Osama Bishai has been around the block. He joined Orascom Construction (OC), where he serves today as CEO, in 1985 and became managing director of the group’s construction line of business in 1998. He has led growth over the years in the company’s cement, infrastructure and industrial businesses and led the development of OC’s investments in the fertilizer industry in Egypt, Algeria and the United States. Today, he’s spearheading the Group’s expansion into more international projects, particularly in the United States, while creating a long-term concessions portfolio both at home and abroad. OC is a leading global engineering and construction contractor with operations spanning the Middle East, the United States and the Pacific Rim. The company’s shares are listed on Nasdaq Dubai and the Egyptian Exchange.
For Egypt, 2018 was a good year as far as volume of work and output. Egypt still has the challenges of timely payments, inflation and associated concerns in that regard, but the big picture is fine. We would have hoped to see more foreign investors coming into the country. We haven’t seen a lot of those. We had hoped to see certain investor-related decisions taken — we have not seen that either. We hope that next year the mindset will be to focus on bringing foreign investors to the country, not only through the stock market or financial instruments — we want to see direct investors that are coming in and investing and creating jobs.
Egypt remains the region’s top construction market. As for the wider Middle East, nowhere else in the region had the same construction activity as Egypt, so we didn’t see a very active Middle East market last year. But we still see opportunities in the region, particularly in the Gulf, Iraq, and Algeria.
Construction companies plan at least a year ahead. We see enough work in the pipeline — not only in Egypt, but in the region, and in the US, where we also have operations, so we’re quite comfortable. That’s not to say we aren’t a little anxious about what may or what may not happen.
I think funding will become one of the biggest challenges of 2019. There are projects we would decide not to pursue — or contracts we wouldn’t sign — if there was a question mark on the funding. As for resources, we’re always working to attract and maintain the best people. If we talk about the macro picture, 2019 has a lot of challenges. Egypt gets a share of what happens as a result of the international mood; we’re not isolated from the global economy, so investment in general could be slightly slower as a result of current market conditions. We want foreign investors and the industrial world to look at Egypt as a market with potential. We have 100 mn consumers and we have a lot to do in terms of infrastructure and developing the country’s output in general, so there’s still so much to do.
Then there is inflation. All the new contracts that we signed over the past 12-18 months have provisions to account for inflation, whether as escalation formulas or direct compensation for particular increases in fuel, for example, or we make our own assumptions to give us breathing room.
If we’re able to innovatively work on creating funding tools, we’ll be able to create opportunities for ourselves. This is something we’ve done before on several occasions, and it’s something we can do again and again across the region. We have a very a strong team that makes us able to put together packages to fund certain projects, but obviously these projects have to be bankable.
With a large youth population that is constantly growing, infrastructure is an endless exercise in Egypt. There is a continuous need for infrastructure — not only in terms of electricity and roads, but also water, sewage, and pipelines. These things are important for investors to see that they’re putting their money somewhere that is well-served in terms of utilities and infrastructure. It’s also quite important to improve the quality of life for the population.
As a company, we have a lot of tools when it comes to employee compensation. We try to match or compensate for the impact of inflation on an annual basis. We’re operating to produce value for shareholders, so the profitability of the company also reflects directly on people’s compensation, whether that’s bonuses, salary adjustments, or retention tools. And our compensation policy definitely takes into consideration each employee’s performance. So yes, we are giving raises for 2018 performance. We have to.
Interest rates are the biggest challenge we face. We don’t see investors looking at aggressive expansion because interest rates are quite high. It also affects business because sometimes there are clients who don’t pay their dues immediately, meaning we have to borrow until we get paid, which creates a burden on the project’s results. So obviously, we would like to see a change in rates.
I’m not an expert to speculate when rates will come down, particularly because there are factors like the strengthening USD and higher US interest rates that the CBE has to take into account.
As a construction group, our investments are targeted. At the end of 2017, we invested in a wind farm and are waiting to see if we can finish the necessary studies and government paperwork. If we do that this year, that will probably be one of our investments in 2019. We’ll continue to invest in concessions, which have certain criteria and returns, as well as in infrastructure, obviously. We’ll look at those markets — not just in Egypt, but also in the region and in Africa — if we have something that will give us the required returns. But when it comes to investment in terms of expansion as a contractor — buying equipment and otherwise getting additional resources — we do that everyday.
The consumer industry is always performing. The Egyptian consumer will outperform in 2019. Inflation may have affected consumption of big ticket items, but not food. At the end of the day, people have to spend money to eat, so consumption is good. Contractors and construction firms should be making reasonable returns as well with all of the ongoing construction projects in the country.
Healthcare and pharma will also probably continue to perform well. Health ins. coverage is increasing as far as numbers go, so we hope to see more hospitals being built. As for pharma, it’s an area of potential growth because, with a population of 100 mn people, a lot of SKUs are being imported now that could be manufactured locally.
Tourism has the potential to do well, but that depends on the mindset and direction of investors. We’re not yet seeing major investments in the tourism sector — there are hotels being expanded and renovated, but I’m not aware of any major new hotels being built other than those owned by the government. It’s important for Egypt to have growth in the number of available hotel rooms, whether high-, middle- or low-end for tourists. Tourism should be a sector with considerable potential for growth, considering how affordable Egypt is. The mindset there needs to change; investors and banks should be encouraged to focus their resources in this area.
How we see Egypt versus other economies in which we invest is a hard question. Egypt is quite unique, actually. You can look at somewhat similar countries like Mexico or Turkey, but really, they’re completely different. Mexico has a more liberal economy, and Turkey’s GDP per capita and industrial output are much higher than those of Egypt.
If I were to start a new business today, it would be in renewable energy. Waste management — whether getting rid of it or recovering something from it — is also very important in a country of Egypt’s size. The problem with waste is that it’s an expensive exercise. Recovering waste or creating energy from waste — you need technology and it’s expensive. That’s why you’ll see÷ waste management taking off in developed countries where government incentives make it more affordable.
The biggest question I get from investors? They’re worried about whether or not the government is supporting the private sector. Quite honestly, we hear a lot of positive words from the government, but there are few associated actions. Foreigners in particular also talk to us about the repatriation of funds, which today is no longer a problem, but it was an issue two years ago. Another question is the availability of qualified manpower.
Does Egypt have qualified manpower? We say that Egypt has ‘trainable’ manpower — people who learn fast and, if they’re well-compensated, they deliver. But finding high-quality qualified laborers, like technicians and engineers, that’s not easy.
But I would say the right question to ask is whether the environment welcomes private investors. Every day, we hear something new that tells us the answer is “no” — like a new lawsuit being filed, or a report that the government wants to seize the assets of tax evaders. There needs to be more caution with these statements because the media takes the punch line and that’s what reaches the rest of the world. Officials have to be more orchestrated and synchronized — if there’s a certain action that will be taken, statements have to be measured. That applies to companies, too — as a publicly traded entity, I need to be careful with what I say and make sure that I don’t overshoot or undershoot, but nobody does that.
What question will we be asking at the end of this year? Unfortunately, we’ll probably be asking the same questions again that we are now. FDI will still be an issue, inflation will still be there, and I’m not sure if interest rates will move. Egypt’s foreign debt levels will be a new topic this year, but for the most part we will be looking at the same lineup of issues.
What have you not asked me? The only thing I would say is that the media should help the government understand that we’re not alone in this part of the world. We’re competing, seriously, against other countries, not only in Africa, but outside the region, in countries in Latin America. The foreign investors we’re trying to attract can decide to invest today in Morocco or Egypt or Mexico or Turkey. Nobody should assume that people will think of Egypt as the place to invest. We should really start thinking how can we be more competitive? How can we be more appealing to investors? How can we create value to people working in this country? This is I think the most important thing that you should relay to your readers in the government or other stakeholders. I