5th Floor Debates Series – Volume 1

Do you believe that competition is a prerequisite for progress?

That humanity will continue to develop and evolve in the absence of a self-serving mind-set or a perpetual desire to outdo?

Can a cooperative greater good themed mindset be the next big thing?

Would it be sustainable?

How would the change come about?

We would love to hear your thoughts!

Made To Order

At the end of 2006, Time magazine declared the reader, the individual, the average Joe; the Man of the Year. It was a testament to the overwhelming growth in user-generated content that took the world by storm during that year. Social media platforms were empowering individuals, like me and you around the globe to become overnight sensations; citizen journalists, artists, writers and educators. Individuals worldwide were creating content and news and contributing through the available platforms (blogging websites, YouTube, twitter, Facebook, Flickr) at the same frequency as they we were consuming it. We were becoming increasingly aware of our individuality, our opinions and our need to be heard.

This egocentric attitude and massive need for customization and uniqueness forced companies worldwide to abandon their standard off the shelf products. Corporates around the world no longer had the luxury once afforded to Ford to claim that their customers “could have the car in any colour as long as it is black”. This was a new day and age and the customer was king. Moreover, this customer (existing and prospective) sought to be actively involved in product and service design, positioning and delivery.

This led to the rise of mass customization; corporates had to find a way to break down their final product into modular components that could be assembled in different ways to avail each customer the opportunity to customize and build their own unique product. This enabled corporates to massively expand their product offering as they would now make to order. Henceforth, by allowing the customer to select specifications and alternatives from a list of options, the corporate could now claim to offer countless product possibilities.

I still recall spending hours on the Dell website dreaming up and virtually assembling and building super laptops. Yet this concept, which most associate with high technology products and manufacturing, has migrated into the retail food business here in Cairo. Food and beverage manufacturers and retailers are realizing the need to interface more aggressively and dynamically with their customer. Hence we, as end users, are increasingly allowed, furthermore invited, to build our own salads, sandwiches, pastas, pizzas and even drinks all over Cairo at outlets such as TBS, Saladero, Marly’s Kitchen and countless others.

This is of great importance due to the weight of the food sector in Egypt. For according to the Central Authority for Public Mobility & Statistics the average Egyptian family spends 39.9% of their annual expenditure on food and drinks. That is almost twice the amount spent on housing and almost six folds the amount spent on healthcare. The majority of this food and beverage expenditure is eaten up by proteins, grains and vegetables. This has reflected on the retail side, where according to the general authority for investment, 47% of all retail generated sales come from food and drink outlets. Furthermore, from a manufacturing point of view, agribusiness and food and beverage manufacturing constitutes 27.5% of all manufacturing production in Egypt. Hence it was probably inevitable that all budding and successful business models would be attractive expansion strategies for those operating in the agribusiness and food and beverage segments.

Meanwhile, this global phenomenon of massive customization has been working in tandem with yet another customer-centric phenomenon; manufacturers are investing heavily in forward integration endeavors. Corporates in Cairo are seeing the benefit of operation in proximity to the end consumer, where feedback is instantaneous and real consumption statistics can be measured and analyzed. Agribusiness manufacturers are opting to integrate forward by establishing dedicated retail outlets, such as the case with regard to Wadi Food or Koki; or through setting up restaurant chains.

Shady Mokhtar of Swiss Choice is one such example. The young entrepreneur started out with an idea to bridge a gap in the Egyptian market for delicacies. He observed as the existing agribusiness manufactures of meat, chicken and fish catered their limited list of identified products to the retail and HORECA (HOtels, REstaurants and CAtering) segments. He too had come to the realization of the importance of customization. Armed with that belief, Swiss Choice embarked upon the journey of becoming the first manufacturer in Egypt that allows its customer base an extensive amount of tailoring with regard to the products. Swiss Choice indulged their customer base by inviting each customer to request that Swiss Choice manufacture his/her own unique and proprietary recipe for different sausages, salamis and pepperonis. This granted Mokhtar the instantaneous advantage of having an almost infinite product list. Mokhtar’s customers appreciated the variety and customization, moreover, several sought to stream-line their Egypt offering with their global recipes in order to ensure a unified customer experience everywhere around the world. This gave birth to Swiss Choice second selling proposition, the exclusivity in particular products granted to customers whom are very keen on maintaining the uniqueness and confidentiality of their recipes and product preferences.

Mokhtar’s business model made him an attractive partner to some other creative young individuals. He was approached with the idea of mass customization restaurant chains to capitalize on the Swiss Choice success in customized products. This newly formed partnership ventured into the restaurant industry by creating three unique local brands: Top Dawgs for American style hot dogs, Ali Baba Doner Kebab for Turkish shawerma and finally Mr. Wok for Chinese take-out (mainly Noodles). All three ventures were built on the concept of mass customization where the dish or sandwich is built using an assembly line set-up. For instance, at Top Dawgs you are free to select the bread, sausage, toppings and condiments. Mr.Wok allows you to design your own Noodles dish with a selection of Noodles, protein, vegetables and sauce.

When asked to evaluate the experience Mokhtar seemed rather pleased with the preliminary results. “Our drive”, he said, “came from the belief that there is great unmet potential in the food and beverage industry in Egypt. Hence, my partners and I decided to opt for 3 restaurant types that have not been previously tested in Egypt”. His view rings very true, since whilst mass customization is invading the restaurant business in Egypt, his three selections could greatly be considered Blue Ocean (a dive into an unsaturated market where he would have a first mover advantage) or at the least uniquely positioned.

Another key advantage or attribute of the experience that Mokhtar values greatly is the learning he and his partners have gained. Mokhtar and his partners had decided against purchasing franchising rights of famous global brands, opting instead to build their own brand. This was both challenging and cost effective, as this saved them the initial large investment and financial outlay associated with the franchising contract, moreover it gave them free reign with regard to creative aspects of the restaurants. When building your own brand you have the luxury of being able to design your own logo, setting, atmosphere and menu; more significantly it allows you to customize your offering to suit the dynamic tastes of the Egyptian consumer. Hence came the realization that for a local brand to be successful mass customization was the way forward, customer insight and involvement were instrumental to success and to the ability to compete, succeed, grow and scale the operation.

This business model has resulted in a very steep learning curve for Mokhtar and the team. “We are able to get on the spot feedback from the clients on the products we would normally sell to retailers and get limited or delayed feedback on”. This ability to interact with the customer and get first hand feedback on consumption preferences of the product, frequency of consumption, preferred complimentary products and finally comments on flavor, size, quality and variety enable the young entrepreneur to improve the Swiss Choice products in their manufacturing phases.

I wondered if these successful mass customization restaurants in Zamalek and Mohandseen have had an impact on Swiss Choice’s business to business sales by virtue of brand associations; given that Mokhtar’s restaurants proudly bear a “Powered by Swiss Choice” emblem.  “It is too soon to say”, says Mokhtar, “logic would claim that the affiliation would enable us to leverage the brand and sell more. Yet the restaurants are localized to one area of the city and have not been in operation long enough for me to draw accurate inferences about their impact on business.”

The largest challenge of shifting from being solely a manufacturer and distributor, to being the retailer at which the customer can consume the product is the risk of failure. “Our competitive advantage as Swiss Choice is our ability to customize our production lines to suit changing customer requirements; this means that should we discontinue a product or start a new one, minor changes have to be made to the production floor.” Mokhtar continued, “In the restaurant business on the other hand, you invest in a location, brand, concept, staff and marketing; then if the restaurant doesn’t take-off as planned in 6 months’ time, you would have to scrap the entire investment and start over”. “There are no quick fixes in a business-to-customer or retail setting” Mokhtar concluded.

Yet, given his own experience, Mokhtar expects that more and more agribusiness manufacturers will focus on integrating forward along their value chains in order to maximize their margins and in order to gain the advantages of customer interaction. “At the end, accurate and detailed customer insight is the real advantage.”

Originally written for Business Today

صندوق دعم مصر 306306

Updated! Since Nerro asked. Here is my take on http://www.youm7.com/News.asp?NewsID=1149794

While I think it is nice that the business community is excited about contributing I have some concerns about the format.

1. As far as I can tell, it is a privately set up fund. I am yet to hear any commentary from the transitional government in that regard (if you’ve heard anything please share it in the comments & I’d be more than happy to update the post). So I am not quite sure how the dynamics will work in terms of spending that money.

2. I am a bit on the paranoid side, I don’t like investing in “elfankoush”. Some transparency is in order. This would have been a much better initiative (in my opinion) if instead of setting up a fund they identified 3 flagship projects. Then each of these projects would have had a definitive objective, OWNER, plan and targeted start up costs. I am modelling this after the success of the 57357 hospital. People felt encouraged to donate because they associated it with a real project with tangible results.

3. While I believe in quick wins, spending this money on consumption rather than investment activities would be such a shame. It would be like flushing the money down the drain, one time usage only. I would really like the spending criteria to be linked to SUSTAINABILITY and RETURN ON INVESTMENT. The people are digging out of their own savings, the least you could do for them is assure them that they are teaching you to fish rather than feeding you that day. Moreover, I am biased towards any endeavor that results in job creation since it drives towards greater sustainability and prosperity through the consumption multiplier.

4. I am all for healthcare & education, but it isn’t the time yet. These need far more sophisticated & well orchestrated reform plans.

5. The ability of the nation to export or attract foreign expenditure is key moving forward. So extra points if the project tackles logistics, tourism or enables us to export.

6. I would suggest projects along the lines of:

  • Renewable energy power generation facility
  • Revamping the railway system
  • A metro system
  • A chain of publicly owned bakeries ensuring good quality affordable bread around the nation
  • Production facilities
  • A Tourism related project

Those are my thoughts ya Nerro. The project suggestions draws on popular support expressed by fellow economists on my FB wall.

Update:

Naguib Sawiras echoed these very views during his ONTv interview here: http://youtu.be/PFC7M4pO-Qo?t=21m58s

Random Economic Musings

I am writing this because I bumped into the very talented Tarek at an entrepreneurship forum and he asked for my 2 cents on things. The following lines are not based on any scientific nor quantitative analysis and are instead the musings of a former economist.

  • In the following months the foreign exchange situation will continue to worsen. Banks are currently rationing their disbursement of funds to basic commodities and absolute necessities. It is not unimaginable that soon we will have extremely limited access to imported products. Black markets are likely to emerge. Prices of imported products are expected to rise dramatically. This can currently be observed in the prices of vehicles, furniture and clothing.
  • With regard to expenditure; we had been experiencing an expenditure boom inspired by the sense of uncertainty and the double-digit inflation. Individuals sought to hedge against the rising prices and worsening pound value by spending. This initial boom is now dying out as more and more individuals face uncertainty regarding their income levels and job security.
  • Corporates are feeling the full weight of a cash crunch. Their imported (or locally purchased for that matter) components are more expensive than usual, foreign currency is hard to come by and terms of payments with suppliers (especially abroad) have worsened considerably. Banks should be offering a way out to these companies through financing their working capital and providing them with extended facilities and bridge financing to tide them through these rough times. Yet I am unsure of the risk appetite the banks seem to be displaying these days. It would seem that it is increasingly tougher to find affordable & timely finances.
  • My anxiety comes from the fact that it is the little guys who will be hit worst. Banks would have a lower appetite to finance a cash crunch for a smaller company or a start-up than it would be had the company been a large & established one. Hence those whom are most in need for financing are least likely to get it. Or would get it at disadvantageous rates.
  • As small companies shut down or fail to survive these turbulent times jobs are lost. This increase in unemployment as the job market shrinks is likely to have two opposing impacts. The first (the positive side) is a boom in entrepreneurship  Young men and women will abandon dreams of a stable job at a big name and will instead follow their bliss. Granted a lot of these projects will be in the food & beverage segments and others in trading (commission & delivery based projects), yet eventually more manufacturing based ideas are bound to emerge. The second trend (far less positive) would be the rise of crime and illegal activities as people strain to support their families.
  • Spending on media & advertising will fall as companies become more and more fraudulent with their spending. You must have noticed the rapidly growing number of empty billboards. This spells good news for my social media guru friends though as companies will shift towards more creative forms of advertising.

Tarek, this is off the top of my head. Will keep adding to it throughout the week as ideas pop up, or if people ask specific questions in the comments.

The Economics of Life

My TEDx day-view 🙂

I am indebted to the organising team for their passion and the attendees at the BA for making my day in my city by the sea unforgettable. Your individual feedback was heart warming and extremely touching.

For those interested in the actual slides, they are downloadable here: The Economics of Life – Inji Amr

 

 

 

 

 

 

Economic Awareness Videos

Ever since I’d seen the Crisis of Credit awareness video & I have been obsessing about & dreaming of doing a series of similar videos in Arabic explaining economic concepts to the non-economists & making the newspaper headlines relevant to the average citizen. I’ve been in the search for a cooperative & collaborative cartoonist for quite some time. At the end an awesome young man, the 14 year old son of a good friend offered to do it. The video below is our very first attempt. This was done much earlier this Summer but it had taken me this long to get around to uploading it as there was a chance it would be day-viewed at the last TEDxAlexandriaU. Hence, I apologise if it comes across as untimely given the current state of the stock market.

I am uploading this pilot for feedback. Ahmed & I would love your feedback on content, ease of understanding, language, audio speed, visuals, animation etc. Basically any kind of feedback you throw our way would be HIGHLY appreciated.

Thanks.

P.S. I would like to commend the awesome work being done by the Qabila team, more so that their work is now starting to take on a socio-economic flavour.

Ahmed Said, your energy & professionalism far exceed most adults I know & it is your effort & dedication that made this possible

The Girl With The Dragon Tattoo

You know your job is taking over your brain when the most memorable quote from a murder mystery is one about the economy. Here you go:

The idea that Sweden’s economy is headed for a crash is nonsense. . . .You have to distinguish between two things–the Swedish economy and the Swedish stock market. The Swedish economy is the sum of all the goods and services that are produced in this country every day. There are telephones from Ericsson, cars from Volvo, chickens from Scan, and shipments from Kiruna to Skovde. That’s the Swedish economy, and it’s just as strong or weak today as it was a week ago. . . .The Stock Exchange is something very different. There is no economy and no production of goods and services. There are only fantasies in which people form one hour to the next decide that this or that company is worth so many billions, more or less. It doesn’t have a thing to do with reality or with the Swedish economy. . . .It only means that a bunch of heavy speculators are now moving their shareholdings from Swedish companies to German ones. So it’s the financial gnomes that some tough reporter should identify and expose as traitors. They’re the ones who are systematically and perhaps deliberately damaging the Swedish economy in order to satisfy the profit interests of their clients.”

I’ve been screaming the same about our economy, couldn’t believe when I saw the views in print. Good book overall, quite the entertaining read.

The Million Dollar Question

So the twitter timeline yesterday and my budget awareness session the day before were filled with one question.

Where do the Suez Canal revenues go?

They don’t appear anywhere on the budget. So I took the question to the Ministry of Finance. Their responses are as follows:

Suez canal revenues are balance of payments revenues, they are not recorded in the budget as they are national revenues rather than government revenues. Taxes on these revenues on the other hand do enter the budget and appear in it. Natural gas exports (and all exports for that matter) will also be recorded in the balance of payments and not the budget. Finally, all public sector enterprises and their budgets are by definition off-budget & will not appear in the 2011/2012 budget.

Ok boys and girls, hope this answers the collective curiosity, albeit I bet all of you are still wondering what the Suez canal revenues get spent on and who’s pocket they end up in.

Government Budget Awareness Session

To whom it may concern, I’m giving an economic awareness session on Sunday the 26th at Tahrir Lounge (5 El Bostan Street, Goethe building downtown) at 6 pm.

The session is entitled “Egyptian government budget, jargon, values and possible implications”.

Session is targeting the non-economists and will basically be an introduction to the concept of budgeting, the various items and highlighting interesting choices in the last MOF budget proposal.

Session will be given in Arabic.

Egypt 2011/2012 Budget

So Zeinboia gives me the heads up about an invitation from the ministry of finance to discuss the new budget proposal with Dr. Samir Radwan and his advisers. Apparently invitation was made to some of the youth coalitions and some of the twitter economists. I had whined on twitter all morning about wanting to attend and has lost all hope, then an hour before the event the perpetually awesome TravellerW comes to the rescue and my name is at the door.

I race through Cairo traffic to the IDSC building downtown. Naturally, anything that can go wrong goes wrong, cabbie gets lost, doesn’t have change and to top it all off we get into an accident on El Kasr El3einy street and he can’t continue. I walk the remainder of the way and arrive 30 minutes late only to discover that his excellency has even worse timing than I and we end up waiting for him for another 30 minutes.

Meeting is attended by Dr. Radwan, his deputy for international relations, the deputy director for Al Ahram Center for Political & Strategic Studies (I’m not positive of his reason for being there, yet he acted like an advisor to the minister would), five IMF representatives, two of which were Egyptian, and us youth (word used VERY loosely).

While I must say, I LOVE the initiative, the format needs major tweaking, I don’t feel the group was representative of the nation at large at all, nor were most of those attending experts on the issues. Also the way the discussions were conducted lacked any sort of organisation. Why the IMF was privy to the discussions is also beyond me.

Dr. Samir opens by telling us that this draft is currently being discussed with all the different groups, that he’d met the business community earlier that day and that all views will be looked into and possibly incorporated and that the final budget should be issued by Monday. He goes on to say:

that in the absence of a people’s assembly the budget approval will be obtained from the SCAF.

He then takes us through the document outlining how he sees it, this goes on for 30 minutes. He stresses income & wages, converting fiscal policy into a tool to guarantee social justice and continuity as his three main pillars and focus areas. He then talked in depth about his plans to reform the public wage structure, his plans to centralise all SME support in a new entity which will also manage a 200 million US$ Saudi Arabia grant, and finally his plans for reforming the taxation structure in Egypt.

I will not bore you with the details cause it would serve you well to go through the document which they’ve been kind enough to share on the ministry website and which I’ve linked to in the previous paragraph. Instead I will highlight some areas some of the attendees and I found troubling. Worth noting, if you are expecting his responses you are in to for a disappointment. You see, he HEARD us, he took notes, he nodded and made jokes when appropriate, yet he then rushed off to another meeting thanking us for our time.

  • TravellerW made a very valid point regarding the new tax bracket, an extra 5% will be charged to all those earning more than 10 million LE a year, sounds fair, no? Only it applies to both individuals and corporates, so basically a large group of medium sized corporates will be attached to another object by an inclined plane, wrapped helically around an axis (BBT reference).
  • A renewable energy engineer pointed out that the budget is built on a very unrealistic assumption that a barrel of oil will cost $100.
  • Budget has 2 billion LE allocated to training youth. When pushed for clarification Dr. Samir says that the plan is to have corporates agree to take them on for on-the-job training for 6 months during which the Ministry of Finance will pay their salaries from that 2 billion LE fund, with the hope that at the end of 6 months the corporates will hire them. Not only do I think this is a bad plan, I think it is naively optimistic and lacks long term vision. I actually asked him to kindly stop crowding out the NGOs and civil society and step up and do what only the government can do. Rather than train, leave the training to us and you instead focus on job creation, invest in projects and hire those individuals.
  • Budget proposal has a very vague item regarding upping the investments in the field of R&D. I would have preferred to see some sort of incentive scheme to drive the private sector to innovate, I’m sceptic of the fact that pumping funds into government R&D will change much. I say this because I’ve seen brilliant ideas get completely shelved at the National Research Institute because those heading it don’t see the business viability of these ideas.
  • Education and health spending grew at below the average growth of budget spending. Spending on education in the new budget is only 11% and the spending on health is only 5%.
  • 13.5 billion LE have been earmarked to EGPC (Egyptian General Petroleum Corporation) (which for some reason suddenly has no web presence) for restructuring purposes to assist it in reform efforts. This is alarming to say the least. EGPC is a money making establishment and one of the government’s most prominent revenue centres. It is also an inefficient institution, so as attendees pointed out, wouldn’t it be better to reform it first rather than toss money at it. Especially that the opportunity cost of these funds is extremely high right now. Dr. Samir’s explanation was that these funds are going to ensure that no shortage in Solar and Butane gas occur, yet this contradicts with another item 2 pages down regarding increasing subsidies to oil products by 31.3 billion pounds.
  • Attendees asked repeatedly about the 63 billion in special funds or private funds صناديق خاصة but we were given a roundabout answer and didn’t come out with much.
I also couldn’t resist the opportunity to complain about how difficult the government is making the lives of those working in the micro-finance field in Egypt. Some of those attending pitched in and even suggested dismantling the SFD all together. Enough with the rosy plans and the technical assistance, SMEs need better access to finance, it is that simple, please do something about it.
Also made it a point to stress that if we stand any chance to attract any investment for those PPP projects the Ministry of Finance is pitching, they’ll have to do a much better job of studying these projects and providing investors with real and tangible indicators to assist them in making the investment decision. It is hilarious really, projects have no declared return on investment nor payback periods for that matter.

All in all, while I appreciate the initiative, I really think he should have taken more time to answer the questions and more thought needs to be put into that budget.

Egyptian Economy : What I would do

I’ve been asked to offer my 2 cents quite a bit, so here, all my cents in one post. I am not claiming there is an absolute truth when it comes to economics, yet this post is about what I would do if I were calling the shots to steer this economy to a safe harbour.

  • Ease of Doing Business: The economy is going through a tough time, fresh graduates can’t find a job, several of the really big businessmen are in jail or are facing the danger of being jailed, companies are downsizing and cutting costs to stay afloat. In this environment opportunities get born and the brave and entrepreneurial aim to capitalise on these opportunities. Yet the current legislative and regulatory environment makes their life hell. So if I were the policy maker I would make starting a business the easiest thing on the planet, slash down the time required to 24 hours and cut all the unnecessary red tape. Objective is to encourage people to do business, to generate output and to create employment. Moreover, those starting a business are doing it in unstable times, so whatever incentives you can throw their way would go a long way.
  • Trials: You don’t quite follow why there is still so much dissatisfaction in the Egyptian streets? It is because Egyptians don’t feel vindicated, they feel trials are being dragged out and retribution is not swift. Those in charge should expedite these trials, repossess all unlawful and illegal gains (with interest); take back lands, operating licenses, factories, cash and whatever else was extorted or obtained through abuse of power. Then, let all those who have been steam-rolled over the years have a shot at taking them to the cleaners, install a speedy system by which they could be sued and let justice take its course.
  • Attract investments: A couple of months ago a guest at CAC asked me why we were focusing so much on the fear of driving away investments when Lebanon was doing just great despite all the unrest. CNN Ben was quick to point out that most FDI flowing into Lebanon came from Lebanese origins and all the entrepreneurial Lebanese around the globe. Yet fact remains, we stand a shot at attracting FDI amongst all this madness. The trick is to stop dividing internally and show a united front. If I were the policy maker I would start selling licenses, the right to operate here in Egypt, especially in areas that in the past were monopolised either by the government or by some of the names in Porto Torah. I would give foreign investors a shot at buying a license to operate and offer private sector transport and logistics within Egypt. Imagine a second railway service, a private sector bus company, and privately designed and operated cargo ports.
  • Cost of funds: Interest rates in Egypt are on the rise, while as a depositor that is great news (despite the fact that it still a good solid 2% lower than inflation so the value of my money is still declining), it does not sound too promising to investors. The cost of funds is an integral part of the investment decision. Steps should be taken to reduce the cost of funds and to improve the access to finance to enable businesses in Egypt to operate smoothly and to enjoy enhanced liquidity.
  • Food safety: We are down around 8 billion dollars in foreign reserves and doomsday sayers will have you believe we are rapidly running out and soon won’t have enough reserves to cover our imports of basic necessities. That may well be true, but rather than zone in on that fact, efforts should be orchestrated and directed towards achieving some sort of internal independence with regard to food. Or, in the short-term, get foreign assistance in the form of supplies that will last the season until we can re-plan our approach to agriculture.
  • Prioritize policies: I can say this one with a great deal of personal interest and passion vested into it. For the past couple of months I’ve dreamed of having the likes of http://www.kiva.org operate in Egypt. Yet this dream has been made difficult by the strict (and sometimes excessively rigid) money laundering regulations and restrictions on transfer of funds. So I can’t help but wonder, what is more important at this particular moment in time? Potential money laundering versus potential inflow of funds to finance SMEs around the republic. This is one example, I’m sure there are others which are hindering a speedier economic recovery.
  • Wages: If enforcing a minimum wage is proving that difficult, a maximum wage should level the playing field a bit. As in this case the person making the measly wage will be relatively better off as the gap is bridged. I would take the time to revise all public sector and government wages and salaries (whether formal government contracts or under the table OUDA ones). I would slash down the ridiculous ones to meet the maximum wage criteria and I would channel those excess funds to better uses. Moreover, I would do all of this with a great deal of transparency.
  • Transparency: I would extend that transparency to all aspects of government economic policy in the coming period. I belive we have had enough “constructive ambiguity”, some old-fashioned constructive clarity would be nice. The people should get a say regarding the tax structure, the government budget and how any incoming aid money should be spent. A say we get through the People’s Assembly, yet a say we only get if information stops being asymmetric and we all have a fair chance of knowing where things stand.
Then again, that’s just me.

Stock Market Kaman we Kaman

For those of you adamant on investing in the stock market, some words of advise from one of the most prestigious economics and financial economics professors at the AUC. (I don’t have explicit permission to cite her name, so out of respect opting to maintain her anonymity).

While she agrees that at the end this is a symbolic gesture that serves more to foster the feeling of patriotism and solidarity than to actually have an economic impact, yet she had some guidelines to share:

  • If you are going to invest do it through a credible channel.
  • Don’t attempt to pick the stocks yourself.
  • Invest through a fund, select one managed by a reputable institution.
  • Contemplate purchasing bonds سندات or treasury bills أذون خزانة these are primary market borrowing tools that corporates and governments use to raise funds. These funds go directly to the company in question or to the Egyptian government.
  • If you are going to be selecting the stocks yourself, do so based on fundamental rather than technical analysis. Enter as a long term investor and hence be more interested in the profitability of the company than the volatility of the stock.

Best of luck to you all.

Karim Abadir on the Egyptian Economy

The article below was written by Professor Karim Abadir. I find his view interesting albeit excessively optimistic. I am sharing the article for your reference as I will soon be posting  a Q&A discussion between me and him about it. Cheers.

Any revolution is bound to have an impact on the country where it happens, and often beyond its borders. But not all economies are identical and there is no single format that can be used to assess the impacts of such momentous events. I am writing this piece about the near-term impact that the Egyptian revolution will have on the economy. One of the arguments I will use needs stressing: the well-known vulnerabilities of the Egyptian economy will actually work in its favour in the case of the current revolution, vulnerabilities such as excess reliance on tourism, on output from natural resources such as oil, etc. In this article, I am focusing on the near-term impact and refraining from looking further into the future. There are more gains to be made later with changes in economic policy, but they are not for this article.

Before I proceed, we need to draw a distinction between national income accounts and a “balance sheet” that measures the stock of wealth if ever a robust measure of this existed. Current income is undoubtedly going to be lower now, because of the reduced economic activity. But this is normal: the bad UK weather this December brought its economy to a standstill and turned its growth negative for that quarter! Both are temporary effects. Though I like snow, I’d much prefer a revolution that sets a country on the right path and unleashes the creative talent of its people and generates the goodwill that all sections of Egyptian society have started displaying, energies that can be harnessed for the good of the country after the transition to a reliable leadership for the future.

It was a peaceful revolution. The country’s facilities have not been damaged in any noticeable way. When production of goods and services restarts, it will be quickly back to normal levels. Furthermore, if (as expected) corruption levels are lower, more of the resources that are currently being leaked out of the economy in favour of a few individuals will actually be accounted for and will remain part of the economy and circulate within a virtuous circle of activity creation, hence benefit Egypt.

The same goes for tourism, where all the sites remain intact. The revolution has earned the admiration of the masses abroad and, this on its own, will generate extra tourism to the country where the first Facebook revolution took place! There is one more historical place to visit in Egypt, the Square that is truly a Liberation Square.

The damage to the financial side will also be temporary. The valuation of companies whose directors are involved in financial scandals will collapse, but these are companies that are not widely held by the middle and lower income groups, something that is also true of the stock market at large where some initial contagion will take place but it is inevitable that prices go down and up. Good companies have nothing to fear and much to look forward to, as I will explain in the next paragraph. From a wealth point of view, the damage into the future will be limited to a small group of shareholders whose consumption is a tiny chunk of the economy. But their investments are substantial and this can have a negative impact if the new government mismanages the handling of their assets. The government may seize these assets but should not attempt to run them as a going concern. It should also not use its currency reserves unwisely.

A company going bust does not mean that its business is gone for the economy: some other company could buy the stock or step into the breach and take the opportunity as a new entity. Even better, corrupt monopolies, duopolies, etc. (such as the steel industry) can be replaced by more competition, and this is good for the economy and its development.

A lot of investment was in real estate, much of it was speculative, affecting prices and valuations of property but not leading in any meaningful way to an increase in the national income that we mentioned earlier. A reduction in these valuations is not the end of the economy, as some interested parties are currently circulating.

With increased financial transparency and less corruption, genuine investments and businesses will actually be encouraged to come to Egypt. This will not happen overnight, but Egyptians build for eternity.
——–
Karim M. Abadir (http://www.imperial.ac.uk/people/k.m.abadir) is Professor of Financial Econometrics at Imperial College London. He is credited with predicting the timing of the recent global recession and the subsequent diverging patterns of recovery in the US and Europe.

100 LE to Save the Egyptian Economy

*Disclaimer – Update: The views reflected below tackle the notion of investing 100 LE in the secondary stock market, I exempt from that view purchasing T-bills in the primary market or any primary market purchases for that matter.

I hate to make a tired point. I had laid this investing in the stock market issue to rest, but having the prime minister and the minister of finance endorse this absurd idea on TV is just too much for my poor nerves.

I, the nobody that I am, stand firm by the belief that it is a bad idea, or at best it is being inaccurately advertised. Investing money in the stock market will NOT save the Egyptian economy. Actually, given the size of the value of the market capitalisation of the Egyptian stock market, nor will it save the stock market. The only silver lining to this idea is the potential gains you stand to make as an investor if you buy when the stock prices dive when the market finally opens. A couple of months down the line you could sell these stocks at higher prices and make a killing.

Back to saving the economy. You want to save the economy? Lovely sentiment. Save it by investing in new business ventures, in SMEs, donate money to micro-finance NGOs, donate money to the Food Bank and other charities, consume Egyptian products. THIS helps save the Egyptian economy. The REAL economy.

Now, the stock market has historically been called “the mirror of the economy”. Allegedly the performance of the market reflects the health of the economy itself. A friend, Zizo, once said it beautifully:

If your face looks messed up in the mirror, do you fix the mirror? or do you fix your face?

The stock market, originally, was invented to enable corporates to seek funding from the public. Companies would then issue stocks through an Initial Public Offering (IPO) giving purchasers of that stock ownership rights in the company by virtue of their stock (becoming shareholders) and the corporate now has cash to invest in expansionary activities. Whenever this is the case investing in an IPO helps boost the economy and injects cash into the companies.

Yet once these stocks are issued they are then traded on the secondary market (the one you hear about people trading on all the time). In this market you buy stocks from existing shareholders, the money you spend goes to them and you become the new holder of the stock. By buying stocks on the Egyptian stock exchange you are not growing the pool of investments in the country. Instead you are just passing around the paper that says you own part of a particular company. The company itself doesn’t get any of the money.

To give you a crude example, this solution of investing 100 LE in the stock market will have as much impact on the stock market as you buying your neighbour’s second hand Beamer would have on the BMW company (hint, the answer is no impact whatsoever).

The scary part is not that they are endorsing a futile exercise, the scary part is the opportunity cost of this investment. The money that will be flushed down the drain could have gone to better use at other venues. The stock market is a virtual economy, the money that will be spent there will be lost, leaked out of the system as foreign investors sell off their portfolios and take their money elsewhere. This money should instead be directed towards the real economy, real business generation, real production, real employment and real GDP growth.

So the next time someone tells you to invest 100 LE in the stock market, do me a favour, think twice. If you still decide to go through with it, make sure you acknowledge your real motives (looking for profit rather than looking to save the economy).

Thawra Shirts

Apparently it didn’t take enterprising Egyptians long to have a series of revolution themed t-shirts and memorabilia. I’ve seen three groups already and counting.

Manshourat offers a variety of t-shirts, pins and coffee mugs. Part of the proceeds go to charity. Visit their facebook group to view the collection, yet following smashing success, online ordering is now suspended and the merchandise will be available soon at stores around the nation.

Their collection features some beautiful Arabic calligraphy. A portion of proceeds also goes to charity. T-shirts are available by special order online or through Zafir outlet in Zamalek.

For a more serious line of t-shirts, portion of proceeds also goes to charity, check them out here. Or pick up the shirts at Zafir.

Ideas are endless. For alternative business suggestions see earlier post.

Enjoy the freedom vibe.

 

Tourism Egypt

According to the World Travel and Tourism Council, the contribution of Travel & Tourism to Gross Domestic Product in Egypt was around 13.0% (EGP154.7bn or US$26.7bn) in 2010. The sector’s contribution to employment was 2,543,000 jobs in 2010, which is around 10.9% of total employment or 1 in every 9.2 jobs.

The point I’m making is, travel and tourism is a big deal in the Egyptian economy, and it is one of the sectors that gets hit the fastest and the hardest at any sign of crisis. In the absence of tourists a wealth of business owners and employees are rendered without business. This starts with travel companies, hotels, tour operators, transport companies, tour guides, bazaars, resorts, manufacturers of souvenirs and restaurant owners.

Yet the current post revolution tourism slum isn’t what ails the industry the most. In fact, even at our best, the number of tourists flocking to Egypt pales compared to the sheer volume of history, culture and archaeological attractions Egypt has been blessed with. This can be attributed to many reasons; the cliché way in which we advertise tourism in Egypt, the extent to which filming an international film on Egyptian soil is difficult and the attitudes of the people themselves – the ones working in the travel and tourism industry.

Seeing as it will take time to fix attitudes and to stabilise the country enough for Hollywood to come shoot something as aesthetically pleasing as Cairo Time again; there is something that we can do now. We, the youth of Egypt, have used technology in our favour since the start of this year to bring about the change we wished to see in the world. We can utilise this very technology and this very energy to promote Egypt as the travel destination it deserves to be. This is a time for positioning and branding, moreover a time to do it through unconventional channels.

Some suggestions:

  • Start a youtube channel called “Tourism Egypt”, shoot your own home movies or more professionally done videos of Egypt through your eyes, upload them to that channel and share it with your friends abroad. Let us attempt to display a different face of Egypt, one more original and personal, one a lot more inviting.
  • Start a flickr album with photos of Egypt.
  • Frequent the travel websites and set the record straight whenever you can, a large portion of international tourism is based on these travel websites and their reviews can make or break you.
  • Contemplate hosting a stranger in your home, some people may be dying to visit post-revolution Egypt but interested in a more personal experience than the Nile side five star hotel. If you are feeling up for it, sign up at www.couchsurfing.org and start couch surfing yourself 🙂 (I’m sure there are other websites that offer comparative services, this was just the one I hear about the most).
  • Have you heard of Touringa? I was blown away at the originality of the idea the first time I heard it and believe that concepts like these are the real future of the tourism industry. What Touringa does is connect you with other travel crazed citizens of the world, you can plan a trip and post its details and those wishing to join would contact you directly. Trips include off-roading in the desert, moonlight camping, scuba diving trips, walks in old Cairo…. you name it.

These were just off the top of my head based on some discussions with friends, feel free to throw some more ideas my way or to take some of these and really run with them.

Enjoy Egypt.

Some Business Suggestions

In my humble opinion, it is a time for entrepreneurship, starting SMEs, creating jobs and output.

For example, we could decide to volunteer to clean the streets and paint the walls (a scenario where we don’t go to work and nobody makes money). Or we could decide to start a small company that does that, go to our own jobs, make money, hire previously unemployed young men and women, pay them salaries to do the work. In both cases the streets get cleaned, yet in the second scenario, their wages now create a purchasing power, consumption, spending, their spending becomes income to other people and the cycle continues.

Accordingly, I’m tossing together some suggested business ideas for those of you with time, energy or liquidity:

  • Home-based mini-agri-businesses. I realise that home economics is not the first thing that comes to mind when searching for a start-up idea. Yet the current situation is the follows: Egypt’s soil produces some of the best fruits and vegetables. Given recent political changes annual exports of agricultural produce took a dive due to obstacles in distribution and logistics. These volumes of produce are now in the market risking perish as many of the larger hypermarkets have been vandalised and hence are not procuring new merchandise; and the average Egyptian consumer has reduced his spending in anticipation of the future and due to challenges to liquidity.
  • The suggestion is for housewives, those still looking for jobs or even students to start small home based manufacturing facilities. Purchase the fresh fruits and vegetables from the market (start by buying from the little guy, his cash flow cycle is a lot more unforgiving) at ridiculously cheap prices these days. Then start making gourmet jams, preserves, pickles, juices, frozen cut and cleaned vegetables or  pre-washed pre-cut salads. This way the produce lasts longer in its refrigerated processed state. These items can be branded and sold through a facebook group to end-users or to retailers.
  • Go into the security business. Citizens these days have a heightened sense of their need for security. Utilise the network of dependable unemployed young men you met during “elligan elsha3beya” to start a security men provision service. Or even better, provide a more capital-intensive solution, hire individuals to build security systems and market them. These would be partially software code and partially metal grills/cages/bars that can be used to lock down stores in the case the glass is broken to hold the merchandise and the robbers in while the cops are alerted to the emergency.
  • Clean. As outlined in the example I started the blogpost with, contemplate starting a cleaning service, this does not have to be exclusive to the streets and can extend to providing painting and reconstruction services to those who have suffered damages during the events of the past 10 days.
  • Manufacture and sell revolution memorabilia. We are all feeling very patriotic these days, someone should capitalise on that. There is a great opportunity for flag and Egyptian themed items, this includes but is not limited to clothing, car accessories, flags, key-chains and other trinkets, prints of photos from Tahrir. Most importantly, don’t design the product and have some factory in China manufacture it for you, manufacture here, hire Egyptian workers, use Egyptian factories and Egyptian raw materials.
  • Venture capital. For the slightly larger players amongst you, this is as good a time as ever, start a private equity / venture capital firm and offer funding to start-ups and SMEs with business ideas that have great potential but whom are lacking guidance and funding.

I realise that the post to some of you is redundant and to others the ideas would seem unusual. Yet kindly remember that these are merely suggestions, inspired by what is happening and which aim to serve the target of creating business and generating growth and employment in the Egyptian economy.

Good luck to you all and God bless.

Guide to Economic Recovery

Kindly check your political views at the door.

Many of you have been calling and e-mailing asking for my “economic” view on what’s happening, forecasted impact on the economy and what can be done.

I would much prefer to focus on the last point because worrying and fretting about impact is a useless exercise while exploring what we can do might actually have some good.

1) Regarding the campaign to invest 100 LE in the Egyptian Stock Market. In my humble opinion this is a minimum impact exercise, the only ones who stand to really gain are those seeking to currently exit the market and the brokerage companies. The money you invest goes into the pockets of previous owners of that stock, the company itself (whose stock you are buying) does not benefit. This money will not result in production or job generation, let alone any impact on the real economy.

Having said that, if you have liquidity to spare, this is actually an excellent time to invest in the stock market, you can buy low in the hope of selling high a little down the line when the stock market revives. So I’m not saying don’t do it, just make sure you know why you are doing it.

2) Please, please, please, for the Love of God, don’t panic. Panic is bad. Read up on what happened to the Egyptian economy the last time there was a bank run. Moreover, the panic is unsubstantiated, the most respectable economist in the nation (I’m entitled to my opinion) Mr. Farouk El Okdah himself, assures you that your deposits are guaranteed. Your money isn’t going anywhere, no need to try to withdraw it all. Lets make sure there is enough liquidity to go around to guarantee normal business operations.

3) Only buy dollars if they are essential for your business operations. I understand your fears, I do. You are forecasting a major appreciation of the dollar vis-a-vie the pound and double-digit inflation in Egypt. Regarding the first point, the central bank is using its reserves to maintain the exchange rate as much as possible, while I too am forecasting some appreciation in the coming period, it won’t be the mega jumps you are expecting or possibly hoping for. A stable exchange rate reflects very positively in the global arena and will make recovery much faster once things are settled.

Meanwhile, for those fearing that their assets in the bank will lose value as the inflation rate continues to rise diminishing their purchasing power, you have some alternatives, if your current cash flow and liquidity levels allow it, you are looking for a hedge. Hedge funds are not prevalent in Egypt, you could opt to invest in the stock market (see the first bullet), you could opt to invest in commodities (this includes but is not limited to Gold and other metals), for the larger players you could opt to buy out business owners whom are trying to exit the market.

4) Support the small guy (hat-tip to Inji El Abd). For example, the fruits and vegetables in the market are very perishable, when you buy, buy from the small guy with the wooden carts on street corners rather than the hypermarkets of the world. For one, he needs the money more to sustain his family through the transitional phase. Second, they have better storage and refrigeration options and can bear the wait for a little longer.

5) Go local (those of you who have known me long are already bored with the request). Some of the non-Egyptian players in the market have temporarily relocated, some have withdrawn their funds and business for good. This has created an opportunity in the market (I realise that’s an incredibly cup-half-full way to look at it). Yet the opportunities exist, this capacity can be taken over by players still in the market or by investors such as yourself. Support the local players, support those still in the market, buy their products, work at their establishment, make sure they churn a profit and pay wages and generate spending and further economic growth as the multiplier effect comes into play.

Some suggestions on local products here.

6) Be fuel-efficient. Limit the use of your motor vehicle, car pool, walk or bike.

7) Spend your vacations in Egypt. Tourism sector may have been hit for a while, but there is absolutely no reason why we Egyptians shouldn’t take the opportunity to get to know our country better. Take a weekend at a city you’ve never been to, head to the coasts, go to the Red Sea, live it up, stay at the fancy hotels or the little ones, all of them could use the business and you would have a good time.

8 ) Plan your spending in the coming period, don’t hoard food and other products, ensure equitable distribution of available produce until the logistics and retail sectors recover. Contemplate diverting some of your current savings into investments. If you are a business owner don’t close your business, stay open, pay wages, bear a temporary loss, work on generating new business, confidence will create more confidence and spending will result in greater spending and will God’s willing expedite economic recovery.

Good luck to us all.

الطرق المثلى للخروج من الأزمة إقتصاديا بشكل يفيد الأشخاص ولا يضر الإقتصاد العام

١- إستثمار كميات قليلة (رمزية) من النقود في البورصة قد لا يؤدي النتيجة المرجوة من إنقاذ الإقتصاد.. ولكن بشكل عام البورصة الأن تعتبر فرصة قيمة للإستثمار حيث أن الأسهم ستكون في أقل المعدلات الأن وسوف تتزايد تدريجيا.

٢- لا داعي للهلع والتوتر فهو لا يجدي أبدا ولا مبرر له. كل مودعات المستثمرين والمدخرين مكفولة ومحفوظة ولن تضار. حافظ على وجود كم كافي من السيولة في النظام المصرفي في مصر لإدارة الأعمال.

٣- لا تقم بشراء الدولار إلا عند الضرورة. قد تكون قيمة الجنيه في إنخفاض الأن في مقابل الدولار إلا أن هذا لن يكون بالقدر الذي يتوقعه العامة. وإذا كنت تريد ضمان القيمة الشرائية لمدخراتك فقد تحقق هذا (بل وبعض المكاسب) إذا أستثمرت في البورصة أو أسواق الذهب والفضة.

٤- أدعم صغار التجار.. الراجل بتاع الخيار اللي عالناصية. لأسباب عدة منها أن كبار التجار لديهم طرق أوسع للحفظ والتخزين وإحتياطي نقدي يسمح لهم بتحمل تأخر البيع و الربح.. بينما صغار التجار يكونون أكثر سرعة في التأثر ولا إحتياطي لهم.

٥- أشتري المنتج المحلي. المنتج العالمي مدعم بإقتصاد شركته أما المحلي فيعتمد كليا على قوة الشراء المحلية.. وحقيقة الأمر أن الكثير من المنتجات العالمية قد تقلل من تواجدها في مصر في الفترة المقبلة مما يتيح فرصة للمنتج المحلي الجيد للإستيلاء على قسط أكبر من السوق المصري.

٦- وفر في إستهلاك الوقود.

٧- إعمل على تنمية السياحة الداخلية.. بلاش إيبيزا السنة دي.

٨- إقتصد في الإستهلاك: لا تخزن أكثر من حاجتك.. عدد منافذ إستثمارك.. إستمر في إدارة أعمالك ودفع الرواتب وإن تحملت خسارة صغيرة مؤقتة ففي هذا المنفعة الإقتصادية الأكبر لك

Translation courtesy of Hazem Shoirah.