Orascom Construction Industries S.A.E.

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Orascom Construction Industries S.A.E.

FOUNDING A DYNASTY IN 1977

VERTICAL INTEGRATION FROM 1995

GLOBAL CEMENT PRODUCER IN THE NEW CENTURY

FOUNDING A DYNASTY IN 1977

Onsi Sawiris was born into a well-to-do Coptic Christian family based in Sohag, in northern Egypt. Sawiris’s father had been a lawyer and landowner, and Onsi, as youngest son, was expected to oversee the family’s land. As such, Sawiris went to university where he earned an agricultural engineering degree. Yet Sawiris had little interest for farming, and was discouraged from taking over the family’s farms by the local peasants, who viewed him as an outsider. Instead, in 1950, Sawiris decided to found his own business, a construction contracting firm. That business quickly grew beyond the Sahag region, and before long had begun to receive larger contracts in the Delta region. The company moved its headquarters to Cairo, and by the end of the 1950s had begun to receive large scale public works contracts, including contracts to construct a network of canals and basins for the Ministry of Irrigation.

Sawiris’s company became large enough to be caught up in the nationalization policies put into place by Gamal Abdel Nasser, as the Egyptian leader moved to shore up his waning government in the early 1960s. The Sawiris firm became known as Nasr Civil Works Company (and remained a leading Egyptian construction group into the next century). Sawiris, who sought to flee the country, instead lost his passport and was forced to work as an employee for the company he had founded. It was not until 1966 that Sawiris was given back his passport and allowed to leave Egypt. Sawiris’ wife and children, including sons Naguib, Samih, and Nassef, remained in Egypt, while Sawiris went to Libya.

There Sawiris set up a new construction business, and through the 1970s had become successful enough to send his sons to Cairo’s German School, and then overseas to complete their university studies. Naguib attended Zürich’s prestigious Polytechnic School, Samih studied engineering in Berlin, and youngest son Nassef attended the University of Chicago.

The Camp David Peace Accords signed between Egypt and Israel under the guidance of President Jimmy Carter in 1976 formed a turning point in Sawiris’s career. As a result of the peace treaty, the Libyan government turned against Egypt, and the Egyptians then living in the country. Sawiris was forced to return to Egypt, and once again start his career from scratch.

Onsi Sawiris returned to the industry he knew so well, forming Orascom Construction in 1977. The company started from almost nothing, with just five employees, as Sawiris struggled to pay for his sons’ education. Soon, however, Sawiris benefited from the booming post-treaty Egyptian economy, and Orascom Construction grew strongly into the 1980s. With their education completed, the Sawiris sons joined their father in the family business.

The Sawiris’ business interests rapidly evolved beyond construction, although that industry remained central to the family’s growing fortune. Hired to remodel a number of movie theaters, the company later moved into the operation of the cinemas themselves. Similarly, the company entered the restaurant and hotel industries as well. In the early 1990s, the family also made the decision to enter the telecommunications market, becoming the first company to be awarded a mobile telephone license.

Onsi Sawiris transferred control of his companies to his sons in the 1990s. Naguib took over as head of Orascom Telecom, while Samih became head of the Orascom hotel branch. Youngest son Nassef was placed in charge of developing Orascom Construction Industries (OCI), serving as CEO, while his father remained chairman.

COMPANY PERSPECTIVES

The OCI management team aims to create exceptional value for shareholders by producing cement and providing construction services to customers in emerging markets. By establishing strategic partnerships, recruiting and retaining high caliber employees, utilizing the latest production technologies, and maintaining a commitment to quality and safety, the management team intends to deliver sustainable growth and above average returns.

VERTICAL INTEGRATION FROM 1995

OCI quickly grew into what Business Today Egypt called “the quiet star of the Orascom empire.” Taking the helm of the company, Nassef Sawiris led OCI on a drive toward vertical integration. One of the company’s first extensions was the creation of the National Steel Fabrication Company joint venture with Consolidated Contractors, in 1995. The company operated a factory producing steel components for the construction and petroleum markets.

From steel, OCI turned its attention to a more crucial material for its construction operations. The deregulation of the Egyptian cement market, which had previously been under government control, provided a new opportunity for OCI. In 1996 the company founded Egyptian Cement Company (ECC) as majority partner in a joint venture with global cement giant Holcim. ECC then launched construction of its first cement production facility. That plant was operational by 1998, and became the first private cement producer to enter the booming Egyptian construction market. Steady expansion of the ECC transformed it not only into the largest single cement production facility in the Middle East, but placed it among the largest cement factories in the world.

OCI’s vertical integration effort led it in several new directions in the late 1990s. The company joined with Alico, an architectural products producer based in the United Arab Emirates, to form the Alico Egypt joint venture in 1999. That company built its own factory in Ain Sokhna, in Egypt, which focused on the production of aluminum and glass-based architectural products, such as facades, windows, doors, and curtain walls. Alico Egypt quickly became a leading fixture in Egypt, serving as supplier for such high-profile projects as Nile City, Heliopolis City, and the Cairo airport. The joint venture also became a major exporter, shipping some 25 percent of its production throughout the North African and Middle Eastern regions.

With its growing cement and building materials operations, OCI put into place a new facet of its vertical integration strategy, creating a new logistics and transport wing. In 1998, the company set up a new joint venture, Egyptian Container Handling Company, or ECHCO, which provided materials handling and port management services, including majority ownership and management of a new facility at Sokhna Port. That same year, OCI became majority partner in the launch of Suez Industrial Development Company, which acquired the concession to more than nine million square meters of land in the northwest Gulf of Suez, including more than four million square meters of prime industrial property. In another, more diversified joint venture, OCI partnered with British Gas and Edison International to found the Nile Valley Gas Company, which began construction of a natural gas transportation and distribution network serving southern Egypt.

GLOBAL CEMENT PRODUCER IN THE NEW CENTURY

By 1999, OCI had already topped revenues of EGP 2 billion ($574 million). The company went public that year, listing its stock on the Cairo Stock Exchange in an offer that valued the company at EGP 2.66 billion ($764 million). OCI quickly joined the Cairo exchange’s top five companies, along with sister companies Orascom Telecom and Orascom Hotel Development.

KEY DATES

1950:: Onsi Sawiris establishes first construction business in Egypt, which is nationalized in 1961.
1977:: Sawiris sets up new business in Egypt, Orascom Construction, which rapidly grows into one of Egypt’s largest companies.
1995:: Son Nassef Sawiris takes over as CEO of Orascom Construction and leads it on diversification strategy into cement production and other construction materials production.
1999:: Orascom Construction Industries (OCI) goes public and becomes a top five company on the Cairo Stock Exchange.
2003:: OCI acquires 50 percent stake in Besix, in Belgium; begins construction of first foreign cement plant in Algeria.
2007:: Company announces plans to build cement factories in Turkey, Saudi Arabia, and Indonesia, boosting total production to 36 million tons per year.

The economic crisis that struck Egypt at the end of the 1990s prompted OCI to begin developing itself into an international construction and construction materials group for the new century. For its new strategy, OCI sought out strategic holdings in already established companies. OCI’s first venture overseas brought it to the United States, where it purchased a 45 percent stake in Contrack Construction in 1998. That company, founded in Washington, D.C., in 1985, had from its start maintained a presence in Egypt, opening an office in Cairo that same year. Focused on providing subcontracting services to U.S. government projects in Egypt and the Middle East, Contrack emerged as a prime contractor by 1990. Through the 1990s, Contrack continued to expand its presence in the Middle East and in Egypt, setting up Contrack Engineering in Cairo, then opening offices in Qatar and Bahrain. In the next decade, Contrack expanded into Afghanistan, Uzbekistan, and Iraq as well. OCI benefited directly from the Iraqi reconstruction effort following the U.S. invasion of that country, winning a $325 million contract there.

OCI entered the European construction market in 2003, backing a management buyout of Besix, one of the largest construction groups in Belgium. Founded in 1909 as Société Belge des Bétons (SBB), that company had launched operations in the Middle East in the mid-1960s. By the end of the 1980s, the company had expanded into the Eastern European market, while into the early 1990s, the Middle East and Egypt provided one of its fastest-growing markets. OCI’s share of Besix, which produced revenues of more than $1 billion in the middle of the first decade of the 2000s, stood at 50 percent.

In the meantime, OCI’s cement production operation had become one of its fastest-growing operations. The company expanded its Egyptian production, adding a second plant in the late 1990s, then launching construction of a third plant in 2001. The company’s dual expertise in construction and cement production also made it a natural choice for large-scale cement plant construction projects, such as a $30 million contract to supply steel structures and other equipment for a plant in Libya.

Yet increasingly OCI’s cement production interests turned toward expanding its own network overseas. The company became the first private company to be awarded permission to build a cement plant in Algeria. That country quickly became OCI’s second largest cement market, accounting for more than 30 percent of its production.

Into the middle of the first decade of the 2000s, OCI stepped up its international expansion. The company entered Pakistan in 2004, buying a 51 percent stake in the Pakistani Cement Company, based in Chakwal, with a production capacity of 2.2 million tons. In Algeria, the company launched construction of a new white cement factory, with a capacity of 550,000 tons. The company also launched construction of new plants in Nigeria, Iraq, and the United Arab Emirates, with most of those factories expected to come online by the end of 2007. By the beginning of that year, OCI had expanded its European presence, through Besix, with a move into the Spanish aggregates market. The company also announced its intentions to build cement production facilities in Turkey, Saudi Arabia, and Indonesia. The completion of these projects was expected to boost OCI’s total cement production past 36 million tons, compared to 21 million tons in 2006. With world-class status in both the construction and construction materials market, OCI emerged as the true star in the Sawiris family empire.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

A-Build Egypt (50.1%); Alico Egypt (50%); BESIX Group (50%); Cementech Limited; Contrack Group; Egyptian Basic Industries Corporation (30%); Egyptian Container Handling Company (50%); Egyptian Gypsum Company (45%); Egyptian Maritime Services (90%); MBT Egypt (50%); National Pipe Company (40%); National Steel Fabrication (50%); Nile Valley Gas Company (20%); Orascom Road Construction (90%); SCIB Chemical (15%); Sokhna Port Development Company (70%); Suez Industrial Development Company (60.5%); United Paints & Chemicals (50%).

PRINCIPAL COMPETITORS

Tata Sons Ltd.; Holcim Ltd.; General Organization for Cement and Building Materials; Al Ghurair Group of Cos.; ERCE GIC; Alghanaem Industries; ETA ASCON.