The new Pharaohs

Mar 10th 2005 | CAIRO
From The Economist print edition

As Middle Eastern economies start to boom, so do the Sawiris family's firms

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FROM the pyramids to the Citadel, Cairo's skyline features some of the most famous silhouettes in the world, reflecting past periods of might and prosperity. More recently, a new monument to a contemporary power and success has sprung up along the Nile—the gleaming twin towers that house Orascom, a business group owned by the Sawiris family.

What began 50 years ago as a small construction firm, founded by Onsi Sawiris, is now a commercial empire worth over $12 billion, controlled by his three sons, that stretches from America to Bangladesh via Iraq—and from tourism to cement and mobile telephony. Yasser Arafat was an investor in the empire, which has survived near-bankruptcy, terrorism and, riskiest of all, succession to a second generation of the family. Its prospects look good, as reflected in the soaring share price of its main businesses—Orascom Telecom Holdings (OTH), Orascom Construction Industries (OCI) and Orascom Hotels and Development (OHD)—which together account for 40% of the value of Egypt's stockmarket, among the world's best performers in the past year (see chart).

The family owns more than 50% of the shares in each firm. And in an arrangement which should minimise the risk of a costly family squabble over control, the majority of each stake belongs to the brother who is chief executive of that particular business—Naguib, the eldest, runs OTH; Samih, the middle brother, runs OHD; and Nassef, the youngest, heads OCI. Aged 74, Onsi Sawiris now seems content to serve as a non-executive on the boards of the family firms.

A more market-oriented approach by Egypt's government—indeed, by governments in many countries in the region—has brought an improvement in the business climate, as have glimmers of greater political openness. But the success of OTH and OCI in particular reflects a new trend in Middle Eastern business, says Hassan Heikal of EFG-Hermes, an Egyptian investment bank which counts Orascom among its clients. Rather than the traditional national focus, firms increasingly view the Arab world—flush with money from the recent surge in oil prices—as an extended domestic market where their cultural and personal ties make it easier to expand. (Orascom, like many other Middle Eastern businesses, has close relationships with ruling elites.) Both OTH and OCI have grown fast outside Egypt. Even OHD, the smallest, often-struggling bit of the Orascom empire, has expanded from Egypt's Red Sea into Jordan.

The strategies of the various Orascom businesses are said to reflect the different personalities of the Sawiris brothers. “Nassef is like a slow-moving tank, Naguib is a racing car and I am coming on my donkey,” laughs Samih Sawiris.

Nassef's solid image may help in a cyclical business such as cement. Institutional investors like his Western-style management and corporate governance. Nine years ago, OCI moved beyond its base in construction and building materials into cement production. Now it is one of the world's top 15 producers, churning out 12m tonnes this year into a booming market. Its original Egyptian plant is one of the world's cheapest producers, thanks in part to low labour costs and the country's plentiful supply of natural gas (the most expensive part of cement production). A weak Egyptian pound has helped exports. OCI now has cement plants in Algeria, Kurdistan, Pakistan and Nigeria as well.

Although the Egyptian press often criticises home-grown firms for consorting with the West, the Sawiris brothers (educated in Europe and America) are not afraid to work with foreigners. OCI makes more than 60% of its revenues outside Egypt, and has many joint-ventures, including with Holcim, a Swiss cement firm, and a 50% stake in Besix, a Belgian construction firm which is building in the Gulf, including what will be the world's tallest building in Dubai.

Technology and development
Mar 10th 2005

Egypt

Orascom

Compared with OCI's steady growth, OTH has ridden a rollercoaster. Starting in 1998 as a partner in Egypt's first mobile-phone operator, MobiNil, OTH expanded rapidly, buying licences—often at absurd prices—across the Middle East and Africa. By 2002 it was operating in 22 countries, but it was also deep in debt and, amid global gloom about telecoms, its share price was plunging. So Naguib Sawiris sold off various operations, including its Jordanian business for $424m. OTH now operates in just nine countries—where it has 11m subscribers and, estimates Karim Khadr, a telecoms analyst at HSBC, made a profit of around $370m last year.

Naguib now aspires to make OTH one of the world's leading mobile-phone operators, with a hugely ambitious target of 100m subscribers by 2010. He has no regrets about his earlier purchases, arguing that even the small ones gave OTH a “footprint” and credibility in larger markets. Still, he claims to have come to appreciate the value of financial restraint: as proof, he points to last year's loss of licences in Iran and Saudi Arabia to higher bidders. Nevertheless, that still leaves OTH in markets with a combined population of more than 500m, few fixed-line telephones and only 5% mobile-phone penetration. And, while OTH may expand further into Africa and south-east Asia, Naguib himself has an eye on Europe, where he is investing his own money in a consortium bidding for Wind, an Italian mobile-phone firm valued at €12 billion ($16 billion).

The three brothers try to minimise transactions between their firms. Less than 1% of OCI's construction revenues come from work for its sister companies. OHD runs its own hotel-construction business, and OTH uses a variety of contractors to build its infrastructure. This way, says Nassef Sawiris, the firms cut “the light thread of connection” which can worry outside investors. But the brothers do sometimes collaborate informally. For overseas expansion, once one brother goes into a country and establishes the commercial and political contacts, it is easier for another brother to follow.

Last year, when OCI and OTH were soaring, Samih's business was struggling to pay off a $9m loan. Other family members stepped in to help, providing enough private cash to reassure the banks that OHD would not default, just as they had rallied behind Naguib as he grappled with his phone licences. “The value of being part of a family in so many different businesses is that we can't go under all at the same time,” says Samih.

Iraq is putting that theory to the test. Early last year, both Nassef and Naguib Sawiris were in business there. OCI was involved in Iraqi reconstruction through its American subsidiary, Contrack, with contracts potentially worth $325m. But in December, it decided to withdraw from most of its projects, after finishing only $50m worth of work, in the face of attacks and rapidly rising security costs.

I do know the Sawiris. Most of the members are Saidi people from around Sohag. I believe that the father Onsi came from humble beginnings.

I do know the Sawiris. Most of the members are Saidi people from around Sohag. I believe that the father Onsi came from humble beginnings.
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We also believe that he is a true 7arami..!
Ask Mustafa Al Bakri, the editor of the El Esboa weekly, he will tell it all.