the rest to Opel Europe. Unfortunately, this project never saw the light of day.

We need a company like General Motors to come and produce not 8,000 cars, but 70,000-100,000 cars and use locally manufactured inputs. At the time, GM said that the feeding industry would have the capacity to produce for 250,000 units. We could take 70,000 parts for Egyptian cars and export the rest to the GM factory in Europe.

This would lead to an exporting car industry, as opposed to the importing one we have today.

With more industry there would be more jobs as well, right?

Yes. I believe our main problem is unemployment, while the second issue is that our imports are higher than our exports. We have to change this, and if we do, the Egyptian economy will soar.

Before the revolution, the Egyptian economy was growing at a 7% rate for three uninterrupted years. The two areas that triggered this growth were construction and telecommunications. Those were the two arms that pushed the economy up.

The real estate construction sector is still one of the largest contributors to the economy.

We should have 500,000 new units each year just to satisfy new demand. I am neither talking about the slums -which should be eliminated- nor today's gap. If nothing were to change, we would still need 500,000 units every year, which we do not produce. And this is only in the city; I am not even talking about the countryside. As you can see, there is much work to do. Nowadays, less than half this figure is being built.

What is the role you are playing in the real estate sector?

I started as a consulting engineer. My firm is actually one of the biggest three in Egypt. I am also part of a real estate company we founded with the National Bank of Egypt twenty two years ago. I believe it is among the largest five companies in Egypt as it has so many subsidiaries. The main real estate company is being run by my son. We also have a tourism company and a hotel, which have been losing money since the revolution. The National Bank of Egypt is a partner in all the companies, except the consultancy.

The tourism sector has obviously been one of the sectors that were hit the hardest, and you said yourself you have been losing money in that area of your business. Do you see it turning around?

No, not yet. Tourism in Egypt has two seasons: the winter season, from October on, and the summer season, starting six months later. The good thing in Egypt is that in each season, tourists arrive from different countries. For instance, Russians tend to holiday during the winter. Italians come in August. British and Germans are all year round holiday-goers. Before the revolution, we had 3 million tourists from Russia and Eastern Europe, 1 million British tourists, 1 million German tourists and 1 million Italian tourists. Now, because of the state of the Russian economy, Russian tours have dropped considerably. German and Italian tours fell substantially as well, as they are afraid for their safety.

The year before the revolution, there were around 15 million tourists total here in Egypt. That number has dropped to 8 million now, while the cost of lodging is now half than what it used to be. This means income from tourism is now a quarter of what it was before the revolution.

During the Egypt Economic Development Conference, the government unveiled the Cairo Capital City Project, which is a massive investment entailing tens of billions of US Dollars and five to seven years to develop. What do you think about this project?

I am for this project. The current number of people living in Cairo is 18 million and it will reach 40 million by 2050. Where will all these people live? We have to build houses for them, and if we do not do it properly, slums will increase. This is a potential problem as crime stems from the slums- people are poor, do not work, and do not have proper water supply or sewages. We will need to double the number of houses that there are today.

Besides, traffic is very bad in Cairo. If we move the government officers to the new capital, the traffic can improve in Old Cairo. We have no parking lots now. By creating the new capital, we can also improve Old Cairo.

Moreover, the place where they located the new capital is closer to the Suez Canal. In the future, the Suez Canal will concentrate 25% of the Egyptian economy once we have completed the restructuring of the city. The New Cairo will only be 75 km away from the Canal.

The Canal is another massive project that is going on at the moment. What would be your involvement in the Suez Canal's expansion?

Egypt started to build the new Ismailia, which is on the other side of the Canal. There are currently slightly less than 100 contractors working at the same time to build the new city. My company is connected to this project because we are supervising construction there.  We oversee a tremendous number of engineers and architects on site.

You expect the Canal to comprise about 25% of the Egyptian economy in future years?

Nowadays, the Canal generates US$ 5.2 billion. This is less than in Singapore, Rotterdam or Hong Kong. We are not using the Canal to its full potential.

It will take at least 25 years for the Canal to reach a quarter of Egypt's economy. Every industry will benefit from it. For example, the Russians are coming and making proposals to the Egyptian government in order to build a heavy-car factory in Port Said, while South Korea wants to build large ships and containers in Egypt.

I am not saying anyone has signed anything yet, but conversations have started. I met a Russian firm keen to invest in the east side of Port Said. They want to export trucks to Europe.

Any labor-intensive company will benefit from investing in Egypt.

The Suez Canal is 176 kilometers long, meaning there are, in total, 350 kilometers available in which to build factories. There are plenty of opportunities. Not all of them will materialize tomorrow, but at least we have the possibility of major projects that will be good for our labor force and the economy. This is particularly the case since the President stated that foreign investors should receive their funding from foreign banks, not Egyptian, in order for when Egyptians want to invest, their banks will have the money they need.

Average banks in Egypt lend only 30% of the money they have, which is a low percentage. The average in the rest of the world is 70%. This is because there are not enough good projects. But there could be good projects in the future.

You are optimistic regarding the Egypt economic outlook, but what are your specific strategies and goals in the mid-term?

First of all, we have to change the environment in order to attract tourists back from the European market as they were 90% of our tourists. Arabs, of course, will keep coming, but they usually go to Cairo and Alexandria, not to the coast or to Luxor. Arabs like going to busy cities, while Europeans visit places like Hurghada or Sharm El-Sheikh. We now have very few tourists coming to see the monuments, and we have to change this. I understand that the previous Minister of Tourism was trying to concentrate on new countries such as China and India for destinations such as Luxor and experience our history.

Secondly, I believe that real estate will require significant work in the near future. The government is supporting the building of new apartments for poor and middle-class people. We need new houses, hospitals, and shopping centers.

For instance, we want to build modern hospitals so that patients from the Gulf come to Egypt instead of going to Europe or the United States. A Saudi partner is trying to make an agreement with Mayo Clinic: he wants to set new hospitals in Egypt, with Egyptian doctors, but give full management to the Mayo Clinic. In that way, people from the Gulf could have an option that is closer to their homes, where they speak a familiar language, but with the quality of an American or European hospital.

After the conference, much was said about the importance of following up and seizing on the opportunities gained from all the momentum the event generated. What do you think is the most important follow-up that needs to be done?

We need to follow up on each small detail.  We cannot leave anything out. I have much confidence in the Minister of Housing, Minister of Planning and Minister of Electricity. I understand these three are working particularly hard and are close to the President and the Prime Minister. They are intelligent and young people who will achieve much.