Going it alone

As global and domestic conditions bring business to a difficult pass, Mohamed Nosseir speaks to Aziza Sami about plans for the future
'I have never traded in arms. Never sold one gun, not a single bullet, in all of my life
photos: Randa Shaath
The scale and diversity of his investments in the Egyptian economy alone qualify Mohamed Nosseir to emit an informed opinion regarding current conditions and how they are affecting his business prospects. The Alkan Group, made up of 11 companies with an annual turnover exceeding LE850 million, is affiliated with some 100 multinationals and engaged in activities ranging from telecommunications to construction, petrol, pharmaceuticals, aviation, travel and cotton yarn manufacturing, in addition to financial services. Nosseir also chairs the cellular network operator Vodafone Egypt, of which the UK- based multinational Vodafone is a 60 per cent majority owner. Almost all these companies operate in sectors that had witnessed a slump prior to the 11 September attacks. In the past six months, local and global conditions have precipitated their decline even further.
On a day rendered unusually "quiet" (for him) by the sudden cancellation of a scheduled trip, I met Mohamed Nosseir at his office in Doqqi. His congenial approach does not hide an expansive and forceful personality.
The impact of the economic slowdown on his business has been "bad, very bad." Moments before, he had been discussing a delay in the payment of $70,000 to a specific quarter with one of his staff. "As you can see, things are tight, very tight. It has never happened before."
Why has the situation deteriorated so badly? "People think it is because of 11 September, but the crisis is because of mistakes made by the government. Not Prime Minister Atef Ebeid's," he hastens to add: "Former Prime Minister Kamal El-Ganzouri, in his final months, crippled the economy." Nosseir was alluding to the liquidity shortage and Cabinet interventions in monetary policy.
The business sector in Egypt had been witnessing layoffs, with closures in the industrial sector. The telecommunications business worldwide was sustaining a downward trend. Orascom Telecom, Nosseir's telecommunications competitor, announced a loss of LE92.86 million between July and September of last year.
"We have had no losses, thank God," he said, referring to his business at large. Nevertheless, Vodafone Egypt's revenues have slipped over the past two years. Changes have taken place in upper management as a result. A Briton has taken over as CEO. Mohamed Ali El-Hamamsi, Nosseir's trusted top executive, has been promoted to the position of deputy chairman of Vodafone Egypt effective the beginning of May. He will, Nosseir says, be " in charge of overlooking the company's broad strategies."
The liquidity shortage has hit the Alkan Group particularly hard, Nosseir said, because they are "engaged in distribution activities across the board. So we are constantly meeting problems related to late payment for receivables. People are just not paying." One division of the pharmaceuticals company Alkan Pharma, engaged in distribution, has been closed, and the employees laid off. "It was serving some 20,000 pharmacies and not meeting its profit margins. Other than that, we are carrying on with all of the companies. There may be a few days' delay in the monthly payment of wages, but we are going on."
Given a potentially disastrous downturn, what could allow him to maintain his investments at their current level? "Let the government pay its debts. If it pays, everything will be fine."
The government, though, is adopting a battery of policies to tackle stagnation. "You see, the biggest mistake the people in charge are now making is that they have one goal, and one only, in mind: to protect the parity of the Egyptian pound against the dollar. For this they are ready to burn the whole country -- to kill it." He continued: "In the past 30 years, whenever a country was in recession or slowdown, whether the US, countries in Europe or the emerging markets, the first thing they did was to reduce interest rates. In Egypt, they did exactly the opposite. They raised it." He dismisses the argument that only a hike in interest rates could counter the economy's increasing dollarisation.
"So what if dollarisation takes place?" he counters. "What will happen? Our economic decisionmakers will be forced to face the real facts of life. This country is short of hard currency reserves, and something needs to be done to increase them. True, dollarisation will put pressure on commodity prices, but it will increase savings in dollars and provide hard currency. The solution is to increase foreign reserves by making tourism more attractive. And devaluate the pound even more, so that we can export more."
He deems the current exchange rate, which sets the pound at LE4.51 against the dollar, "too low," conceding that foreign exchange dealers have been "part of the problem," since speculation has placed additional pressure on the exchange rate. But he was critical nonetheless of the government's recent crackdown, involving the arrest of currency dealers and the closing of forex bureaus. "I am not contesting the legality of such measures. But they got them on silly things, such as resorting to legal stipulations that 'dealers are not allowed to keep hard currency in their bureaus overnight.' What if a dealer receives dollars and no banks are open? If the price of the dollar declined after these measures, it is only because there has been no movement, no transactions in the market."
Such exchange rate problems have affected Nosseir personally, since, coupled with the Ministry of Health's pricing policies, they stalled the marketing of human insulin produced by Alkan Pharma in a joint venture with the pharmaceuticals giant Eli Lilly.
Over the past year, Eli Lilly was rumoured to be pulling out of Egypt as a result. "The company is there, and the factory," said Nosseir. What will happen next? He shrugged. "Former Minister of Health Ismail Sallam enforced this policy, trying to make us sell the insulin below cost. Of course we refused."
The conflict was also due to the acute shortage of insulin on the local market . The new minister of health, Awad Tageddin, "contacted me the day after he took office and asked about the insulin. I told him I have nothing to do with the insulin problem. I own 15 per cent of the factory. My son occupies one seat on the board. Eli Lilly owns 85 per cent. We cannot take a decision on behalf of Lilly, for which the whole matter is one of economics."
Nosseir warned that the insulin crisis would soon spread "to all the medicines [produced] in Egypt. I told the new minister this. I speak on behalf of my own company, Alkan Pharma. I might stop producing altogether if my prices are not restructured. I cannot go on paying LE5 to the dollar instead of the LE3.4 upon which I had originally based my pricing. I am not ready, just as Eli Lilly is not ready, to run a venture at a loss."
Uncertainty, however, is not restricted to locally manufactured pharmaceuticals. Now that the national telecommunications company, Telecom Egypt (TE), has announced it will build and operate a third mobile phone network, Nosseir, never the "privileged investor" in the race for Egypt's first cellular network company, stands to see his market share decline further. In the mid-'90s, when TE put its GSM network up for sale to the private sector, Nosseir, who had bid higher, lost out to his younger competitor, Naguib Sawiris, who then went on to form the first private sector mobile operator, Mobinil. Nosseir's Vodafone Egypt (then known as Click) became fully operative two years later. Since then, controversies have shaken every public forum from the People's Assembly to the opposition press, and the incident has been cited as a graphic example of political influence overriding fair business practice. Why did Sawiris win the bid? Nosseir would not answer. Then: "The issue still comes up in parliament, you know, every month." Any hard feelings? No reply.
TE is now selecting a contractor to build the network, and thus preparing to upset the fragile balance between the two giants. "The question is simple. TE and [Minister of Communications and Information Technology] Ahmed Nazif are very eager to privatise TE itself. They believe, and rightly so, that a company which includes the licence for a mobile operator in addition to fixed lines will be more attractive to investors."
He warns, nevertheless, that the step is untimely. "If they build a third network now, it will be at a great loss for the company operating it. The new company will be in the red, and dramatically so. Major financial consultancies like Merrill Lynch, Credit Suisse Boston and EFG Hermes all share this view."
A confrontation pitted Vodafone Egypt and Mobinil against TE when the latter made its intentions public a little over a year ago. The two private sector operators insisted that the state-owned company pay for a licence to operate a network, just as they had. "TE violated the terms of the contract, which said it would notify us before announcing the creation of a third company. They did not. The way they were cooking it was that TE would get the licence for free. Luckily, [Minister of Finance] Medhat Hassanein was on our side because he needed the money."
The market at present cannot and should not sustain a third competitor, Nosseir affirmed. "The revenues of the two existing networks are falling," he said. "Not on a large scale, but they are going down. The rate of new customers coming to the networks has also dropped dramatically. And so a third entrant will only take clients away from the two existing networks." His experience as the second operator showed that "Egyptian clients don't like to move. If you are a customer with Mobinil, there is no way that I can draw you. I can offer a free line, money -- still, people don't like to move. So you can imagine the uphill battle a third company will face to win clients from Mobinil and Vodafone, especially if those customers are satisfied."
He preempted the next obvious question. "Is that vested interest speaking? Of course. I am a big investor, and I have put a lot of money into Vodafone Egypt. Of course I do not want a third operator to come into the market. I cannot be enthusiastic about what is against my interest. On the other hand, I swear the driving force here is not my interest, but the country's."
Between them, according to Nosseir, Mobinil and Vodafone Egypt operate an infrastructure that covers 99 per cent of the inhabitable area in Egypt, with the capacity to serve 6.5 million clients -- at a time when the cell phone market does not exceed 3.5 million. "A new operator will still have to spend $600 million on infrastructure, and LE500 million locally to install a network. Yet there are still some three million clients, and we do not need to invest more money to get them."
Nosseir's advice to the authorities has been to "pay for a licence and put it into your assets, but do not make the Egyptian economy lose $600 million, especially given current circumstances, because of a completely unnecessary venture."
He predicts -- hopes, rather -- that a third venture, if it does materialise, "will become operational a couple of years hence. Whoever tries to get it up and running before then really does not like this country."
Along with Mobinil chairman Naguib Sawiris, Nosseir said he had "offered TE $600 million to obtain a third licence and kill it. Two months later, Mr Sawiris paid $758 million for the licence in Algeria, and after that $300 million for Tunisia. The third licence, wherever it may be, will go for $100 million, because it is finished. The bubble has burst. There will be no more bubbles."
Nosseir has tended to keep a low profile despite the scale of his investments, and has been less prone than other businessmen to occupy a place in the limelight of political controversy. Yet it is influential political contacts, combined with an incontestable business acumen, that have placed him where he is today. Two decisive relationships helped shape his career. One was his family tie with prominent Revolutionary Command Council member and former Vice-President Abdel-Latif El-Baghdadi. The other, his friendship with influential journalist Mohamed Hassanein Heikal.
An engineer by education, in the early '60s Nosseir married El-Baghdadi's daughter. They had become engaged when his father-in-law was the second most influential man in the regime, after late President Gamal Abdel-Nasser. Nosseir says he proposed believing that his bride's father was another man, Mohamed Geme'i (in fact her uncle), with whom she was frequently seen at the Gezira Club. "When El-Baghdadi realised that I was not after his authority or position, he insisted that I marry his daughter." During the engagement, Nasser and El- Baghdadi quarrelled, and the latter resigned his post. Nosseir, who held a regional post with IBM in Cairo at the time, resigned and left for England, where he set up business. It was 1964.
From trying to sell computer software, he expanded into trade activities with several Arab countries. He had an uncanny knack, as he puts it, for doing business with "anti-Nasser" regimes, and for forming high-powered friendships with such figures as the late King Hussein of Jordan. Back in Cairo for a brief visit, he was charged with "high treason" and conspiring to bring El-Baghdadi to power. He was forced to leave what had become a lucrative business in London. Nosseir says that Sami Sharaf, Nasser's then bureau chief for information, "who knew that a rapprochement between Nasser and El- Baghdadi was in the works," made the accusation. "It was part of the power politics of the time."
Nasser, not believing that El-Baghdadi could really be involved in such a scheme, nevertheless ordered that Nosseir be "kept" inside the country, but not arrested. Heikal, whose friendship Nosseir had cultivated in 1957, and whom he calls his "saviour," offered him the job of setting up Al-Ahram's computer centre, Amac, where he worked for from 1967 to 1972. "Heikal took Nasser's permission [to help] at the time. I think he did it because he was in favour of the rapprochement with El-Baghdadi, whom intellectuals regarded as a man who had achieved many things in the public domain."
He left Egypt again in the early 1970s to go to Greece, and made his fortune in oil trading. Returning in 1974, Nosseir brought his assets to Egypt and formed the Alkan Group.
It has been rumoured that Nosseir made his fortune by trading in arms. " Never" he said emphatically. "I have never sold a gun- not a single bullet in all my life". He said that " the impression could have arisen because I was involved as a sub-contractor for American companies selling high-tech products to the Egyptian army".
Having become- nevertheless- enmeshed in the intricacies of business and power, how does he see their relationship within the current system? Are perceptions that cronyism exists, that major businesses succeed only when their interests coincide with those of the upper echelons, justified? He was non- committal.
Is he himself not a member of Egypt's "charmed circle"?
"No, no," he said, shaking his head. "To the charmed circle I say: good luck. But I believe that the further away one is from 'power,' and the lower one's profile, the better. I have a good relationship with the government. I respect it, but I do not like close involvement."
How has he succeeded on such a large scale, then, in an environment suffering chronic bureaucratic complications, contradictory laws, and an official mentality that is, by his own testimony, more often than not antagonistic to investment?
"I manage by being correct and straightforward. Surprising, isn't it? Because a lot of people think they can make it by using their money in hanky panky. But if you are correct and modest, and don't try to trick the authorities, they trust you." And what about the "modicum of corruption" that business wisdom holds is necessary to get things done?
"Three taboos which I never play with," he said assertively, "are customs, taxes and social insurance. Regardless of the sometimes stupid decrees that they issue and which make no sense to me, like the sales tax. I do not play with these. I do not allow any of the people in my companies to play with these. For a reason: I will not be blackmailed by any of my staff, ever."
In a few moments, he would be holding a meeting to discuss a long cherished project: the Cairo Financial Centre, an ambitious plan to build a business conglomerate in the Muqattam district, housing, among other concerns, the Egyptian Stock Exchange. Nosseir, who owns the land, has put LE150 million into the venture, and prepared LE20 million worth of designs. But there are no investors to participate in its funding. For a man who is averse to resorting to the banks for a loan, no steps can be taken until a company is formed for this purpose. "I could start tomorrow, if I find the investors with whom we can increase the capital sufficiently without having to go to the banks. I hate banks, you know. In all of my projects, I have not gone to the banks for a loan."
While contemplating this next undertaking, he is preparing to retire, and will form a holding company to oversee the others, which he considers his babies. "The only problem is that I own these companies 100 per cent, which is not right." He needs "people to come and buy my companies, which are profitable." Is he taking steps in this direction? "I think about it all the time, but do you think I can, at this point? Do you have a buyer?" Ironically, the man who dreams of building a new stock exchange for Egypt seems to have little faith in trading his companies in it. All of his ventures are closed companies.
Will things turn around? "I would not be sitting here if I did not believe that they will," he answered quickly. "The question is: when?"
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