The fly-away capital

22-03-2013 02:28 PM

Fady Labib

In a recent interview with Wa’el al-Ibrashi in Al-Ashira Massa’an on the satellite Dream Channel, the business tycoon Naguib Sawiris spoke of the hopes he had held for Egypt in the wake of the January 2011 Revolution. “I thought the era of democracy had come. I imagined we could all live together no matter what political views we held, that two diametrically opposed bodies such as the Free Egyptians Party [a political party founded by Mr Sawiris] and the Muslim Brotherhood (MB) could join hands for the good of Egypt. But the exact opposite happened; the ruling regime lies in wait for anyone who does not belong to the Muslim Brothers.
“I am not happy having to live outside Egypt, even if temporarily. I miss Egypt. I love Egypt. I love its people, its air, its soil.” At that point, Mr Sawiris broke into tears.
Naguib Sawiris’s words brought home, in an especially emotional manner, some hard truths. Investors are fleeing Egypt in droves, chased away by harsh decisions by the ruling Islamist regime, allegedly for the benefit of Egypt. This allegation, however, is being increasingly questioned, with many Egyptians vociferously asking in whose favour these decisions actually work.

Law applied retroactively?

The Sawiris interview came after news spread that the prosecutor general, Talaat Abdallah, had ordered a travel ban on Orascom Construction Industries (OCI) chairman Nassef Sawiris and former chairman Onsi Sawiris, and that they should be immediately arrested upon arrival to Egypt. Onsi Sawiris, himself a successful businessman in the field of construction, is the father to the business tycoons Naguib, Samih, and Nassef Sawiris.
The Sawirises were wanted for investigation into accusations that they had evaded about EGP14 billion ($2.1 billion) in taxes on the sale of Orascom Building Materials Holding (OBMH), an OCI subsidiary, to the French firm Lafarge.  
As the news circulated, OCI shares fell to their lowest level for three months and the stock market lost EGP6.9 billion.
OCI issued a press release explaining its legal position. The Egyptian Tax Authority, it declared, had demanded that the company should pay EGP4.7 billion in taxes on the sale of OBMH to Lafarge SA in 2007. Since a 2005 law stipulates that all capital gains resulting from the sale of shares listed on the Egyptian Stock Exchange (EGX) are tax exempt, the sale of OBMH to Lafarge SA in 2007 was exempt of capital gains tax. The company filed an appeal with the Egyptian Tax Authority in January 2013 challenging the tax claim; the appeal is currently under review. “The company is confident of its tax and legal position,” the press release read, “and is confident that it did not violate any laws pertaining to the sale.”

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Freezing assets of 23 businessmen
In another decision that again drove the Egyptian stock market down, the government froze the assets of 23 businessmen pending investigations into alleged stock market manipulation based on insider information during the sale of Egypt’s Al-Watany Bank to Kuwait##s biggest lender in 2007.
The businessmen include five Saudis and two from the United Arab Emirates, as well as employees of a number of banks and the Egyptian stock exchange. The list also includes the names of the sons of Egypt’s former president, Alaa and Gamal Mubarak, former Media Minister Anas al-Fiqi, as well as executives of EFG-Hermes.
Mohamed Abdel-Salam, renowned financier and former chairman of the Egyptian Stock Exchange, told Watani that it is difficult to assess the long-term effects of the government’s decision to freeze the assets of 23 businessmen. Even though it is bound to make investors cautious, he said, if not outright suspicious; it should create a climate of confidence that no outlaw activity on the stock exchange will be tolerated.
On Wednesday, the Cairo Criminal Court annulled the Prosecutor-General##s asset-freezing decision.
The Sawiris move, however, promises to have no positive effect. “It is five years since the OMBH/LMBH deal was concluded,” Mr Abdel-Salam says. “It is no secret that the Sawirises are currently outside Egypt, so what did the government hope to achieve by the travel ban or placing them on the list of those wanted on arrival?” The entire matter appears to have been mismanaged, and has the guaranteed effect of frightening off investors, he says. “Overall, the climate since the January 2011 Revolution is not working in favour of the Egyptian economy.”

Livelihoods threatened
According to economics and money markets expert Mustafa Badra, Egypt is now in crisis. The declining political and security situations serve to drive away investment, both direct and indirect. Investigations with businessmen on alleged violations should not have been flaunted so aggressively. “We should not forget,” Dr Badra told Watani, “that the deals made in past years were made according to the laws and standards prevalent then, or that most of the investors implicated have investments worldwide. We should have waited till the investigations were over before hurling accusations as yet unsubstantiated.”
The 40,000 workers and 12,000 engineers and corporate staff working at OCI held two protests against the government’s moves, which might very well affect the company’s stability and their own livelihood, as well as the company’s reputation and its performance internally and externally.
Ismail Othman, deputy head of the Egyptian Union for Construction and Building Contractors, said the OCI case should not have been raised in this way because OCI was a huge corporation that made a momentous contribution to the national economy. “The sale was normal; no one should interfere as long as it was done legally,” he said. “We all know how the Sawiris family has served Egypt and contributed a lot to its economy and to its people.” Dr Othman said the OCI crisis would have a negative effect on the building and construction sector, which is already suffering. The sector involves some 90 fields of specialisation and jobs that will be affected.  “If we would be able to overcome the current crisis, the growth rate would increase from 2 per cent to at least 7 per cent,” he added.

Political target
Economic expert Mukhtar al-Sharif confirms that the crisis between the tax authority and OCI is harmful for the investment climate in Egypt. The harmful effects, he says, will fall not only on the Sawirises but also on the corporation they manage. Orascom Holding has a respectable reputation and an excellent record in construction in specific and in business in general, so the crisis will affect the business decisions of others, who will not want to face the same problem. The case reeks of a political target under an economical mask, he says. Fabricating a crisis with a prominent family known for its proficiency, social responsibility, and honesty contradicts the continuous statements issued by the government about improving the investment climate to attract more local and foreign investors. The government should have dealt with this file through negotiation; instead it chose to handle it in a manner that has sent a bad message to investors. Sharif strongly recommends a swift resolution of the problem, and points out that the case has temporarily affected the stock market but that the negative impact on investment and economy could be long term.
An analyst who asked to remain unnamed says that the aggressive moves by the MB government against successful businesses and businessmen gives rise to strong doubts that the purpose is to make these businesses lose value, upon which MB businessmen can step in and buy them cheap. Such scoops may end up effectively transferring the Egyptian economy into MB hands.

Family business

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Onsi Sawiris, the founder of Orascom Holding, is one of Egypt’s most successful business tycoons. Born in 1930 in Sohag, Upper Egypt, to a Coptic family, he earned a university degree in 1950, and began his business with a small company for paving roads and digging irrigation canals. In 1961, the company was partially then totally nationalised, while Onsi remained its director for five years. In 1966 he emigrated to Libya and worked in construction before returning to Egypt where, in 1977, he established Orascom for General Contracting and Trade, later changing the name to Orascom Construction Industries. Orascom’s activities expanded, at the hands of the Sawiris sons, to include tourism, hotels, mobile phone and computer services, and it became one of the largest business entities in Egypt.
Onsi Sawiris’s wife Yousriya Loza is deeply engaged in social and charity work in Egypt. The Sawiris foundation, managed by Naguib Sawiris, is actively involved in social responsibility work and human development projects.

WATANI International
24 March 2013

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