Beyond the Bazaar

By Scott MacLeod/Cairo

With all the turmoil in the Middle East, few took much notice when Egyptian businessman Naguib Sawiris signed a deal last December involving a firm from a neighboring country. This was no routine transaction. Sawiris, CEO of Orascom Telecom Holding SAE, in Cairo, purchased 9.9% of Partner Telecommunications Co. Ltd., in Tel Aviv, considered to be the biggest investment, valued at $150 million, ever made in the Jewish state by an investor from an Arab country. Sawiris expected the rebukes he received from some fellow Arabs for doing business with Israelis even as the Israeli-Palestinian conflict still rages. But he insists that such deals will benefit the region by forming business bridges. "This is a very big step," says Sawiris, sipping an espresso in his 26th-floor office overlooking downtown Cairo, the Nile River and the Giza pyramids. "I am betting that peace will prevail in the end."

That's a nice sentiment. But what mainly drove the Partner deal is Sawiris' ambition to succeed everywhere he can--Israel included--beyond the borders of the Land of the Pharaohs. He is part of a new generation of entrepreneurs that, at last, is taking Arab business global. The obstacles continue to be immense, from corrupt bureaucratic Arab regimes and regional conflicts to anti-Arab bias in the West. Arab tycoons are still seething over the way political pressure forced Dubai Ports World to abort its buyout of U.S. port operators earlier this year.

Nonetheless, more Arab businesses are breaking out of the bazaar, using know-how gained from negotiating the Middle East or simply leveraging the financial power provided by the current oil-revenue bonanza to conquer markets far from home. Whether they sell traditional carpets and inlaid furniture or deal in mega real estate developments and cell-phone services, Arabs are moving their wares across the Middle East and throughout the world. "There is no escaping it," says Egyptian Minister of Trade and Industry Rachid Mohammed Rachid, a former Unilever executive and a leading Arab voice for globalization. "We have to make the region integrate with the rest of the world, and we have to be competitive."

For Rachid, Sawiris is the model Arab globalist. He is intent on making Orascom no less than the world's No. 1 cell-phone operator, a dynasty that will dominate the sector with a handful of others following the industry's inevitable consolidation. His recent investment in Israel is merely part of Orascom's $1.3 billion acquisition of a 19.3% stake in Hutchison Telecom, based in Hong Kong. Sawiris seeks to increase his stake to 51%, thereby extending Orascom's reach to Southeast Asia through Hutchison's businesses in India, Indonesia and Vietnam. From relatively small beginnings less than a decade ago, when it established Mobinil in Egypt, Orascom, which trades on the Cairo-Alexandria stock exchange but is controlled by Sawiris' Rome-based parent company, Weather Investments, became a major presence throughout the Middle East. Sawiris also moved into Pakistan and Bangladesh before he revealed the full extent of his global ambition last year with a risky, leveraged $15 billion takeover of Wind, an Italian cell-phone network--Europe's largest private-equity buyout and the biggest investment ever made on the Continent by an emerging-market dealmaker. "Globalization," he says, cocking an eyebrow to emphasize the point, "is not a one-way street."

Taking risks has served Sawiris well, even if he has had to take some hard knocks, Middle East--style. One of his first ventures beyond Egypt was in strife-torn Algeria, where his successful 2001 bid for a cell-phone license turned out to be twice that of his nearest competitor, which led to the creation of an operator called Djezzy. Soon he had turned Orascom's $400 million investment into an asset worth some $4 billion. Later, in 2003, it was the same story in Iraq: Orascom set up the country's first cell-phone network, IraQna, after the fall of Baghdad. He invested $40 million in IraQna's start-up, which he estimates is now worth $2 billion.

The human cost has been far greater: 11 members of IraQna's workforce of 400 have been abducted by terrorists, and two remain missing. Sawiris once shut down IraQna for a couple of days to compel the release of some of his employees. Insurgents, he explains, don't like to be without service. And IraQna has turned out to be a relatively safe bet financially compared with Orascom's adventures in Syria and Yemen, where Orascom was muscled out of partnerships in both countries, says Sawiris, with the Arab regimes there affording no protection or legal recourse. That behavior won't cut it much longer, and governments like Egypt's now realize that Arab businesses have to play by a new set of rules and on a much bigger field. "We are no longer looking at Egypt as our market," says Saad Sallam, chairman of Olympic Group in Cairo, which is increasing its exports of refrigerators, stoves and other home appliances to other Arab countries. "The region is our market."

Sallam's father started the business in 1939 but lost everything when Egyptian industries were nationalized in 1963. The family struggled back with small enterprises, at one point transforming a waste product generated by Ideal, another nationalized appliance company, into decorative moldings. Sallam's business has been transformed with Egypt's gradual implementation of economic reform, notably since 2004, when Prime Minister Ahmed Nazif took office in a Cabinet that included leading ex-businessmen. Sallam, who retains a 52% stake in the company, credits the government's moves to devalue the Egyptian currency, reduce tariffs and slash corporate taxes with enabling Olympic exports to take off.

Another family firm exploiting a more favorable business climate is Nadim. Once a maker of traditional furniture for Arab oil sheiks, it is becoming a producer of modern designs for trendy European and American boutiques. CEO Adham Nadim is spearheading a strategic partnership with the government to boost Egypt's furniture exports from $200 million to $1 billion by 2010. The government lured Helmy Abouleish from his job running Sekem Group, an organic-food exporter, to head the government's Industrial Modernization Center. "Globalization is coming, whether we like it or not," says Abouleish. "Can we survive five to 10 years down the road? Industry has to be the engine of growth for economic development."

Government reforms have helped, but it is innovation that has made Mohammed Farid Khamis, founder and CEO of Oriental Weavers Carpet Co. in Cairo, the Pharaoh of Egyptian exporters. Starting with a single loom in 1980, he has become the leading producer of machine-woven carpets in the world. From a string of factories in the industrial 10th of Ramadan City, 34 miles northeast of Cairo, Oriental Weavers ships 70 million sq. ft. of carpets a year, yielding $280 million in revenues. Its customers include such retailers as Wal-Mart, Home Depot, Ikea and Carrefour. With 63% of the shares held by the Khamis family, the firm has a capitalization of $600 million.

A factor in the company's success, explains Khamis' daughter Farida--who, like her sister Yasmine, is a vice president of the firm--is that Oriental Weavers has been globally competitive from the start and has never relented. Khamis shattered industry standards by introducing the world's first 1 million--point carpet and created variations all the way up to 6 million point.

Oriental Weavers has been adding capacity at 20% annually since 2003 to meet demand for its value-for-money products. That includes a small weaving facility outside Atlanta to reduce lead times for urgent U.S. orders. Eyeing a huge potential customer base in Asia, the company opened a plant in Tianjin, China, this year that will serve the Chinese market. Lately it has been having fun with a deal to produce carpets with the Andy Warhol Foundation, using the artist's designs. Farida Khamis says the company aims to become a market leader in a new product line: home textiles. It has inked deals to make sheets and towels for such brands as Cannon and Fieldcrest (whose parent, Pillowtex, closed its U.S. mill in 2003). "We have not reached our maturity," she explains. "We want to become even more global, penetrating markets we did not sell to before."

Over the past three years, Emaar Properties, an outfit in the United Arab Emirates, has become one of the world's leading real estate developers. Emaar was founded in 1997 by ruler Sheik Mohammed bin Rashid al-Maktoum to lead the Dubai construction boom. The 70/30 business-government partnership, run by chairman Mohammed Ali Alabbar, started taking its expertise on the road in 2002, achieving a market cap worth $20 billion. Currently, in addition to constructing Burj Dubai, touted as the world's tallest skyscraper, Alabbar is busy with undertakings from hotels in Miami to a convention center in Hyderabad, India. His eye-catching projects include the $26.6 billion construction of an entire new metropolis in the Saudi Arabian desert to be called King Abdullah Economic City and a global hotel and condo partnership with Italian designer Giorgio Armani.

Some of Emaar's success is explained by the nearly 300% rise in oil prices since 1997, which is pumping vast sums of unexpected new revenue into Arab investments. But much of it is also due to the savvy of executives like Alabbar, who can put Emaar's clout to advantage. "You go where your $100 million will work hardest," says Alabbar. "I'm looking at developing economies. Mature economies like those in Europe are not that exciting compared with India, which is growing at 7% or more. I'm looking eastward seriously, toward China." In July Emaar became the first Middle East property developer to open an office there.

Fadi Ghandour, CEO of Aramex International, a company based in Amman that competes with the likes of Federal Express and DHL, didn't have oil money to back him. Ghandour founded the firm in 1982 after studying at George Washington University. His plan was to become the Middle East middleman for the big U.S. and European shipping firms.

Aramex made its name in part by going where others feared to tread, getting mail across Beirut's green line during the Lebanese civil war and using donkeys to get parcels past Israeli checkpoints in the West Bank. Ghandour got his break when FedEx and later Airborne Express made Aramex their Middle East partner. The U.S. firms gave Aramex invaluable lessons in everything from quality control to technology. When DHL acquired Airborne and dropped Aramex, Ghandour learned another lesson: the turnaround. He got busy marshaling the regional players that Airborne had left in the cold into a new alliance. A leader in the Middle East and South Asia, Ghandour is looking for acquisitions in the U.S. and China. "Things are very hectic," says Ghandour, who shuttles between Amman, Dubai, Beijing, Dublin and New York City. "It's a whole new ball game. But we are ready for it."

As will be more Arab businesses. A milestone toward integrating the 300 million Arabs living between Morocco and Bahrain was achieved in January when Arab states signed a Middle East free-trade agreement that had been in the works for decades. Some countries have slashed tariffs to zero under the pact. Already, according to Egypt's Trade Ministry, inter-Arab trade rose 22% in 2005 compared with a 4% rise three years earlier. Last month an Arab trade-ministers meeting in Cairo took up the technical yet crucial issue of adopting common product standards. "There is a reshaping of the landscape," says Hassan Heikal, CEO of EFG-Hermes Holding SAE, a Cairo investment bank, over cocktails at the Four Seasons First Residence--itself the product of a partnership among a local investor, a Saudi prince and a Canadian hotel mogul. "There is a new breed of CEOs who are willing to go outside their own borders and take risks. I'm very bullish on the Middle East for the next 10 to 20 years." With that, Heikal, considered the whiz kid of Egyptian high finance, was off to dinner with another of Cairo's leading young CEOs--ready to take on the world. [This article contains a chart. Please see a hard copy or a pdf.] A Region's Rise

The GDP of the Middle East and North Africa continues to expand

$547.5 billion In billions of current U.S. dollars '94-'04 Source: World Bank