The Abraaj Group, a global growth markets investor, , has successfully navigated through challenges it faced in the Egyptian market, especially through periods of unrest.
To do so, the company capitalised on the country’s large consumer base.
In an interview with Daily News Egypt, Mustafa Abdel-Wadood, a Partner at Abraaj, said the government needs to tackle the historical challenge of “dual messaging” sometimes faced by private investors. In such instances, the government relays positive sentiments and support to investors, who then meet animosity channelled through media outlets.
Underscoring that the current government is taking the right decisions and measures towards economic reform, Abdel-Wadood said a “holistic approach” towards inclusive growthis needed. This will further bolster the country’s investment environment, which only bears fruit in the long-run.
(Handout to DNE)
Tell us more about Abraaj’s history in Egypt, the history, the size of investments and the sectors?
We have been active in the Egyptian market since 2006. In actual equity, put aside leverage and everything else, we’ve invested an approximate $2bn, across 10 investments, during that period of time. As for sectors, we’ve done everything from healthcare to fertiliser, to financial services to call centres, retail and food retail, oil and gas.
Which of these investments are you still holding on to?
We currently have exposure in Egypt in a number of sectors: healthcare, obviously, through a number of investments, business services and IT, food retail, oil and gas indirectly through a company we own that has business in six countries including Egypt.
According to news reports, there was another venture for Abraaj in the healthcare sector, the North Africa Hospital Holdings Group. Is this an indication that more similar investments in this sector are to be expected?
This is a broader healthcare group, including Egypt and Tunisia and other countries in North Africa. What we do realise is that countries in North Africa are under-invested in this sector, and there are a lot of opportunities there, to both develop the sector and to grow our investments in that specific space. Healthcare in general is a theme we have done quite a bit in Africa, in Turkey, and in other markets as well. We’ve done about 25 investments in that space.
Over the 11 years during which Abraaj was active in Egypt, which main challenges did the company face as a foreign investor?
We are generally cautiously optimistic about the Egyptian economy, and it’s a market we know well. As in all of our markets, we have a team that is local and on the ground, and we combine that with our global expertise. So the fact that we are on the ground, and local in that sense, helped us navigate some of the challenges, and that’s normal in our market, and any market we go to has challenges. There is a macro aspect, of course. The past four years have been a challenge for the economy, as whole, and that is what it is, and you have to deal with such issues. The way we navigated through that is by looking at sectors that do well, even in challenging times. We see that the consumer opportunity is strong, so we look at that continuously.
For Egypt, the streamlining that can be done and transparency around the regulatory of the legislative environment is critical, including the taxation regime, and the ability to secure foreign exchange and repay capital, is all critical for investors. If you ask me, one of the big challenges in Egypt has been, historically and continues to be, sometimes, the dual messaging that comes from the government. In private settings, they encourage private investment and they speak the same language and then the messages delivered for public consumption are very different ones, often -and I’m exaggerating here – where business is demonised, and no to privatisation.
I think you have to take a stand and stick to it. The reality is the core issue to create employment is through investments, and the only realistic way to create investments is private investment, whether local or international. So, the last thing an investor wants to see is the negative messages that occur in the press and the media. Obviously the sophisticated financial press gets it, but often there is an almost-schizophrenic approach of wanting foreign investments, and at the same time discouraging them. I think there is a strong role for regulators in the government to expose wrong business practices, and to keep things at check, and for the media as well. But, at the same time, there needs to be a recognition that the way forward for economic growth is going to be private investment. So, the culture of accepting responsible investing is the way forward.
Has this changed, along with other things, in the past year or so, since this new government came to place?
The intention is there, and I think they are moving in the right direction. They come at a time where they’re faced with a lot of different challenges so it’s not an easy task. I think generally speaking, if you look at the long-term attractiveness of Egypt, even through the most challenging periods, it’s a very diversified economy. It’s got a young, and growing population which means it’s got a consumer base and a labour force. There are challenges about that since it’s a double-edged sword, because the flip side of this large population is that you’ve got to create the right investment opportunities for growth to create employment. I think the government gets that, and recognises that it needs to boost growth to 5%, 6% or 7% growth – which is something we have not done in a very long while – if we’re going to create employment opportunities. So there is recognition, and I think messaging is important, and streamlining the regulatory environment is important. They are focusing on all of that, but these initiatives bear fruit after a long period of time. The government needs to take a holistic approach towards economic development. It’s about everything really. They need to look at healthcare, they need to look at educational system, and creating a culture that promotes a strong work ethic, and promotes performance. It needs to take a full, long-term view. But in terms of steps that the government needs to do, I think it’s taking them against the backdrop of a very challenging environment.
Back to Abraaj’s investments in Egypt: What are Abraaj’s plans for this year and next with regards to its projects in Egypt?
We are active. We invest according to the opportunities we see. Sometimes we can be opportunistic. We don’t have a specific target to deploy in Egypt, as we invest in a wide universe of markets. We are driven by the opportunity. If we find the right deals and transactions that give us the right entry point into sectors we like, we do them. We are actively looking into different sectors, and Egypt is a core part of the geography we look at, especially for our MENA business.
Which sectors are you targeting now?
We think theoretically and what makes sense in Egypt is its consumer industries, which include a number of sectors. This is why we like education and healthcare, and non-banking financial services, logistics and retail businesses. All this is due to the fact that there is a large and growing middle-class with increasing spending power. So, if you build the right businesses, this is proved to be the right investments.
Is Abraaj considering any transactions now?
We always are, but we never speak about them till they are done, because of the confidentiality we’re bound by, and also the competitive advantage by not bringing it into public domain.
Egypt will be promoting a large number of projects and investment opportunities during the Economic Summit. How is Abraaj going to be part of this?
To be honest, none of the investors, or at least I’ll speak for ourselves, have yet seen any of these projects. If we speak generally, what we do is we tend to find the opportunities which we like to invest in ourselves and look at them. Obviously, it is interesting to see the projects the government is looking to fund and sponsor, but we have to see them and see their specifics, and understand if they fit with our own investment strategy. They can be perfectly good projects, but if they don’t fit with our investment strategy, it will be difficult to make a judgment call on whether or not we can look at them. Presumably, a big part of these projects will be large, infrastructure projects and looking primarily at infrastructure investors, and technically, we don’t focus on the infrastructure. We do invest in energy infrastructure, and some other areas, but until we see those projects, it will be very difficult for us to comment.
Has there been any dialogue between the government and Abraaj, especially since Egypt is heavily depending on Gulf FDI and targets Gulf investors?
On an ongoing basis, we are close to both governments, like any other market we invest in. However, we are a private sector investor, and we have private institutional investors as our primary investors. So, at the end of the day we are driven by a specific investment strategy and specific returns, and therefore we are not a government-sponsored identity in any kind of way. And so, we are encouraged by the opportunity on the ground, and the fact that people are making the right moves in terms of facilitating an investment environment. We have been keen on Egypt regardless of the short-term circumstances, but we’re not a sovereign wealth fund, and we’re not a government-backed entity. At the end of the day, our investment comes from a purely returns-driven perspective, and we are responsible investors and recognise that we are stakeholders in the countries we invest in. To answer your question, yes, we engage with both governments as part of the ordinary course of business, and given our size and scale as an investor in this part of the world, and other regions.
With regards to regional investments, is there any country or market which Abraaj is eying to tap in the next year or two?
We’re active in our current markets. We have a wide footprint that extends from Latin America, through Africa, MENA, Turkey and Asia. This is our current footprint. Our focus is to invest further in these markets which we call “growth markets” and which are more commonly known globally as “emerging markets”.
What is Abraaj’s targeted annual growth for this year?
We actively deploy, on any given year, anywhere from 12 to 20 investments and we do a similar number of exits in any given year. In terms of returns, we can’t talk about that for legal reasons, but our returns have been strong in the markets we are active in.
