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Elsewedy’s power plays in Egypt and beyond

By Ariane Lavrilleux, in Cairo for Jeune Afrique and Honoré Banda
Posted on Monday, 28 October 2019 12:21

Cables are the heart of Elsewedy Electric’s business, with nine factories in Egypt, but are no longer the main driver of the company’s growth. All Rights Reserved/ELSEWEDY

Egypt’s Elsewedy Electric has been on a signing spree, grabbing contracts large and small.

The biggest was the $2.9bn joint venture with another Egyptian firm, The Arab Contractors, to build the controversial Rufiji Dam in Tanzania’s Selous Game Reserve, signed in December of last year.

The project is due to add 2,125 MW to the national grid – which will nearly double its capacity – but international campaigners have complained that it will do irreparable harm to wildlife habitats.

At the signing, Elsewedy’s chief executive Ahmed Elsewedy told media: “With this unprecedented contract, Elsewedy Electric and its partner are supporting Tanzania’s economic development by exploiting the country’s water resources to build an affordable, reliable and sustainable energy mix for Tanzania’s future.”

In the same month, Elsewedy signed a $500m loan with the Cairo-based African Export-Import Bank. Those funds will help it to develop new projects, like a planned new manufacturing unit in Uganda.

Meanwhile, cameras were flashing on 28 January, during the visit of France’s President Emmanuel Macron to Cairo.

The director of Elsewedy Electric’s international relations signed an agreement with the chief executive of France’s Montagne et Neige Développement Group (MND Group). MND’s Xavier Gallot-Lavallée said he was “particularly proud” to forge a new alliance with the Middle East and North African cable leader, which exports to nearly 110 countries.

In this small cablecar specialist, which employs nearly 400 people, Elsewedy Electric saw an opportunity to develop new markets in cable transport – a technology that has something to offer many growing cities in the region that lack public transport.

So could people one day be going to the top of the pyramids of Giza in a cablecar?

Continental drive

These new partnerships illustrate the Egyptian giant’s desire to continue its diversification, with activities ranging from cars to telecommunications and energy.

Listed on the Egyptian stock exchange, Elsewedy Electric has successfully integrated into the global market without distancing itself from the family that founded it and the country where it was launched 80 years ago.

The business, which was passed from father to son, is not only number one in power cables and telecoms in Egypt, where it owns nine factories, but it has also established itself with success in 25 countries and has nearly 14,000 employees worldwide.

Its 2018 turnover was 1% lower compared to the previous year, but Elsewedy recorded growth of 12% in its last quarter, which allowed it to end the year without any debt.

Now the largest cable manufacturer in the region, Elsewedy Electric generates 55% of its turnover from cable production in Egypt and about 10 other countries. While cables remains its core business, they are no longer its main growth driver. Since it launched its continental drive in 2002, the company has changed its scale.

Its ambition is now to become a provider of integrated solutions, developing, equipping and managing electricity networks on national or regional levels.

The group has already developed around 10 turnkey installations in Angola, Ghana and Mauritania, where it has delivered electrical substations at the same time as transmission lines: “We plan to double the number of these integrated projects over the next five years. By producing everything from A to Z, from cable to engineering, we have a solid competitive advantage,” says Tarek Wahby, head of Elsewedy Electric’s Africa sales office.

However, there is no question of a radical change.

The company wants to continue to move forward on several fronts by setting up plants on the continent and selling transformers (such as in Ethiopia, Nigeria and Zambia) as well as buying land to use for industrial parks. In both areas, its market research has led Elsewedy to focus on Uganda.

It is one of the fastest-growing countries on the continent, with 6% growth in 2018, and has a big infrastructure deficit.

The company is also on the lookout for other African markets. It set up operations in Morocco in October 2018 in the hope of participating in the country’s expanding renewables sector.

In terms of exports, Elsewedy Electric is also at a strategic turning point in its development. While 50% of its production is purchased locally in Egypt, mainly by the state and its public companies, the company plans to expand into Latin America and Asia.

The method is the same as in Africa: do not focus on a single business segment but fill in the gaps in each country’s market. This is done by favouring the energy sector, whose growth forecasts exceed those of telecommunications. As a result, Elsewedy Electric was able to become the leading producer of cables and transformers in Algeria by setting up as a pioneer in 2002.

This position has enabled it to establish itself throughout the entire energy production and distribution chain and to participate in major projects such as the Algiers airport and metro.

If Elsewedy Electric is thinking about the construction of new production units in Asia, its strategy is also about regaining export markets, particularly in Africa, where Chinese competition on prices is fierce. The international certifications for its products have helped Elsewedy to compete, and the devaluation of the Egyptian pound also boosted its sales outside its domestic market.

Riding the pound

The currency devaluation, at the end of 2016 was a double-edged sword for Elsewedy, which makes a large part of its sales in dollars and euros. In 2017, its turnover in Egyptian pounds jumped by 74%. Elsewedy safeguarded its profits, with a 15% net margin compared to 16% in 2016. At the same time, the firm was hit by rising copper prices. In 2018, sales stagnated at E£42.49bn ($2.5bn), with an 11.7% net margin.

With the currency losing half its value, Elsewedy Electric’s products have become cheaper than Indian, Chinese or Turkish imports. In addition, the trade agreements signed by Egypt with the Common Market for Eastern and Southern Africa (COMESA) and the European Union give it privileged access to these markets.

This is enough to offset the increase in copper prices.

Elsewedy Electric is also just beginning to shift to smart grids, which are growing rapidly thanks to renewable energy. Since solar and wind energy production is intermittent, grids must be much more sophisticated and decentralised than they are today in order to deliver and store electricity according to demand.

For the moment, the Egyptian company is developing smart meters for its local market of 97 million inhabitants, and for Europe through its Slovenian subsidiary Iskraemeco, acquired in 2008. “We have taken this global trend into account, and we want to improve on the other components of smart grids,” says Wahby.

In the meantime, Elsewedy Electric has positioned itself as one of the key investors in the world’s largest solar park, which is under construction in Benban, southern Egypt. By the end of this year, its six million solar panels will cover an area of nearly 37km2 and could supply up to 350,000 inhabitants with electricity.

The production will be managed by Elsewedy Electric and France’s EDF, which will sell it to the Egyptian public electricity company for $0.084 per kWh, a price aligned with those of the French company in France.

It is precisely this type of international partnership that Elsewedy Electric intends to develop in order to gain a foothold in the renewable energy market. At the dawn of the rush, and against giants such as Prysmian and Siemens, Elsewedy Electric is betting on gradual adaptation without abandoning its history as a cable salesman – the reason for its success.

An ambitious engineer

When Ahmed Elsewedy took over the management of family affairs in 1986, he already knew the small trading company created by his father in 1938 by heart.

Apprenticed during his studies as an electrical engineer at Cairo University, he gradually rose through the ranks. That lucrative cable business became Arab Cables, the number-one manufacturer in the sector in Egypt. But this was not enough for the young Ahmed, who dreams of new markets.

In Zambia, Ghana and also in the Middle East, he built several factories. In about 10 years, the group grew from a single factory to about 30 sites. Ahmed renamed the company Elsewedy Electric, and it joined the club of the world’s major cable producers like Prysmian and Nexans.

He pushed the company – listed on the stock exchange in May 2006 – to operate along the entire electricity chain, from production to energy distribution.

Today, the multinational company operates in seven sectors: cables, electrical products, telecoms, transformers, wind power, turnkey installations (from engineering to distribution) and energy management solutions (smart grids). This globetrotting CEO chairs the Egyptian business councils focused on China, Lebanon and Ethiopia.