Thursday, 26 September 2019

Coffee with Walid Sheta, regional president of Egypt, North East Africa and Levant at Schneider Electric

Coffee with Walid Sheta, regional president of Egypt, North East Africa and Levant at Schneider Electric: 2019 is looking like a very interesting year for Schneider Electric here in Egypt. Infrastructure development in the country is growing, particularly on the electricity transmission front and on water, desalination and wastewater front. The past year also saw the country take strides in upgrade railway and land transport network. And Schneider has its hands in all of it. But beyond utilities, the company sees itself as a technology solutions provider, specializing in energy efficiency and it’s betting the future on it. The company is also planning to focus on growing exports from Egypt now that it had reached a settlement with the government on overdue subsidies. That’s the vision laid out for us by the company’s regional president for Egypt, North East Africa and the Levant, Walid Sheta, in the latest installment in our Coffee With… series.

Who is Walid Sheta? Sheta’s 25-year career at Schneider Electric has seen him work across Africa, the UAE, France and others. Sheta was regional president of the West Africa region which comprises of Nigeria, Ghana, Sierra Leone and Liberia, following a stint as the company’s vice president for all of Africa. 

Is Schneider Electric getting into the VC game? One of the surprising takeaways from the sit-down was Sheta’s announcement that Schneider Electric is setting up a venture capital fund that will target startups whose focus will be on the digital economy and energy efficiency. He added that some of the startups that the company is targeting will be based in Egypt. As we noted yesterday, Middle East and Africa President Caspar Herzberg said that the company is mulling the acquisition of a number of Egyptian tech companies.  

Other key takeaways from the interview include:

  • Egypt is the anchor for Schneider Electric’s growth in the region, and is at the center of its global transformation strategy;
  • Expanding its staff of digitally-literate engineers is the focus of the company’s investment plans this year;
  • Schneider Electric anticipates growth in sales in hospitality (and away from traditional oil and gas) and tourism continues to rebound;
  • Bureaucracy and red tape continue to be the biggest operating challenge in Egypt;
  • The government’s continued focus on electricity power generation with Dabaa despite a surplus is key to ensure supply meets the demands of our birth rates;
  • Government taking a step back in infrastructure development and allowing the private sector a bigger role is the most exciting trend happening in infrastructure today.

Enterprise: Can you tell us what the company is focusing on in Egypt and where does the country fit in to its global strategy?

Walid Sheta: Globally, Schneider Electric has shifted its focus for the past 12 years towards energy efficiency and transitioning away from being a company focused on electrical distribution equipment and automation. We define ourselves now as a technology provider that makes energy safer, more efficient, more productive, and greener in all our markets. Globally, we’ve made 74 acquisitions worldwide, two of which were leaders in managing power grids. While we haven’t made any acquisitions for energy efficiency companies in Egypt as of yet, we see it as a prime market for this focus, considering its 100 mn population, its growing consumption rate, and the need to maximize our energy efficiency. 

Egypt is also crucial for us in the next step in the company’s global transformation: the move to digital and digitization. We want to become digital technology providers. From a tech point of view, this is very easy to do in Egypt right now. The Egyptian population is extremely digitized and connected. Moving forward, a key focus of ours for Egypt is to train the electricians to adapt to this changing landscape. We’re teaching them how to install electrical equipment in your house, or in electrical distribution boards — a black box that, through the Cloud, can connect you through an app. We believe that transformation is taking place in Egypt in this sector.

E: How does that translate vis-a-vis your investments on the ground?

WS: This year, we’re ratcheting up our investment in people. We added 280 new people to our workforce of 1,600 employees here. Half of the new recruits are tech savvy engineers or white-collar professionals to service our two main lines of business. The first is the standard electricity consuming businesses and the other is the turnkey projects, for which you need a lot of talented project and contract managers, engineers, and others with technical expertise.

This investment in our people is driving our regional expansion plans as we intend to boost our staff of engineers to be able to carry on projects all over Africa. These will likely be major projects that will employ a lot of Egyptians. We also export from our EUR 210 mn Badr City factory which produces low- and medium-voltage distribution equipment. We recently spent approximately EUR 10 mn on increasing capacity for the plant. 

E: So in numbers terms, how much did you invest this year?

WS: In 2018, we invested around EUR 35 mn. It would be slightly less this year.

E: You mentioned earlier that Egypt was a regional success story for Schneider Electric. How does it compare in terms of growth to other countries in the region? Where does Egypt rank?

WS: In 2019, Egypt is spearheading regional growth both in value and percentage all over the Middle East and Africa. This includes Saudi Arabia and the GCC, Turkey, South Africa, Nigeria. This has been the case in 2017, 2018, and is continuing in 2019 where we had consistent double-digit growth. And this spike in growth has been seen in all sectors, including in water and waste-water, utilities, and transportation infrastructure. We’re continuing to supply the electrical equipment that has made the Cairo Metro Line 1 run since the 1990s. Business is also growing in sectors outside of infrastructure. We supply the electrical distribution switch gears for the Zohr gas field. We even supply electrical equipment to important cultural heritage projects like Bibliotheca Alexandrina. 

E: Which megaprojects are you guys working on currently?

WS: A big focus for us is working with the Electricity Ministry on the dispatch control centers for the electricity grid. President Abdel Fattah El Sisi has made developing the grid’s distribution capabilities and their required dispatch control centers a national priority. We’ve been tasked with automating and making the grid “smarter”.

We’re also working on supplying the electrical infrastructure works on new cities currently being constructed, including in the new administrative capital. We’re currently advising on making the new capital a smart city and how it can be done in a sustainable, energy-efficient way. 

E: It has been mentioned in the press that Schneider might be involved in the Dabaa nuclear power plant as well.

WS: We’re simply bidding to supply the electrical equipment for the Dabaa plant. Rosatom already has an agreement with Schneider Electric in Russia for the equipment that is nuclear-certified. So between Schneider Russia and Schneider Egypt, we can find a way to provide the best technology for Rosatom, and how to source it locally. 

E: Can you give us a breakdown of which sectors are most important to you as far as growth is concerned? 

WS: Topping the list is providing electrical utilities for distribution companies. Then comes water and waste-water, then transportation — mainly land transportation followed by work on the airports in Egypt, which we’ve been renovating over the past 10 years. Then comes supplying customers in various other sectors, such as food and beverages. Nestle, for example, buys its electrical equipment from us.

E: Based on purchases of Schneider Electric equipment, which industries can we infer are growing their investments in their facilities?

WS: We see the trajectory of growth heading towards the hospitality industry with the return of tourism. In the past years, segments like oil and gas were extremely active as well as public infrastructure projects. 

E: Does Schneider Electric own or operate any of the turn-key projects they are working on?

WS: We do not. We operate primarily as technology solutions providers on these turnkey projects just as we supply our customers. These projects buy and integrate our technologies and products, and we’ll train them and make sure they can use it. Ancillary to that is servicing our customers, which we see is the best way towards repeat business and is one of our biggest competitive edges. It works similar to the after-sales services in the auto industry. When you buy from Schneider and you call our hotline if you have any issues, you’ll be well-served. We serve the Zohr, West Nile Delta gas fields, and the Benban solar park directly. We also serve many of the key buildings in Egypt, including the Maspero building renovation and the Egyptian Media Production City. Our services also include designing, securing, and providing key systems for Egypt’s data centers. These include the racks, cooling systems and backup generators. 

This balance between sales and after-sales really shines when we look at our work with our SME and startup customers. We identify potential high-growth SMEs and we provide them with our products for free, then one or two months of training on how to use and integrate our products into their business. 

E: Where’s the return?

WS: The return is when they succeed, they become long-term users and buyers of our products.

E: Have you seen a growth in sales from that?

WS: Yes, of course. We’ve seen a return on investment in less than one year. The model is so successful Schneider Electric is looking to get in on investing capital in SMEs. We will be funding startups through our Energy Challenge initiative. 

E: So you are actually going to have a venture capital fund? 

WS: Yes. The fund will target startups whose focus will be on the digital economy and energy efficiency. I believe that, in Egypt, we’ll have a lot of candidates for the VC fund. 

E: What are some of the challenges Schneider Electric faces working here?

WS: Bureaucracy and red tape are not easy to handle here in Egypt, particularly when it comes to customs. If we run into issues and need help, we usually find it. But if I was to mention one thing that would hamper our growth, especially for exports, it would be the customs authorities.

E: Egypt has done a good job in building up its electricity generation capacity, to the point where we are seeing a glut in production. Where do you see this extra capacity in electricity going?

WS: The Electricity Ministry has signed and is working on agreements with neighboring countries to export electricity to them. We’re going to export to Sudan. We’re working on an agreement with southern Mediterranean countries with underwater cables. And there’s the grid connection agreement with Saudi Arabia.

E: Are you involved in any of these?

WS: No, because this pertains to transmission and we’re not really involved in transmission. We’re in distribution. However, for the country, it’s definitely a significant added value. When you export electricity, you don’t export raw material; you export a transformed product, which is brilliant. You don’t export gas or oil, you export electricity, so you have added  value, and I find that very clever and something that will generate additional income for the country. 

It also provides stability for the wider electricity grid, not only in Egypt, but also to the other countries who will link their grids to ours. If you have a crisis in one of the countries, you can import from another country. Having a regional grid is always a good hedge.

E: With this excess electricity production capacity, do we really need a nuclear power plant?

WS: Of course, because it’s always about anticipating future demand. You shouldn’t wait until 2026, when we’ll be 150 mn people to say “Oops, I should have planned for an extra 20 GW.” Electricity consumption grows with an exponential curve because each generation will consume more than the preceding one, especially if the goal is to grow the economy in tandem with the population. Egyptians will consume more electricity in the future, because it means that they have a better standard of living. 

E: Do you think we’ve hit peak solar? Where do you see the opportunities in renewables right now?

WS: No, we haven’t hit a ceiling with solar. You can always cover all of Egypt’s desert with solar panels, but there is a limit. The problem with solar energy capacity is that it must be complemented with other sources of energy, because you can’t rely only on solar energy for many technical reasons. For example, if a cloud passes overhead, even the most powerful plants, such as Benban, can see its production drop to a tenth of its usual capacity. The magnitude is that big, so you can’t rely entirely on solar power. It can account for a maximum of 25-30% of a country’s total power production. You can’t have a country that relies 100% or even 70% on solar power. But have we reached the peak? No, we can still do more. 

The opportunity is in solar panel installation above any factory or hypermarket or warehouse. The next revolution is private small-scale solar.

E: Storing energy in batteries is a growing industry abroad, but you don’t hear much about its development in Egypt. How close are we to seeing an industry like that here?  

WS: We aren’t there yet, and I don’t think we’ll be for some time to come.  We need to fix the basics before we see any electricity storage. However, there are many ways we can store energy apart from batteries.

There are others ways to store energy actually that are being used in Egypt. One of them is pumped-storage hydroelectricity, which uses the energy stored in water from pumping it from a lower elevation to a higher elevation. We can’t do it with the High Dam in Aswan, but the Electricity Ministry is looking at projects in the Red Sea to pump water back into artificial lakes behind the coastal mountain ranges, which is a very clever idea.

E: Is Egypt ready for e-vehicles and is the infrastructure in place?

WS: Egypt is ready for e-vehicles. As for the infrastructure, Schneider Electric actually has systems for that. We equipped a few stations but these systems are still in prototype. From a technical point of view, the infrastructure is a piece of cake. You can either charge it at home with a normal plug, in which case it will take eight hours to charge overnight; this process is called slow charging. Fast charging is in stations or malls or hypermarkets, and it’s a bit more complex but not very complicated. Why aren’t we seeing their usage adopted more? I would say it is down to its slow adoption by society. 

E: How long do you think it’s going to be before we have a thriving e-vehicle market?

WS: I think it’ll take three or four years. If you look at the prices now, you would be surprised at how affordable they are to a significant segment of society. And I have to say, they are wonderful to drive.

E: It’s no secret that Egypt is going through a water crisis with expected shortages. The government has a USD 50 bn plan that calls for the development of desalination or waste-water treatment. Which do you think the government should be focused on?

WS: Both, of course. I can’t say which one should take precedence, but I can definitely say it shouldn’t be one or the other. It must be both. Waste-water treatment enables you to reuse the water. In Europe, it’s more the norm. And desalination is getting cheaper by the day, much like solar energy. I think desalination is also being done in a clever way, whereby desalinated water is being used for resorts and compounds. Nile water is used more for cities along the Nile and agriculture.

Schneider Electric is particularly excited with the growing development of desalination because we provide equipment that makes energy more efficient. Water desalination needs a lot of electricity. If you reduce the consumption of electricity for a water desalination plant, you’re reducing the cost per cbm produced. This is where we come in. Today, we are quite proud to be reducing the cost of one cbm of water by a third every year. 

E: Is Schneider working on any of these desalination plants?

WS: We are working on a 150,000 cbm per day desalination plant in Al Galala that could supply all of Ain Sokhna up until Zafarana. We’re working on other plants in Ain Sokhna and New Alamein. We’re also working in waste-water in the Gabal Asfar plant, where we’ve been supplying the electrical distribution equipment for 30 years.

E: Let’s talk about regulation of the sector. Specifically, the government is trying to get itself out of the funding process. They’re changing how tenders and auctions are happening to make it so that the financial burden is more on the bidder and they’re moving more towards a build-own-operate (BOO) framework for electricity projects. Where do you stand on this? Has it made funding for projects easier or harder?

WS: I see the regulation straining companies working on infrastructure, because these companies are already burdened with the significant cash flow requirements for their projects. For them, it’s all about securing operating capital, especially the bigger the company’s backlog gets. These regulations could put pressure on the whole chain — and that’s happening. I do see a slowdown in executing the projects, but I don’t see a major risk or characterize it as a major problem. Furthermore, the government moving towards a more build-own-transfer (BOT) model is in keeping with more developed economies. 

E: What are the most interesting trends happening in infrastructure today and where do you think that’s going to be down the road?

WS: One of the most important trends happening is the government is taking a step back and giving a greater role for the private sector. So we’re going to see a lot more private sector investment going towards infrastructure than the government, which has been the traditional model for most of Egypt’s history. 

Another vital trend is the growth of infrastructure development outside of the larger cities and into traditionally underserved areas such as Upper Egypt and the Delta. From the consumer-side, we’re seeing growth in medium-sized retail outlets that are capitalizing on the high purchasing power of communities in those regions. Schneider definitely sees opportunities there as those businesses grow, particularly with the construction of new urban communities there. 

E: Could you please tell our readers a little bit about yourself and how you ended up heading the company?

WS: I’m a proud Alexandrian,who has just happened to have spent 10 of his formative years in France and Africa — my parents used to work in Africa as FAO delegates. I began my professional life in France after graduating with an engineering degree, before abruptly deciding to move back to Egypt in 1994. I saw a place like Egypt as a better opportunity for me to rise. Before my 25-year career with Schneider began, I was with Merlin Gerin. I couldn’t stay still for very long and much of my time since has been spent working in over seven countries, including as the head of logistics in Jebel Ali Port in Dubai and as a marketing head and business development head for Africa. I worked in the beautiful islands of Seychelles, Madagascar, and Mauritius. I also spent two years working for the company in Nigeria, which I really loved. Nigeria is a great country for business with a vibrant and rich culture.And then I came here, to Egypt, where I am proudly heading Schneider Electric in Egypt, Sudan, Libya, Iraq, Jordan, Lebanon, and Syria. 

E: What’s the best business advice you’ve ever gotten? 

WS: My manager 20 years ago told me, “It’s better to go for the low-hanging fruit, even if the grass is greener on the other side of the fence. Always focus on what is achievable.” I think that makes the most sense, but some people like to go for the big wins. 

E: What’s the best book you’ve read recently?

WS: I’m currently reading a novel called Ravage by French author René Barjavel. The story starts in the future 2050’s and describes how our modern world collapses and how it’s being rebuilt. It was science fiction when it was written in the 1940s but it feels eerily familiar to what we’re going through today polluting our planet without looking forward.

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