not for sale february-april 2009 quarterly magazine published … · 2010. 10. 11. · towards more...

Towards More Transparency & Integrity in the Private Sectoran articale by Dr. Ahmed DarwishMinister of State for Administrative Development

February-April 2009 www.eiod.org

Not

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Quarterly magazine published by EIoD

What is facing the Real Estate Market?A survey attempted by “Al Aqariyah” Newspaper

Global Financial Crisis 2008

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Despite that corporate governance, as a practice not as an economic term, existed ever since the “Agency Theory” existed, it was not brought to the lime light till the economic crisis at the Far East took place at the last decade of last century and also after the collapse of many large corporations such as Enron, Parmalat, and World dot com. And if the focus on corporate governance was less in the last few years, the current financial crisis, and especially what happened in the mortgage finance sector in the US and some European countries, has put corporate governance back in the lime light.

There are many important lessons one can learn from the current crisis. First, no corporation or financial institution is too big or too strong to fall when there is lack of corporate governance. Transparency and proper disclosure is the best way to have effective external monitoring of the company’s performance that is capable of responding to the red flags visible in the company’s reports.

LESSONS TO BE LEARNEDDr. Ashraf Gamal EldinExecutive Director

EIoD- ECRC

Furthermore, credibility is not inherited and does not last forever, it is a virtue supported, or destroyed, by the company’s practices, especially in the areas of disclosure and transparency. And the role of thumb is that if a company is not revealing enough or accurate information about its operations and performance to the public or to its shareholders, then most probably it is trying to hide some information that may negatively affect price of its shares or ability to acquire credit. This puts the company and its shareholders in high risks that may have grave consequences.

We therefore advise companies to properly disclose the right information to the public. Such disclosure serves the interests of the company and its stakeholders in the long term. It also protects the company from risks that may be absent from the minds of its board.

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Nahla KamalAssistant Executive DirectorEgyptian Institute of Directors

The most talked about issue these days is the global financial crisis. How bad is that crisis? Was it wrong to let banks and other financial organizations fail? Or was it just a symptom not the cause of the chaos in the global economy?

Tough questions and interesting points of view, that’s why we are shedding the light in this issue of “The Executive” on the global financial crisis and its effects world wide. In addition, since Egypt is not immune from its impact despite the government’s pro-business reform efforts for several years, will the crisis threaten reform moment and hinder the long term growth? How will this affect your business? Read our special report on the crisis to get the answers to these questions.

I would also like to draw your attention to important articles on our fixed sections, “Corporate Governance Highlights” and “Corporate Social Responsibility” on corporate governance practices in healthcare sector and how to confront corruption and bribery acts.

Now that I am thinking of the possibility of moving to a bigger house, and like me, many others are hoping to seize the opportunity of low real estate prices to buy, check our “Sector Performance” section on real estate and know more about the current situation and the future prospects.

I trust that you will find this issue full of interesting and enlightening information. As always, we are looking forward to receiving your comments and feedback.

How bad is it?

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Content

Lessons to be learned....................................... 2

How bad is it? .................................................... 3

Corporate Social Responsibility:

The First Meeting MENA-OECD Investment Programme .......................................................... 6

Towards More Transparency and Integrity in the Private Sector .................................................... 12

“Corruption in the Jungle”: Act Now..! ................ 16

Corrrrupttiion and tools of confrontation ............ 18

The Business Principles for Countering Bribery A Comprehensive Model for Corporate Anti-Bribery Practices ............................................................ 22

Corporate Governance:

Corporate Governance Failure; ......................... 24

Financial Crisis and Developments in Corporate Governance ....................................................... 26

Corporate Governance in English Hospitals...... 28

Reaching the Right “Mix-of-Skills” of the Board of Directors of Healthcare Organizations............... 30

Editor-in-chief

Nahla Kamal

Editorial Production

Nermin HelmyHind ElFalakySarah ElRafeiDina Moustafa

Marketing and Sales

Sarah ElRafeiDina Moustafa

For Advertisment in the Executive magazine, kinldy contact the EloD at:Tel.: +202 33352765/37482769Fax: +202 37629028email: [email protected]

Adress: Junction of Salem Salem &Abdel Azim Rashed st., 4th floor, Agouza, Giza, Egypt

The ExecutiveAll rights reseved to the EgyptianInstitute of Directors (EloD)

The Executive is a leading magazine for business community and business decision-makers. Packed with lively and informative features and shorter advisory items, it is essential quarterly reading for directors of companies of all sectors and of all sizes.

The Executive is editorially autonomous and the opinions expressed are not those of contributors’ employing organizations, unless explicitly stated. The contributors’ points of view do not necessarily reflect the vies of the EloD nor that of the Ministry of Investment.

Desgin & Layout: Eagles GroupCTP & Printing: ALLUX Free Zone-Nasr City

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Sector Performance:

What is facing the real estate market? .............. 34

Why backing MFCs and startup home finance ventures makes sense....................................... 44

Egyptian Junior Business role in solving problems of real estate investments.................................. 47

Business Dynamics:

Global Financial Crisis 2008 .............................. 50

Impact of the Global Financial Crisis on Egyptian Stock Exchange and Egyptian Economy........... 64

Tomorrow is coming Today (1929 & 2008) ........ 67

Enterprise Risk Management ............................ 69

Competition Culture; Making Markets Work Better For Consumers .................................................. 71

Credit Reporting Development .......................... 72

In Depth:

Management of state-owned assets:

Economic efficiency and expanding popular participation ....................................................... 74

News focus: ....................................................... 80

EIod News: ........................................................ 82

Light topics:

Survey on the problems facing working women ........................................................84

Want To Improve Your Business This Year!!! ..... 87

Was the New Year always celebrated on January 1st? ....................................................90

Benazir Bhuto (1953- 2007) .............................. 92

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Corporate Social Responsibility

The initiative, organised in partnership with key institutions such as the United Nations Devel-opment Programme (UNDP), the World Bank Institute (WBI), the European Union (EU) and InWent, follows three preliminary meetings or-ganized within the activities of the MENA-OECD Investment Programme - September 2007 in Amman, November 2007 and February 2008 in Cairo - which served to identify priority areas and objectives of the MENA-OECD Regional Di-alogue on Responsible Business Conduct.

On these bases, the meeting will focus on the following themes:

1. key issues of the MENA-OECD initiative on responsible business conduct such as: a) importance of the subject; b) value added to existing initiatives; c) multi-stakeholder approach;

2. Areas identified as most relevant in the debate on responsible business conduct with specific

The First Meeting MENA-OECD Investment Pro-gramme regional task force on responsible

business conduct was held under the auspices and participation of His Excellency Dr. Mahmoud Mohieldin - Egyptian Minister of Investment. The meeting was organized by the Egyptian Institute of Directors and the Egyptian Corporate Respon-sibility Center on Sunday 26th of October, 2008 at Cairo Marriott Hotel, Zamalek.

This initiative is intended to launch a Task Force in the MENA region to conduct activities on Re-sponsible Business Conduct as an initiative of the MENA-OECD Investment Programme. The initiative, approved at the second MENA-OECD Ministerial meeting in November 2007 in Cairo, aims at building a multi-stakeholder dialogue on responsible business in the region, involving ac-tors from public and private sector as well as civil society from both MENA and OECD countries.

The First Meeting MENA-OECD Investment Programme

REGIONAL TASK FORCE ON RESPONSIBLE BUSINESS CONDUCTSunday 26th of October, 2008 Cairo Marriott Hotel, Zamalek, Egypt

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regard to the MENA region, namely: Business Integrity and Anti-corruption; Education, Youth Employment and Labor Standards; Health and Environment;

3. Indicators for measuring government policy and corporate practices designed to promote responsible business conduct;

4. Means of action to be taken by the MENA-OECD Initiative, including a) Awareness rising and training/partnership programmes, b) Multi-stakeholder involvement, focusing on public-private dialogue and civil society involvement;

Key purpose of the meeting is to discuss the above mentioned themes by exploring the roles of all the parties involved, distinguishing the respective roles of Governments, private sector and civil society, and proposing mechanisms for strengthening partnerships and measurement of impact.

The task force that proceeded all the day and composed of the Inaugural session, followed by plenary session, three parallel sessions; (A) Business Integration and Fighting Corruption, (B)Education, Entrepreneurship, Youth Employment, and (C) Labor, Health and Environment. Then the meeting was concluded by a final session included the recommendations and concluding remarks.

We are particularly grateful to our conference chairs, His Excellency Dr. Mahmoud Mohieldin - Egyptian Minister of Investment, Dr. Ashraf Gamal El-Din - Executive Director of the Egyptian Institute of Directors and the Egyptian Corporate Responsibility Center, Mr. Djordjija Petkoski - Lead Specialist at the World Bank and the Head of the Business, Competitiveness, and Development team at the World Bank Institute, Mr. Graham Minter - The OECD Co-Chair of Investment Programme Steering Group and UK government representative, Mr. Mounir Tabet - UNDP, Country Director, And Mr. Gerhard Krause - European Union Delegation in Cairo.

Considering the Ministerial Declaration of the MENA OECD Investment Programme (November 2007) in which MENA countries called ‘for a regional dialogue on responsible business conduct and encouraged effective support to business in fighting against corruption, improving corporate governance, engaging in responsible business practices’, the first meeting of the task force was

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inaugurated under the auspices and participation of His Excellency Dr. Mahmoud Mohieldin - Egyptian Minister of Investment.

Dr. Ashraf Gamal El-Din (the executive director of the Egyptian Institute of Directors and the Egyptian Corporate Responsibility Center) inaugurated the session by welcoming the guests and thanking the collaboration partners. Then he added that the timing of the conference that coincides with the financial crisis in the world and its expected influence on the emerging markets and the corporate responsibility budget for companies.

His Excellency Dr. Mahmoud Moheldin addressed his keynote during the inauguration session saying that Corporate Social Responsibility dates back to a time when the United Nations launched its corporate social responsibility initiative, the Minister of Investment, Dr. Mahmoud Mohieldin told the first meeting of MENA Working Group on Responsible Action. The meeting was attended by representatives of the UNDP, the Organization for Economic Cooperation and Development, the European Union and the World Bank. The meeting was organized by the Egyptian Institute of Directors and the Egyptian Center for Corporate Social Responsibility. Dr. Mohieldin noted that the UN Initiative on Corporate Social Responsibility enforces companies to respect law and not to be involved in any corrupt action. The initiative’s rules stipulate the respect of human and workers rights as well as protecting the environment and encouraging companies to respect law. Dr. Mohieldin added that several developments were introduced to the economic activity during the past period, most notably competition among companies and civil society organization to adopt the concept of corporate social responsibility. He explained that before talking about corporate social responsibility, we should discuss its respect to rules and competition. It always seeks to increase profits without harming others’ rights.

Dr. Mohieldin added that under the global financial crisis, we should assess how far companies are committed to social responsibility and the rules of supervision and control. Discrimination should be avoided between organizations on developing and advanced countries in terms of implementing

corporate social responsibility, Dr. Mohi El-Din said. The Minister of Investment explained that corporate social responsibility should be viewed away from useless debates on ideologies, which are no longer supported by practice. Dr. Mohieldin cited the socialism, which had its catastrophes in the twentieth century and the capitalism, which has its current failures. Countries seeking growth, development and reform pursue flexible policies and procedures to deal with economic issues, within the course of law and state’s sovereignty. China, which is governed by the communist party, encourages the private sector and foreign investment. In the United

States and the United Kingdom, the state intervenes with procedures to rescue financial institutions to preserve the financial system.

Economics, Dr. Mohieldin, said, is not up to the level of a doctrine. However, it is a set of procedures and tools that should be designed to realize growth, development, jobs, price stability and equal income distribution. The Minister of Investment explained that the Egyptian economic activity is based mainly on a


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private sector with a majority of small and medium-sized enterprises. Capital of 90 percent of private companies is less than LE 10 million while 70 percent of these companies have a capital of less than LE one million. These companies should operate in a competitive environment with large companies and public companies.

The Minister of Investment said that the corporate social responsibility fund called upon by the Prime Minister last March is available for those who would like to join it. It is not alternative for major initiatives launched by companies. The fund will be started

next November with inputs from companies and civil society organizations.

Dr. Mohieldin announced that the Transparency Center concerned with disclosing the activities of publicly-owned companies will be finalized early 2009 in cooperation with the UNDP. Dr. Mohieldin noted that before asking companies to commit to social responsibility, we should ensure that they committed to law and corporate governance.

During the first plenary session that was titled “ Scope and Objectives of the Task Force”, the first panel aimed to spur dialogue and interaction around the issues related to responsible business conduct among the different stakeholders involved, discussing the relevance of responsible business for enhancing investment climate; distinction of roles between government and private sector; models for partnerships with different actors and importance of indicators for measurement of responsible business performance.

The speeches were presented by Mr. Rainer Geiger -Advisor Coordinator to MENA-OECD Investment programme, Mr. Graham Minter - OECD and Co-Chair of investment program steering group and UK government representative, Dr. Ashraf Gamal El Din - Executive director of the Egyptian Institute of Directors and the Egyptian Center for Corporate Responsibility, Mr. Mahmoud Abdallah - Chairman of the Insurance Holding Company, Mr. Andrew H.W. Stone - Lead Private Sector Development specialist, World Bank , and Ms. Anna Peters - Project Manager Corporate Social Responsibility at the Bertelsmann Stiftung, Germany.

The plenary session was followed by the breakout session titled “Key Issues of Responsible Business Conduct”. This session was divided into three sessions.

Session A “Business Integrity And Fight Against Corruption” discussed existing initiatives and tools available in this area to both business and governments, including international instruments such as the OECD Guidelines for MNEs, the OECD Anti-Bribery Convention and the United Nations Convention against Corruption, aiming to identify concrete and effective actions for the MENA Task Force. Mr. Rainer Geiger, Advisor Coordinator to MENA-OECD Investment programme, was the Session Moderator.

The speeches were presented by Mr. Jamel Abadeh - Procurement Officer at OMSAR- UNDP; Mr. Djordjija Petkoski - Lead Specialist at the World Bank and the Head of the Business, Competitiveness, and Development team at the World Bank Institute; Mr. Khalil Gebara - Co-Executive Director of the

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Lebanese transparency association, LTA Capital, Transparency International’s Chapter, Lebanon; and Mr. Seif Elbatanouny - Deputy Corporate Affairs Manager- Mansour Group.

Session B “Education, Entrepreneurship, Youth Employment & Labor” discussed existing initiatives, by business and governments both in MENA and OECD countries, aiming to identify concrete and effective actions for the MENA Task Force.

The speeches were presented by Ms. Faten El Yafi - Senior Director, CSR, PR & Corporate Services, Savola; Mr. Mohamed Agrebi - Ministre de L’Industrie, de L’Energie et des PME, Tunisa; Dr. Faysal Abd El Gadir - International Relation Advisor; Mr. Roland Schneider - Senior Policy Advisor, Trade Union Advisory Committee (TUAC); and Mr. Farid Nolen - Founder & Project Manager, Intize Sweden.

Session C “Health And Environment” considered what is existing and examined the relation between health and environment, in a view to define how both issues can be introduced in the MENA Task Force action plan. The moderator of this session was Mrs. Maali Al Qasem, Schema Tactical Thinking, Jordan.

The speeches were presented by Mr. Ramez Farag - Corporate Communication & Reputation Manager, Procter & Gamble, Egypt; Mrs. Belinda Scott - CSR Officer, National Bank of Abu Dhabi; and Dr. Dalia Abdel Kader - Head of Marketing and Communications, Arab African International Bank.

During the second plenary session titled “Means of Action of the MENA-OECD Initiative - Recommendations and Conclusions”, experts in the field were invited to intervene and present examples of concrete actions already undertaken in the region or neighboring countries. Participants, with the help of the moderator, discussed which initiatives, among those agreed for each area, can be undertaken by the Task Force and modalities for implementation in the coming future, as means of concrete actions and basis of the work plan.

The use of measurement instruments, as discussed in the first panel, were considered as a relevant area for the work of the Task Force. Moderator of

the session was Mr. Graham Minter, OECD and Co-Chair of investment program steering group and UK government representative. Panelists were Mr. Khalil Gebara, the Co-Executive Director of the Lebanese Transparency Association, Transparency International Chapter in Lebanon. Mrs. Randa El Zoghbi, Program Director of Egypt’s Office Center for International Private Enterprize. Mr. Hani Hourani ,Founder and Director of Al Urdun Al Jadid. Arouna Roshanian, Policy Analyst MENA-OECD Investment Programme. And Mr. Osama Mourad, Board Member of the Egyptian Junior Businessmen.

FINAL CONCLUSIONS AND ACTION PLAN

Considering the Ministerial Declaration of the MENA OECD Investment Programme (November 2007) in which MENA countries called ‘for a regional dialogue on responsible business conduct and encouraged effective support to business in fighting against corruption, improving corporate governance, engaging in responsible business practices’, participants representing Governments, businesses and civil society in MENA and OECD countries have agreed on the following points:

5. There is an explicit link between responsible business conduct and favorable investment climate as the private sector plays an increasing role for the economic and social development;

6. Responsible business conduct helps create business confidence and confidence in business which is particularly important as a means for overcoming financial crisis and reducing its consequences;

7. Conducting business in a responsible way contributes to social development and has positive long terms effects for society;

8. There is a strong business case for companies to behave responsibly, as reputation is an essential asset of any company and a factor of competitiveness, given the importance of perceptions for consumers, investors and other stakeholders;

9. Responsible businesses have an interest in the effective, transparent and impartial enforcement of laws and regulations by host governments so that they do not operate at a competitive disadvantage;


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10. Government can act to reinforce the business case through partnerships and promotion, by putting in place appropriate policies to integrate private sector, by developing standards to lower costs of adopting responsible business policies and by providing information about responsible business practices to customers and the public;

11. The establishment of a single contact point in government to support responsible business conduct can help to ensure a coherent governmental approach;

12. Multi-stakeholder dialogue and promotion of partnerships between governments, business and civil society are key factors for successful private sector development within a transparent, reliable and inclusive markets;

13. Reference shall be made to authoritative international instruments and standards, in particular: the OECD Guidelines for Multinational Enterprises, the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, the UN Global Compact Principles;

14. Evaluation tools should be developed to assess the effectiveness of government policies and corporate practices in achieving the common goal of sustainable development;

15. Regional dialogue in MENA can provide the opportunity to work across boundaries and sharing experiences;

16. Concrete measures and action-oriented initiatives are needed in key areas such as business integrity and anti-corruption, education and employment linkages, labor standards, environment and health protection;

17. With regard to the priority area of fighting corruption, reference should be made to international instruments as the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the UN Convention against Corruption (UNCAC). Participants expressed support for the recently established Anti-Corruption and Transparency Network for MENA (ACTNET) and tools for private initiative such as the Fighting Corruption through Collective

Action guide created by the WBI and partners;

18. There is a need for greater availability of tools that are in Arabic and relevant to the MENA context, to help companies to develop responsible business conduct in specific priority areas;

19. Training activities and partnerships with educational institutions shall be promoted for capacity development and to foster a culture of integrity among business and public sector leaders, including young entrepreneurs;

20. Participants welcomed the launching of the MENA-OECD Task Force on Responsible Business Conduct and expressed support for the Action Plan, which is attached;

21. The composition of the MENA Task Force will reflect the principles agreed above and include representatives from:

1. Relevant international, regional, and national organizations, such as: OECD; EIOD; UNDP; WBI; InWent; IBLF; ALO; Transparency International, CIPE;

2. MENA governments representatives;3. Rregional and national business organizations;4. Professional societies;5. Trade unions and regional as well as national

civil society organizations, including media and academia.

Governments in MENA countries are invited to establish, in accordance with their national procedures, contact points for the activities of the Task Force.

Participants called on the MENA-OECD Investment Programme and the Egyptian Institute of Directors to provide support to the activities of the Task Force.

They also invited national and international donor organizations to provide financial support.

Participants suggested the establishment of a MENA-OECD Business Council to act as a counterpart of the MENA-OECD Investment Programme providing support for private sector development and reform process in the region. Assisting companies and business associations on responsible business conduct will be part of its mandate.

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When the word “corruption” arises what pops immediately in the comes to the reader‘s or listener‘s mind corruption within government institutions and state bodies. Other forms of corruption are normally absent from our consciousness. Among the questions that are raised, is for example, why don‘t we take into account that every corrupt person has been corrupted by another one, and why don‘t we talk about corruption in the private sector despite the absence of the famous excuse, low employee‘s income (despite being an unjustified excuse)?

Corruption affects the interests of the public and private sectors, which result in impeding the economic development and distorting the financial systems. The spread of corruption in the private sector also increases the cost of business by increasing the rate of irregular and unjustified payments as well as the increase in administrative expenses resulting from negotiating with officials, as well as the risk of violation of laws or vulnerability.

To start with, I want to discuss two famous allegations initially proliferated recently. I use the term allegations because which I meant is to avoid the widely used term assumptions or hypothesis:

• Corruption reduces administrative costs by bypassing the administrative red tape.

• Partial corruption is good, because it prevents social revolutions due to the increase in gaps between rich and poor, and that the private sector protects the State by providing some indirect subsidies to narrow the deficit and weaknesses of social protection policies, as well as paying taxes.

The answer to the above is that the existence of bribes lead officials to develop new steps in the work cycle, redundant reviews and additional instructions, which certainly lead to a delay in the completion of

the transaction. Through its contribution to the inflation, corruption increases business expenses, distorts the business environment as related companies protect state institutions, and undermine the foundations of competition. As a result, this leads to the continued existence of undeserved companies. Corruption in the private sector also cuts from the value of taxes paid by citizens to obtain quality services, for example, in the areas of health and education.

It is very important to note that a corrupt private sector and corruption in the private sector and corruption of the private sector to state officials / organizations do not refer to the same meaning.

Towards More Transparency and Integrity

in the Private Sector


By Dr. Ahmed DarwishMinister of State for Administrative Development

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A corrupt private sector refers to corruption in the system and structures of the private sector and its establishment, existence, suspicions financial resources and irregularities of its employees. Corruption in the private sector, indicate that there exist some imbalance within the private sector, which does not threaten its existence and the continuation of its structures, but could be an imbalance in both the laws and rules and provisions which the private sector operates under, or in relation to the behavior of some of its employees which can be addressed and corrected.

With regard to the corruption of the private sector to state institutions, it refers to a network of relationships that are based on benefit or common interest among some investors or businessmen and decision makers within the state apparatus for the benefit of the private sector in return for a bribe or literary material obtained by the representative organization of the state.

Corruption in the private sector is not considered a recent phenomenon, but an old one. It goes back in modern history to the beginning of the Industrial Revolution and the subsequent colonial policy, which was based on the provision of job opportunities for workers constructing a new continent, and securing raw materials for the conduct of the wheel of crude production in the European factories. Accordingly, we have witnessed that the court network of relations between the private sector represented in the foreign multinational companies and some political leaders in the African continent and the continent of Latin America resulted in the bankruptcy of coffers and the impoverishment of entire economies of the beginning of the sixties until the beginning of the twentieth century.

In 2005, the economic researcher “Raymond Baker”, head of the “Global Financial Integrity”, in his book “Capitalism’s Achilles Heel” estimated that the money and funds developing countries lose in the global market could reach 500 billion dollars a year! And for every dollar taken by developing countries in the form of international aid there is a depletion of up to $10 in the form of dividend or unjustified payments.

“Daniel Kaufmann”, Chief of the Global Governance Unit at the Institute of the World Bank emphasized the importance of building an integrated approach to combat corruption which does not focus on bureaucratic corruption, or so-called “corruption bribes”, but rather focuses on other forms of

corruption affecting the good management of the resources of the State and society. He focused on the role of banks and major financial institutions and multinational corporations in the fight against corruption. In 2005 “Kaufman” applied a questionnaire on a sample of companies in 117 countries included questions about whether those companies have registered payments and the proportion of recurrence in their accounts, and to whom such payments are targeted (customs officials - taxes - government procurement - courts).

Efforts to combat corruption in the private sector have first begun at the international level, the United Nations Convention Against Corruption (UNCAC)approved in 2005 includes measures regarding the private sector, where article (12) of the Convention on the prevention of corruption prohibits the private sector to be involved in corrupt actions and to strengthen oversight and accountability standards and auditing in the private sector, and develop codes of conduct for the business relating to the exercise of its activities and performance of its functions correctly, honorable and proper and to prevent conflicts of interest.

Article (11) of the “African Treaty for the Prevention and Fight Against Corruption”, adopted in 2003 to criminalized corruption in the private sector and urged it to participate in efforts to combat corruption through respect for the rules governing the work of government procurement and property rights, and to take actions and measures to prevent companies from paying bribes to win tenders.

In addition, resolution No. 568 issued by the European Union to combat corruption in the private sector in 2003 had its impact on putting a framework for the legal criminalization and companies work and the european financial institutions. The resolution called on european countries to criminalize of any particular activity that result in actions aimed at corrupting people through the private sector (whether intended or not intended for profit) by giving directly or through an intermediary advantage or benefit of any form of the purpose of omission done in its powers and career functions. It also incriminates any person, even if it enjoys legal immunity requesting a bribe or advantage of a person working in the private sector.

In the same context, the Organization for Economic Cooperation and Development (OECD) set standards for international companies and multinationals in the fight against corruption and

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control of its finances, environmental and social actions in the organization states. It should be noted that even if these standards are not legally binding, they establish the basis of assessment and holding these companies accountable. Those standards were put in details in defiance of generalities of agreements and international treaties in this regard, including the Convention of the (OECD) on bribing foreign public officials in cross-border projects Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, 1997, as well as the Understandings of the “Monterrey” Consensus, Financing for Development (FfD), 2002. Proof of this is that these standards on bribery and irregularities did not only confine to the relation private sector companies and official state institutions, but also among private sector companies.

It should also be noted that these criteria gained the support of all OIC Member States, in addition to members of the Group of Eight.

The former criteria and standards were used by many civil society organizations such as Transparency International and the Organization of the Global Financial Integrity to hold accounting firms and many major financial institutions accountable. Examples include condemnation of a French company (ACCOR) in 2007, which was operating in the State of Argentina to make “coupons” food, as the company tried to bribe one of the lawyers reviewing a law that would determine the number of “coupons” required with the aim to increase the number contrary to the law.

Another example is found in Zambia, which is the sixth world in terms of coal reserves, where the Canadian company to explore for coal “First Quantum” established a number of housing units for its staff of non-ad hoc and belonging to a village in Zambia, which raised the ire of the local council of the village as these facilities were harmful to the environment. It was possible to impose fines on the company using the standards of work on the fight against corruption by the Organization for Economic Cooperation and Development.

Notwithstanding the foregoing, a challenge remains to these standards and other legal provisions contained in international treaties and conventions, which are:

• The lack and unavailability of data and information on the work of those companies or what is known as the “information deficit”


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• The provision of the necessary funding to build expertise in the area of monitoring and evaluation.

The challenge also is to make the companies confirm that they pursue policies of prudent business. Accordingly, there is no recognition of companies that do not harmonize rules and regulations and in accordance with the universal principles of the Convention. A number of business leaders met in the conference on “Anti Corruption” in “Bali”, Indonesia to discuss what further steps could be taken by the private sector to combat corruption in all its forms.

These international efforts in the fight against corruption in the private sector were culminated by the adoption of the Organization for Economic Cooperation and Development of “document on developing the principles of integrity in government procurement” in Paris (October 2008).

If the above is the negative side of the case, there are positive national experiences in the fight against corruption in the private sector, either in companies or banks, such testing experience exist in Ghana and Egypt. Ghana put in 2003 a so-called “Bill of companies”. Companies Bill is a framework for the review of laws and regulations under which companies operate, which raise corporate reports on its dealings to the Business Law Reform Commission, headed by a judge.

As for Egypt, it succeeded in issuing a law on combating money laundering in 2002, in the same context a unit had been set up to combat money-laundering in 2003, followed by the formation of a national committee to combat money laundering in 2005, adoption of regulations on combating money-laundering and the application of “Know Your customer” (KYC) techniques. Those efforts culminated previous legislative efforts to limit trade with unknown or intermediary companies with the banks, where a law No. 205 of 1992 on suspected secret stocks, the rule of secret accounts and the right of access to information about those companies has been issued.

As well as Egypt‘s issuance of a code of conduct for companies trading securities in 2005, in addition to a manual of corporate governance by the Ministry of Investment in 2006.

It remains that the completion of these efforts and its success depends on the change of the prevailing cultural climate of the citizens and clients dealing with both private and public sectors as determinants to the progress of national economy and not as areas to realize the benefits and profits interchangeably.

Fundamentals of success are hinged not only on what and how much profit we made today but also on who and where we are going to be tomorrow. In simple words, the sad financial events that we are observing recently made us truly believe that the basics of any business consistencies have been neglected if not forgotten.

Plainly, the pillars of any flourishing business and its assured survival are depending, in our opinion, on the sequentially establishment of:

• Timely Strategic Planning,

• Proper Execution and Credible Performance which include, but not limited to: Knowledge & Education, Proper Training, Awareness, Effective Communication, Consistency, Customer Satisfactions.

• Solid Business Ethics: Good Intent, Good

By Jamal AbadehProcurement OfficerOffice of the Minister of Statefor Administrative Reform, Lebanon

Conduct, Transparency, Continuity, Trust, and Truly Competitive.

• Efficient and Confident Productivity,

• Adequate and Tolerable Profit.

Adversely, GREED, within any business conduct, instead of being the driving force behind its motivational behavior, it became its worst enemy which was fed along the process with:

• Deception, Bad Intent ,Lack of Information, Mismanagement, Ambiguity, Corruption, and sadly ended with its final chapter: Bankruptcy

The answer and the result come through one source of: Credibility & Transparency

Equally noted, a fundamental lesson from the private sector where respect of agreements is usually fortified not only by means of contractual commitments, but also through the importance dedicated to credibility, especially when deciding to ally with future partners.

The perception of reputation and integrity is surely based on a judgment and assessment of past performance of a particular business, and it is not solely associated with industrial, organizational and financial qualifications. These elements can certainly indicate the level of reliability of a firm, but are irrelevant for the purposes of evaluating its loyalty to the market and more importantly to its customers base.

Accordingly, the standing and trustworthiness of a

“Corruption in the Jungle”:Act Now..!

“Corruption in the Jungle”:Act Now..!

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firm cannot be indicated only by its volume size or by the number of business agreements and contracts already carried out, if so, the banking and financial institutions crisis ,which the world is witnessing lately ,is a sad example of how vulnerable these entities were in facing the first major shakeup in the industry .Therefore, previous experience is not always a reliable gauge, instead , the status and uprightness of firms do not originate from their distinctiveness, but entirely from their manners and certainly from a solid and reputable performance.

Having established such level of high quality of service and business ethics , it made us to come to a conclusion ,in the field of Public Procurement for instance, that the public contract sector’s efficiency can therefore be enhanced by adopting a categorization system for firms, based not only on quality credentials and technical-financial prerequisites, but above all on a measurement of past performance assessment, where it will get rewarded accordingly, otherwise we believe that the quality of productivity can decline, and firms’ motivation are generally imprecise and its business objectives are becoming vaguely unfocused .Nonetheless, such system needs to be refined and must be comprehensively regulated in order to make it valid and applicable.

Ethics.. Ethics.. Ethics..Nevertheless, professional bodies promoting ethics would be the efficient tribute to what society has achieved in promoting ethical concepts in citizens. To enhance the efficiency in the market, new monitoring institutions must be created with their main role are to scrutinize and legally examine any crucial and vital organizations involved in public and private service delivery. Notably, a movement toward regulation, inspection, and audit has been renowned recently by numerous local and international lobbyists to revolutionize this approach.

Such approach shall be materialized by widespread efforts and interaction among many Public Control Agencies and the valuable participation of the private sectors, to work on a revolutionary plan with its main objective are to:

• Reforming Public Procurement Laws ,to eliminate ,or at least minimize, any probability for corruption

• Training within public and private entities for Anti-Corruption Programmes,

• Strengthening the Inspectorate powers, Widening the role of auditors,

• The creation of new quality assurance agencies,

• Introducing new standards of ethics and transparency,

• Creating new regulatory bodies,

• Encouraging and promoting the endorsement of the “UN Convention on Combating Corruption”, and to benefit from its disciplinary contents.

Moreover, the ultimate goal to accomplish in this critical fight against corruption is to promote transparency and to maintain as much clarity, simplicity and directness as possible where strategic planning, objective and target setting, monitoring and performance analysis are to be part of the new trend in the market.

In a simple conclusion, our civil society, public & private institutions, legal bodies, economic and professional entities, and their related efforts and contribution, all have key roles in practicing and promoting ethics, because the effect would be then, and only then, is to see a tangible truth which stresses that living in a protected and safe surroundings does not derive of avoiding an accident from happening, rather to live within a harmless and clearer economical environment which definitely will lead us to the shore of a safe and sound social stability, not only for today but also for many generations to come.

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THE EXECUTIVE18

“Corruption is the single greatest obstacle to economic and social development, and the fight against it is imperative. With our considerable resources, practical experience and front line position, international business must take a stand, for it is no longer enough to simply be against corruption or other unethical business practices. Global business leaders must be fully engaged in eradicating them and leveling the competitive playing field for all.” Alan L. Boeckmann, Chairman and Chief Executive Officer, Fluor Corporation, USA.

This report explores the constructive role that business can play in fighting corruption and how this can be done jointly with other companies and stakeholders – an approach called “Collective Action”.

But first of all the word Corruption as a concept should be defined, and there are many ways to define corruption, one of those definitions that is used globally is “ the misuse of entrusted power for private gain and encompasses a variety of issues, including bribery, conflicts of interest, extortion,

CorruptionCorruption and tools of

confrontation


“Corruption is a cancer that steals from the poor, eats away at governance and moral fiber, and destroys trust.” Robert B. Zoellick, President of the World Bank

Over the past decade, the amount of attention

devoted to corruption has grown exponentially and

eventually, is considered the single greatest obstacle

to economic and social development around the

world. It distorts markets, stifles economic growth,

debases democracy and undermines the role of law.

Also, it became a crucial problem for all – companies,

governments and citizens worldwide. Due to the

importance towards this problem and recognizing

that it must be dealt with, the need for effective anti-

corruption tools remains exist.

According to estimates mentioned in the Business

case against corruption – a joint publication by the

International Chamber of Commerce, Transparency

International, The United Nations Global Compact

and the World Economic Forum Partnering Against

Corruption Initiative (PACI) - it shows that the cost of

corruption equals more than 5 % of global GDP (US$

2.6 trillion), with over US $1 trillion paid in bribes

each year. Corruption adds up to 10% to the cost of

doing business globally, and up to 25% to the cost of

procurement contracts in developing countries.

19

embezzlement and fraud “ defined by Transparency International a leading international NGO in fighting corruption.

As a result of the misuse of power we will find that corruption affects negatively all levels of the society: 1- Individuals (criminal, civil and employment sanctions, ruins careers & reputations), 2- Businesses (causes loss of reputation, increases the cost of doing business, undermines innovation since bribes instead of performance determine project reward, jeopardizes mergers and acquisitions and inhibits ability to conduct capital market transactions), 3- Governments (it undermines the rule of law, leads to loss of confidence in institutions and de- legitimization of government), 4- Markets (it hampers the development of markets and drives away investments, increases costs of services/ products and lowers the quality of services as contracts are not often awarded to the appropriate bidder, and preventing job creation and limiting sustainable development).

Business is not a monolith, corruption affects all sectors of the companies, the national/ multinationals companies, small and medium sized enterprises, state owned enterprises, and informal sector firms, but the main focus will be on the private sector as it is considered a complex web of companies with different priorities, resources, and perspectives and in many cases, the private sector can be a source of corruption.

But an essential question appeals, what are the Sources of corruption to such companies, we will find that corruption thrives in systems plagued by inadequate, unclear, excessive, unpublicized and frequently changing laws and regulations, such systems create incentives for companies to exploit inefficiencies, driving corruption as well. In addition to the weak legal and regulatory systems other sources of corruption which are the lack of transparency and accountability in the public and private sectors, poor regulation of political contributions, low public sector wages, weak enforcement of laws and regulations, lack of free and independent media, and excessive discretionary authority of public officials.

Therefore, companies are beginning to understand that fighting corruption requires working with other

corporations as well as governments and non governmental organizations.

So as corruption is so complex and is caused by a variety of factors, no one approach alone will be successful in reducing it.

Whatever the approach used for anti corruption, the approach or the programme used adopted for such aim should compile five consecutively steps to have a better anti-corruption programme. The first step is risk analysis: it is considered the basic step in designing an effective anti-corruption policy focusing on identifying the key corruption risks. Step two is implementation: means a careful and continuous communication program, and ensuring that internal processes don’t run counter to the anti-corruption policy. Step three is Sanctions: by informing everyone in the company that a sanctions system is in place and effective. Step four is Help lines: Companies should have an open or an anonymous help line where employees can ask for advice. Step Five is Monitoring: analyzing the anti-corruption program strengths and weaknesses on an ongoing basis and making adjustments to make it more effective.

There are two types of anti-corruption efforts from the private sector perspective, the first one is the Individual company Action by setting up internal mechanisms to prevent corruption, this is where good corporate governance comes in as an effective anti-corruption tools good governance can be effective in reducing corruption at all levels – both on the board level and on the middle level as well . This action will benefit the company by reducing the cost of doing business, attracting investments and retaining highly principled employees, obtaining a competitive advantage of becoming the preferred choice of ethically concerned consumers.

“Good governance is a requirement for sustainable development and effective markets.” Helge Lund, President and Chief Executive Officer, Statoil Hydro, Norway.

While, efforts by one individual organization or a company might not be sufficient to change a corrupt environment as despite the costs to some certain individuals or groups others may benefit from corrupt

THE EXECUTIVE20

transactions, so here it comes the role of the second type of anti corruption which is the Collective Action that is simply a collaborative and sustained process of cooperation between stakeholders (companies, civil society, and government). It creates a business climate with reduced risk of corruption, but will find that few will be willing to individually invest their own resources or risk their own existence to achieve such climate, so there should be incentives for companies to be more transparent, ethical or to share resources, the question that arises is what are the incentives that will help companies to come together in the quest to reduce corruption and build a more competitive, predictable, and transparent business climate.

Actually, the incentives are basically derived from the benefits that the stakeholders will enjoy from the collective action:

For the companies, the collective action will increase chance of fair selection as a supplier and enhance access to markets, protection from legal penalties, saving costs formerly paid as bribes, enhance reputation, and employees and competitors behave ethically and responsibly.

For the civil society, the collective action will improve access to essential resources, such as health care and education and better social development if money is invested in such social projects instead of bribery, having a higher quality products and services, increase trust and confidence in business, consistent and fair enforcement of regulations, and greater attention to corrupt practices and towards their objective of more transparent environment.

For the Government, the collective action will strengthen the rule of law, increase credibility and political stability, higher investment levels from domestic and foreign investors improve image of the country, and effective governance mechanisms and more effective procurement.

There are different types of anti-corruption collective action programs each works differently depending on the country environment, human and financial resources available, programs that can be implemented on the short term while others on the long term.

On one hand we have programs that are based

on the ethical commitments of the participants;

on the other we have programs that have stricter

enforcement mechanisms, through which each

of the types of programs will have its own set of

benefits that have to be mapped across participants,

country environments...etc.

However, the real benefit of collective action is

the process by which the various initiatives come

to fruition. This is why it is not enough to simply

copy a law or a set of principles, when stakeholders

come together, debate, discuss problems, and

come up with solutions they do more than develop

anti-corruption program, they can also come up

with local solutions to their own problems, create

a sense of ownership and build trust. At the end of

the day, with proper programs in place, everyone

benefits.

Finally, corruption is often viewed a social issue

because definitions of corruption vary and what

is perceived to be corruption in some countries

could be socially acceptable behavior in others.

Corruption creates inefficient and uncompetitive

systems, imposes additional costs on business,

and threatens democratic institutions. Corruption is

not only a moral issue; it is also an economic one.

Therefore, combating corruption requires looking at

the costs that it imposes on business, governments,

and society and instituting good governance

mechanisms within both the public and private

sectors. Building a system of strong, balanced

institutions reduces corruption by creating a set of

reliable incentive structures, where compliance is

not costly and corrupt behavior is monitored and

punished and to reduce corruption, a widespread

commitment by the private sector, regardless of

size, industry, and location is essential.

Initiatives to combat corruption should come from

the private sector, as well as from governments

and civil society groups (collective action), and the

challenge in the coming years is to ensure that it is

not only a handful of private sector organizations

that actively participate in combating corruption.


THE EXECUTIVE22

There are three sets of international business principles on the anti-bribery theme: Trans-

parency International’s Business Principles for Countering Bribery; the World Economic Forum’s PSACI Principles; and those from the International Chamber of Commerce. They are similar in outlook, and often identical in detail. The principles have been developed in response to the increasing realization in the business world that bribery & corruption are damaging for business, and that to avoid them, a company needs specific policies, procedures and tools in this area. The importance of corruption as an is-sue was recognized by the UN Global Compact when it added to the original nine principles the Tenth Principle on Corruption: ‘Businesses should work against corruption in all its forms, including extortion and bribery. ‘

Practices that were once seen as an inevitable part of doing business in many parts of the world are now becoming increasingly unacceptable. More stringent domestic laws and international regulatory frameworks such as the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the more recent United Nations Convention Against Corruption are compelling companies to develop

new policies or review existing ones aimed at eliminating bribery and corruption. In addition, growing awareness of the risks that bribery pose to a company’s reputation and sustainability, combined with greater public expectation of accountability and probity in the corporate sector have added further impetus to this trend. This affects both companies doing business in their home markets when regulators are vigilant, and in particular companies operating outside their home markets or in partnership with other international companies.

To assist companies in addressing the difficult issue of bribery, Transparency International, in partnership with Social Accountability International, facilitated the development of Business Principles for Countering Bribery, a practical tool that provides a comprehensive model of good practice in the area of anti-bribery. These are now undergoing a light revision after their first five years of life, and will be re-published in 2009.

The Business Principles were developed by an international Steering Committee drawn from business, including leading international companies, academia, trade unions and NGOs. They are specific to the area of bribery and represent a detailed elaboration of one aspect of a code of conduct.

The Business Principles for Countering BriberyA Comprehensive Model for Corporate

Anti-Bribery Practices

By Dr Robert BarringtonDirector of External Affairs,

Transparency International (UK)


23

The two principal tenets of the Business Principles

state that:

• The enterprise shall prohibit bribery in any

form whether direct or indirect

• The enterprise shall commit to implementation

of a Programme to counter bribery

The Business Principles focus on bribery only and

not on the broader manifestations of corruption. The

working definition of bribery adopted for the purposes

of the Business Principles covers abuse of office,

breach of trust or illegal acts by an employee or a

third party on behalf of the enterprise. Beyond the

strict prohibition of bribery, the Business Principles

make it a fundamental requirement to implement a

Programme to counter bribery. This Programme can

be tailored to the special needs and vulnerabilities

of a company and should at the very least cover

areas such as bribes, political contributions,

charitable contributions and sponsorships,

facilitation payments, gifts and hospitality. An

important feature of the Business Principles is that

they specify that businesses should apply their

Programme to business relationships. How the

Programme should be implemented is outlined

and includes the leadership role of the Board of

Directors and senior management, development of

a culture of anti-bribery among employees, effective

communication of the Programme to the provision

of appropriate training, maintenance and audit of

effective internal controls and regular review.

The Business Principles have attempted to strike

a balance between a compliance approach based

on detailed rules and one which rests on clearly

articulated values without which companies are

likely to fail in implementing anti-bribery policies

and systems. For anti-bribery programmes to be

successful, companies, in addition to complying

with new laws criminalising foreign bribery, must

embed a strong culture of integrity within their

own organisations and ensure that it is adhered to

throughout the organisation.

Transparency International has produced a

comprehensive Guidance Document to provide

additional background to the Business Principles

and practical information for those wishing to

implement the Business Principles or review their

own practices.

The Business Principles were published in 2003

and have been communicated worldwide via series

of workshops, many of which were supported by the

Center for International Enterprise. The Business

Principles have been presented at events in over

30 countries to business people and opinion formers

The purpose of the workshops is to encourage

companies to use the Business Principles as their

own anti-bribery framework or to benchmark their

practices for future improvement.

To address the needs of smaller businesses

Transparency International has developed a

streamlined version of the Business Principles and

guidance that is more adapted to the needs and

resources of small companies.

In response to the growing demand by stakeholders

and companies themselves for external reviews

of their anti-bribery programmes, Transparency

International is also working with the input of the

major accounting firms on the development of

an approach for the external assessment of anti-

bribery programmes.

The full text of the Business Principles and available

supporting tools can be viewed on the TI web site

at http://www.transparency.org .

A note on Transparency International

Transparency International (TI) has been at the

forefront of the anti-corruption movement since

it was formed in 1993. TI is a non-profit making,

independent, non-governmental organisation

dedicated to increasing government accountability

and curbing both international and national

corruption. TI has a network of some 95 national

chapters carrying out the TI mission around the

world. TI works in a non-confrontational way with

governments, companies, development agencies,

NGOs and international organisations to develop

means to combat corruption.

THE EXECUTIVE24

The global financial crisis draws the attention to the importance of addressing what needs to be done to address defects in the arrangements of corporate governance and accountability. The nationalization of some banking institutions in the US and UK establishes a strong evidence of the failure of Anglo-American corporate governance model to protect shareholder value, and the economic welfare of citizens at large.

Recently corporate governance researchers call for a fundamental review of the Organization for Economic Co-operation and Development (OECD) corporate governance arrangements. They have reasonable justification for independent supervisory board structures to promote effective accountability of managers and company directors. The OECD should address why it disagrees with the ideological resistance of the US to moves to improve and strengthen wider stakeholder interests through independent supervision particularly many European countries generally support independent supervision.

The causes of the financial crunch are complex; failures in transparency; failures in lending standards; failures in prudential standards; failures in risk-management; and obvious failures in corporate governance which rewarded greed without any consideration to the integrity of the financial system.

The real problem is not the amount executives receive; it is how companies pay them. Most financial institutions link compensation to quarterly performance, encouraging short-term gambles. When the bets win, executives get the rewards, but when the bets sour, as they have in the latest financial crunch, the executives who took the risks do not have to return their bonuses.

Boards of the troubled institutions appear to have provided only the negligible oversight to control the

Lessons from the Global Financial Crisis

Corporate Governance

By Hany Abou-El-Fotouh

First Vice President Corporate Governance & Compliance Group Head ABC Bank Egypt

Corporate Governance Failure;

25

greed of executives. Directors of banks who have collapsed carry the full responsibility. Each month they see the numbers. Above all they must examine the risks that their bank may be running. They are also responsible for compliance with regulations. And they set the remunerations packages for the executives. But the troubled banks ticked the boxes for good corporate governance in their annual reports.

Now some experts demand wider and stringent corporate governance controls, such as requiring banks' directors to adequately assess risk. The executive pay should also be aligned with long-term incentives in order to discourage risky bets and to extend compensation over more years.

All key players, including company executives, regulators and investors, have much to learn from the global financial failures. Recently, the FBI launched an investigation into potential fraud at four of the biggest financial institutions in the US - Fannie Mae, Freddie Mac, Lehman Brothers and American International Group (AIG). It can happen only if there is a failure in integrity. When greed prevails, then good corporate governance takes a back seat.

The notion that in bad times companies would be more interested in supporting their bottom line and accordingly will not have time for corporate governance is illogical. The integrity cannot be compromised because corporate governance is not seasonal it is for all times and must be embedded in senior corporate executives and directors. Companies must not put corporate governance on the shelf in bad times. It is like a muscle, must be exercised or it will atrophy.

THE EXECUTIVE26

The global financial crisis dominates headlines of major newspapers across the globe and has been receiving the utmost

attention from world leaders and economists as was evident by the G20 meeting in Washington D.C. in the early days of November 2008. A wide array of analysis concerning the causes of the crisis emerged during the crisis ranging from inadequate banking regulation, over-lending, CEO greed, mismanagement and over-investment in risky projects. Regardless of the reason that stands behind the crisis, fingers are pointed at company boards who failed to effectively carry-out their duties and hence avoid the collapse of their companies.

Corporate governance materialized as a consequence of financial and economic calamities in the sense that improvements and developments to governance codes was always linked to the unwavering attempts by the regulating authorities to draft appropriate codes to overcome the destructive effects of crisis and avert its reoccurrence, altogether. During the post asian financial crisis in 1998, a number of governments, including Malaysia and Korea, enacted a collection of effective governance codes that were capable of successfully transforming their respective economies from the woes of economic recession into a refuge of genuine economic growth. Similarly, subsequent to the Enron Scandal, which involved accusations of corruption to the board for its involvement in suspicious business deals, the Oxley-Sarbanes Act (2002) was introduced to fine-tune governance rules that govern publically traded companies in the US.

In the midst of the current crisis, a number of international organizations are meticulously studying the underlying factors that instigated the crisis in an attempt to spare companies and countries the risk of its reoccurrence in the future. The OECD is currently undertaking such an assignment to draw on lessons from the crisis and

uncover where current governance codes went wrong. It is expected that the outcome of the study will be published in the near future and it should introduce new amendments to the current corporate governance principles. The National Association of Corporate Directors (NACD) has recently published new recommendations to reform existing corporate governance codes that govern the work of publically traded companies in the U.S. The document entitled ‘key Agreed Principles to Strengthen Corporate Governance for U.S Publically Traded Companies’ reflects the viewpoint of board members, top executives and shareholders and is drafted under the assumption that companies abide by the Oxley-Sarbanes Act as well as enlistment rules put by the stock markets in which they are listed. The non-binding document aims at generating increased debate in the business circles concerning the reform of existing governance codes in the US. Therefore, we see that it is of great benefit, here, to highlight key principles:

The principles propose making the design of governance structures the sole responsibility of the board so as to enable it to fulfill its duties effectively and efficiently. Basically, the board ought to select the appropriate framework which best suits its culture and line of business so as to allow it to function more effectively and thus shun away from the blind embracing of best practices which may or may not fit the organization’s culture. Additionally, the overall corporate governance framework should be designed in such a way that supports and reinforces the board’s ability to set its agenda, priorities and improve its ability to receive information in time and focuses the board’s attention on the company strategy and its

Financial Crisis and Developments in Corporate Governance


By Khalid M. DeebChief Executive OfficerAbu Dhabi Center forCorporate Governance

27

ICGN could be accomplished by means of granting shareholders the power to influence the appointment and dismissal of board members. We believe that any future amendment to current governance codes would be centered on enhancements to shareholders’ rights.

Corporate governance has always been a consequence of financial crisis and the current crisis is no exception. Indeed, it has already started motivating and pushing governments and organizations alike to search for possible solutions and tighten-up loose ends in corporate governance codes to safe-guard against the reoccurrence of a similar crisis in the future and ultimately avoid the glooms of an economic recession. That said, such requisite reform is not a substitute for the personality/ character aspect of board members namely, business ethics, loyalty and devotion to the company. All in all, these final recommendations represent the first step in a long journey aimed at strengthening corporate governance codes to protect stockholders, companies and the overall economy.

inherent risks. The principles also highlighted the importance of having a mixed bag of talent amongst board members in a working environment which is conducive to reaching coconscious on decisions. It also calls on board members to be independent and distinct from the management in making decisions. Further, the principles calls for protection against board entrenchment, which requires constant evaluation of board performance in order to dismiss those members who are deemed ineffective, and cannot keep pace with changes in company’s circumstances.

In a recent statement, the International Corporate Governance Network (ICGN) also emphasized strengthening the role of shareholders in any future reform of corporate governance codes. ICGN called on shareholders to assume more responsibilities in corporate decision-making and the nomination of board members. This in turn, requires strengthening shareholders rights, namely in the areas of remuneration and risk management in such a way that would empower shareholders to hold the board accountable. This according to

Abu DhAbi Center of CorporAte GovernAnCe was established as an initiative by the Abu Dhabi Chamber of Commerce and Industry to support the private and public sectors to adopt best international practices in corporate governance. The Center intends to achieve this by means of providing corporate governance consultancy services, training, research and organizing seminars and conferences.

THE EXECUTIVE28

Unlike many of the world’s hospitals, the English approach was less financially driven than most. The taxpayer funds the health service from central government and hospitals provide services to their local communities, concentrating on quality of care, rather than the cost of treatment. This model did not survive the 1990’s and a more financially considered approach was demanded. Hospitals now are paid from the national treasury for the work that they do, against a nationally defined tariff. This means that for a given activity, for example a total hip replacement, a hospital receives a fixed income, regardless of the costs to the hospital, the complexity of the specific case, or the length of time the patient stays in hospital. Hospitals are, of course, legally required to balance their books!

The temptation therefore is for health service managers to focus on cost saving and on the most profitable activities. Hospitals rarely make a profit under the tariff from maternity services, nor from accident and emergency services nor from many others.

What does this mean for hospital governance? Most English hospitals have a single tier board structure, with both executive directors, including the chief executive, the finance director and the clinical director together (and others) and with between five and seven non-executives as members. Like most businesses, hospitals have competitors as most towns and cities have more than one hospital able to serve the needs of the community. As prices are fixed by the tariff, the only way for a board to

Corporate Governance inEnglish Hospitals

“The move is now towards establishment of an “integrated governance” committee of the board, which embraces the financial, research, clinical and information strands”


By Benjamyn Damazer, CG Expert

29

compete is by ensuring that the service quality is high. This can take many forms, including reduced waiting times (within the government’s 18 week maximum wait for non-emergency treatment), quality (however that can be measured), or the range of services offered. Meanwhile, doctors are generally keen to try new (expensive) techniques and drugs, patient and community demands for information grow all the time, and there is never enough money to do everything for everyone.

The board’s task therefore is to ensure that quality is high, with a key focus on patient safety and risk management; that waiting times are kept as low as possible – which usually means investing in more or better qualified staff; and that all hospital processes are as efficient and effective as possible. This is an enormous challenge. A typical hospital in the UK serves over 250 000 residents, with around 7 000 staff plus a small army of volunteers.

The move is now towards establishment of an “integrated governance” committee of the board, which embraces the financial, research, clinical and information strands. Each of these has historically developed independently of the others and does not necessarily align with them – the best course of treatment may be the most expensive and financial requirements may not take into account clinical pressures. But in reality these domains all must complement and impact on one another. Creating different structures to monitor and manage can lead to duplication and increased, rather than decreased risk, wasted effort and over-burdening staff with demands for data.

New hospital governance models are emerging, for example where risk management is a function of the clinical governance committee or where a single committee embraces controls assurance, clinical governance, audit supervision and risk management. However, operating an integrated approach with a part-time, non-executive board is not easy. The integrated governance committee must be chaired by a non-executive who is unlikely to have an in depth knowledge of finance and clinical matters equally. This is governance for patient safety, not for profit. If only finance is seen as important, patients will undoubtedly suffer!\

THE EXECUTIVE30

The role of the board of directors (BOD) of a healthcare organization might not differ from

any other board regarding the basic roles in setting strategy, protecting shareholders rights, monitoring performance and ensuring disclosure and transparency. However, there are extra functions in healthcare organizations, which makes corporate governance (CG) in them different from other organizations. For example, one of the main functions of the BOD of a healthcare organization is clinical governance, which seeks excellence in the quality of the clinical services provided to the patients, the training programs of medical staff and the standards of research processes. As an example, the BOD of a hospital should ensure the presence of a strict audit system that ensures that the patients are getting the best standards of care according to the international guidelines for treatment of different diseases. This BOD, should be able to set specific non-financial key performance indicators for the management, as morbidity rates, mortality rates and critical clinical incidents. The strategy set by the BOD should be able to cope with the development in technology and knowledge in different medical fields and secure that the patients receive the best up-to-date technology at an affordable price. The BOD should ensure that the medical personnel as doctors and nurses are getting the best training and are qualified to do their jobs according to the national and international standards. The BOD of a pharmaceutical company should be able to audit the procedures of research and ensure that they are complying with the national and international research standards

and ethics. The BOD of a healthcare organization should have an effective CSR strategy ensuring that a socially important service like health is made available to some of those who cannot afford it. The organization should be able to cope with the strong social and political aspects related to its business. Enterprise risk management in such organizations is different from other organizations. For example, major complications resulting from wrong treatment in a hospital would be extremely important on risk analysis heat maps. First of all, because the damage to a human life is unacceptable. In addition to that, the Ministry of Health would close the hospital, the case might be presented to court and the story would be on the first page in the newspapers. This would force the hospital to go out of business in a very short period. This highlights how technical risk needs to be translated into financial risk threatening the existence of the organization.

This approach brings up the question: Who should be a member of the BOD of a healthcare organization and what is the right “mix-of-skills” needed in this BOD?

Healthcare is a very complex industry with involvement of many stakeholders. It is involved in almost all disciplines and is an integral part of all organizational frames. It comprises many specialties those are directly needed to develop effective and efficient healthcare strategies. Health has social, cultural and economical aspects and needs expertise in management; finance and economics; cultural anthropology and sociology; geographical analysis; information technology and e-communication; mass

Mostafa Hunter

Leading Expert, Healthcare Sector, EIoD,

Ministry of Investment

Reaching the Right“Mix-of-Skills” of the Board of Directors of Healthcare Organizations


31

communication and social marketing; hospitality and catering. In addition to that, it needs knowledge in medicine; pharmacy and biotechnology; clinical guidelines; research guidelines; professional certification programs for doctors and nurses.

In Egypt, the management and governance of healthcare organizations are usually limited within the narrow frame of medical personnel. We have reviewed earlier, in an article in the previous issue of the “Executive”, the inherent problems in this model with focus on the conflicts of interest. Here we will focus on the problems related to the experience needed to run the organization. According to the IFC, the qualification requirements for the board can be divided into personal characteristics and competencies. The personal characteristics include leadership, integrity, accountability, maturity, work ethics and time. This governance model might not have problems regarding any of these points except time and accountability. As the members of the BOD work in the hospital as doctors, they might not have time to do their jobs as board members. The more successful the hospital, the more patients would come to them, the less time they would have to oversee the company, and so the system has an inborn problem regarding long-term sustainability. Regarding accountability, as doctors represent the owners, technical workers, managers and BOD members of the organization, they are not to be held accountable by anyone.

Regarding competencies, the IFC recommended industry experience, business judgment, in addition to education and special skills in many disciplines including finance, accounting, risk management, internal control, and/or strategic management. In a BOD composed completely of doctors, with the exception of industry experience, the other competencies are extremely deficient. For example, how can a board with such a composition take a decision regarding the impact of the international financial crisis on the business?

On the other hand, in models where the BOD is composed completely of members from pure business and management backgrounds, we might find all the needed competencies, except for the industry specific

knowledge as the business cycles within hospitals, clinical governance and research ethics. In many models, the business is a family business. In all these models, we rarely find independent directors on the BOD. If we apply the stakeholder view of corporate governance on healthcare organizations, it would be very rare to find the needed competencies to deal with a complex multi-stakeholder issue like health.

To summarize, the BOD of a healthcare organization should be carefully selected to be composed of a complex mix-of-skills to achieve objectives, create a sustainable business and maximize the benefits for all stake-holders. These members should not be limited to a single discipline, rather the BOD should be composed of qualified persons from different disciplines, who would give their input and point of view to enrich the decisions of the BOD. This multidisciplinary BOD would have several advantages. First, it would have an interdisciplinary approach to different problems and strategies, leading to more effective decisions. Second, the knowledge of the members about other disciplines would gradually improve through interactional expertise development. Third, this model would break the vertical barriers between different industries, and would gradually lead to more

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integration of the healthcare sector. Finally, bringing more independence to the BODs of healthcare organizations would improve their performance.

Intensive training programs are needed to improve the managerial skills of doctors working on the BOD of hospitals. This would improve their knowledge in other disciplines and make benefit as well from their specific knowledge of the industry. Other training programs fashioned specifically to healthcare organizations would improve the competencies of their BODs.

EIoD and the way forward to improve corporate governance (CG) in healthcare organizations in the region:

Believing in the importance of improving the healthcare industry in the region and its positive impact on the community and the economy, the EIoD, as a leading organization in CG. took the initiative to launch a program for improvement of CG in healthcare organizations in the MENA region.

At first, we started to analyze the sector. In our analysis, we classified it according to both, functions and ownership. Functionally, it was classified into three groups: service-providers (hospitals and centers); pharmaceutical companies; healthcare funds as health insurance companies, employee healthcare funds and health maintenance organizations. According to ownership it was classified into private business sector; not-for-profit sector; governmental sector. Through this analysis, we could create a matrix of industry specific targeted approaches to CG in healthcare organizations.

In Egypt, we found out that the healthcare sector is secluded in a virtual island where it is separated from other industries as regards CG. In our vision, the healthcare industry needs to be integrated in other industries where it would benefit from the know-how and expertise available now in the fields of CG; CSR; finance; accounting; internal control; strategic management; enterprise risk management; transparency and disclosure. Other sectors would benefit as well through getting more insight on this sector and more knowledge about it. This would help the healthcare sector to be more ‘visible’ and attractive to the financial and investment market, and allow it to grow on solid and sustainable basis. Integrating CSR policies would

expand the accessibility and equality of healthcare services to the poor sectors as well.

The approach of the EIoD for CG in the healthcare sector will work on the following directions

1. Awareness

Through different awareness events, we aim to increase the knowledge of the sector about CG and its benefits. We have already had the first session about CG in healthcare during the annual conference of the Egyptian Society for Hospital Management. We will make soon an awareness seminar about CG in the healthcare community.

2. Professional Development

Through courses and training programs, we aim to improve the skills and knowledge of the current board members in healthcare organizations about CG and CSR. We had, for the first time in the last intake of the ‘board development series’, four doctors holding leading positions in private hospitals in Egypt, who successfully completed the program and will be certified as directors from the EIoD. Through reviewing the hospitals they are leading, we noticed the positive impact on the CG procedures in them. In addition to that, we have developed an industry specific module “CG for healthcare organizations” as a new training program offered by our institution.

3. Consultancy

We are offering a whole spectrum of consultancy to healthcare organizations in the field of developing their CG and CSR strategies. Our services goes through three phases: need analysis, plan development and implementation.

4. Nesting

We are planning to work through our network of certified directors to help in increasing the presence of professional independent directors on the boards of healthcare organizations to make them more multidisciplinary and independent.

5. Integration

We will work as a facilitator to integrate the healthcare industry within the other industries in Egypt regarding standards of CG, disclosure and CSR.


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In a survey attempted by “Al Aqariyah” newspaper with 45 real estate experts from various ranges of activities, to express their opinions about the future of the real estate market in Egypt. In a language characterized by a mix of optimism and confidence, they said that the crisis will not drag on the Egyptian real estate market, but there will be a relative stability in prices during the coming period, with a decline in demand for luxury housing for a brief period, then the real estate market will return to normal again.

They emphasized that the real estate sector will be the opportunity for investors escaping the successive losses in the stock exchange, and that

A survey attempted by "Al Aqariyah" newspaper with 45 real estate experts

What is facing the real estate market?

serious investors will get out of the current crisis stronger than before. They affirmed that the loss of sales by investors will not happen as real estates are naturally (stores of value), and the volume of average housing units will increase over the coming period, while the prices of older units will remain as it is.

Fathi El Sebaie, Chairman of Housing Development Bank and Egyptian Arab Land Bank, described the mortgage finance activities as the magic key to the success of the real estate market, expecting further recovery during the coming period which will witness an increase in purchasing rates, especially by the middle class. He called for focusing on the

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To where the real estate market is heading in this crucial period of economic transformations the whole world is experiencing, and within the turmoil hitting the global and local securities markets? ... What future awaits this market, given the decline in the prices of construction materials which are the main ingredient in this vital industry? Is it moving toward growth, or will it be reach a stand still, casting a shadow on the performance levels, which significantly leaped over the past five years?

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national companies, because they are the most stable in the market whatever happened, and also highlighted the need to evaluate the status of Arab companies operating in Egypt.

Hassan Dorra, Chairman of the Dorra Group, said that people fear of banks and stock exchange after the global shocks directed them to invest in real estate sector which shows increasing demand resulting from the huge increase in population. He stressed that Arab capitals escaping banks and gulf stock exchanges will not find a safer place except in the Egyptian real estates, but there is a need to eliminate red tape that remains an obstacle for those investors, in order to broaden the base of real estate investment in Egypt.

Magd Eldin Ibrahim, Chairman and Managing Director of Taamir Mortgage finance ( First), urged companies to focus on the establishment of middle-and low-income units, stressing that the 3% rate is low, relative to the size of real estate investments, which recorded EGP 30 billion. He also said that those affected by the Stock Exchange and banks during the last period will direct their money to the real estate sector, calling for adopting the “Build Your Home” project in the real estate finance system.

Ahmed Haggag, CEO of Amlak Finance, declared that the demand for mortgage finance is increasing, despite the global financial crisis, and the separation of construction and financing in Egypt saved the real estate market from serious consequences. He is calling for fast implementation of the securitization system in real estate sector, because of its importance to the sector, with the need to change the products of the real estate investment companies to be in line with market conditions, adding that prices began to stabilize and investors believe that it’s in their best interest to calm the game down and watch the market. He also denied the existence of a crisis with foreigner investors in case of funding their projects.

Mahmoud Hassan, Vice-Chairman of Heliopolis Housing, expected real estate prices to drop by 5%, due to a drop in the prices of steel, denying at the same time that the prices may dramatically decrease. He stressed that the impact of the low construction materials prices on the real estate market is still to be clear, believing that this will be felt on the ongoing construction projects only. He pointed out that the real decline in real estate prices will happen in case the construction materials prices declined in parallel with the drop in the prices of electricity, aluminum, and marble, but he

ruled out this case, stressing that the crisis affected the purchasing power only, and did not affect the payment of units premiums. He also added that the real estate market will not collapse no matter what happened.

Darwish Hassanein, General Director of the Egyptian Saudi for Reconstruction, said that demand for average housing units will increase during the coming period, as one of the positives of the global crisis is that people feel safe when investing their money in real estate, which will lead to more investments in this vital sector, especially after the decline in prices of construction materials. He advised investors to address different customer needs through building various types of housing units, expecting a decline in steel prices to EGP 3000, despite the current unstable increase.

Hisham Shoukri, CEO of Rooya Group, expects a correction of property prices by the end of this year after the current decline in the prices of construction materials, in addition to the demand of many property developers for medium-and low-income housing which is in high-cost basis. He asked the state to provide land with appropriate prices for developers of low-income housing units, stressing that traders are the cause behind the volatile steel prices during the last period, and expected at the same time a sharp decline in cement prices to reach EGP 300 per ton, after the new companies enter into the market.

Agreeing to that opinion, Hala Bassiouni, CEO of the Egyptian for Mortgage Finance, says that real estate prices will not decline, and I would advise people not to sell at this period, and the Egyptians prefer to invest in this sector because it is more secure than the stock market and banks. The problem is that the Arab companies entered the market with very different building styles, causing prices to increase. She said that mortgage finance companies are keen on finance housing units rather than investment units, to avoid brokerage.

Real estate investment companies called for expanding the projects average housing units, so that the finance companies may fund them, for they do not finance luxury housing. Gasser Bahgat, Managing Director of Orientals for Urban Development, said that the real estate market is still observing the situation after the global crisis, and that any serious investor will be out of the crisis stronger than before, denying a decline in property prices during the coming period. But he stressed that land prices will drop, especially those owned by outsiders.

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Mohamed El Guindy, Chairman and Managing Director of Nasr Housing and Reconstruction, see that the current situation of the real estate market is expected to be stable for a period of 6 to 9 months to come, stressing that real estate prices will not decline, except for new buildings that will be built after the drop in the prices of construction materials. He highlighted that the expected trend in the coming period is more demand for establishing low and middle income units.

“Price level will not drop in a large purchasing power”, appraisers experts said.

Shoukri Mikhail, an expert appraiser, does not see a coming recession in the real estate market, stressing that the market is on the threshold of a new surge in light of the increasing demand for land and housing.

He stressed that there are strong indications of a high demand for land, but he noted that the purchase prices are in a corrective phase due to the great purchasing power, and the buyers desire to get a fair price.

Shoukri noted that what is happening in the market mirrors several facts; the most important of which is that buyers are looking for fair prices, and the end of excessive prices phenomenon.

Speaking about his expectations for the market during the coming period, Choukri denied any decline in prices, but there is a great potential for stability, while low building materials prices will determine the prices of real estate properties after 3 years.

Shoukri is also predicting an intensive activity in the real estate market during the coming stage, especially with this stability of the economic situation, stressing that real estate is a safe haven for capitals to avoid surprises or market recession.

Appraisers agreed that the market is stable in some areas while prices increase in other places, stressing that low construction materials prices do not negatively or positively affect real estate prices, but their opinions varied on the situation of the real estate market in this period, some have suggested that Egyptian real estate market is currently robust and there are no recession, while others are of the opinion that the market is in recession and there are no sale or purchase because of the lack of liquidity in the market.

Dr. Sayed El Habashy, an expert appraiser, said that the real estate market is currently in a period of instability, depending on each region: Some

regions witness fixed prices and was not negatively or positively affected, while others are witnessing great increases, especially coastal areas Hurgada, northern coast, and Sharm El Sheikh.

He added that the decline in the construction materials prices helped to increase demand for real estate properties and land, while the decline in steel price helped traders and investors to get the quantities offered for sale, which led to depletion of steel quantities.

While Mr. Ahmed Hanafi sees that the purchase-sale cycle in the market is stalled, due to the lack of liquidity, the matter that led to weak demand.

He pointed out that the market is going through a period of deflation, especially after the global crisis.

He also said that the decline in the prices of construction materials did not result in a reduction in demand for real estate and land, for prices remain high. He emphasized that real estate prices during the period will not fall, because real estate prices tend to stay at the level and remain flat there.

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He emphasized that the real estate units owned by Arabs have seen a significant decrease in prices, but real estate owned by the Egyptians did not fall, stressing that Arabs are responsible for raising the prices in Egypt even before the global crisis, and caused a revival in the market, but now they are selling these properties at low prices, and lost a lot of money.

Real Estate Finance Exceeds EGP3 Billion

Osama Saleh, Chairman of Mortgage Finance Authority, said that the real estate finance activity in Egypt was not largely affected by the global financial crisis, because of adopting special controls different from those applied in United States and led to the bankruptcy of key financial institutions. He noted that lending United States was going on the premise that real estate prices will keep on rising, and consequently expanded without cautious controls.

Saleh reviewed, during Dubai’s (Real Estate Investment World) conference, the reaction of Egypt and the financial markets toward the crisis, pointing

out that there is still no direct impact, and that Egypt adopts a high regulatory system and regulatory procedures capable of effectively controlling the market and dealing with crises, to prevent financial problems such as what is globally happening.

The Chairman of Mortgage Finance Authority highlighted important steps that made by Egyptian real estate finance market within a relatively short period of time. There are 10 licensed mortgage financing companies so far, in addition to 19 commercial banks providing loans. With regard to the size of the sector, he stressed that its value exceeded EGP 3 billion by the end of September 2008, with an average interest rate of 13.2%, average unit value of EGP 165,000, and average number of years dropped to 14.5 years.

“We stand on solid ground so that we can deal with variables countermeasures, we have created a safe and regulatory environment to help us dealing with the possible consequences of the existing problems facing the international economy. The Egyptian government is intending to establish a unified regulatory body comprising all the non banking services; such as real estate finance, insurance, capital market, and financial leasing, and this move by the government aims to more effective control and transparency over the market, and it is devoted to the principles of governance and consumer protection”, he said.

“Demands reached 4 million units while only 200 thousand available...”, Magd El Din Ibrahim says

Magd El Din Ibrahim, Chairman of Taamir Real Estate Finance, urges for the need to solve the problems facing real estate investment, and foremost to provide adequate funding to companies and the exemption of premiums paid by the customers from taxes. He also noted that real estate investment companies are beginning to move towards low-and middle-income housing, and the following interview holds more details…

• What do you expect for the Egyptian real estate finance system, especially after the American mortgage crisis?

The Egyptian case is different from the American for several reasons, especially that the volume of the sector in the States is very large compared to

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ours, and the annual rise in the real estate prices gave a false impression to the mortgage finance companies and appraisal experts, but default cases began to increase due to higher interest rates and buyers became unable to pay installments, so there was a gap between supply and demand and prices started to fall. When banks started selling these units again, they could not recover their money, in addition, companies that were granted funds ran out of money, so resorted to securitization of the real estate market portfolio and all international banks rushed to buy such guaranteed bonds, and when banks started in the way of failure they took other banks in the World to the same fate, the same banks which had thought that securitization in the United States is safe, while it turned up that it was quite dangerous.

• What about Egypt?

The picture in is different to a large extent; we have a very severe shortage of units, estimated at over 4 million units in various levels, while only 200 thousand units per year are built, noting that there may be a problem in luxury housing in which any customer purchase a unit for housing and another to invest in it later. However, the Urban Observatory, which is implemented by Urban Planning Authority, will tell us about the real status of building luxury housing or average housing. So, we will know the amount of demand for each type, and a look at the volume of advertisements promoting for the luxury housing will tell us that the units are enough to accommodate every wealthy person in Egypt, Arab World, and the world.

• Are there risks in financing this type of units?

Yes, there are. But we specifically noted that there is no default cases resulted from financing units with prices exceeding one million pound, for when we give a large sum of money we make sure first that the unit price is appropriate, and the personal income of the unit purchaser is more than enough. We make sure that the unit installment represents only 20% of the total income of the customer, while the premium should be up to 40% of the total income.

• What is the type of units that needs more focus?

The two Ministers of Housing and Investment called for a trend to focus on building housing units for low-and middle-incomers. The supply in this segment is very limited, while the demand is very large. It is noted that a large number of big investors is heading to establish these units; some of them built these small units to sell them with prices Egyptians can afford, we will find very good demand for them, and they are also making good profits and seeking to acquire more land, and the ministry allowed participants in the National Housing project land with very reasonable prices.

• What about the size of Mortgage finance sector in Egypt now?

Companies and banks were able to secure a mortgage finance market with a value of EGP 3 billion, one billion of which was recorded during last year alone. The volume of real estate investments in

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general is up to EGP 30 billion, but funds represent only 3% of this volume.

• What are your expectations for the real estate prices in the coming period?

As for luxury housing, prices of which were overstated, there will be stability in prices, because if the prices were reduced then problems will occur between former clients and companies. I do not think that anyone will implicate himself and built luxury housing units for the time being, until the existing units are sold. As for the average housing, prices will not decline, because there will be an increase in demand.

• How do you see the real estate market now under this global financial crisis?

The real estate market in Egypt is still more structured and disciplined, and prices will be stable in the coming period, both for luxury housing or other types, at least for a 3 or 4 months period. If our forecasts are true, we will see in the coming years a trend towards smaller units, and this increase in demand will take prices to higher levels, especially with the inflation expected, taking into account that the prices of some real estate units rose during 2008 by more than 50%; a proportion much higher than the inflation rate due to high demand, and those who are obliged to sell will sell with the natural price.

In general, serious and committed companies that announce appropriate prices would not be affected. We, for example, found that the Housing Development Bank offered lands and units and there was a popular demand, because we are talking about a serious buyer.

• Do we need new controls on Mortgage finance sector?

No, but we do not need things that help us to expand more in real estate finance activities, we need provision of appropriate funding for a sector providing a long-term finance, as well as the need to enlist (Build Your Home) project in the mortgage finance system, through gradually finance the beneficiary, and we also must provide all building materials and supplies for the beneficiary, and here I would say that Housing Development Bank was the first to sign an agreement with Contractors Union for the same reason.

• What are the demands of Mortgage finance companies?

We ask Minister of Finance to exempt paid premiums by the citizen from taxes, with a system similar to what is applied in other countries such as the USA, and also similar to what is applied in the financial leasing activities. We hope that the Minister of Investment will succeed to convince Minister of Finance to adopt this procedure, for I do not think that cancelling this tax will affect the volume of taxation.

“Real estate sector is the best alternative for Stock Exchange and banks escapers”, Eng. Hassan Dorra.

A number of important issues is now dominating the economic scene in general and real estate sector in particular, the most important of which is the impact of the global financial crisis and American mortgage crisis on the real estate market in Egypt and Arab world generally, and how we can benefit from this crisis and turn it into a blessing and not a curse on our country.

The second important issue is the flight of capital from the stock market and banks, and turning to real estate sector, and how those changes may be invested for the continued revival of the sector.

Through the following dialogue with Mr. Hassan Dorra, Chairman of Dorra Group, it will be more likely to know the answers to our questions:

• Is what started at the United States of America as a global financial crisis might be a blessing, not a curse on Egypt?

What happened in the United States of America will take some time, and we must utilize this period to realign, and to educate administrative bodies the good treatment of Arab investors, and to believe that any funds entering the country will have a positive impact on everyone.

• Real estate...Banks...Stock Exchange....How do you see these sectors now?

Real estate will always and forever the most secure sector for investors under the current circumstances. Proof of this is that surplus funds are beginning to move to this vital sector, especially the demand for real estate is growing with the grow of population. As for the banks, people fear to deal with this sector at the moment; because of the global financial crisis

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and banks currently witnessing some hesitation in granting loans.

With regard to the stock market, it is now experiencing a decline in stock prices, not only in Egypt, but in worldwide, and instability.

• Does this mean that this is the best time to buy?

Yes, this is the best time to buy. There is stability in the real estate prices in Egypt after the decline in building materials prices, especially iron, which in turn led to price stability and stem the tide of rising prices.

• Which type of housing units attracts people?

The already popular units in Egypt are the 100, 120, and 150 square meters, specially average and above average units.

• Does this negatively affect luxury units?

There is already a relative stagnation in the luxury projects, particularly because of the current crisis, particularly as there was a self-sufficiency of the group that bought luxury units, for whoever has the money will be able to buy at more than one place.

• How do you see the experience of Arab real estate companies in Egypt?

No doubt those routine and ministerial decisions were one of the obstacles which stood to the success of this experiment, and it seems that some of these companies is serious, and some projects has not been implemented so far. The related authorities must withdraw lands from companies that have not yet implemented projects, after giving them appropriate time.

Increasing demand for average housing...

Eng. Hassanein Darwish, Director General of Egyptian Saudi Reconstruction, said that there are three main reasons behind the global decline in the prices of construction materials: The global financial crisis, the drop in oil prices, and lower demand for construction materials in countries such as China, India, and a number of other Asian countries. Darwish revealed that 70% of luxury housing customers and 30% of the average units’ customers purchase housing units for investment and not housing.

The following interview holds more details...

• How do you see the impact of the global financial crisis on the real estate investment sector?

One of the positives of this crisis that many feel that the sector is a safe investment to direct their money to. As it is absolutely safe investment, and will help the stability and the continuation of this sector in Egypt. The recent indicators of lower prices of construction materials, which has a comfortable balance between the consequences of the crisis and its implications for the real estate investment. I emphasize that the serious real estate investor is always at the safe side, even if he was exposed to some international circumstances, for he will remain immune from the shocks affecting the large investments.

• Can we classify customers of the real estate market?

They can be classified into several types: Purchasers of luxury residential units for living, purchasers of luxury residential units in order to re-invest in them, purchasers of medium units for the purpose of living, and purchasers of the same units in order to study the rates of investment and number of these customers. We find that there is a high percentage of up to 70% concentrated in the luxury segment for investment or procurement, while a rate of 30% in medium or below the average housing, so the luxury units will be affected for those who want to buy for investment, and purchase for living will remain as it is, because a large number of investors in the luxury segment invest in the stock market, which was adversely affected.

But they, at the same time, realize that investment in real estate is the best and most secure, hence the decline of that percentage is not severe, because there is a desire to rebalance investments in real estate.

As for purchasers for living or investment in the medium or below units, the figures will remain unchanged and will not change. The fact is that this segment was not directly affected by recent events.

• Whom do you think that the market may expel?

Those who were assisted by the amazing surge in the last two years, which was not subjected to proper investment measurements. After getting a very good presence and proliferation, they will suffer under the next period conditions. I mean the

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investor who is buying land with a limited down payment and then resell.

• Final word to the Mortgage finance officials?

I say that the next phase will see a demand for average housing, and this requires the revitalization of real estate finance activities in the next stage, where the sector will play a central role in assisting those wishing to purchase these units then own them and pay in installments for many years. If we have to activate the role of funding, then the next phase is an appropriate stage for everyone involved in this role. The first of these steps is the need to reduce interest rates on loans, to help middle-income earners to purchase units through real estate finance system, and I think that the state should have a role, like in Japan when the government intervened to reduce the interests on real estate finance sector, and helped to balance economic conditions and was not affected by the current financial situation. The Egyptian market is open for projects to cover its needs and investments.

Hesham shoukri: Corrections to adopted in the real estate market later this year

Hesham Shoukri, CEO of Rooya Group, expected a correction of property prices in the market later this year or during the first months of next year, after the drop in prices of construction materials.

He asserted that the entrepreneurs who raised prices ceiling of their units will be forced to drop off the prices to come closer to competitors.

“The coming period will witness a greater demand by developers for medium and low-income housing”, he added. He also noted that the cost of low-income housing is high, the matter which requires the state to provide land at affordable prices to those trend setter, the following interview holds more details.

• Do you think that there will be a move to correct property prices after this decline in prices of construction materials?

We must agree first that prices will significantly drop, but whoever exaggerated in prices of their projects will be forced to drop off to moderate prices, to eliminate the large prices disparity between various projects, and no doubt that this will lead to higher rates of real estate investment ranging between 30% to 35%. I expect a correction in prices later this year or early next year.

• What are the expected results of this adjustment process, from your point of view?

Amateur developers who have entered the market during real estate sector’s recovery will withdraw from the market; which will be more focused on professional developers, not traders or manufacturers who have entered the market to take advantage of a booming sector.

• How do you see the warning issued by Ministry of Housing for major real estate companies who acquired lands and had not started construction works yet?

I think that the Ministry has the right to withdraw lands from companies that are not serious, and also to the confiscation of their down payments (10%), and this figure reach EGP 135 million in the case of DAMAC, which heralded up to EGP 2 billion pounds before starting works.

• What are the trends adopted by real estate developers in the coming period?

I think that the coming period will show a trend towards medium and low-income housing, and the State should encourage those companies by giving them land to establish projects of this kind; because there is a great demand for low-income housing, despite its high cost, as the cost of a 60 square meters apartment is up to EGP 90,000.

I see that the problem with the market lies in an incompatibility between the customer’s purchasing power and the cost in case of high prices, and I also believe that market trends in the next stage will show a large demand for business and administrative units.

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“Real estate finance is not only for the rich”

Hala Bassiouni, CEO of Egyptian Company for Mortgage Finance, denied reports stating that real estate finance activities are directed only for the rich, saying that finance companies give loans to all levels, according to available units in market.

She asserted that the sector was not affected by the global crisis, especially the US mortgage crisis, because of the very different conditions of the local market. She pointed out that the real estate sector is in no need of new controls, especially in light of the role played by the General Authority to monitor this sector.

• How do you see the relationship between supply and demand in the real estate sector?

We must recognize the mismatch between supply and demand; for supply was for the top segment in the community, while 90% of demand comes from the middle and bottom classes. The supply of luxury housing was affected by difficulty in selling such units, both for individuals and for developers, the matter which threatens to stop the selling and buying cycle, or at least to reduce the second hand unit prices of the top segment.

• What are your expectations for prices after this decline in steel prices?

I believe that real estate prices would not decline, but there will be a kind of stability or readjustment, for many will refuse to sell with losses, but reports within Euromoney Conference recently held in Cairo stated that prices for new projects will be decreased by 10%, because of construction materials inputs in the new projects.

• What are the pros and cons of Arab companies operating in Egypt?

The positive point is that each new competitor enters the market is in the clients interest, while negatives are that the entry of these companies raised prices too much. They came to Egypt with a very good reputation and brought in new systems in designs and advertising campaigns. They also returned the system of units’ finishing in full, which led to an increase in prices of these units, although they say that these are low prices compared with overseas.

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As long as these companies find buyers for with these high prices, they are entitled to raise prices.

• Was the real estate finance sector in Egypt affected by the global crisis?

In fact, the mortgage finance in Egypt was not affected by the global crisis or the US mortgage crisis, for that crisis emerged overseas when more than 60% became owners of their properties. Companies started to provide units for low-income customers and were struggling earlier, with high interest rate and premiums higher than the actual unit value. This system is not applied here, because we do not finance by 120% of the unit value, we strictly deal with the customer’s credit history, and we do not finance any client facing judicial proceedings, or having greater liabilities.

• What about the controls over projects under construction?

Egypt adopts strict criteria for financing of units under construction and the General Authority for Mortgage Finance fully plays its role for the application of funding standards and controls for projects under construction by ensuring the ability of companies to implement and to commit with the funding company. There are standards, and mortgage finance companies are committed to these standards.

• How many financed units in Egypt?

There are about 6000 units were financed, including about 4 thousand units for low-income clients; with loans not exceeding 30 thousand pounds per unit.

• What steps are needed to push the market?

Developers are required to focus more on affordable units for middle-income clients, the matter which will help finance activities to access all eligible. Lack of access to the needy is not the fault of the financing companies as long as there is no real estate units fit this category, for real estate financing is only a medium between sellers and buyers. If there are no suitable apartments for middle-income individuals, then real estate finance companies will not be able to do anything. that land prices will drop, especially those owned by outsiders.

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Tensions have run high of late as consumers, real estate investors and financiers look troublingly at the consequences of the global credit crunch. However, as the Egyptian market tenses up and fears run amok, we have to put things into an objective frame of mind, namely, let’s analyze what happened abroad to bring about such drastic consequences. The buildup to the US subprime crisis is a direct result of a few major factors;

a) high default rates on “subprime” and adjustable rate mortgages (ARM)

b) declining lending standards

c) an increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices.

Characteristically, the fallout of the US mortgage market and its implicationson the rest of the

Why backing MFCs and startup home finance ventures makes sense

Recent reports surrounding the mortgage finance industry have led to widespread speculation of the early demise and possible collapse of the real estate sector and it’s collateral industries. What are the causes behind this speculation? What is the inside view from practicioners in the industry and what does the future hold?

by Ahmed Haggag,CEO - Amlak Finance & Ramy Taha, AVP for Products & MKTG, Amlak Finance

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world’s economy came about when the following actions accelerated between 2006-2007:

a) Interest rates began to rise

b) Housing prices started to drop moderate ly in 2006–2007 (refinancing became more difficult)

c) Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices failed to go up as anticipated, and ARM interest rates reset higher

The end result was that nearly 1.3 million American homes were foreclosed upon, MBSs (Mortgage Backed Securities) lost their value, banks became overexposed as their cash flow dried up (installments were not being paid and liquidating assets came at a loss as the market was on a downturn) and credit came to a screeching halt. While the widespread implications of what happened continues to plague us and the world has readily accepted the term “recession”, the Egyptian market poses a different (and much brighter) scenario.

The Difference

• Consumer default levels on residential loans remains well below median levels for other consumer credit facilities and well below the reported 9.8% level seen in the US

• Real estate pricing levels are stable and continue to show signs of moderate appreciation – while recent launches (notably the latest Palm Hills release) have shown a return to more realistic pricing models “there is not enough concrete data to justify the mass speculation or fear surrounding the Egyptian real estate investment market.”

• While the recent downturn in the CASE has had serious implications on investor confidence the long term effects are in the favor of the RE sector as consumers will look to hedge their risks in longterm assets with less volatility than currently offered – the opportunity here for MBSs and Islamic Asset Backed Sukuk is tremendous as there is now a significant market for investors with low risk tolerance

• MFCs hedge their exposure risk in the case of a market downturn by effectively employing some of the following risk mitigation methods:

Controlling LTV’s - Median LTV levels stand at 73% - a significant margin over any foreseeable depreciation risk.

Key MFCs operate via dynamic credit policies and monitor default, risk tolerance levels and the general health of the portfolio in a proactive manner. Top level MFCs today frequently employ high level investment banks and investment managers to facilitate treasury and ALCO functions and provide objective third party research and market forecasts.

Proactive MFCs financing properties under development set exposure caps limiting their exposure to one single developer in order to hedge developer default and completion risk.

Egyptian MFCs are highly regulated via the MFA an d do not practice predatory lending or finance sub-prime loans (consumers with low/questionable credit history), in addition, the practice of granting LODOC and NODOC loans

We can readily investigate some keyfactors in the market today, namely that general investor and consumer sentiment in the market is one of hesitance;which is significantly different from outright panic. There is not enough concrete data to justify the mass speculation or fear surrounding the Egyptian real estate investment market.

On the contrary, key indcators point to the following;

• Consumer mortgage lending levelshave shown minimum to zero downturn– demand remains high (lending levels in August were the year’s highest)

Why backing MFCs and startup home finance ventures makes sense

THE EXECUTIVE46

(loans granted with little or no documentation) is not existent and is unforeseeable in the near future.

Penetration levels for mortgage lending remains low (Mortgage :GDP ratio remains below 1%) effectively negating the possible economic meltdown implications that have plagued the UK and US where Mortgage to GDP ratios reached as high as 65%.

Underwriting and credit standards remain extremely tight and will continue to do so as the bond market beckons and demands grade A securities.

The Egyptian mortgage market’s funding structure also operates in a unique fashion as the majority of MFC’s are equity lenders who tap into bank credit lines at a limited scale. Leverage at the largest lenders in the market currently stands at just over 1:3, while lower volume lenders have much lower ratios. Positively, credit is still flowing and banks continue to look to the MFC marketas an important stream of business.

The Future: Innovation

In the UK, despite all that has been published, lending levels for Q3 residential home loans declined only 16% while the US market has been hit harder with Q3 volume down nearly 63% from the previous year despite this, lenders in both those markets who have practiced financial prudence and continue to innovate still enjoy noticeable growth and monthly lending volumes in certain segments have continued to rise at a rate of 5-8%.

The same will hold true for the Egyptian market as the future for MFCs is in product innovation, rigid yet dynamic credit policies and the utmost standards of corporate governance. There are too few players in the market today (despite the number reaching nearly 21 entities currently offering home finance today) to justify the relaxing of lending standards anytime soon.

Established bases and the quality of a lender’s

operational platforms will be based on the required

innovation in services and products are what will

differentiate one entity from another in the coming 2

to 3 years; although consultancy and international

outsourcing will allow many to bridge the gap

sooner than later. What can’t be acquired are the

right people to deploy and implement the services

so desperately needed by Egyptian consumers

today. The lack of qualified human resources in the

sector remains alarming but things are on the rise.

Egypt’s mortgage lenders must think proactively on

how to diversify their portfolios between a variety of

business functions such as real estate investment,

mortgage finance, leasing and specialized

services (brokerage and appraisal arms) as well

as parterning with other key related sevices such

as that of insurance, currently one of the pillars for

building a healthy mortgage market.

The Proof is in the Product

After nearly 5 years of lethargic activity, both

government officials and MFCs continue to scratch

their heads wondering why penetration levels are

so low.

Regardless, the answer lies in MFCs and banks

insistence to continue to promote the same vanilla

mortgage products year after year. A few lenders

have innovated with grace period loans, shared

installment loans, balloon loans and are now

exploring the exciting possibilities of home equity

loans and various other facilities. Not surprisingly, it

is lenders such as this who have enjoyed significant

business levels while maintaing healthy portfolios.

Combine this with improved servicing standards

and turn around times and the market should

continue to show improved growth levels for the

next 18 months.

Sector Performance

47

the nature of real estate investment activities, which could be an impediment to the growth of this sector.

There was a suggestion of investors insurance against risks of non completion of the project for the benefit of the buyers, and also to adopt general controls and requirements in drafting contracts between the investor and the buyer; such as the location of the unit in the project site, penalty clauses, finishing specifications, date of delivery, and services available to this project. This will positively result in good access of investors to banking finance to guarantee investors’ checks and encourage the real estate finance companies to draft financing contracts to investors for under construction units, and also to encourage investors to purchase before and during the implementation of the project, as a financing source for investors who are unencumbered with funding. Also, from exporting side, to revitalize sales to foreigners. One of the most important problems facing the sector is that there is no balance between the size of funding granted to the real estate investment and the total funding available for investment in general with the contribution volume of real estate investment sector

The real estate investment committee at the Egyptian Junior Business began the session with discussing the most important problems facing the sector, as a first step toward reviving it, especially in light of the global crisis, which has had a negative impact on many sectors, notably real estate investment sector.

One of the most important points that was presented and discussed at the meetings of the Committee is to develop controls and safeguards to protect the consumer (the buyer), without being an obstacle facing investors’ finance, or hampering the growth of real estate investment (comprehensive insurance for the benefit of consumers against risks of non-completion of the project), because there is no controls and adequate safeguards protecting buyers when purchasing under construction units, in the event of delays in delivery, a change in the specifications, or a change in the project, which raises fears of some buyers from purchasing before implementation, a matter which could deprive investors of one of the best ways to projects finance; Buyers themselves finance their units during the construction period, and also banks will hesitate to finance these projects to guarantee buyers’ checks in case of cancelling the project, and interference of other bodies to develop regulations protecting buyers who have no experience and knowledge of

Ahmed SabbourBoard member

Egyptian Junior Business association

Egyptian Junior Business role

in solving problemsof real estate investments

THE EXECUTIVE48

Sector Performance

to the growth of GDP and employment by working either directly or indirectly, as this has a negative impact on banks’ accumulation of liquidity, the matter which increases the cost of funds and limiting the real estate investment growth rates.

It is proposed to lift ceiling of investment portfolio of real estate finance sector at banks, as it is currently around 5%, and to raise the available financing volume to real estate finance companies, and also to facilitate funding to investors for projects under construction, with controls that will protect the banks in case the project defaulted.

The committee also discussed the problem of difficulties facing licensing procedures, and the number of bodies from which the investor is required to obtain approval, resulting in a delay in launching the project and increases the financial burden. Even in case the investor obtained approvals of related bodies there may be some objections that lead to a change in the regulations on which the investor would have built his feasibility studies. The committee proposed to shortcut the time required for licenses and abolition of some of the unnecessary steps. It also proposed a new procedures with limited number of documents, and that the body responsible for allocation of land to obtain various approvals before the allocation of land, in order to start the project implementation and to encourage investors. The committee also stressed the need for regulating land allocation, to get rid of the phenomenon of holding lands, and to withdraw land from companies that are not serious to implement any projects; as a step to control prices of land.

General controls were also proposed, for better allocation of land, either via auctions or other ways, primarily based on ensuring that the serious real estate investor will get on the available land, and to rule out brokers. The committee called for immediate withdrawal of land in which no work was started, and then to offer these lands to serious investors. Also, the prohibition of any land allocation to an investor from whom land was withdrawn, as this would be beneficial to get rid of investors planning to hold lands before selling them with much higher prices, as a matter that would lead to more balance in prices of land, supply, demand, and feasibility studies. The committee then discussed the possibility of facilitating registration procedures for projects in new cities, and proposed to permit partial registration of any of the project’s phases without waiting for completing

the project, and to facilitate procedures and to limit time required for these procedures, in addition to establishing a registration unit at each New Urban Communities Authority office.

The Commission also claimed for completing the facilities and infrastructure of roads and transportation, in order to speed up the growth rate of those new cities, to facilitate registration procedures for projects in new cities, and to overcome the constraints facing the financial leasing law, which represents a fundamental impetus to encourage investment in real estate, commercial, and administrative buildings. One of the most important recommendations made by the committee is to the establishment a union for real estate developers, similar to the Federation of Contractors, in order to ensure proper representation of real estate developers, classification, and exclusion of outsiders and land brokers, the matter which will help to regulate the real estate market, and to raise public awareness of the importance of real estate investment and the adoption of property developers views. Currently, there is no unified body representing the developers and protecting their interests and coordinating with other agencies, and this would lead to conflicting views, and also to more outsiders practicing the profession, and negatively affecting the reputation of serious developers.

The Committee also proposed a classification procedure for the developers (Group A - b - c), based on experience and size of projects being implemented. This classification is a good tool in the process of land allocation, and to decide the size of land suitable for each developer and to their union and the RTDA. Finally, the committee stressed on the importance of cancelling the contract in case of default in paying unit’s installments, as stated in the real estate finance law.

All these points will benefit the buyer, will help to differentiate between serious and non serious investors, and will create a good relationship between insurance companies and real estate companies, helping to revitalize the insurance sector and also the recovery of the real estate investment sector.

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Business Dynamics

The global financial crisis of 2008 is a major ongoing financial crisis, the worst of its kind since the Great Depression. It became prominently visible in September, 2008 with the failure, merger or conservatorship of several large United States-based financial firms. The underlying causes leading to the crisis had been reported in business journals for many months before September, with commentary about the financial stability of leading U.S. and European investment banks, insurance firms and mortgage banks consequent to the subprime mortgage crisis.

Beginning with failures of large financial institutions in the United States, it rapidly evolved into a global crisis resulting in a number of European bank failures and declines in various stock indexes, and significant reductions in the market-value of equities (stock) and commodities worldwide. The crisis has led to a liquidity problem and the de-leveraging of financial institutions especially in the United States and Europe, which further accelerated the liquidity crisis. World political leaders and national

ministers of finance and central bank directors have coordinated their efforts to reduce fears but the crisis is ongoing and continues to change, evolving at the close of October into a currency crisis with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss Franc, leading many emergent economies to seek aid from the International Monetary Fund. The crisis has roots in the subprime mortgage crisis and is an acute phase of the financial crisis of 2007-2008.

The interrelated factors responsible for creating the current financial crisis are as follows:

First, Monetary Policy. After the technology dotcom bubble burst in 2001 and brought about the March to November 2001 recession, the Greenspan Fed aggressively lowered the Federal Funds rate from 6.5% to 1% in 2004, the lowest it had been since 1958. It is considered now that this was excessive, and that the Fed should not have lowered the Federal funds rate below 2%, and that it should have

Global Financial

Crisis 2008

51

begun to raise it sometime in 2002. Indeed, from 2002 to 2004, the American Central Bank pursued a monetary policy that was too expansionary. Former Fed Chairman Alan Greenspan has argued to explain his policies that he was afraid of an onset of deflation, but few economists agree with him. Between 2002 and 2004, the Fed had no need to keep real short term interest rates so negative for so long, especially as the Bush administration was cutting tax rates and increasing military expenditures with its military invasion of Iraq.

Second, the Housing Boom. Abnormally low interest rates in the U.S., but also elsewhere because of the interconnections between money and capital markets, fed a housing boom world-wide which was unsustainable because partly based on price speculation. Indeed, mortgage rates in the U.S. remained low, even after the Fed started to raise the Federal funds rate from 1% in mid-2004 to 5.25% in June 2006. This was brought about by Americans borrowing huge amounts abroad. In 2006, the U.S. current account deficit even reached 6% of GDP. China, Japan and oil-producing countries were the main buyers of U.S. treasury bills and bonds. Mortgage finance was one of the high growth areas, both in the US and elsewhere, and contributed to a bubble in global real estate prices. Financial innovation increased systemic vulnerability in a number of ways. The growth of the mortgage market, especially in the US, was accelerated by the adoption of the “originate and distribute” model (i.e. loan origination for sale to capital markets) that was supported by financial innovation in structured finance and credit derivatives as well as by an active secondary market for mortgage-related securities.

Third, New Banking Rules. With ever rising house prices, lending institutions relaxed their lending rules as the housing collateral behind the loans was gaining in value. Mortgage banks and other lenders began to accommodate subprime borrowers with dubious credit by extending mortgage loans to homebuyers who would not have qualified in other times. Nontraditional home loans were advanced to borrowers who had no documented incomes. Some loans were interest-only loans with down payments of 5% or less. Some were adjustable rate loans (ARMs), with low rates for one or two years to be reset later at much higher rates. In 2006, about 25 % of American mortgages were subprime and close to 20 % were ARMs.

Fourth, New Financial Instruments. With the demand for mortgage loans increasing, large banks resorted to some inventive financing of their own in order to economize their capital. They began repackaging loans and slicing them into some exotic new types of securities, and in so doing, shifted their lending risk to the buyers of such securities. Thus came into being a new class of securities that money market funds, insurance companies, pension funds and other investors could purchase.

Impact of the Financial Crisis Many people are concerned that those responsible for the financial problems are the ones being bailed out, while on the other hand, a global financial meltdown will affect the livelihoods of almost everyone in an increasingly inter-connected world as things like a credit crunch can ripple through the entire economy. For example, people may find their mortgages harder to pay, or remortgaging could become expensive. For any recent homebuyers the value of their homes are likely fall in value leaving them in negative equity, and many sectors may find the credit crunch and higher costs of borrowing will lead to job cuts. As people will cut back on consumption to try and weather this economic storm, yet other businesses will struggle to survive leading to further fears of job losses.

The real economy in many countries are already feeling the effects, as said by the Bank of England that the world’s financial firms had - by the end of October - lost £1.8 trillion ($2.8 trillion) as a result of the continuing credit crisis. Global taxpayers have now spent around $8 trillion to shore up the world’s banks. This is why many industrialized nations are sliding into recession if they are not already there.

The crisis became so severe that after the failure and buyouts of major institutions, the Bush Administration offered a $700 billion bailout plan for the US financial system.

In Europe, a number of major financial institutions have failed, or needed rescuing.

For example, some nations have stepped in to nationalize or in some way attempt to provide assurance for people. This may include guaranteeing 100% of people’s savings or helping broker deals between large banks to ensure there isn’t a failure.

For the developing world, the rise in food prices as well as the knock-on effects from the financial

THE EXECUTIVE52

instability and uncertainty in industrialized nations are having a compounding effect. High fuel costs, soaring commodity prices together with fears of global recession are worrying many developing country analysts.

Countries in Asia are increasingly worried about what is happening in the West. A number of nations urged the US to provide meaningful assurances and bailout packages for the US economy, as that would have a knock-on effect of reassuring foreign investors and helping ease concerns in other parts of the world.

Many Asian countries have seen their stock markets suffer and currency values going on a downward trend. As many nations in the region are seeing rapid growth and wealth creation, there is enormous investment in Western countries, and therefore, a lot of exposure to problems, too.

In addition, there is increased foreign investment, mostly from the West in Asia. Asian products and services are also global, and a slowdown in wealthy countries means increased chances of a slowdown in Asia and the risk of job losses.

Asia has not had a subprime mortgage crisis like many nations in the West, but the increasingly inter-connected world means there are always knock-on effects. What seems to be emerging is that Asian nations may have an opportunity to demand more fairness in the international arena, which would be good for other developing regions.

Perhaps ironically, because of Africa’s generally weak integration with the rest of the global economic system, it is believed many African countries will not be affected from the crisis, at least not initially. The wealthier ones who do have some exposure to the rest of the world, however, may face some problems.

In the long run, it can be expected that foreign investment in Africa will reduce as the credit squeeze takes hold. Furthermore, foreign aid, which is important for a number of African countries, is likely to diminish.

In recent years, there has been more interest in Africa from Asian countries such as China. As the financial crisis is hitting the Western nations the hardest, Africa may yet enjoy increased trade for a while. However, African countries could face increasing pressure for debt repayment. As the

crisis gets deeper and the international institutions and western banks that have lent money to Africa need to shore up their reserves more, one way could be to demand debt repayment. This could cause further cuts in social services such as health and education, which are already lacking in funds.

Much of Latin America depends on trade with the United States. Latin America will also feel the effect of the US financial crisis and slower growth in Latin America is expected.

Due to its proximity to the US and its close relationship via the NAFTA and other agreements, Mexico is expected to have one of the lowest growth rates for the region next year at 1.9%, compared to a downgraded forecast of 3% for the rest of the region.

The current financial crisis has evolved differently from other major crises that have hit the developing world in recent decades. Not only is it occurring in a world of unprecedented financial globalization, where the financial sector plays a historically large role in economic activity, but it is also an “imported” crisis, with origins outside the developing world. The crisis also comes on the heels of a major global shock from high food and fuel prices that has imposed a heavy economic burden on many countries and significantly increased the incidence of poverty and vulnerability.

It is obvious that many developing countries are moving into a new danger zone, with heightened risk to exports, investment, credit, banking systems, budgets, the balance of payments, and the most vulnerable. With this latest financial crisis, growth is slowing and is likely to weaken even more sharply. Developing country exports to developed countries are falling, capital is being withdrawn from emerging markets and short-term credit is drying up. This could trigger a fall in production and investment by the productive sector. Sharply tighter credit conditions and weaker growth are likely to cut into government revenues and governments’ ability to invest to meet education, health and gender goals. Countries dependent on exports, remittances or foreign investment, exhibiting high current account deficits or rising inflation, and those with extensive fuel/food subsidies are most vulnerable to a sharp slowdown - especially if accompanied by a significant tightening of financial market conditions. Coming on the heels of the food and fuel price shock, the global

Business Dynamics

53

financial crisis could significantly set back the fight against poverty.

The consequent downturn in developing country exports will be the most widespread shock generated by the crisis and private capital flows to developing countries are likely to fall significantly in 2009, led by pull-backs in portfolio flows and international bank lending. On the positive side, improvements in macroeconomic policies in developing countries over the past decade (e.g., more sustainable fiscal policies, build-up of large foreign exchange reserves) especially in large countries, suggest that unsustainable levels of sovereign debt are likely to be less of an issue in the initial stages than in previous crises. But if fiscal positions deteriorate under the impact of the crisis, sovereign debt burdens may increase rapidly, and access to international capital markets may become more of a constraint.

There is a high probability of balance sheet deterioration and possible banking crises where banks and non-bank financial institutions have expanded credit to the private sector most rapidly.

Investment is expected to suffer as it bears much of the direct impact of the financial crisis. Investment was the main driving force for developing-country growth

Remittances from host countries are expected to be decline in response to the global slowdown but the impact on flows to recipient countries will depend significantly on exchange rates.

The global slowdown is also expected to lead to a sharp reduction in employment opportunities in the developed world, especially in sectors with a high concentration of migrants (e.g., construction, retail, catering). This, plus lower oil revenues in Gulf countries, will lead to a decline in migrant earnings.

Low-income countries (LICs) will be significantly affected by the crisis even though the channels of transmission are likely quite different from those operating in emerging markets. Financial sectors in LICs are less integrated into global financial markets. As a result, the direct impact of the crisis is likely to be more limited. Nevertheless, LICs will be impacted through slower export growth (global trade is projected to decline in 2009), reduced remittances, lower commodity prices (which will reduce incomes in commodity exporters) and the potential for reduced aid from donors. The crisis may also lead to a reduction in private investment flows, making weak economies

even less able to cope with internal vulnerabilities and development needs.

Measures and Actions taken towards the CrisisGovernments and their central banks have taken a number of measures to face the current global financial crisis.

There are several key observations on all these procedures:

(1) Critical and serious intervention by central banks in different countries with the possibility of considering all alternatives at hand.

(2) Possibility that these measures may support some of the emerging markets, especially in Eastern Europe.

(3) Most of the actions taken, particularly the major industrialized countries, are focusing on supporting the banking sector, but with a degree of variation in terms of concentration of some of these actions to re-capitalize banks (United Kingdom), while others focused on providing guarantees for the various banks commitments (Germany).

(4) Bailout programs were directed to: (a) ensure bank deposits, (b) guarantee banking credit, (c) pump liquidity into banks, and to (d) support banks liquidity.

(5) Most of these procedures were to:

1. Guarantee liquidity and lending.2. Change interest rates.3. Guarantee bank deposits.4. Recapitalization of banks.5. Purchase assets.6. Interim ban on sale of borrowed securities.

First: North America (1) United States of America

The United States announced a USD 700 billion financial bailout plan to help financial institutions; the most important actions taken were:

•To guarantee all outstanding Senior Debts from banks during the next three years.

•To reduce interest rate by a half percentage point to 1.5% on October 8.

•To increase bank guarantees on deposits to 250 thousand dollars from 100 thousand dollars to

THE EXECUTIVE54

each account until the end of 2009, in addition to providing open and non-specific guarantees for deposits, which do not bear interest.

•To recapitalize banks: USD 250 million of the total plan (USD 70 billion) to buy blue chips (Preferred Stocks) in banks. Half that amount will be pumped in nine major banks, while the other half will be put in smaller lending institutions.

•Assets acquisition: USD100 billion of the total plan will be allocated for the purchase of shares in struggling banks.

• Interim prohibition of securities sales for borrowing and short selling securities− for more than 900 financial companies, but ban stopped on October 8.

(2) Canada

• Interest rates were cut by a half percentage to 2.5% on October 8.

• Temporary ban on sale of borrowed securities, with the lifting - of the ban on October 8.

Second: European Continent(1) United Kingdom (Size of bailout: 500 billion

Sterling Pounds)

The UK model now looks set to become the European standard, with national variations to take account of differing systems.

• Government provided guarantees for new debt issues in the short and medium term. Also, 10 billion pounds were provided to banks to help them to swap non-cash asset for treasury bonds.

• Interest rates were cut by a half percentage point to reach 4.5% on October 8.

• Government increased guarantees of bank deposits, up from 35 thousand pounds to 50 thousand pounds.

• Recapitalization of banks: The provision of 25 billion pounds to increase banks’ capitals, with the terms of the Basel standards (Tier I). Also pumping a worth of 39 billion Sterling Pounds to support RBS bank and to merge HBOS and LIoyds TSB (actual process of nationalization).

• Interim prohibition of short selling in 34 financial institutions until January 16, 2009.

(2) Germany (size of bailout: €500 billion)

German government announced a plan to save banks; including setting up a fund to restore stability to the markets, and allocated €480 billion in order to guarantee bank liabilities.

• Government announced guarantee of all bank deposits.

• Government announced the allocation of additional €100 billion to recapitalize banks.

• Declared a ban on short selling of 11 stocks until the end of the year.

• Group of banks and insurance companies in Germany reached an agreement on the bailout of the second largest real estate finance company in Germany, Hubli Real State (HRS). The plan got about €35 billion (50 billion dollars), but it collapsed because the company’s loan guarantees has expired. The German government announced it would not nationalize the company, but will provide €26.6 billion credit, while German commercial banks will protect the company by €8.5 billion (12.14 billion dollars) loan.

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(3) France (size of bailout: €360 billion)

• Providing liquidity and credit guarantees: French government announced that it had provided €320 billion to guarantees bank loans.

• Recapitalization of banks: French government will establish a new entity providing €40 billion as stakes in the companies.

• Interim prohibition of short selling for stocks of banks and insurance companies for a period of 3 months.

(4) Italy

• A value of USD 40 billion was provided as treasury bills in order to refinance low quality assets.

• Deposit guarantees: Guarantee of 103291 bank deposits.

• Recapitalization of banks: Approval of a series of measures to allow government to buy shares in struggling banks without having the right to vote.

(5) Spain (bailout up to €130 billion)

Spanish authorities will guarantee €100 billion of bank issuances in 2008 and maturity dates of up to 5 years.

Government became able to buy blue chips in struggling banks, without the right to vote.

Assets acquisition: Adopted a plan to buy €50 billion of high-quality assets from banks.

Deposits guarantee: Government increased deposit guarantees limit from €20 thousand to €100 thousand.

(6) Netherlands (bailout up to €220 billion)

• Dutch government to guarantee €200 billion of interbank’s loans.

• Recapitalization of banks: Government will spend €200 billion to recapitalize banks which suffered losses estimated at €500 million euros, including €10 billion to support ING Bank’s capital, in the third quarter of 2008.

• Interim prohibition of short selling in 8 financial institutions 8 for a period of 3 months.

(7) Austria (bailout up to €100 billion)

• Government will provide €85 billion to guarantee bank loans.

• Government will provide unlimited guarantees of bank deposits.

• Will pump €15 billion in banks capitals.

• In case short selling exceeded a certain level, this will be considered as market manipulation.

(8) Poland

In response to the lack of liquidity in the market, Polish Central Bank took certain actions that would provide liquidity as follows:

• Monetary Policy Council, in an extraordinary meeting held in October 13, added FX SWAP instrument to other tools, a move that was welcomed by banks operating in foreign currency loans.

• The Council of monetary policy stated that the central bank will expand in Repo Transactions of up to 3 months maturity periods in order to pump more liquidity in the banking sector.

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(9) Iceland

• Providing liquidity and credit guarantees: Government requested a €4 billion fund from Russia to increase market liquidity and to prevent collapse of the local currency.

• Nationalization of the three largest commercial banks.

• Banning short selling in 6 major financial institutions.

• Central Bank issued strict instructions on dealing in foreign currency.

(10) Norway

• Government announced a plan to issue K 350 billion (about USD 57.41 billion) as new government bonds, which can be used to guarantee financing Norwegian banks.

• Norwegian Central Bank will provide 2-year liquidated loans for small banks.

(11) Denmark

Denmark, which has some of the most exposed banks, has guaranteed all bank deposits with a $6.5bn liquidation fund. Deposits in Danish banks had previously been guaranteed up to 300,000 krone (£31,000).

In return for the government guarantee, banks agreed to pay up to Kr35 billion over two years into a liquidation fund that could take over distressed institutions to avoid losses to depositors and certain creditors.

(12) Belgium

Another country with highly exposed banks, Belgium announced it would guarantee all new financing of banks for one year.

There has been an injection of €4.7 billion for 49% of faltering Fortis, with the remaining assets of the bank to be taken over by BNP Paribas.

(13) Portugal

Portugal has offered a financing line worth €20 billion to guarantee the liquidity of its banks.

The money offered is 11.7% of the country’s gross domestic product and is backed by the Bank of Portugal.

Short-selling in eight banks listed on the Euronext Lisbon is banned.

(14) Czech Republic

The Czechs have been largely sheltered from the global economic crisis and reluctantly signed up to the EU plan to raise bank deposit insurance to €50,000. They plan no further action to prop up lenders.

The central bank has introduced a new facility to revive the bond market by taking state bonds as collateral against liquidity provided to banks.

(15) Romania

Romania’s government has raised its bank deposit guarantee for individual savers to €50,000 from €20,000.

The central bank says the financial sector had stayed clear of high-risk derivatives and liquidity is ample, largely because of the bank’s high minimum reserve requirements. It has said it will inject funds if needed.

(16) Slovakia

The government and the central bank say the banking sector is sound and stable. As a future eurozone member, Slovakia follows technical steps taken by the ECB, including a planned relaxation of collateral rules to make it easier for banks to refinance.

The government has approved a plan, which must be approved by parliament, to guarantee 100% of bank deposits. It is also ready to inject capital into banks in exchange for stakes.

(17) Bulgaria

The government has said it might tap its fiscal reserve of $8.13bn if needed but has reiterated that Bulgarian banks are stable and well-capitalised for now.

Last week, the government decided to make legal amendments to increase the minimum bank deposit guarantee to €50,000.

(18) Greece

Under existing law, the Greek government guarantees just the first €20,000 of savers’ deposits. Parliament is considering legislation to raise guarantees to €100,000 for three years.

In a crackdown on short-selling, the regulator publishes a daily account of all short sales and the number of shares purchased by borrowing.

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(19) Hungary

Hungary’s central bank is due to announce a rescue package with the help of the International Monetary Fund. However, the government has said this will be a last resort.

It has also agreed to guarantee all bank deposits with no limits.

Regulations on pension fund investments have been relaxed, tax cut plans scrapped and the central bank has agreed with the ECB on repurchase transactions, which will allow it to borrow up to €5 billion to boost liquidity.

(20) Finland

Bank deposits guarantees: Deposits guarantees were raised to the minimum recommended by the European Union, from €25,000 to 50,000.

(21) Sweden

Bank deposits guarantees: Were doubled to USD 69,000.

(22) Ireland

Government announced the establishment of a two-year guarantee on deposits of six major Irish banks, in order to protect the national banking system against the international financial crisis.

(23) Switzerland

• Swiss authorities cut interest rates by a half percentage point up to 4.25% in Oct. 8.

• Short selling is temporary banned.

Third: Asia & Australia(1) Russia

• Liquidity & loan guarantees: The Russian government provided USD 100 billion as liquidity for the banking sector, followed by USD 37 billion dollars to major banks for long-term loans, and USD 50 billion dollars to help the heavily indebted public companies and banks providing foreign loans.

• Expanded the list of banks allowed to participate in (repo auctions), so as to include the struggling financial institutions.

(2) Ukraine

• Liquidity guarantees and lending: Loans to support major banks, with an average of USD 3000 million per bank.

• Bank deposits guarantees: Announced in the 13th of October freezing of (early withdrawals) deposits for six months.

(3) China

China’s central bank has cut interest rates by around 0.27% to 6.93% in October 8; a second cut in interest rates in one month, so that it can face the repercussions of the financial crisis.

Central bank governor also noted the intention to strengthen the control system and the development of advanced urgent programs to deal with possible negative impact on the banking system and to work together to maintain the provision of adequate supply of credit in the domestic market. The Chinese government has cut the percentage of loans that must be maintained by banks as reserves by about a half percentage point, and cancelled the 5% tax on interest-bearing deposits.

He stressed that the central bank will closely follow the real estate sector and improve financial services in this market by making the market play a greater role in determining interest rates as well as to maintain the stability of exchange rates, and control on foreign capitals flow to prevent damage resulted by huge inflows of short-term capitals. On The other hand, Chinese Ministry of Finance announced that China has reduced income tax on capitals for individuals. The ministry said that the resolution entered into force on the 9th of October, to maintain healthy development of capital market. In another move to revive domestic demand, China has cut personal income tax by 5% of the proceeds of savings. These facilities in the financial policy mirrored the Chinese government’s great concerns over an economic slowdown and its negative impacts on the capital market.

(4) Singapore

• The Central Bank of Singapore, representing the Monetary Authority, changed the foreign exchange rate from “zero% appreciation” to “modest and gradual appreciation” in an attempt to increase the state’s exports competitiveness.

• Policy makers also provided guarantees to depositors to affirm their willingness to inject required liquidity in case of default.

• More control on short selling, imposing fines on traders not providing the stocks they sold; a 5% of the canceled turnover.

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(5) South Korea

The Korean government expressed its intention to provide required liquidity and facilities to private funds, and affirmed that it will provide guarantees for those facilities.

It also lifted the limits of non financial companies’ investments in local banks, and boosted pension funds and portfolio management to participate in lending activities.

(6) Indonesia

• Various bodies decided to provide necessary guarantees for bank deposits by €118 billion, thus to pump liquidity for the markets.

• Liquidity or loan guarantees: the government provided USD 420 million to state-owned enterprises, to buy back their shares.

• Minimum reserve requirement was cut from 9.08% of assets to 7.5%.

(7) Hong Kong

The authorities guaranteed bank deposits and established a fund to finance banks capitals. Authorities indicated that such measures are only preventive measures in view of the limited amount of irregular loans and therefore no need to support banks.

(8) India

Indian government had to reduce monetary reserve by 150 (basis point), bringing it to 7.5%, thus providing USD 12 billion for the banking system.

(9) Australia

• Australian government announced a comprehen-sive system of one night bank liabilities, and pro-vided guarantees for the total of bank deposits, which ranged between USD 600 billion to USD 700 billion dollars, for a period of three years.

• Assets acquisition: Government doubled planned purchase of securities against residential mortgage loans.

• Interim prohibition of short selling, but investors were allowed to trade in differences between the share prices of the dual-listed stocks.

Fourth: Gulf and Middle East(1) United Arab Emirates

UAE Central Bank decided to provide short term

loans to banks through USD 13.61 billion facilities. The bank also allocated bank facilities to be used as a special bank loans aimed at easing tensions in the banking sector. These facilities granted banks to buy back all GDRs with a remaining period of 14 days or more, provided that purchase is equal or less than the remainder of the collateral certificates, or that the ceiling is three months.

Central Bank also canceled the six-day overdrafts withdrawal on current accounts to provide temporary liquidity to banks in term Run. The Central Bank canceled a six-day withdrawal of overdrafts on current accounts to provide liquidity to banks in the short run.

In a further procedural step, National Dubai Emirates Bank announced limiting large loans and long term payment plans to encourage responsible lending. The bank said that the huge loans and long repayment periods that can lead to more pressure on the borrower will be reduced to a minimum. The Bank has a plan to allow customers to pay back loans without any extra fees, if done during a week after receiving the loan. The UAE government announced that it will guarantee and boost all national banks against credit risks, and will guarantee bank deposits and provide necessary liquidity for banks lending.

(2) Kuwait

Central Bank offered one night, one week, or one month funds for banks; to demonstrate its readiness to ensure sufficient liquidity after the recent sharp decline of the Stock Exchange. Kuwaiti government hopes, through this action, to reduce interbank interest rates, and it is also ready to pump more funds if necessary, despite fears of rising inflation.

(3) Qatar

•Investment Authority bought between 10% and 20% of capitals of the banks listed in Doha Se-curities Market to enhance confidence in the market. The step aims to pump liquidity and to strengthen the capacity of Qatari banks to finance development projects during the next stage on broader bases, and to assert great confidence in the country’s financial position.

•Central Bank of Qatar adopted emergency bail-out to pump USD 5.3 billion for this acquisition of stakes in Qatari banks.

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(4) Saudi Arabia

Central Bank announced a plan to provide any needed liquidity to banks.

• Providing liquidity: The Central Bank adopted decisive actions to provide necessary liquidity, and deposited between USD 2-3 billion in the banking system to alleviate the stalled liquidity crisis. In addition to that, Saudi Arab Monetary Agency pumped between USD 200-350 million dollars per bank, and reduced compulsory re-serves for commercial banks to 10% compared to 13% before the crisis.

• In accordance with a royal decree, various bod-ies provided USD 2.67 billion for Saudi Credit Bank.

(5) Israel

Within past two weeks, Israeli Central Bank adopted two decisions:

• First: The reduction of bank interest rate by 0.5% (the resolution simultaneously came along with major central banks decisions).

• Second: To ignore achieving the scheduled plan aiming to lift the ceiling of foreign reserves to USD 40 billion by the end of 2008, in order to weaken the shekel against the dollar, in support of Israeli exports. This step led to a 5% depre-ciation in shekel value last week.

Both ministries of Industry and Commerce launched a fund to support exporters, by which companies with exports amounts exceeding 10 million shekels will be supported by advisory firms, while the ministries pay 50% of their fees.

Egypt’s Actions towards the CrisisBasic themes of government actions to deal with the global financial crisis:

First: Banking finance & monetary policy

• The successful implementation of the first phase of financial reform program led to strengthening the capital base of the banking system and abil-ity to finance investment. The banking system has high liquidity rates with credit granted to the private sector to deposits within 49%. Also small and medium enterprises (SMEs) are the major-ity of the Egyptian private sector companies (capitals of 90% of private companies are less than EGP 10 million and 70% are with a capi-

tal of less than one million pounds). Noted that a heavy concentration in bank credit portfolios, as approximately 0.19% of the banking system clients got 52% of credit amount granted to the private sector, and banking services are avail-able to only about 13% of SMEs companies.

• Lowering the ceiling of interest rates to provide funding for various economic with appropriate financing costs.

• Increasing banking finance to support the pro-ductive sectors and exporters against current decline in sources of external finance.

• Expanding funding availability for SMEs to sup-port expansion and production plans, and to maintain diversification in banking system port-folios.

Second: Increasing public spending in infrastructure and financial policy

• Government aims to control public spending and

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to limit budget deficit within 6.9% during the cur-rent fiscal year, targeting 3% by end of 2010.

• Public services and infrastructure projects hold an absolute priority in public investment, ac-counting for 65% during FY2007/08 (a total of EGP24 billion), while the government aims to implement more infrastructure projects and so-cial services system based on partnership be-tween public and private sectors.

• Increasing government spending during the cur-rent fiscal year with an amount of EGP 15 bil-lion from additional income sources, to maintain growth rates, and to face repercussions of the global financial crisis. Areas are housing, roads, health care, new industrial zones, replacement of most dangerous slums, and implementation of a number of urgent local projects.

• Expanding areas of partnership between public and private sectors (PPP) in various economic sectors, and accelerating implementation of the 345 schools project, with an investment cost of about EGP 4 billion pounds distributed nation-wide.

• More taxation facilities and flexibility and the process of calculating losses and profits to comply with the governing laws.

• Actions that will back the grievances against the performance of real estate taxation, according to estimates based on the old law, with a view to ending disputes and to facilitate paying of taxes and to reduce tax burden.

Third: To promote and support the Arab and Egyptian investments, and foreign

• Private investment reached approximately 67% of total investments carried out during FY 2007/08, 24% of GDP, while FDI volume dur-ing FY07/2008 recorded about USD 13.1 bil-lion, bringing total FDI volume during past three years to about USD 30 billion, strengthening the balance of payments and the accumulation of foreign currency reserves, recording USD 35 billion in September 2008. The percentage of Egyptians contribution in newly established companies during FY07/08 was 66%, while Ar-abs contribution was 23% and 11% for foreign-ers.

• Removing obstacles facing investment, review-ing decisions with negative effects, and intensi-

fying efforts to promote investment in Egypt.

• To help investors to obtain land necessary for their projects.

• To achieve balance and stability in energy pric-es for industrial purposes.

• To support exporters through a package of mea-sures and incentives ensuring the reduction of transaction costs (transportation, storage, and export insurance), and to increase competitive-ness of Egyptian exports (to increase funding leverage of Exports Development Bank and Ex-ports Guarantee Fund).

Fourth: Capital markets and non-banking financial services

• Stock Exchange was negatively affected by events taking place in the international capital markets as reflected in the performance of the Egyptian Stock Exchange index, but the first stage of financial reform program, coupled with a merger of the insurance companies strength-ened the capital base of public insurance com-

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panies and their capacities to deal with current financial crisis. Also, the real estate finance sec-tor is subject to strict control, and total awarded funds through this new activity recorded EGP 3 billion.

• Amending the rules of listing companies in the Stock Exchange, to allow dealing in treasury stocks, through performing the market maker role to stimulate private and state-owned com-panies to enter the stock market as buyers.

• Resolution No. 234/2008 amending the Egyp-tian accounting standards, to be in line with the international standards, in addition to pro-vide facilitations to the companies, allowing companies to transfer form their portfolios for trading purpose to any of the two sets of finan-cial instruments held to maturity or instruments available for sale, in accordance with the regu-lations, requirements, and timing of the interna-tional amendments addressing impact of global financial crisis.

• Ongoing implementation of financial sector re-

form program, launched in 2004, and complet-ing the second phase (2009-2011), strength-ening the financial sector capacity to finance productive sectors, and to educate dealers in the financial services markets, sustaining their financial knowledge of their rights and obliga-tions.

• Activating the role of leasing companies, to fi-nance small and medium-sized projects.

Fifth: Upgrading economic legislation

• Focusing on low-and middle-income real estate finance activities, taking into account the code of controls and supervision.

• Encouraging the establishment of direct invest-ment funds by the private sector and public fi-nancial bodies, with an approach to investment and not to trade in low market cap stocks.

• Sustaining the role of economic courts, launched in October 2008, and expanding their range of activity. Also, to support Ministry of Justice to establish headquarters nationwide.

• Approving the bankruptcy and settlements law, currently prepared by Ministry of Justice in co-operation with Ministry of Investment.

• Adoption of the markets controls and non-bank financial instruments law, which was approved by the cabinet (22 July 2008).

• Finalizing the draft of the new companies’ law.

• Reviewing the provisions of Law No. 114/2008 (resolutions of May 5th 2008) of petroleum re-fining free zones.

Corporate Governance and the Financial CrisisThe financial crisis is a collective problem with many and varied causes, it is directed to all concerned, including financial institutions and their boards, regulators and policy makers, shareholders themselves. Corporate governance failings were not the only cause but they were significant, above all because boards failed to understand and manage risk and tolerated perverse incentives. Therefore, corporate governance has an important role to play in overcoming the present crisis, restoring confidence for the future and preventing regulatory overkill that would damage the entrepreneurialism needed to secure economic growth. The global

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authorities should work with market participants to develop enhanced governance practices that will underpin other actions being taken to address the current problems.

Sometimes shareholders encouraged companies, including investment banks, to ramp up short-term returns through leverage. They were not always as close as they could have been to companies they owned. This is why they are being criticized for failing to hold boards to account.

Another problem was the failure of regulators. They did not respond decisively when they realized that markets were mispricing risk. They allowed banks to operate with too little capital, with excessive leverage and too little attention to liquidity risk. They failed to pick up on poor risk management by boards and on poor lending practices in the mortgage market.

There will therefore need to be a regulatory response with heightened international coordination and one which encourages markets to take a longer term perspective. A leading priority should be to maximize the supporting contribution of governance. This in return enhances corporate governance solutions and does not aggravate existing weaknesses.

An important part of this reform is to empower shareholders; this stresses the importance of institutional investors putting proper resources into governance and recognizing their own accountability to their end-beneficiaries who are individual savers and pensioners. It is the job of institutional shareholders to preserve and add value for these beneficiaries over the long term.

It is obvious that the current financial crisis has highlighted a number of issues which are relevant to shareholders, including:

Strengthening shareholder rights: Shareholders cannot play a useful role if their rights are limited. It is crucial that they are able to appoint and dismiss boards. Shareholders also need a disclosure framework to exercise their rights in an informed way. Government intervention in financial institutions should not undermine basic shareholder rights and corporate governance structures, including the requirement for fully independent directors, should be fully maintained.

Strengthening boards: ensuring that boards have the ability to lead with integrity, the right skill sets

to oversee complex businesses and manage risk properly. Audit committees must also have a clear view of what is going on within the company and of the importance of full disclosure to the market.

Fair and transparent markets: Markets have become too opaque. The price and volume of transactions in equity and derivatives markets must be transparent and available to everybody. Transparency is preferable to restrictions on the use of particular techniques. Short selling, for example, is a legitimate investment tool, which adds to liquidity, helps price discovery and, through opening up hedging opportunities, often reduces volatility. Shareholders should be aware when significant short positions are being created.

Accounting standards: There must be no political interference in setting accounting standards. The fair value approach has been blamed for encouraging pro-cyclicality. Investors generally support fair value that delivers a picture of what is actually happening. There are some challenges to address, but abandoning this approach would damage confidence in financial reporting. It is important to recognize that there is a difference between fair value used for reporting and fair value used to measure the need for regulatory capital Accounting standards also need to be clearer about when off-balance sheet business should be reported.

Remuneration: Shareholders cannot take responsibility for the entire remuneration arrangements of financial institutions or other companies, but they can encourage boards to ensure that their policies do not encourage employees to take excessive risks. Provided they are given a right to vote on remuneration, shareholders should take responsibility for seeing that directors are incentivized in such a way that delivers on the agreed medium and long-term strategy and aligns their interests with those of shareholders. It is very important not to pay rewards for failure. Shareholders are likely to support regulation that underpins this principle, providing it is not overly prescriptive and genuinely delivers.

Credit rating agencies: Any regulation needs to be multilateral in approach and not set up barriers to new entrants. Credit rating agencies should not have exclusive rights to information that may be of value to all investors in their understanding of what is happening. Conversely investors should not be excessively reliant on credit ratings.

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Pace of world financial crisis events The mid September of 2008 witnessed accelerating events of the global financial crisis, with the bankruptcy of Lehman Brothers bank, the fourth largest investment bank in USA, and the administration intervention to save AIG insurance services group, but this crisis escalation was preceded by a series of facts confirming that the global economy would witness an aggravated financial situation.

Global financial crisis began with a starting mortgage crisis in United States at the end of 2005, which then escalated during 2006 and 2007. This was due to real estate finance sector’s expansion in providing credit facilities to individuals after a flowering of American real estate market during a period that began in 2001, as well as low interest rates, and bad loans value reached about USD 100 billion. Also, the financial institutions focused on financing real estate and construction companies, with a budget that totaled more than USD 700 billion.

However, things changed after Federal Reserve Bank started to raise interest rates to fight 2007 inflation which led to a decrease in the prices of home properties, as well as negatively affecting borrowers (investors) as their loans were based on changing interest rates. This led to a decline in debt repay rates, which in turn led to non-payment of interest on some secured assets bonds, and questioning the process of assessing bonds real value, causing many international institutions to write off significant portions of its assets portfolio of such bonds.

With the beginning of 2007, remarkable number of investment banks and real estate finance companies declared bankruptcy, such as New Century Financial Corp, which is the second largest real estate finance firm in the United States, and the bankruptcy of American Home Mortgage, one of the largest real estate finance institutions. In September of the same year, the Countrywide Foundation, a major mortgage finance corporations in United States, cut off employees by about 20%, 12 thousand jobs, following heavy losses incurred by the mortgage crisis.

The step taken by BNP Paribas, the biggest French bank to freeze three real estate funds after a default in obtaining a fair appraisal of these funds assets in mid 2007, announced the transition of mortgage crisis consequences outside of the U.S. economy.

In August 2007, the IKB Deutsche Industrie bank predicted a FY loss of between €600 and 700 million (USD 818 and 954 million), to became the first European bank to announce heavy losses as a direct result of U.S. mortgage crisis, though the German government intervened to pump €3.5 billion to the bank. It should be noted that the bank received another €1.5 billion in February 2008. In September 2007, the British Central Bank provided financial support the Northern Rock bank, which relies on real estate finance as a main activity, following a record of losses estimated at 168 million Sterling Pounds,

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Impact of the Global Financial Crisis

on Egyptian Stock Exchange and Egyptian Economy

Dr. Mohamed Omran

Vice ChairmanEgyptian Stock Exchange

65

as a result of writing off credit assets associated with the American mortgage crisis. However, this was in vain, for in February 2008 the British government nationalized the bank to be the first bank that was nationalized because of the financial crisis.

In March 2008, Bear Sterns bank lost 90% of its market value, following a drop in value of secured bonds portfolio, prompting JP Morgan Bank to acquire the bank with USD 270 million. Next month, Citigroup announced 1QFY08 losses amounted to USD 5.11 billion after writing off assets and credit costs related mortgage crisis, with a value of more than USD 15 billion.

In mid July 2008, the BoD of Alliance & Leicester, a British bank, agreed to sell the bank’s full value to the Spanish bank Santander at 1.33 billion Pounds, after suffering consecutive losses due to the mortgage crisis.

Since last August, the crisis witnessed more escalation with the announcement of federal government control over both of Fannie Mae and Freddie Mac, the two biggest mortgage lender in the United States (with a 50% market share in the real estate lending market, with a value of about USD 6 trillion of the total USD 12 trillion totaling USA mortgage lending activities), after heavy losses during the fourth quarter of 2008, amounted to USD 2.3 billion in the financials of Fannie Mae only.

This was followed by an escalation in the crisis during last September, with declaring bankruptcy of Lehman Brothers, fourth largest investment bank in United States, and Bank of Barclays purchased the bank’s commercial activity valued USD 75 billion. Coinciding with this, Bank of America fully acquired Merrill Lynch by USD 50 billion, after losses amounted to USD 24 billion, as a result of the mortgage crisis.

Both of Morgan Stanley and Goldman Sachs were badly affected by the crisis, and after incurring heavy losses the legal statue changed from investment banks into holding companies for commercial banks, marking an end of the investment banks form which dominated the financial arena since 1980.

Later on, late October also witnessed a decision issued by the British government to nationalize Bradford &

Bingley bank, after the bank incurred huge losses due to the crisis. Also in October, a consortium of Royal Bank of Scotland, Fortis of Belgium, and the Spanish bank of Santander Central Hispano acquired 86% of the ABN Amro bank, with a value of USD 98.3 billion.

The impact of financial crisis on global financial markets

We can identify the impact of the financial crisis on international capital markets beginning from the turn of this year (2008), the following figure refers to losses that financial markets suffered (between 63% and 35%).

As the index slightly began to rise, the global financial crisis escalated, and the CASE index toke a downturn specifically on September 12, when the index lost nearly 31%, reflecting a state of exaggerated reactions. Despite the fact that Egypt has become part of the global financial system, it was surprising that the Egyptian bourse dropped with rates lower than those at countries suffering from problems in its financial system.

Worth mentioning that the most affected markets was Iceland stock market, which suffered heavy losses, leading to suspension of trading on 9 October. But it totally collapsed after restoring trading on October 14, recording 76%.

It is obvious from the charts that the Egyptian Stock Exchange has enjoyed strong performance until last May, backed by good performance of listed companies, in addition to good expectations economic growth. But with some economic decision issued last May and the subsequent negative reactions by many investors, in addition to rumors of a possible imposition of taxes on stocks capital gains, as well as high inflation rates that reached unprecedented levels, leading to a sharp decline in the CASE index close to 25%, as shown.

While acknowledging that the disclosed financials of companies listed on the stock exchange might show adversely affected profitability rates in the future, but the expected vulnerability degree is not in line with the sharp drop in these companies’ stocks. The profitability

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At another level, the contraction of trade in addition to the drop in demand for oil will inevitably lead to a drop in Suez Canal revenues owing to a decline in passing through the Suez Canal, which may negatively affect on the public resources and thus affect the growth rate as well as the deficit in general budget.

Moreover, companies affected by the global recession may necessarily be reflected on their performance profitability and consequently there will be a fall in tax collections, leading to some pressure on state budget because of the urgent need to provide other sources of income to compensate the loss of income tax revenues and Suez Canal revenues.

As for the tourism sector, it is also expected to be negatively affected by the current crisis. The impact of the so called wealth “Wealth Effect” in case of low stock prices and a drop in real estate as is the situation in most countries, would give the owners an impression that their financials are limited, and consequently they will revise the styles of consumption and expenditures. There is no doubt that travelling abroad for tourism will be one of the curtailed expenditures, which would affect many of the activities associated to tourism.

Despite all these challenges, the Egyptian economy has many strengths that will enable it to absorb many of these negative aspects, in light of financial and structural reforms which have been and still since 2004. Such reforms and a climate to attract investment in the Egyptian economy will be a safe haven for investments that are looking for investment opportunities after the real depletion of many of these opportunities in developed economies. This, and many economists are betting and major financial institutions like the IMF, to developing countries and emerging economies will be the main bulwark of the world economy as a whole expected that many of these countries will be able to achieve growth rates of between 6-8%.

Finally, and despite the severity of the financial crisis and its negative repercussions on the real economy, rational economic policies, continued financial and structural reform and improving the investment climate would enable the Egyptian economy to attract foreign direct investments, not necessarily with the same amount of this year or last year, but up to a high level within USD 10 billion, which would contribute to development promotion. Investment in infrastructure, energy projects and renewable energy, as well as those associated with industrialized farming may be the main engine or the wheel, which the Egyptian economy will maintain high growth rates around 6% during this fiscal year, a great success for the economy in light of these financial and economic crises.

rates in the Egyptian bourse, ranging between 7-8 times, reflect the cheap Egyptian market compared to the surrounding markets and other global markets wither developed or developing.

Analyzing the global financial crisis and its impact on both of the financial and the real sectors of economy, we can summarize the following: The literature and countries experiences, past and present, suggests that government intervention in markets to support stock prices is a non grata at all; as it did not happen in most economies. We find that intervention of the responsible actors should not be in any way except in case the banking sector, the payment and settlement systems is affected, the case which we have seen during this crisis, where the ultimate goal of all the developed bailout plans is to support banking sector and to prevent its collapse, as it would have negative impact on the market ability to grant credit lines as well as to complete financial transactions.

Based on the foregoing, and according to available data, the current situation does not warrant financial bailout plans by the government to intervene in the financial sector, as the stock market declines is exaggerated, and focus should be on the vulnerability of companies listed on the Stock Exchange by the real economy, not out of fear of financial crisis represented in the banking system or payment and clearance systems.

The Egyptian banking system enjoys a high degree of financial strength represented in the budgets of banks and not recording losses from transactions with the outside world, as they did not invest or deposit part of their funds in struggling banks. Add to that the liquidity in banks, which is very high, with data indicating that the proportion of loans to deposits is ranging between 50-53%, and consequently there are no fears of payment and clearance systems in the Egyptian economy.

Although the Egyptian economy achieved growth rates that exceeded 7% over the past two years, but forecasts indicated economy’s inability to maintain the same rates during the current fiscal year 08/09, despite the government objectives. The IMF see that downturn of the global economy is expected to reach a recession during 2009, and may begin to recover at the end of 2009, and this will have a negative impact on the economy of Egypt.

As for world trade, the volume of trade between nations is expected to decrease, which could lead to the decline of Egyptian exports growth rates and increasing competition, affecting the capabilities of some companies, particularly those focusing on exports, to result a lack of production than Planned under natural conditions, and consequently reduce their contribution to GDP.

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The drastic financial crisis began in 1929, during the term of beginning of the U.S. President

number “31”, Herbert Clark Hoover (1929-1933), who ruled for only one term after the financial crisis and its negative impact, resulting in his failure to continue for a second term. Economists say that the real reason behind the financial collapse in 1929 is not precisely known; some see that the American people at that time sensed that the period of financial and economic boom was too long with a real economic recovery, and the unemployment rate dropped significantly due to an increase in the number of factories and companies been established during the period from the end of World War I (1917) (may be a little earlier) until 1929, along with a high growth rate, a high average per capita income, and other economic aspects, which marked that period. Thus, some people, as well as some U.S. manufacturers and companies, feared and predicted that this good economic situation was not supposed to continue, the matter that affected their decisions and led to some hedging policies and to withdraw back cash from the financial markets, which in turn led to great economic collapse in 1929. President Hoover was not quick to intervene to save capital markets from collapse, being adherent to the principles of capitalism. The first government intervention to support financial markets was after more than 3 months (the so-called 100 Days), and going on until President No.32, Franklin Roosevelt (1933), took office. He succeeded during his term (1933-1945) in 1934 to emerge from this financial crisis and to resume economic growth rates rise.

The financial crisis has led organizations to non-traditional and unusual thinking to get out of it. We find, for example, that the famous auto factories “Ford” decided in 1932 the public placement of a part of family’s stake to other investors. Other than that crisis and the current financial collapse, there were some other collapses; the most significant of which was the 1997 collapse, which stroke the East Asia markets, prompting the OECD to issue the first five principles of corporate governance and to issue an additi onal principle in 2004, to be six principles: About the organization of the relationship between companies’ BoD and shareholders, and other related parties, disclosure and transparency, and to ensure that all the principles of good corporate governance and not to repeat what happened in the past and badly and directly affected shareholders in particular and financial markets in general, as well as the collapse of some American giant companies; such as Enron and WorldCom (2000), prompting experts to enforce new auditing tools to be applied to companies’ policies and functions, known in the United States as “Oxley Sarpens Act” - SOX ACT. That act was issued in the 30th of July 2002 to control companies registered at the SEC, and protect the shareholders rights, particularly small shareholders (minority rights holders).

“2008 Crisis”:

The crisis began with the collapse of the mortgage market and some key banks and financial institutions; such as Lehman Brothers Bank, the fourth US bank in terms of mortgage activities, and credit problems faced Merrill Lynch, GB Morgan,

is comingTomorrow Today(1929 & 2008)By Mohamed Tarek Youssef

Secretary General of the Arab Taxation Society

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and Citigroup, along with the subsequent collapse of other financial markets and Wall Street, forcing US administration to quickly intervene with a bailout plan of USD 700 billion to nationalize, or to buy shares in the collapsed or about to collapse institutions, in order to save and help them stand out. The plan got approval from the Senate and Congress after tense negotiations, with majority of deputies opposing such huge sums, being ultimately borne by taxpayers, seeing that as a reward for long and wrong policies adopted by those organizations.

The action adopted by the US administration was against the ideology of the global capitalism system always advocated by the United States and Western countries, which is based on the principle of non-state interference in the financial markets and in the mechanisms which govern and impose conditions over investors in these capital markets and owners of banks deposits; or what is called the theory of supply and demand.

Economists see the reasons behind this financial collapse as:1- Excessive confidence in the USA economy.2- Creation of new financial tools, the so-called

financial derivatives, in the markets.3- Adoption of means and alternatives to maximize

assets values, in order to borrow against their guarantee.

4- Excessive use of credit cards without adequate cash coverage.

5- The American people, as a result of economic boom, got used to spend more than real income, the difference is always personal loans and credits, in the hope to be reimbursed in the future, or the so-called “spend first and then think about how to pay”.

6- Cancellation of the “Golden Cash Cover” in 1971, and further easing up of controls and auditing policies over banks.

7- No state interference with controls tools and procedures.

What happened to the U.S. economy, which represents about 30% of the global economy, was repeated in other Western countries and may be for the same reasons, but with different beginnings. The rest of the world was affected by that crisis, after diminishing world trade transactions and the collapse of financial markets. The head of the World Bank, Mr. Robert Zoellick, said that most of those affected by the global crisis will be the developing countries, and he advocates to assist those countries to go beyond this ordeal, and to reduce poverty, hunger, unemployment, and other negative effects.

Countries that suffer from what may be a lesser degree of financial crisis are China and Japan, keeping in mind their different economic and political trends.

Proposals out of the crisis:1- Replacing the current global capitalist system

with a new and sound one. Most economists see that free-market capitalism is a must, but with new and precise controls. French President “Nicolas Sarkozy” asserted, in the aftermath of the crisis, that “what happened is a death certificate for the current capitalist system. The world has to look for an alternative new financial system”.

2- The need to maintain and emphasize the auditing role of the governments. Adam Smith, the famous economist and one of the founders of Capitalism, once said that there are always what is called “invisible hands” inside economic entities, which require facing them with strong and effective controls and regulations.

Part I Conclusion

There were no known reasons for causes of the major global financial crisis, and what was known as Great Recession in 1929; except the more than necessary and unjustified precautions by investors and business organizations, and the prediction of a coming recession even before it occurs, which led them to withdraw their cash from markets, and forced financial institutions at this time to announce bankruptcy. The first government intervention to face the crisis was after more than three months from the beginning of it, and this was a time-consuming step, which took years to get out of that crisis.

On the other hand, reasons behind the 2008 financial crisis are known: It began with the collapse of the real estate market and vanishing of liquid to cover debts. Also, relying on securities as a substitute for cash, and the adoption of new financial tools and derivatives that would inflate assets and borrowing without real cash. The State was relatively faster in intervention, compared to 1929, but no one knows when to get out of this crisis.

We are only to wait and see the impact of the crisis on the US financial markets, the global financial crisis, as well the credit crisis expected in the short run, caused by using credit cards without coverage, and people’s payment defaults for lack of cash because of the current financial crisis. The money volume of all these problems was estimated at about one trillion US dollars.

Finally, the first part clarifies the reason behind this interest in the USA crisis: The USA economy represents about a third of the entire world economy (more than 30%), and the American crisis has its worldwide impacts.

Part II will deal with the crisis’ impacts on Egypt and rest of Arab countries (local and regional impacts).

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Risk is surrounding us in every thing that we do. One cannot imagine doing anything, however small or big it is, in the day-to-day life without facing uncertainty about why, how, when or the possible outcome of that certain action.

Uncertainty renders us with the possibility that the outcome of what we do may not be exactly what we really intended to have. If the outcome is better, it would be most welcomed. However, if the outcome is less favorable, we might not be happy about it and, that’s what an average person would think of as Risk.

In the business world, Shareholder Value is a core concern for all involved in the investment process. From management of the company that aims to maximize the value to gain their shareholders’ confidence, to the shareholders themselves who would like to get the best return for the investments they have made. This Shareholder Value concern may extend further to the wider economy with the regulators and the various interest groups keen to have the best performance of the companies to ensure the sustainable growth of the overall economy. For all these groups, failing to achieve the business targets might have serious implications both on the micro and the macro level and here the ability to manage the risks the company faces becomes vital.

So What is Business Risk?

For the purpose of this article, we can think of Business Risk as involving any event that might drive the company’s financial performance to be below expectations.

In this context, we can think of any event that may

How Egyptian Companies Can Benefit from the International Experience

Enterprise Risk Management

negatively affect our assets, income or cash flows. There are various types of risks that may affect any business and Exhibit 1 below shows only a sample of the risks that can be encountered during the course of any business.

The importance of risk management becomes evident when reviewing some of the large losses that were encountered over the past 20 years. Exhibit 2 lists some of the famous incidents that major international companies have faced and the magnitude of loss associated.

Exhibit 2 shows clearly how painful it could be when not mastering the skills required to manage the risks involved in doing the business. Having said this, it is important to state here that risk is not always something bad or that we should avoid. In fact, businesses make money on their investments

By Bassam Azab

S ourc e: Va r i ous S our ces

Exhibit 1: Various Types of Business Risk

Financial Operational Business GovernanceMarket Product Competition Unqualified ManagementCredit Channels Innovation Ineffective Boards

Liquidity Security Regulations Poor StrategiesFraud Error/Negligence Patents Poor Communication

Exhibit 2: Example of Loss -related R isks

R i s k L os s Mar k e t U S $952 milli on wr it e - do w n o n s toc k p i le o f p a ll a d i um by Fo r d

in 2002 d u e t o a d ver s e p r i c e m ove s Cre dit U S D185 m illi o n in crea s e in p r ov i s i o n s d u e t o t e l eco m l oa ns b y

T h e Ba nk o f N ew Yo r k in 2002 L iquid i t y U S $690 milli on l os s in in ve s t m e nt in L TCM (a H e d ge Fu n d) b y

U ni o n Ba nk of S w i tz e r l an d i n 1997 F ra u d U S D11 b illi o n o f a s se t i n fl a t io n by Wor ld Com d e t ec t e d in 2003

Sourc e: Va rious S ource s

Exhibit 3: Risk Manageme nt Strategy

Avoidance

Mitigation

Transfer

Acceptance

Scenario A

nalysis

Scenario4

Probability

Severity

Ranking

Implem

entation

Risk Identification Risk Ass essment Risk Scenarios Risk Treatment

Monitoring, Evaluation and Control

Problem

Analysis

Source

Analysis

Scenario3

Scenario2

Scenario1

THE EXECUTIVE70

Business Dynamics

by taking calculated risks. The important message for any company is to know the level of risks it is willing to take and to ensure it is properly rewarded for the level of risk taken.

And How Can We Manage Risk?

The best possible scenario for any company is to think of their various business risks in the context of their Strategy Setting and be able to design and implement a risk strategy that reflects its risk

appetite and ensures that it can properly deal with the risks as and when they are encountered in a manner that allows it to be properly remunerated for the level of risk taken.

Exhibit 3 depicts a typical risk management strategy for a company that would like to address risk management in a serious business manner.

On-going monitoring, evaluation and follow up are conducted to ensure the strategy is put to action. Continuous feedback is sought to assess the effectiveness of the strategy and to ensure corrective action is made as and when needed.

And So What’s in it for Egyptian Companies?

Like other business firms globally, Egyptian companies have a genuine interest in adopting an applying a culture of risk management.

First, in normal business conditions, managing the risks, reduces the cost of doing business, hence makes companies more competitive and profitable.

How It Works?

The risk management process starts with the management designing the risk strategy in line with the overall corporate strategy. The risk strategy is then discussed and agreed with the board of directors. Following approval, the management communicates and implements the strategy.

Second, in extreme business conditions, managing the risks helps avoiding disastrous results and leads to business sustainability.

A risk management culture spread across the company ensures that the company is not taking excessive risks and, for whatever risk appetite the company may have, it helps matching the level of reward to the level of risk taken.

Finally, with the interest of the government to attract foreign investment flows, having companies/projects with sound risk management provides foreign investors with a further incentive to favor Egypt over other emerging countries.












Avoidance

Mitigation

Transfer

Acceptance

Scenario A

nalysis

Scenario4

Probability

Severity

Ranking

Implem

entation



Problem

Analysis

Source

Analysis

Scenario3

Scenario2

Scenario1

Risk Identification Risk Assessment Scenario Analysis Risk Treatment

Source Analysis

Problem Analysis

Probability

Severity

Ranking

Scenarios (1)

Scenarios (2)

Scenarios (3)

Scenarios (x)

Avoidance

Mitigation

Transfer

Acceptance

IMPLE

MENTATIO

N

Monitoring, Evaluation & Control

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Since the issuance of the Law No. 3 of 2005 on the protection of competition and prohibition of monopolistic practices (the Competition Law) people were expecting a major change in the Egyptian market on both supply and demand sides. However, a common perception was that a major change did not take place as has been expected and people started to question the effectiveness of the Competition Law and the efficiency of the Competition Authority.

One main cause for this perception is clearly the lack of competition culture in the Egyptian society. This means that, on the one hand, market players; producers, importers, distributors and service providers are not aware of the gains they may achieve from a competitive environment and, on the other hand, consumers are not aware of the benefits they can take out of competition.

As for competitors, competition in the market place would urge competitors to be more efficient in allocating their resources in order to survive in the market. This would lead to lowering their cost of production and hence making more profits. In addition, competition helps creativity and innovation which may take the form of producing new products or use new methods of production that reduce the cost. This in turn would result in making higher profits.

Turning to consumers, competition culture will grant consumers numerous benefits. The fore and foremost benefit would be the freedom of choice. Having more competitors means having several goods and services which gives an opportunity to consumers to choose amongst them. Another benefit would be the race between competitors to satisfy consumers’ needs by providing better quality and lower prices. A third benefit refers to the best

allocation of consumers’ incomes; having a variety of goods and services with different qualities and prices would lead consumers to best allocate their income by choosing what is most convenient for them.

All these benefits are intangible and difficult to be measured or attributed solely to competition but they do really exist in the market. The Egyptian Competition Authority (ECA), therefore, is keen to serve all the above benefits by ensuring the well functioning of the market as a means to achieve economic efficiency and consumers’ welfare. In other words, competition is not a goal in itself but rather a means for making markets work better for the benefit of consumers.

By Khaled Hamdy AttiaExecutive Director

Egyptian Competition Authority

Competition Culture; Making Markets Work Better For Consumers












Avoidance

Mitigation

Transfer

Acceptance

Scenario A

nalysis

Scenario4

Probability

Severity

Ranking

Implem

entation



Problem

Analysis

Source

Analysis

Scenario3

Scenario2

Scenario1

THE EXECUTIVE72

The development of “Credit Reporting” has assumed vital importance in the previous years due to its great role in creating an effective

system of gathering and analyzing credit information largely effects the proficiency of money transfer in the economy in specific and the proficiency of the monetary and banking system as a whole.

Basel II agreement has stressed on the importance of credit reporting systems and their role in improving credit risk management and its effect on increasing the possibility of gaining “Access to Credit” especially regarding Small and Medium enterprises “SMEs”.

The increase in proficiency in gathering and analyzing credit information is a vital condition to effectively implement the BASEL II agreement as to adequacy of Capital in Financial institutions.

In light of the former, and in a time when field evaluation ,credit inquiry for a definite few and the dependency of the Lending community on collateral in availing credit was the identified custom, initiation from the Central Bank of Egypt, the Banking Sector and the Social Fund for Development “SFD” came to establish The Egyptian Credit Bureau “I-Score” in September 2005 .

The Egyptian Credit Bureau “I-Score” was established to assist the lending community (Banks, Mortgage Companies, Leasing Finance and nonfinancial institutions such as utilities or retailers) with a neutral organization to provide the necessary credit reporting information to assist these credit providers in accurately evaluating credit risk.

The Central Bank of Egypt is the regulatory authority overlooking the operations of The Egyptian Credit Bureau “I-Score” , where the board of directors decision on 17 January 2006 established the Rules

and Regulations governing the Operations of The Credit Bureaus in Egypt and in 22 January 2008 issued the operational license for I-Score under decision no 205/2008 after gaining un-doubtful assurance to the legal, technical and operational capacity of I-Score, and the completeness of all necessary training for its members on understanding and using its credit reporting systems.

The Egyptian Credit Bureau “I-Score” is considered to be one of the main restructuring of credit management in the Banking industry. It also aims to change the consumers’ perception of Credit in addition to assisting in the international investment rating of Egypt (Doing Business Report).

I-Score aims to change the understanding of gaining credit and “Credit Awareness” in an effort to adjust the credit behavior of the borrowers. By this means the lending community (Banks- Mortgage Finance – Leasing Finance – Providers of goods and services – Telecoms- micro finance organizations) may better adjust their products and services and develop them to meet the needs of consumers by depending on the “Credit Report” which provide factual data about the consumer’s credit history.

Studies have shown that introducing credit registries increases the repayment rate: borrowers become less willing to default, since defaults can prevent future leans. In developing economies the repayment rate can increase by up to 80% when a credit registry starts operation.

The birth of “I-Score” shall witness the change of “the lending and credit industry” in Egypt from “Relationship based Lending “ to “Information based Lending”.

“Providing factual, impartial, accurate , detailed and full Credit reports and the evaluation of the client’s credit worthiness by credit grantors are the two sides of the same coin.”

The Egyptian Credit Bureau “I-Score” is an Egyptian Shareholding company established in 03 Aug. 2005

Business Dynamics

Credit ReportingDevelopmentMr. Mohamed KafafiVice ChairmanBanque du Caire

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according to law no. 159 /1981 with An authorized capital of 300 Million Egyptian Pounds and paid in capital of 45 Million Egyptian Pounds.

Score fundamental operating Principles 1) Neutrality: Equal Treatment; facts only 2) Reciprocity: Provide data = Access to data 3) Security Standards: Secured environment

and authorized usage 4) Efficient dispute handling Right of the client to

review information

Success factors 1) Support of The Central Bank of Egypt, Banks

and Financial community. 2) Management specified mission and targets

according to financial market needs. 3) Best practices applied through choosing the

best up-to date technology for data storage and issuing credit reports.

4) Establish a full database consisting of negative and positive data according to Best Practices.

5) Members’ compliance in participation and support the company.

6) Members participation with data at determined intervals and update of such data.

7) Providing the National ID to improve search. The effect of I-Score on the financial sector 1) I-Score has established a database of more

than 3 million of consumer data obtained from its members matched with the “Unique ID” (National ID number).

2) A significant increase in the number of credit facilities in the database with more than 8.5 million credit facilities which represent more than 3.7 million consumers (commercial and specialized banks) by middle of November 2008 from the total of 55 members of The Egyptian Credit Bureau “I-Score”.

3) The company has acted as a catalyst for the lending community to improve the “Quality” for their data, in reviewing the internal policies in

granting credit a matter which will create new alternatives to provide credit to new sectors and also increase the effectiveness and maximize the profitability of granting credit.

4) Assisting in providing the awareness to the lending community on the importance of receiving proper data before taking the decision to grant credit in an effort for better risk management.

5) Providing the only collective database “The Communal database” of all consumers’ and SMEs’ credit history from all providers of credit in the market (banks-mortgage finance-leasing finance- providers of goods and services).

International authorities have praised the Credit Bureau’s efforts in specific the IFC “Credit Bureau Knowledge guide” quoting to say “The first Credit Bureau in Egypt, which demonstrates how a private credit bureau can be set up in a relatively short time when all stakeholder interests are aligned and the project has backing of the authorities” also motioned that the time taken to establish the Egyptian Credit Bureau “I-Score” is a World first and to be an example for other countries.

The establishment of The Egyptian Credit Bureau as the “First World Class Credit Bureau” in Egypt (consisting of positive and negative data, data from general authorities, risk management, fraud prevention and consultancy services) has assisted in choosing Egypt, according to “Doing Business report for 2009” one of the best 10 economies in achieving a better environment for investment.

I-Score has assisted in increasing the “Getting Credit” indicator from 102 in year 2008 to 82 in year 2009 (increase of 18 points) a matter which assisted significantly the overall position of Egypt from 125 in year 2008 to 114 in year 2009.

In recognition of his efforts and achievements, Mr. Mohamed Refaat was invited by the World Bank and the IFC to participate in “The 3rd International Credit Conference” which was held in Brazil in October 2008.

THE EXECUTIVE74

Management of state-owned assets: Economic efficiency and expanding popular participation

In Depth

In the past few days, Government announced a group of policies and new approaches toward developing the management of state-owned assets, which aimed to raise economic efficiency and to expand popular participation.

It should be noted that the program of managing state-owned assets (privatization) adopted by the Egyptian government since July 2004 was working on a number of themes in order to achieve the following objectives:

1. Maintaining the improved performance indicators of state-owned enterprises, along with upgrading governance code of these companies by ensuring efficiency, effectiveness, competitiveness and transparency, while preserving workers rights, and complying with performance auditing code.

2. To expand decision-making base of participation to management of state-owned assets and to utilize benefits.

3. To guarantee future generations’ rights; by adopting a plan ensuring them a share of these benefits.

The management program of state-owned assets, which includes 155 public enterprise sector’s companies since 2004, had successfully achieved the following:

1. Reducing bad debts, after a remarkable cooperation between Central Bank of Egypt, the banking system, Ministry of Finance, and Ministry of Investment, that dropped figures from EGP 31.5 billion in 30/6/2004 to less than EGP 10 billion in 30/6/2007.

2. Direct investments in the companies of this sector exceeded EGP 8.5 billion since July 2004 until June 2005, after conducting upgrade, mergers and acquisitions procedures that greatly developed corporate performance.

3. Changing more than 80% of administrative structures in holding companies over the past four years.

As a result, the sector saw a marked improvement in financial performance of these companies, represented in a transition from net losses amounted to EGP 1.3 billion in FY2003/04 to net profits, according to the announced financials by

75

the CAA, which are estimated at about EGP 5.5 billion during FY2007/08.

In this sense, and to emphasis the need for updating and development of this program, and to adopt new methods of assets placement that will ensure greater participation of citizens in the program benefits, the Egyptian government proposed a new integrated program aiming to transfer ownership of stakes at the public sector and state-owned companies to the Egyptian citizens; through shares portfolios to be obtained by each Egyptian citizen free of charge, and with the most easily ways ensuring fair and equal distribution. The portfolio ownership makes each owner free to retain and get revenues, to sell and dispose, to invest through mutual funds, or even to donate.

Dr. Mahmoud Mohieldin, the Minister of Investment, commented on the program by saying that it is not an unreasonable generosity toward citizens, especially which the state will get its rights in full, from the current annual revenues. He also stated that budget will not be affected, because there will be no change in the amount of revenues, in addition to fees imposed on every future transactions.

Mr. Gamal Mubarak, General Secretary of the Policies Committee at the National Party, declared that the aim of such a program is to expand the public participation base, to encourage people to be decision makers and to take part in managing public assets, and to protect the rights of the coming generations via a plan to guarantee their shares in the outcome of applying the program, in addition to increasing the efficiency of state owned companies. He also stressed on protecting labors rights, considering that as out of any discussions. Mubarak highlighted that this step will be for the benefit of both parties; the citizens and the public companies. The new law will lead to establishing a new legal entity, which is the state-owned Future Generations Fund, entitled to a stake in the companies listed in the program, said Mr. Gamal.

On the other hand, Dr. Nazif issued a press release, in which he confirmed that his government will adopt new measures to manage public assets, in accordance with the directions stated by President Mubarak, in his speech to the 5th annual conference for the National Party.

Program elements and components:

There will be a free and fair distribution of shares of the chosen companies on the masses of people, according to the following:

First: To identify companies that will be classified and included in the program, and to determine the stake that government will keep holding. Insolvent

companies will be excluded, while the State will continue to implement restructuring and upgrade programs for these companies to be able to compete in the market. Companies are classified into four categories, based on the ownership percentage that the government will hold:

• Category (a): To include companies in which the State will own a majority of 67% of capital. These are companies operating in strategic sectors the State is insisting upon holding governing stakes in, because of nature and markets structure in which they operate. Pharmaceutical companies, iron and steel, aluminum and coke, copper, sugar, fertilizer and cement companies are listed in this category.

• Category (b): To include companies in which government will retain a majority not less than 51% of capital, such as tourism and transportation companies, and some companies operating in the area of transitive manufacturing.

• Category (c): To include companies that will be enlisted at the program and in which the government will retain a stake not less than 30% of capital, such as some commodities distribution, transitive manufacturing, and services companies.

• Category (d): These are companies completely excluded from the program, either after reaching the ceiling for private sector participation, or because of inefficiency. Thus, all spinning and weaving companies will not enter the program, remaining to be reformed and upgraded under management and ownership of their holding company. The same applies to consumer compounds, currently under development. Also, Dr. Mahmoud Mohieldin, the Minister of Investment stressed that the journalistic entities are out of this program, for having their own controls and codes.

Second: The transfer of the distributed stakes in the capital of program’s companies to a new holding company owned by the State, and responsible for transferring ownership of these stakes to people, while the companies remain subsidiaries to their current holding companies. The board of directors of this new holding will be chosen from the best economic talents in Egypt.

Each Egyptian citizen, holding an ID and aged 21 years and over, will obtain a document (now publicly known as Suk), resembling the mobile phone cards, which can not be forged and not to be listed by non-Egyptians on Egyptian in Stock Exchange, while it may be inherited on the death of its owner. Citizens are to receive these title deeds via their work sites, where there are 5.5 million people working as civil

THE EXECUTIVE76

servants and another million at public economic bodies, in addition to 12 million pensioners. Also, there are more than 4000 post offices, other than branches of banks and insurance companies that will hand the documents for other recipients who are not picking up their salaries or pensions from state organs, such as farmers.

Every citizen can know the value of his ownership from the bank, which will announce the buying price in the press, then the documents will be dealt with in accordance with instruments and trading mechanisms of the stock market. The government, at the first sale of this document, will imposes a new fee specified at a certain percentage of the sale value. This fee will be imposed for only one time, and the new law sets the charges value, which could range from 10 to 15%. Every citizen has the right to retain, sell, invest in funds, or to donate it.

In reply to a question about what will the state gains from such a program, Dr. Mohieldin said that the main objective is to maintain equal participation, and that all Egyptians will get a share in the revenues of these public assets, while the state will get the abovementioned percentage, instead of what was gained from managing public assets (an average of EGP 500 million per year), in addition to the value of its stakes in minority companies; in case there were offers to acquire these public stakes, a sum that will be directed to the process of restructuring companies, settling debts to banks, and also as incentives for workers.

Third: A percentage of shares of companies listed in the program will be transferred to the Egyptian Fund for Future Generations, a state-owned fund with a separate entity, aiming at preserving the rights of future generations and investing resources and proceeds in development projects, and the welfare of future generations of the people of Egypt.

Fourth: Establishing the Egyptian Authority for Asset Management, a new body to have a legal entity, and to which ownership of the holding companies, established in accordance with the provisions of Law 203/1991 for public sector, will be transferred. It will be tasked with developing and restructuring of public sector companies, and to follow-up companies that government contributes to its ownership.

The program will take into account utilizing companies’ properties in order to be allocated for the production purpose specified for company, and without any change. Dr. Mahmoud Mohieldin took both of “Misr Insurance” and “National Insurance”, both of which are subsidiaries to the Holding for Insurance, as examples for companies that will be enlisted in the program without their properties. In

all cases, holding companies retain full ownership of unused real estate.

Dr. Mahmoud Mohieddin, asserted that the program achieves stability and tranquility of about 340 thousand workers in 155 public companies; as partners of these companies’ are the masses of Egyptian people and public banks, such as National Investment Bank and National Bank of Egypt, in case they entered as creditor to buy debts owed to the companies. Therefore, there is no cause for concern at all for any employee regarding the new program.

Worth mentioning that the proposed program builds on the Egyptian experience in the management of state-owned assets, and benefits from many different international experience over the past decades, while avoiding the mistakes and shortcomings that have emerged in the experiences of some countries.

The implementation of this program is expected to take from 12 to 14 months, in case its draft law approved by People Assembly and Shura Council. The executive measures, which include the extradition of portfolios to citizens through distribution outlets nationwide, and a comprehensive media campaign, will be launched to raise citizens’ awareness, in order to deal with this program to fully achieve its objectives. The coming period is expected to witness more discussions about draft of the public ownership law, especially about the real causes behind such a radical step, though Mohieldin claims that it was under study during the last three years. Talks will continue to deal with issues such as the mechanism of distributing the instruments, preventing stock brokers manipulations, and how to make sure that the owners will be the real benefiters, not the bulls of SE.

Experts comments on the program was ranging from opposition to supporting opinions, and their views were varied and divided into three categories: The first category welcomed the program as bringing more social justice, and as a step against monopoly and price rises, which are results of selling to an anchor investor controlling the production. The second category has rejected the program, as it leads to fragmentation of ownership, with no positive effects on development or investment management. The third and final group cautiously welcomed the program, saying that the program requires prevailing a new culture among citizens, in addition to various legislative and technical mechanisms, tools, and application in order to succeed. They also see that the program needs a long time to be implemented, and prefer applying intermediate and interactive steps.

In Depth

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Mohamed Farag Amer, Head of Burj Al Arab Investors Association, and Deputy of the Energy and Industry Committee at the PA, says that the program was delayed more than 15 years and should have been adopted a long time ago, so to establish its culture we need to apply now would be established. He added that the program contributes to broaden the property base, which ultimately lead to elimination of monopoly and price rises, because the limiting of property in the hands of a few may lead to practices harmful to the market. He also added that the program is one of the new methods that could be taken to clarify the concept of individuals’ ownership, in order to achieve more social justice.

Dr. Mohamed Helmi, Chairman of the Board of Trustees of the Tenth of Ramadan City, agrees to stakes transfer of state-owned enterprises to citizens, describing it as a good idea, but great efforts are needed, because the importance is in application and implementation which require good governance so as to maximize the gains and to achieve better investments, and he also stressed the need to determine the principles by which to ensure implementation of the program and to increase the capacity of its companies to operate in a competitive market.

Mustafa El Sallab, PA member, Deputy of the PA’s Economic Committee, and Head of Obour City, said that the program is a good idea in itself, but will it get rid of the current defaults in managing public companies that led to deterioration of these companies. He also added that the program success is in developing the management of these companies and to work on developing their investments in order to maximize benefits. El Sallab

suggested adopting special measures for workers in these companies, to have a special ownership system, as they are the most capable to work on developing investments.

Dr. Mohamed El Menoufi, Head of Sixth of October City Investors Association, said that he does not mind the program as a good idea, and we have to choose the required tools and mechanisms for its implementation. He also added that the program is an upgrade of the privatization and warned of the urgency in the implementation of the resolution which must be carefully studied so as to apply the legislation leading to the desired goal.

Eng. Samir Aref, Member of the Board of Directors of the Export Council for Engineering Industries, said that the program is still vague and needs more clarification to be fairly evaluated, and said that fragmentation of ownership may affect the entity’s financials. He added that the program requires a culture among citizens, and this is the role of audio-visual and print media, therefore it needs more time in order to reach good results. Samir Aref and asked about the fate of the loss-making companies: Will their shares be distributed before restructuring and upgrading, or else the distribution will be after getting rid of debts? So, there are many questions which must be answered before applying the program.

Mohamed Al-Din El Manzalaoy, Chairman of Industry Committee at the Egyptian Businessmen Association, says that the program requires transparency, so everyone will know tools and application method, and that application must be feasible in order to achieve economic returns for the national economy. El Manzalaoy added that the companies assets of which transferred to individuals

THE EXECUTIVE78

In Depth

must be evaluated to ensure the actual value.

As Morsi Attallah notes in Al-Ahram newspaper, presenting this project despite the difficulties and challenges of the global financial crisis is a step that says Egypt will continue the privatization program, but under a new vision avoiding the defaults of the liberal capitalism, and does not -at the same time-ignore the controlling role of the state to ensure transparency and to prevent monopoly. He also adds that we must bear in mind that the establishment of a fund for future generations to be financed from the proceeds of the privatization program is one of the pillars of the correct philosophy of social justice; as manifestations of social justice avoid the concept of dependency and move towards developmental investment, to create jobs on the one hand, and to control the financial and economic market on the other. Away from the details of the designation of the strategic investor and to identify the goods and strategic industries, he says that the most important message is that there can not be a backward step, no return to totalitarianism and the economy is moving forward with a rationalization of the free economy.

Dr. Mustafa El Said, Chairman of the PA Economic Committee, assured citizens on the draft law of state-owned assets management, which will allow asset transfer to citizens. He stated that he would not allow capitals owners to seize public assets, especially that the bill eliminates any concerns, and that the sale will be directed only to the Egyptians, though he expects foreigners to buy shares in case they are listed in the stock market, because the stock market allows any individual to trade.

Dr. Doha Abdul-Hamid, professor of finance at the American University, sees that the addendum that would be achieved through the asset management law will be the possibility to implement the privatization process through a legislation approved by the PA, in a democratic way to decide on public ownership. She said that we must not be overly optimistic regarding the law, and believes that it will enable the state to control the private sector after buying assets, in terms of operations required to restructure and not to sell factories, scrap, or to hold lands. She also asserts that the private sector will remain free to use properties.

Dr. Mohamed Alsohrgty, privatization expert, said that the most important points that must be taken into account when discussing the general features of the draft law is the need for increasing the proportion of funds directed to the Generation Fund, being of a national nature which requires direct investment to serve the development process, rather than to be used in financing current spending. He noted that the problem of the program in Egypt is in interacting

with the ordinary citizens, who did not know or the feel the result of privatization process. Therefore, the solution lies in increasing the proportion of money directed to the new fund, which is only be possible through involving people in the coming period and a media awareness transparent campaigns to the importance of what is happening and what has been achieved, to be able to reap the fruits of economic reform.

Mohamed Ali Ibrahim, of Al Gomhouria newspaper, comments on claims saying that as long as the state began considering a new way to manage state-owned assets, this means that it was wrong to pursue the policy of privatization and it is trying to correct the mistakes with more sins. He sees that privatization has a negative image in the Egyptians minds because it was a new trend away of the state’s iron grip on the means of production, adopting modern management methods which got rid of red tape and created a climate of competition between our products and global products. But people did not like this method and even feared it, because of the very negative image of businessmen in the press, films and serials, although the money in the state treasury from the proceeds of selling those companies have contributed to building of hospitals and introduced clean potable water to four thousand villages, in addition to bridges, sewage plants, and other infrastructure projects. The State Treasury, for example, received EGP 17 billion after the sale of the third mobile telephony license, and without such funds it would not have been possible to implement huge projects. He also added that the citizen will never feel that he is a mere wageworker, but a partner. The new draft law submitted to the PA in the next parliamentary session would be boosted by a major guarantee, which is the direct supervision of the President. “Egyptians are sons of one homeland, and this nation will not be bought by money, privileges, or monopolies. Egypt is for its people, who are the only partners in the ownership of all these development projects”, he said.

“That’s reasonable”, Mr. Moataz El Hadidi commenting on Minister of Investment’s statement that the new legislation will not be a substitute for Law 203 but it will build on it and will upgrade the privatization program in order to accelerate the pace of the program to be completed in 18 months.

Dr. Sami Abdul Aziz writes in Rose Al Youssef newspaper that the first and foremost goal of this project to those who understood the idea is to take citizens from the spectators seats and making them partners, owners, and directors in the public and state-owned companies; a step that will increase the economic efficiency. The draft law is wholly about the citizens’ freedom to unequivocally design the

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map of investment in their country, and that Egypt and its assets available during the first phase truly became the exclusive property of simple citizens, who have the right either to keep or to sell their stocks, or to reinvest them, or even to contribute by them to any social activities. “This is a true citizenship”, he said.

Ambassador Gamal Bayoumi, Secretary-General of the Federation of Arab Investors, sees that the trend towards modifying the policy of assets management through broad-based public participation to own their stakes, was presented and previously applied at the beginning of the privatization program through offering a stake of the public company’s shares to its employees. But there is a fact imposing itself: To turn workers into partners or owners of their company will ensure the success of this company, thus there is no reason to worry about the transfer of ownership from the state to the public, but remains the important question of running the entity offered for sale. Therefore there is a great need to apply auditing rules to these entities. Also, there is a need to have the director or current management of the company as owners of a stake, to be keen to see success. Gamal Bayoumi believes that public assets management system currently in operation by relying on a major investor can not be described as a failure or as an old error, but it is a lazy system with no direct contact with the public. For there were many questions that revolved around many companies that were privatized and there were not any clear answers on what was done in the program which led to this gap between the decisions taken by the Government and the information ought to be clarified to the people.

Dr. Enayat El Nagar, expert in economy and securities, and the President of the Arab Society of Money and Business Culture, indicates that there is a need to separate between ownership and management. Thus, if the new assets management program targets the broad-based public ownership, it is a must to determine who will run these companies. Ownership is not the only important thing, but it is also important to set up a management that will encourage individuals to enter to acquire stakes in the company because of its strong securities and ability to record profits resulting from the good governance of the company. She believes that corporate governance in the coming stage will be the greatest challenge facing the implementation of the new program, and not having individuals owners. She also points out that the demand for applying corporate governance code is still far from what is actually applied; such as separation between ownership and management. “The application of those rules will ensure companies success”, she added.

Mr. Mohamed Abdul Wahab, former Minister of Industry, says that the train of privatization must go on safe and sound rails, not broken ones. He added that sectoral privatization is the required type not the sale of factories or companies one by one, but rather by encouraging investors to expand industrial bases nationwide, because the existing base in Egypt is still weak. He also explained that the Italian experience in privatization from which the Egyptian privatization program is derived (Law 203) requires the government to retain a certain type in each industry, as a window for the government to work against harmful market practices.

Dr. Mokhtar Khattab, former Minister of Public Enterprises, says that current talks about the privatization process and that it came to a stop because of the global financial crisis is a mere error, for we should ask for more state intervention with investments, and to act as a watchdog protecting the country’s markets, industries, and banks. He added that the state must inject more public investments to build new factories, saying that he had been advocating during his ministry for a greater state role, and the profit gaining companies must remain in state ownership. He also called for reviving the textile sector with new investments and to modernize the sector in order to attract more employment opportunities.

According to Mr. Adel Shahawi, former Chairman of the Holding Company for Food Industries, companies which have not sell stakes following the stock exchange system or to a strategic investor should not also be put up for sale at this stage. He added that none of the investors will be attracted to acquire a company or a factory unless he knows the returns, either he acquired it and then lay off workers, or sold its land, or acquired the factory in order to open new investments.

• UNCTAD report applauds Egypt’s Economy - Sep. 2008

According to the International Investment Report (2008) issued by the United Nations Conference on Trade and Development (UNCTAD), Egypt is the first in North Africa and the second in Africa in attracting direct investments and occupies the 20th rank in the FDI performance Index, this index covers 141 countries and measures the state’s actual stake in global FDI flows compared against its share in GDP during the respective year.Egypt received over 50 percent of FDI inflows to North Africa, recording an increase of 15 percent over 2006. On the other hand, over 22 percent of FDI flowing to Africa was absorbed by Egypt, which came in the second rank after Nigeria.The report attributed these substantial investment inflows to Egypt to the policies, which target to improve the investment climate and increase productivity.Source: Ministry of Investment

• Amendments to the Insurance Supervision Law - Nov. 2008The Minister of Investment Dr. Mahmoud Mohieldin issued a decree amending some provision of the executive regulations of the insurance supervision and control law, enforcing law 118/2008.The new amendments highlight the independent role of the Egyptian Insurance Supervisory Authority, which will move to implement the approach of risk management and financial solvency based control.The new regulations enforce insurance and reinsurance companies to take the form of joint stock companies with a capital of not less than LE 60 million or its equivalent in free currencies, and according to the new regulations, companies may not combine the activities of life insurance and property insurance, and the insurance and reinsurance companies will have to valuate the money allocated in order to guarantee technical allocations according to the Egyptian Accounting Standards. Companies will have to provide an annual report on their investment policies to EISA.The new amendments enable insurance companies to market their products via banks licensed by the Central Bank of Egypt for this task. The amendments will establish a committee for appeals and dispute settlement.

• Restrictions on purchasing treasury shares cleared - Oct. 2008

The Minister of Investment, Dr. Mahmoud Mohieldin, stated after his meeting with the chairman of the Capital Market Authority, Dr. Ahmed Saad that all restrictions on purchasing treasury shares have been cleared expect as required by law that a company may not possess its shares purchased from the market for more than one year after purchase.The decision was taken to facilitate the procedures of purchasing treasury shares of listed companies in order to trade shares fairly in their values.Source: Ministry of Investment

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• The first Egyptian participation in the industrial committee meetings related to the Organization of economic cooperation and development (OECD)-Nov. 2008 Last November, Egypt has participated for the first time in the industrial committee meeting related to the OECD at the French capital Paris. The main target of these meetings was to assist the countries in the preparation and execution of the necessary policies to achieve sustainable industrial development and increase the competitiveness among the industrial sector and the Egyptian participation in the committee's activities will lead to implement the industrial policies and the strategies and business plans to technological transformation, innovation, exchanging ideas and experiences and influence the innovation role in developing the industrial sectors, and benefited of developed database and industrial indices provided by the organization and fulfill the Egyptian industrial companies needs by focusing on the SME's needs and having the suitable mechanisms to increase their role in the industrial sector growth and creating new opportunities for jobs and subsidizing exports.Source: Ministry of Trade & Industry

• Shell Egypt company, a platinum sponsor for "Intelaqa Egypt" program honors the entrepreneurs owning small enterprises for the year 2008 The Intelaqa Egypt program in collaboration with the British council will conduct an awards ceremony of Intelaqa Egypt program for year 2008 in Cairo during January 2009 . This ceremony is to award the best small enterprises and best Business plans that have been done during 2008.

The ceremony will be attended by number of Business men, diplomatic figures, mass- media people and those who are interested in the small enterprises, as 25 contestants will be nominated at the final stage to be awarded, and the awards will be in cash for each winner in the competition and they are as follows:

1- Best existing project by the graduates of the program

2- Best entrepreneurial project3- Best project idea4- Best feasibility study5- Best existing project owned to non graduates of

the program It is worth mentioning that an unbiased jury committee will be present to do interviews with the nominees before the awards ceremony and the prizes will be in cash to assist them in developing their businesses.

Dr. Botros Ghalli the minister of finance assured that during the coming year it is expected to register and issue some governmental bonds through what is known by the (Euroclear) – the international settlement chamber- which will help raise the rate of exchange of the governmental Egyptian financial securities in the international markets.He also added that the general debit department in the ministry is currently working on the issuance of the second group of the governmental bonds valued with Egyptian pound ( global notes ) which are expected to be issued as soon as the international markets settle down and in no longer than 2 weeks as the public offering and the related documents of this issue is already finished and these documents

will be registered at the( SEC) – the American capital market authority- and that aims at expanding the base of investors in governmental bonds which will positively affects us by lowering the cost of issuance. And the minister said that this step is a part of the government’s plan to develop the general debit department which works on funding the balance deficit with the lowest cost available and diversifying the sources of funding whether internally or externally.Source: Ministry of Finance

• Issuing the second group of the Bonds as soon as the markets settle down-Nov. 2008

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“EIoD News”BDS Part III of intake (6), October 13,14,15, 2008

The Egyptian Institute of Directors (EIoD) organized the third part of intake (6) of the Board Development Series (BDS) Certificate program titled “The Role of the Board in Disclosure and Transparency”. The course took place at the Grand Hyatt Hotel, Cairo, during 13-15 October 2008; The Course was delivered in English. The attendees were about 15 participants, who were chairmen, Board directors, CEO’s of private companies as well as state owned enterprises. The speakers were Mr. Bassam Azab, Senior manager of small and medium enterprise banking services; and Mr. Amr Yassin, Internal Audit General Manager at Cairo & Alexandria Stock Exchanges.

The World Bank Institute in Collaboration with the Egyptian Institute of Directors (EIoD) and the Egyptian corporate Responsibility Center (ECRC) and affiliation to the EIoD and Inwent organization organized the first e- learning training program on Corporate Social Responsibility in Arabic Language in Egypt and the Middle East, the program focused on the main benefits that the company can gain from applying the correct policies in the field of CSR and highlighted two main concepts, which are Corporate Social Responsibility and the competitive capability.The program consisted of one month online training sessions in addition to one day face to face session that was conducted on October 27th, 2008 at the Marriott hotel and the speakers were Mr. Djordjija Petkoski, Lead Specialist at the World Bank and the Head of the Business, Competitiveness, and Development team at the World Bank Institute. Mr. Mohamed El Kalla, Policy Advisor, Private Sector Development Programme, UNDP Egypt.

BDS Part I of intake (7), October 27, 28, 29, 2008

The Egyptian Institute of Directors (EIoD) organized the first part of intake (7) of the Board Development Series (BDS) Certificate program titled “An Introduction to Board and Corporate Governance”. The course took place at the Grand Hyatt Hotel, Cairo, during 27-29 October 2008; The Course was delivered in Arabic. The attendees were about 16 participants, who were chairmen, Board directors, CEO’s of private companies as well as state owned enterprises. The speakers were Mr. Hany Abou El Fotouh, Banking & Corporate Governance Expert; Mr. Bassam Azab, Senior manager of small and medium enterprise banking services; and Mr. Adel Hanfy, Financial & Corporate Governance Expert.

“EIoD News”

The First Training Program on Corporate Social Responsibility in Egypt and the Arab World- October 27th, 2008

EIoD

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BDS Part IV of intake (6), November 10, 11, 12, 2008The Egyptian Institute of Directors (EIoD) organized the Fourth part of intake (6) of the Board Development Series (BDS) Certificate program titled “The Role of the Board in Protecting Shareholder Rights”. The course took place at the Grand Hyatt Hotel, Cairo, during 10-12 November 2008; The Course was delivered in English. The attendees were about 15 participants, who were chairmen, Board directors, CEO’s of private companies as well as state owned enterprises. The speakers were Mr. Osama Mourad, Chairman & Chief Executive Officer of Arab finance Brokerage company; Dr. Ashraf Gamal Eldin, Executive Director of the Egyptian Institute of Directors.

The Role of Corporate Secretary, November 22, 23, 24, 2008

The Egyptian Institute of Directors (EIoD) organized a training program on “The Role of Corporate Secretary”. The course took place at the Egyptian Institute of Directors premises, Cairo, during 22- 24 November 2008, The Course was delivered in English. The attendees were top level executives of private companies as well as state owned enterprises. The speaker was Mr. Hany Abou El Fotouh, Banking & Corporate Governance Expert.

BDS Part II of intake (7), November 24, 25, 26, 2008

The Egyptian Institute of Directors (EIoD) organized the second part of intake (7) of the Board Development Series (BDS) Certificate program titled “Practical tools for strategic guidance and managerial oversight”. The course took place at the Grand Hyatt Hotel, Cairo, during 24-26 November 2008; The Course was delivered in Arabic. The attendees were about 16 participants, who were chairmen, Board directors, CEO’s of private companies as well as state owned enterprises. The speakers were Mr. Bassam Azab, Senior manager of small and medium enterprise banking services; Mr. Afifi A. Afifi, managing Director, Protrade company; Dr. Ahmed Sakr, Assistant Professor of Finance at the college of management and Technology, Arab Academy for Science and technology.

The Egyptian Institute of Directors (EIoD) organized the training course on corporate Governance for Brokerage Firms. The course took place at the Ramsis Hilton Hotel, Cairo, during November 30th, December 1, 2, 3, 2008; The Course was delivered in Arabic. The attendees were chairmen, Board directors, and senior level of Brokerage firms. The speaker was Mr./ Adel Hanfy, Financial & Corporate Governance Expert.

Corporate governance for Brokerage firms, November 30th , December 1, 2, 3, 2008

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Over the past few years, Egyptian women have achieved many of the gains that have long

advocated for, through a series of steps aimed to politically, economically and socially empowering

them, and also to eliminate all forms of discrimination against them, as well as adopting legislative reform with regard to their own situation, and to take other steps aimed at changing values and concepts of community negatively affecting women, in order to activate their role in different fields.

In spite of the privileges women obtained, they are still facing many problems impeding their progress and achieving their objectives, particularly after their integration into labor market, and the associated problems that had an impact on their personal life, which may be due to inability to harmonize between work and family requirements, or their superiors’ lack of appreciation and male preference when deciding persons for key positions, in addition to other problems

hindering their functioning, the matter which now has an indirect impact on their decisions for families.

The Center of Public Opinion Surveys, with a great awareness to women role in society and the importance of discussing issues

of concern to them, attempted a survey on a segment of 685 subjects, who are working either at public sector,

private sector, public enterprise sector, or at NGOs, and results were as follows:

Segment Characteristics:

56% of segment are holding a university or post graduation level education, while 42% belong to secondary education or equivalent level. In addition to that, half of the segment is at age group ranging from 18 to less than 40 years, a third at

WOMEN

Survey on the problems facing working

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age group from 40 to less than 50 years, and 17% from 50 to less than 60 years. The survey suggests that more than 78% of respondents are married, while widows are 4% and only 1% divorced.

Results also show that 85% of subjects’ families have only one working woman, versus 2% with three female employees. Majority of them (78%) are government sector servants, while the percentage of workers at private sector is 17%, in addition to that half of them worked for more than 15 years, compared with 6% who work less than a year ago.

Results of survey:When asked about the number of weekly working hours, more than half of them (52%) reported that they work 6 days a week, 43% work 5 days a week, while there is no subjects working for 4 days a week.

With regard to average of working hours, 71% indicated that they are to work from 4 to less than 8 hours a day, while 27% indicated that average number of hours of work is 8 hours or more.

As for importance of work for this segment, results showed that 72% of them see work as a fundamental thing, regardless of family circumstances, while almost one third (36%) noted that money ranks first among benefits of their work, and then comes gaining life experience and dealing with people (32%), followed by self-fulfillment and leisure, while it is striking to find that 7% reported that they find no benefits in work.

When asked to choose between work or to stay at home, it was found that 80% prefer to keep on working, while 16% preferred to leave if they were given the opportunity to choose.

With regard to encouraging their daughters to work, the survey shows that three quarters of respondents (73%) will encourage their daughters to

work, on the other hand (17%) preferred not, and (5%) believe that this will depend on economic conditions. Results also show that (82%) of segment see that women are to participate with their salaries in home expenditures, as opposed to (16%) of them who refuse to do so.

Of this segment, (58%) see that women can work at all areas, while (41%) believe that there are areas which are too difficult for women to work, such as hard demanding handcrafts, followed by the judiciary arena, then engineering, oil sector and police services. We also find that (7%) reported that women can not work as drivers or in the medical service, while the opinion of (4%) is that women are not fit for political office and leadership.

With regard to the support given to women and encouraging them to get promoted at work, (81%) indicated that their families value their working roles, facing (17%) who did not find this appreciation, and (89%) are encouraged by their families to get promoted at work.

Questioning subjects, more than half of them (60%) noted that there is no difference between working under a male or female superior, while (31%) prefer a male superior because he is more assertive, while (9%) prefer a female one, for she will be more considering for working women problems.

Also, (73%) of them noted that the privileges currently available (such as maternity leave, lactation leave, and leave without pay to care for children) are adequate and appropriate.

As it is available for women to participate in trade unions, (55%) of subjects indicated that they are already members, while (32%) are not members, being not interested or because of lack of time to participate, or inability to participate; because they are working under contracts and not permanent workers. Also, (50%) of them said that they do not benefit from participation in trade unions and (30%) indicated that the only material benefit is to get a pension, and entertainment services provided; such as trips, resorts, and health insurance.

Women had secured a unique place and a prominent status at work. The survey shows that (71%) of this segment confirmed the equality between men and women in work-related rights, and (27%) believe that women do the same work and tasks carried out by men, but do not get the same rights of training, incentives and bonuses. Although it is known that work causes problems for working women, both on a personal level or at work, (48%) reported that they do not face any problems at work, and the rest stressed that their problems are ranging from receiving limited incentives and salaries, or suffering daily transportation hardships, to the difficulty of dealing with clients, and an appropriate work time, or that work environment is not conducive to doing business. On the personal level, (62%) of them reported the absence of personal problems resulting from work, while (15%) asserted that the key problem is the limited time available for them to care for their children.

Attempting to establish best status for working women, the Center explored views on proposals that could help in improving the status of working women. One of these proposals is to work as part-timers

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in return of part of their remuneration. This proposal was faced with a near 50/50 response; a percentage of (52%) approved to work under this system, while rejected (46%) it. With respect to the subjects’ views toward the standards required to secure a better work status, more than three-quarter of them (76%) stated that they know the required criteria and conditions for promotion at their work. When questioned about those standards, (58%) stressed that efficiency, proficiency, and caliber of work are the most important standards to get a better position, years of experience and seniority at work followed by a wide margin (28%), then good conduct and commitment by staff at work (26%).

On the other hand, respondents submitted some proposals to improve the status of Egyptian women, and was on the top of those proposals: Increasing salaries (20%), followed by the importance of providing more privileges such as paid leaves and reducing number of working hours, equality between men and women in promotions, training courses and work opportunities (13% each). Also, (10%)of them noted the importance of providing nurseries to care for children near or inside women's work quarters, as well as providing appropriate means of transportation for all working women. It should be noted that more than one third of respondents could not determine specific proposals for women's access to a better status in society.

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Want To Improve Your

Business

Usually people have a habit making New Year’s Resolutions which are generally hard to stick to. However, this is the time to get serious about the New Year’s Resolutions that will make a difference in your business success.

The kind of changes that will make your business more successful, enjoyable, and secure can be made at any time, but there is a psychological impact to making formal Resolutions at the beginning of a new year. Throughout the world, people use the first month of the New Year to announce their resolve that the rest of the year will be better than the year that just ended. That sense of optimism and opportunity provides a good start for implementing long-term changes or Resolutions.

One of the ways to build success in the business is to involve everyone concerning the New Year’s Resolutions, this could be by:

1- Formalizing the Resolutions by writing them out and posting them on a prominent bulletin board, and distributing copies to all employees and members of management.

2- Assigning responsibility for implementing each Resolution. Selecting a date for reporting results for each Resolution, including an ongoing report during the year, if possible.

3- Identifying a benefit to the business for each Resolution, and setting a realistic benefit goal in quantifiable terms, such as percents, numbers, or dollars.

4- Identifying a potential benefit to employees for each Resolution by giving as much thought as necessary to providing recognition and rewards for employees who assist in implementing the Resolution(s).

5- Affirming management’s commitment to making the changes by providing sufficient emotional, financial and staff support for each Resolution.

6- Inviting all employees and members of management to make one or more suggestions for making the business better/bigger/more efficient/more profitable/more satisfying.

7- Forming a committee representing all groups within the company to review the suggested improvements and to prioritize those changes according to criteria that is relevant to the business. Top management/owners can then select the top five or ten suggestions that will become the formal New Year’s Business Resolutions for the coming year.

There are some major techniques and ideas for boosting the business which could be as follows:

Want To Improve Your

BusinessThis Year!!!

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1- Setting Goals

Goal setting is a critical first step in business success. Goals give us a sense of direction, and a way to measure progress, they allow us to be focused and purposeful, not disorganized and adrift.

Goal setting could be thought of as if the process of drawing the map for future life.

Many people are afraid writing down goals which is an important component of goal setting because they think that by doing so, they will be stuck with them. And to avoid being anxious about committing to goals, you should keep in mind that they are flexible and can be modified after writing them down. In addition, goal setting gets easier by practice. Once its effectiveness has been seen, you will be motivated to establish more goals.

People should consider establishing goals for the week, the quarter, the year or even three or five year spans. If long-term goals are identified, short-term ones will come up.

Goals must be specific, measurable and time-sensitive. For example, if an employer would like to boost productivity, he should avoid vagueness and have tools to evaluate performance by précising in which direction he will increase the productivity and the amount of increase, besides having a deadline.

Another important issue in establishing goals is to be realistic and relevant. Establish impossible and unattainable goals, will lead to a certain failure. In addition, goals should serve a purpose, not just create more things to do. You should avoid goals that just generate more busywork and do little to help the success of the company.

The key is to make sure that goals are challenging, yet reasonable. This could be done by adding an extra degree of difficulty to easy goals. Difficult goals will compel focusing and making the best use of your resources. Thus, even if these goals were not reached, there will be a feeling of accomplishment for being pushed to new levels. Even if the written goals are not accomplished, you should not be discouraged. You should continue writing goals for several months and an improvement in the ability to establish and reach goals will be noticed.

2- Focusing on profit, not turnover

Turnover is something important to put into consideration, but the most important is to look at tactics such as reducing overheads, increasing

rates, letting less profitable clients go, and focusing on high profit activities.

3- Learning something new about business.

Normally, the most successful entrepreneurs are those who are willing to admit their own weaknesses when asked about their knowledge. Ask yourself where you feel your business knowledge weaknesses are, then find a course or books that can help you to learn more about business topics and boost your business knowledge.

4- Delegate effectively

There are likely a number of activities that don’t help in achieving your goals, or could be done by other team members. Focusing on getting those low-payoff activities either delegated or dumped is a good idea. In the case of being a solo worker, perhaps considering outsourcing these duties to somebody known to do the work is a better idea.

5- Introduce Background Music

If your small business has a physical location, install a decent sound system and play soft and pleasing music at a low volume in the background. It should fit into the scheme of your store and should not interfere when making conversation with your customers.

6- Get a Theme

Try implementing a theme in your business. These days, everyone is selling something, so you need to find a way to make your products and services stand out and get noticed.

The idea is to differentiate your products from the others on the market.

You should also start to build an email database of your customers, so that you can send them information about new products or discounts. Take the time to create a good brochure that you can post on your website for your customers to browse or download.

Will You Finally Become An Entrepreneur This Year?

If your New Year’s resolution is to start your own business, so don’t be scared to make the big move to self-employment. And to help you begin successfully, here are some strategies:

• Do a reality check. What will you give up if you leave your present job and how secure are you? Can you financially manage without a paycheck

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until you start making income in your own business?

• Explore your options. Don’t fixate on the first business idea you have. There’s a plenty of entrepreneurial options. Take the time to examine a number of choices.

• Choose a business with low start-up costs. If you have an idea of launching a business but that is expensive, try starting by going related business as a beginning. This could help you gain experience at first place.

• Start in your spare time. You can launch many businesses without quitting your current job. Some types of work such as consulting, crafts and many technology-related activities can be started part time on weekends or evenings.

• Have you own customers before you quit. You’ll feel more secure if you have at least a few clients before you officially open your doors. Market your products or services in your off hours to secure accounts before you leave your current employer.

• Develop a business plan. One of the most important steps is creating a business plan before you start. The process gives you a chance to do your research, learn about your competition and target market, and devise strategies for success. You can develop a thorough plan for your future business while still employed in your current job.

• Find a niche. Look for a way to distinguish yourself from the competition by choosing a specialty, or niche.

• Get a job in the type of business you want to start. If you want to start a business in a field that’s new to you, why not get paid while you learn the basics?

• Take over business activities your current employer no longer wants. Big businesses need big customers and big revenue streams. Many large companies choose to stop serving smaller markets or drop entire business lines, opening up opportunities for you.

• Don’t get discouraged. Success may not come overnight, but it can come. With good planning, hard work and the willingness to take a risk, it is possible to live your entrepreneurial dreams. You can get started this year.

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Different New Year’s CelebrationsAll around the world people celebrate the coming of a new year and since the 1900s has become an occasion for celebration the night of December 31st, called New Year’s Eve. The celebrations often include traditions of religious celebrations, costume parties, parades and with customs said to bring good luck and fortune in the new year. There are often fireworks at midnight as noisemaking and fireworks on New Year’s eve is believed to have originated in ancient times, when noise and fire were thought to dispel evil spirits and bring good luck.

Countries around the world have ways to celebrate the new year:• In England and Scotland an extra round of football

fixtures is played (unless New Year’s Day falls on a Friday or Sunday).

• In London, the New Year’s Day Parade is held where performers include acts as well as entertainment from around the world.

• In Pasadena, California, United States, the Tournament of Roses is held, with revelers viewing the parade from the streets and watching on television, followed by the Rose Bowl football game.

• In Austria, the Vienna New Year Concert is held. • In India, the Hindus celebrate the new year by

paying respects to their parents and other elders and seek their blessings. They also exchange tokens of Good Wishes.

• In Brazil, celebrations are held around the nation. Most famous is the celebration in Rio de Janeiro.

• In Australia, celebrations are held around the nation, especially in Sydney, where one of the world’s largest fireworks displays gathering 1 to 1.5 million people to the harbor. Australia is one of the first countries in the world to celebrate the new year.

• In New York City, the world famous 1,070-pound, 6-foot-diameter Waterford crystal ball located high above Times Square is lowered starting at 11:59:00 p.m., or the last minute of the year, and reaches the

Wasthe New Year always celebrated

on January 1st?New Year’s Day is the first day of the year. The celebration of this

day on January 1st is a relatively new phenomenon.

The early Roman calendar designated March 1st as the new year. The calendar had just ten months, beginning with March and ending with December. The first time the new year was celebrated on January 1st was in Rome in 153 B.C. In fact, the month of January did not even exist until around 700 B.C., when the second king of Rome, Numa Pontilius, added the months of January and February. The new year was moved from March to January because that was the beginning of the civil year, the month that the two newly elected Roman consuls “the highest officials in the Roman republic” began their one-year tenure. But this new year date was not always strictly and widely observed, and the new year was still sometimes celebrated on March 1st. In 46 B.C. Julius Caesar introduced a new, solar-based calendar that was a vast improvement on the ancient Roman calendar, which was a lunar system that had become wildly inaccurate over the years. The Julian calendar decreed that the new year would occur with January 1st, and within the Roman world, January 1st became the consistently observed start of the new year.Throughout Medieval Christian Europe, the new year was celebrated at various times such as on December 25th (the birth of Jesus), March 1st (the Feast of the Annunciation) and March 25th (Easter).In 1582, the Gregorian calendar reform restored January 1st as new year’s day. Although most Catholic countries adopted the Gregorian calendar almost immediately, it was only gradually adopted among Protestant countries. The British, for example, did not adopt the reformed calendar until 1752. Until then, the British Empire and their American colonies still celebrated the new year in March.

bottom of its tower at the stroke of midnight. • In The Netherlands, Denmark and other European

countries, the New Year is greeted with massive private fireworks. This day is also the occasion to make bonfires of discarded Christmas trees in some countries.

• In Russia the New Year is greeted by fireworks and it is considered a family celebration, with lavish dinner tables and gifts. The president of Russia normally counts down the final seconds of the “old year”, as it is called in Russia. A giant clock tower chimes in the new year, and it is customary to make a wish with each chime.

• In South Korea, the most popular way of celebrating New Year’s Day is to travel to Jung Dong Jin, the place on the peninsula where the sun can first be seen each day.

• In the Bahamas, the Junkanoo parade is held.• In Davos, Switzerland, the final match of the

Spengler Cup Ice Hockey Tournament is usually held on this day by tradition.

• In the Philippines, people light fireworks, loud firecrackers, booming sound system, bamboo canons as well as make a lot of noise to ward off evil spirits. Coins are also jumbled in tin cans to make noise with the belief that this will bring more money to the revelers.

• In Greece, New Year’s day is also the Festival of St. Basil, one of the founders of the Greek Orthodox Church.

• In Ecuador, “Ano Viejo” is celebrated by creating a fake person or dummy. The scarecrow-looking person will be completely dressed and stuffed with old newspapers and firecrackers. The dummy is usually placed outside the home. He represents something that happened during the last year. At midnight each family lights the dummy on fire. As the dummy goes up in smoke, the firecrackers also go off to add to the festivities. The old year is forgotten and the new year begins.

• In Japan, people spend weeks planning for their New Year celebrations. They make decorations for their front doors out of pine branches, bamboo, and ropes that are believed to bring health and long life. Fan ropes are also hung over the doors and roofs with seaweed or ferns to bring them happiness and good luck. Children receive small gifts with money inside. They also send New Year cards to their friends and hold forgetting-year parties to say goodbye to the old year. The Japanese also forgive friends and family for any misunderstandings and disagreements they may have had that year so they can make a clean

start of the new year. On December 31st, bells are rung 108 times to chase away 108 troubles. The people all laugh after the gongs because laughter will drive away the bad spirits. With all the bad spirits gone and troubles and enemies forgiven, they enjoy a day of celebration.

A New Year A New LifeJanuary 1st marks the end of a period of remembrance of a particular passing year, especially on radio, television, and in newspapers, which usually starts right after Christmas Day. Publications often have year-end articles that review the changes during the previous year. Common topics include politics, natural disasters, music and the arts, and the listing of significant individuals who died during the past year. Often there are also articles on planned or expected changes in the coming year, such as the description of new laws that often take effect on January 1st.It is also a memorable occasion to make New Year’s resolutions, which they hope to fulfill in the coming year. It is believed that the Babylonians were the first to make New Year’s resolutions, and people all over the world have been breaking them ever since. The early Christians believed the first day of the new year should be spent reflecting on past mistakes and resolving to improve oneself in the new year.A New Year’s Resolution is a commitment that an individual makes to a project or the reforming of a habit, often a lifestyle change that is generally interpreted as advantageous. The name comes from the fact that these commitments normally go into effect on New Year’s Day and remain until fulfilled or abandoned. More socio-centric examples include resolutions to donate to the poor more often, to become more assertive, or to become more economically or environmentally responsible. The New Year resolution is one example of the rolling forecast-method of planning.

Examples of New Year’s resolutions starting with the most popular:

1. Pay Off Debt/s 2. Save Money 3. Get a Better Job 4. Get Fit / Losing weight5. Eat Right 6. Get a Better Education 7. Quit Smoking 8. Reduce Stress Overall 9. Reduce Stress at Work 10. Take a Trip 11. Volunteer to Help Others

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A spot light on one of a well known female Pakistani figure in our contemporary history

BENAzIR BHUTTOO (1953- 2007)

With my Faith in God, I put my fate in the hands of my people.” By these words that Benazir Bhuttoo had mentioned in her book “ Benazir Bhutto, Daughter of the East “ she became the first and to date only pakistani female prime minister within pakistan’s history.

But what are the factors beyond shaping her character and her political back ground and vision not only for her country Pakistan but for the whole world, is it just education, or an ambitious or a certain goal that she wanted to achieve or did she believe as Dr. Martin Luther King “ Our lives begin to end the day we remain silent on things that matter.”, Did she choose her life or it chose her!

To know the answers of these questions and to get familiar with such a remarkable figure lets have a journey to explore her life starting from birth till being one of few people who played a significant role in redesigning pakistan’s future as a country and a nation.

Her Childhood, Benazir Bhutto was born in Karachi, Domination of Pakistan on 21 June 1953 she was the eldest child of Zulfikar Ali Bhutto the former prime minister, her paternal grandfather was Sir Shah Nawaz Bhuttoo, who came to larkana discrit in sindh before the independence from his native town of Bhatto Kalan, in the Indian state of Haryana.

Benazir started her education in Pakistan, and passed her O- level examinations at the age of 15 and then went to complete her A- levels at the Karachi Grammar School.

After completing her early education in Pakistan, she pursued her higher education in the United State from 1969 to 1973 as she attended Radcliffe College at Harvard University, where she obtained a Bachelor of Arts degree in Comparative government. She had described her four years at Harvard University as “Four of the happiest years of her life” and she said that it formed “The very basis of her belief in democracy.”

While the next phase of her education took place

in the United Kingdom, between 1973 and 1977, where she studied Philosophy, Politics, and Economics at Lady Margaret Hall, Oxford. During which time she completed additional courses in International Law and Diplomacy, and in 1976 she was elected to be the president of the Oxford Union, by this she became the first Asian woman to head the prestigious debating society.

Her Social Life, on 18 December 1987, Benazir get married to Asif Ali Zardai in Karachi, Pakistan. Mr. Zardari was a prominent businessman; he has been a member of parliament as well as served as a government minister. They had three Children: Bilawal - who later on became the leader of the Pakistani people’s party ( PPP) after his mother’s death, Bakhtwar and Aseefa.

Her earliest political life, after completing her studies and had returned back to Pakistan, she found her self placed under house arrest in the wake of her father’s imprisonment and subsequent execution.

On November 16, 1988, Bhutto’s Pakistan people’s party- in the first open election in more than a decade- won the largest bloc of seats in the National Assembly, and on December 2, 1988, Benazir was sworn in as prime minister of a coalition government and by this she became at the age 35 the youngest person- and the first woman- to head the government of a Muslim- Majority state in

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modern times, and her government was dismissed in 1990 following charges of corruption, and by that time she became the leader of the opposition while Nawaz sharif served as a prime minister till 1993.

Bhutto’s government accomplishments during that time were in initiatives for nationalist reform and modernization that some conservatives characterized as westernization.

In October 1993, elections were held again and her Pakistan people’s party ( PPP ) coalition was victorious, and Bhutto’s return back allowed her to continue her reform initiatives.

In 1996, due to various corruption scandals Bhutto was dismissed by the president at that time Farooq Leghari, who used the Eighth amendment discretionary powers to dissolve the government.

During that time Benazir and her husband faced charges of corruption & legal proceedings, including a charge of laundering money through Swiss banks; as a result her husband Asif Ali Zardari spent eight years in prison on similar corruption charges.

Second stage of her political life, In 2002, Pakistani president Pervez Musharraf amended Pakistan’s constitution to ban prime ministers from serving more than two terms, this disqualified Bhutto from ever holding the office again, and from that time she lived with her three children and her mother in Dubai, United Arab Emirates and while she was traveling to give lectures and keeping in touch with the PPP’s supporters.

In August 2007, Bhutto revealed her desire to return to Pakistan for the 2008 elections regardless whether or not she reached a power sharing deal with Musharraf before then.

While, Bhutto was well aware of the risk to her own life that might result from her return from exile to campaign for the leadership position. After eight years in exile in Dubai and London, Bhutto returned to Karachi on October 2007, to prepare for the 2008 national elections.

On November 2007, Bhutto filed her nomination papers for January’s Parliamentary elections and at that time Musharraf announced his plan to lift the Pakistan’s state of emergency rule on December of the same year. Bhutto welcomed the announcement and launched a manifesto outlining her party’s domestic issues, and she announced that her party ( PPP) would focus on the “ Five E’s” : Employment, Education, Energy, Environment, and Equality.

Her Death, But unfortunately, she was not capable of continuing her dream of spreading democracy in Pakistan, as on December 27th , 2007, she was killed while leaving a campaign rally for the PPP where she had given a spirited address to party supporters in the run-up to the January 2008 parliamentary elections and her body was flown to her hometown of Garhi Khuda Bakhsh in Larkana district, Sindh to be buried next to her father - who was the main supporter and teacher in her political life – in the family mausoleum at a ceremony attended by hundreds of thousands of mourners.

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