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Tuesday, 10 January 2017

Ahmed El Sewedy, president and CEO, Elsewedy Electric

We first met Ahmed El Sewedy “before the events of 2011” — a standard break point for those of us of a certain age — on his way to a major global industry conference. We were struck at the time by his gutsy bet on Africa and on manufacturing, here and abroad. That wager has paid back in spades: If there’s anyone well-positioned to benefit from the float of the EGP in November 2016, it’s Elsewedy Electric, the export powerhouse that bears his family name. The soft-spoken El Sewedy has led the transformation of the family business once known as Arab Cables into a giant with more than 30 production facilities in 16 countries that sells its wares today in more than 110 markets, making it one of the world’s largest providers of integrated energy solutions. Edited excerpts from our conversation:

2017 will be a year of change and adaptation. We’re not even two months into the float, but I see the changes are very positive, even though it’s going to be challenging for some companies. You’re going to see those changes hit the banks — any borrower with USD debt on their balance sheet is going to be hit.

This much is clear to me: The factors that made for a successful business over the past decade will be very different from what will make a company thrive over the next two to three years.

The past six years were horrible for industry, and it all came down to the USD. For manufacturers, it’s not about price, it’s about availability, and the USD at 19 or 20 is very, very positive for industry. Starting in 2011, so many business owners — large and small — idled their plants and focused instead on buying land, flats, property. The real estate market was a much better bet than industry — at EGP 8, our exports were just too expensive. We couldn’t compete with China, India and Turkey, and that’s why you saw manufacturers stop manufacturing and instead import finished products from China and India.

Imports from China are going to start to fall off at EGP 20. They’re expensive, as are other imports. Local industry is going to boom. The businesses that will thrive in the next two to three years are those that are either exporters or import substitutes. This is both the challenge and the opportunity for Egypt. Our future is in industry.

The biggest challenge we face is the need for the government to give us policy stability. We need stable rules and regulations — no monthly change in what’s allowed or not, what’s a priority or not. We need clear, five-year frameworks for taxes, customs, the availability of land for industrial projects. We need stability, and with this, the outlook for Egypt is excellent.

I’m very comfortable with where our business is positioned. We’re running a 70-30 split on exports vs. the domestic market, and our local market focus is very much where the government is moving. We’re building three big power plants now, and the focus going forward will move to transmission — to the cables and towers that are part of our core business.

I see great growth in Egypt and Africa for the next four years. I’m really very optimistic about Africa going forward.

Our natural export markets are the Gulf, Africa and, to an extent, Europe. These are the regions with which we have preferential trade agreements and to which we have the benefit of physical proximity.

Am I an outlier when it comes to salary rises? I like to think that we’re typical of exporters. Our costs are USD-denominated and have fallen 50% in USD terms, so as we grow our exports, we’re going to be growing our profits, and our staff will absolutely benefit from this. Raising salaries isn’t an option — it’s a must. We’ve already announced salary increases. I think for everyone it’s not an issue of the payroll costs rising, but of growing your revenues so you can do right by your employees.

There won’t be much privatization in the electricity industry. The government has invested in more than 25 GW of generation capacity in the past three years. The nation has excess capacity now, and it’s all state-owned. They’re not planning to sell it, and I don’t think the government is planning to see the private sector own generation. There may be room for the private sector in distribution.

With the USD at EGP 20, there will definitely be more IPOs. Companies are going to run into cash problems, and the banks are re-examining every company individually, so I’m not sure you’ll see a wave of borrowing, particularly not with interest rates where they are now. Combine the two and you may see companies looking at IPOs as a means of improving their cash position and ability to expand.

I’m optimistic about M&A prospects for the same reason, but we’re not in the market. We’re good with where we stand now. We’re focused on operations, we’re focused on improving our corporate structure. For us, 2017 is going to be about operations, not M&A.

Agriculture and food will boom in 2017. Any sector that substitutes for imports, particularly if those are expensive imports. I also like any export that’s based on local materials.

Anyone in luxury will suffer over the next two years. Cars will also be difficult, at least at the higher end.

If I was starting a new business today? I would love to go for the food industry and produce for domestic consumption.

The government’s legislative priorities should focus on how to double exports in two years’ time. This will demand support to local industry, including investment incentives. The government needs to help local companies improve quality to meet export standards. Manufacturers need help learning to penetrate new export markets.

I’m really quite optimistic about 2017. It will be a really good year for us, especially since the last five years saw Egypt deliver horrible growth and job creation numbers. Companies have been shrinking, firing people.

Industry needs to go on a two-year hiring boom. That’s what we’re doing. And it’s why our CSR initiative focuses on building technical schools. We’re using German management and we have 1,000 students today — our goal is to reach 10,000 in five to six years. We take them from primary school through until they’re qualified as a technical expert, and it’s not just about technical skills: We give them a daily meal, a stipend, language training, soft skills.

Let me tell you, the quality of these students is just excellent— and they’re the key to doubling exports. More industrialists need to invest in vocational training. Skilled staff are the key to doubling exports.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594). Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2016 Enterprise Ventures LLC.