Hani Berzi, Chairman and CEO, Edita
You know a company and its brands have enduring credibility with consumers when the only CEO our resident nine-year-old knows is “the man who makes Todo Bombs. They’re the best — when you let me have one.” Hani Berzi began his career in 1986 at his family’s snack food business before going on to create Edita, which he’s transformed into a publicly traded corporation that is both Egypt’s largest snack food maker and a burgeoning exporter. Berzi is a man who knows his numbers, but we were most impressed by his laser focus on strategy and blunt assessment of strengths and weaknesses across the economy, including his own organization’s. Edited excerpts from our conversation:
2017 will be the year of unpredictability, the year of surprises. Those surprises could be good, they could be bad, but one thing is certain: There will be little predictability.
The biggest challenge for the economy will be how to redress our trade imbalance — that and the availability of foreign exchange. I’m particularly concerned about the measures the government could take to redress the trade deficit and the impact on our trade agreements, whether those are free-trade agreements or the WTO. We always have a window in which to protect the market — that’s provided for under most agreements — but we can’t let that become a crutch.
It’s also going to be key for the government to start making progress on overhauling the bureaucracy. Cabinet-level decisions and cabinet’s vision need to cascade downward to lower-level employees in a very heavy bureaucracy.
The biggest challenges for the food industry come on the regulatory side of the equation. Regulators need to work on how they interact with businesses — the types of raids we’ve seen on factories, whether from health, supply or the interior ministries, send the wrong message. I’m thinking here of what happened to us with sugar and to Heinz with tomatoes. Yes, there could be some deviation from good manufacturing processes, but good businesses redress these. Your thinking something happened here doesn’t mean you take a business owner directly to the press before an investigation is complete and not think about what that means for that company, for the industry or for our export prospects. Doing this type of thing shoots in the foot every effort we make to grow exports.
Our country has more than 90 mn citizens, and our population is growing at a rate of 1.6-2.0% per year. It’s an amazing market, and it’s particularly fertile ground for the snack food industry as eating habits change. We’re also going to find opportunities in the trade barriers — tariff and non-tariff — the government is implementing to slow down imports. The playground will be empty of suppliers, giving local companies the opportunity to substitute for imports.
We’re going after this opportunity by investing in improvements to our manufacturing process, improving product delivery. We’re continuously working on new products — we’re spending more on R&D to come up with new, non-traditional products that offer good value for money so we capture a bigger share of wallet. The opportunities we have today won’t come free of charge. Consumers are going to be very selective with post-float inflation. They won’t buy simply because something is cheap; they’ll direct their disposable income to things of quality.
We’re definitely still in investment mode this year. The opportunity is just too significant — we can feel it. We like to invest when others are afraid to move. We did that in 2011, and we’ve reaped the benefits since. We’ll be investing EGP 350-400 mn in 2017. Our biggest outlay is in Sixth of October, where we’re hoping to finish construction in 2Q2017 of what will be our largest factory.
The minimum raise any employer should go with in 2017 is 20%, and we’ll do anything we need to do to ensure that lower income employees get up to 30%. We’ll do tiered raises across our employee base, and blue collar labor will be the biggest beneficiaries in percentage terms. We think CSR starts by paying a living wage, regardless of what that means when your P&L is under external pressure.
What sector will do best in 2017? Food. Certainly food. Egyptians love to eat, and the fundamentals dictate that there are more and more Egyptians every year.
What sector will fare worst? Real estate, in my personal opinion. And when real estate goes into recession, the whole country goes into recession. This is why I said the year will be highly unpredictable.
We haven’t seen much M&A opportunity in recent years because people were doing well. You don’t typically think of selling when growth is high. It’s a very different environment now. We’ll see lots of opportunity in the market, and we’ll also see companies in a variety of sectors going out of business. The cost of investment is horrendous. You won’t see many players able to afford EGP 400 mn or EGP 500 mn in capital expenditure to support growth — and that’s modest capex at today’s exchange rate. So yes, we definitely have our eye on M&A targets.
Plenty of business owners have looked at the successes of IPOs in the past two years and think they should go. So there’s no question 2017 will have an IPO pipeline of maybe three to four this year. The question is whether they’re really IPOable — whether they have what it takes to be a listed company.
If I had to start a new business today, I would invest in education. Not higher education, but vocational education and vocational training. We’re all struggling with the difficulty of finding skilled labor, whether that’s electricians or pipefitters, plumbers or cooks. All of these people learn through on-the-job experience, and there’s no single credential. Vocational training is key, and all of the big funds investing in education — Actis, Abraaj — nobody is looking at vocational training.
Exports are life and death for Egypt. Non-petroleum exports are the biggest provider of foreign currency to the Egyptian government, and cabinet knows very well they need to make this a priority. We need a Higher Council for Exports, just like we now have a Supreme Council for Investment. And please remember: There will be no sustainable export growth without an investment in vocational training. What are we exporting today? USD 17-18 bn? That’s nothing. If we had done what others have done on this front in the past decade or two, we could be doing 30-40x that.
I’m optimistic about exports — if Cabinet takes the right steps. It’s not going to be push-button, it’s a whole program. Call it what you want, but we need a strategy, and that starts with having incentives, land, and a trained workforce. It needs to be a national priority.