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Vision
Aug / Sep 2008
Mr. Sim City

WRITER: Nicolas Shammas

Like his two brothers, Samih Sawiris is an eminent man. The three of them combined have an estimated worth of over 20 billion USD. But his town building ambitions are even more colossal than any net worth figure.

 

The hunt to secure an interview with Samih Sawiris was a protracted and arduous one, for the simple reason that this man cannot be pinned down. Always on the go, the Chairman of Orascom Hotels and Development (OHD) has certainly won some reward for his efforts with his company recording record year-on-year growth and a current market capitalisation of over 4 billion USD.  

Yet Samih Sawiris is not an ambitious man who went out looking for success, rather it came looking for him. He was so resolute and steadfast in his will to see his company succeed that he risked both his own personal finances and his reputation to prove his naysayers wrong.

His company OHD, is the primary designer, developer, contractor and marketing force behind the highly successful El Gouna (Red Sea, Egypt), Taba Heights (Sinai, Egypt), Tala Bay (Aqaba, Jordan) and The Cove (Ras El Khaimah, UAE) projects. It has forged its own niche in the world by becoming the first private city-developer to handle everything required to accomplish such a feat. 

Sawiris, an engineering graduate from the Technical University of Berlin, used to be content with his agencies and franchises whose activities ranged from selling engines to harbour equipment while also building boats. Conversely, El Gouna was only ever supposed to be a side activity, “to cater to friends and family.” Yet, as it grew exponentially he recognised the opportunity and “had to stop the other stuff and focus on this.” Nevertheless he recounts with some modesty how, “I didn’t come into the middle of the desert to build a town. I wasn’t that crazy.” If the distance between insanity and genius is measured only by success then there is a strong argument to be made that Samih Sawiris is quite simply a genius.

OHD may have ‘hotels’ and ‘development’ in the name, but over the course of our interview I felt the development side was this man’s prime focus, even if ultimately he has six thousand hotel rooms in his company’s portfolio with a target of reaching ten thousand within the next fifteen years. Town-building is the name of the game and to this end he has established himself in a manner that would have been unimaginable even a few years ago.

We concluded the interview with a telling insight into Sawiris’ bullishness. “We [OHD] are still far from being recognised for what we really are as it is very difficult for analysts to imagine the scale and break-up the complexities of the activities into verifiable, quantifiable units that they can just add up to a price tag.” 

 

When did you start Orascom Hotels & Development?
Well we started in 1989. At the time we were doing this project here [in El Gouna] as a start not really knowing this would become a whole career. And then we liked what we did and people liked what we did as well so we started doing it again and again and again and again, [laughs].

So how long did it take to create the masterplan and break ground?
I don’t believe in masterplans, I believe in a vision that stays dynamic and suits the area, the people that live in it, your clients, and the circumstances. 

Why this particular spot of the desert then?
The best way to go about finding a sea-view location is to find a local fisherman, give him your requirements and they will take you there. At the time my main concern was to be far enough from Hurghada, but not too far, so as to make use of the airport. Close enough to the nicer diving sites, swimming areas and islands. Close enough to the fishing grounds as all my friends at the time were big fishermen. And we needed a place with a natural harbour so that we could safely moor our boats.

What did your initial vision entail?
Initially every person wanted just a house and a place to put the boat. I was hoping to attract twenty people at that time. That was a critical size for me to make the project, and we ended up having sixty people wanting those houses. The government insisted that we have a hotel so we added one and that was supposed to be the project. This is how small a vision you can start with [laughs]. 

What about electricity, water and so on, were you getting all of that from the government?
No, we were on our own. From the first day this was a condition of the government. Now we are also doing something new, in that we wish for El Gouna to become a CO2 neutral entity, by making as much [clean energy] as we consume. This is another demonstration of why it is best to stay dynamic, for this is a new aspect that people want and I believe if people want it why not give it to them.

How many people live here now?
We have sixteen thousand people with one thousand one hundred students at schools. 

And how many hotel rooms or keys?
We have three thousand hotel keys and we have at least double that in real estate.

And what is the primary focus, the real estate side or the hotel side?
There is no primary. It is like an orchestra. Everyone is primary. If you want to play music everybody is important. I mean everybody. Even that poor guy at the back with the drums that waits the whole evening for his turn to play dah-dah-dum, [laughs]. You know he is still very important.

Could we go back to the evolution as it is very interesting to know how this project went from twenty to sixteen thousand people?
Well you keep finding out what is missing and what people need. Before even the first twenty people moved in I felt the heat coming. I would think what about communication, what about groceries, what if something happens to someone, what about the staff that will be left behind for months when the owners are not using their houses, how are they going to be catered for, how are they going to feel happy living here? At the end of the day a town needs everyone to be happy not just the rich. 

What kind of facilities do you offer in order to generate tourism?
Everything. Name anything and I’ll tell you we have it. If you manage to think of something we do not have I guarantee that we’ll have it by the next time you come. This is exactly how we have added activities by the way. But the crucial aspect now is that people come and ask, “May I do this in your town?”  And this is even better for it means we have attained the critical size whereby we have enough people to make practically every activity feasible and therefore we can attract people to come, invest and live here. That is essentially why we are growing the size of the town.

It is a year round town?
Yes, absolutely! I believe it is fundamental for the success of a town to kill seasonality. You must give enough reasons for people to live here permanently. These seasonal employees are very harmful for a town because they don’t have any sense of belonging, they don’t create local culture or local citizenship. It also makes a lot of the services unfeasible. You really need to make sure when developing somewhere that you avoid the pitfalls of seasonality.

What feedback have you received so far that you can draw conclusions from?
One of the things I hear quite often from people that come to stay at El Gouna is, “It is so fantastic we did not expect it to be like that. It is almost like being in Europe.” This has two bad messages, Egypt doesn’t stand for quality and we are not well marketed.

Isn’t the future of the tourism industry here in low-cost travel?
No. There are now more people willing to invest more money to create better high-end tourism. Of course there is scalability and you don’t need your fifteen million tourists to be looking for 500 USD a night rooms. That doesn’t exist anywhere in the world. But to have the mass business and the more selective luxury business side by side is something that we never even considered.  Yet, now it is happening.

What are some of the lessons you have learned from places like Sharm El-Sheikh?
Sometimes the government can actively assist in the destruction of market niches by allowing competition to pull it down. Sharm El-Sheikh was the jewel of the Red Sea but because they were under so much pressure from investors to give them a piece of the action they just over-supplied the market. The rates went down, the services went down and today they are suffering. At the end of the day the Red Sea is big, there is much land and they should have created new destinations and said, “Enough, there are ten thousand rooms in Sharm El-Sheikh.” Instead they let it grow and now there are forty thousand rooms there, it is ridiculous.

So what is the maximum number of rooms you will allow here in El Gouna?
We already said enough is enough as far as volume hotels, now we are only building upscale boutique hotels. We are at around three thousand rooms now; I think five thousand should be more than enough. 

Now that El Gouna is considered a success you say that there are others requesting you replicate the model. Where will this happen?
We are doing one in Morocco, one in Oman, one in Ras El -Khaimah and the latest one is in the Swiss Alps. We replicate the model of town building. Though the model is dynamic and can be applied we need to have the orchestra. People see us as conductors and we are invited to conduct their orchestras. We have a depth of talented individuals that have been with the company for years and years and know what it takes to make a coordinated strategy of achieving the building of a town absolutely anywhere in the world.

How favourably do governments look upon you and your company?
We’re a perfect model for governments as we don’t ask for anything. They gave us some desert and we created 15.000 jobs from which they can collect their taxes. Governments’ prime concerns are unemployment and cash in the box; we are providing them the chance to tax everybody directly and indirectly and we’re taking care of some of the unemployment problem. All this without any investment from their end. It is a win-win for any government. 

How do you finance such mammoth projects?
You have to raise equity. It is a big endeavour but it pays off. We grew over the years to a sizeable company thanks to the fact that our invitation for people to invest in us and with us, has always paid off. 

What about competition?
At the end of the day no one can claim to have created a town. Solidere is a downtown centre that has been catered for by the government, with a road network, sewage and water. But we do everything all the way down to the security. It is a different scale. Even Emaar which is a huge real estate developer cannot boast about having done one single integrated town that they created from A to Z.   

How long does it take to recuperate the investment from such projects?
It is super long-term and that is another reason why we do not have any real competition. Yet, if you look at our market cap we are close to four billion USD and it is not like I invested four billion USD. So the market has already given us the gratification of acknowledging there is value in this set-up and that is our profit. I do not like short term businesses, there is too much competition and it is not like I am in shortage of a pair of trousers or a piece of meat to eat. So whether the money comes today or in the future is not such a problem. 

Is the private sector in the Middle East stronger than it has ever been?
I think there is no more room in trying to eliminate the private sector in any country. The private sector has taken over; the resistance within government circles is fading. Even in the most totalitarian regimes, they have managed to find a formula to co-exist with business people.

So you believe the private sector can do it better than any government?
Not any private sector, if you want a quick buck it is not in your interest, but if you are willing to wait at least ten years, then it will bring you money, yes. It is a business for long-term minded people.

How do you factor in instability when dealing with such long term projects?
We need to be prepared to take heat from time to time. I almost lost this company when the Luxor event happened [on November 17th, 1997] as we were over leveraged. We were not ready for the total withdrawal of every source of cash revenue overnight. We were in the middle of projects and we needed to continue, so we took on further leverage and in the end, the interest on the interest on the interest almost put us out of business. Eventually, I had some assets that I had to sacrifice. I had a winery, a brewery, a distillery and a hotel outside El Gouna that were all sold and with that cash we fought our way back. So the lesson was when things go wrong you better be sure there is enough substance and cash to survive. However when the storm does pass you will be rather alone in the market which gives you a huge opportunity. That is the upside to it. 

Has anyone, anywhere done anything like your projects?
No, I have tried to see comparables as we need them for the stock market and there is nothing like our company. There are some huge real estate developers but no real town builders. It is too long term for many people to get into such a headache. And honestly let’s face it if I had known El Gouna would be a town, I would never have done it. So in a way it is by mere luck.

But now you have evidently embraced it.
I am a total advocate of it. I am even doing one project that is making me especially proud as it is for low income people. We have not yet named the town but if we get close to three hundred thousand people all of whom are not earning much money and we provide them with decent services in a happy enclave. That will make me very, very proud. 

You built a niche speciality that will probably be studied in business schools one day. 
[Laughs] It may be quite a boring course as they will say, “By coincidence he did this” and, “What was his strategy – nothing! He would follow anyone that wanted to build a town and he would do it.”

When were you most happy?
When people came to El Gouna and stopped telling me, “You’re crazy, what are you doing in the middle of nowhere?” I could see it was going to be good but people did not and I was quite alone. I don’t say it but “I told you so” brings me lots of satisfaction especially when I see people not only living here but living here happily. 

But how can you gauge happiness?
Feedback and statistics. If you have more people moving in than people moving out meaning very little turnover, this gives you credible information. Did you know we have the highest number of repeat guests of any destination in Egypt? And that is by multiples. On any given day you can walk into a hotel in El-Gouna and you will find that almost thirty per cent of the guests have been here before.

Why do you think that is?
It is safe, it is clean. They are not harassed in the shops; no one is taking them for a ride. Because the waiters and help to a large extent live here, or are looking forward to living here permanently, they treat this place as their home town and they aspire to make it the best town around. They add to the service philosophy. 

How much do you get involved and what is your secret to doing so much at once?
Delegate, delegate, delegate. 

And total control?
If you start from the beginning with too many other people then you will never have enough control. I did that in Jordan in our Tala Bay project in Aqaba: we did not go for the total ownership model there because it was during the period when we were going under, so I couldn’t even claim to be able to go it alone financially. So really the model that works is total ownership-total control. You cannot have four conductors leading the orchestra, can you?

What is your definition of luxury?
Piece of mind, time and pleasant views.

Are you always working?
I wasn’t like this and I hope I do not stay like this, but the last year has been very tough. The listing on the Swiss stock market was a huge exercise but we IPO’d and it went well. It was oversubscribed and yes the shares went up by thirteen per cent.  I will have more time when we eventually complete the team. There are some serious key members missing and they will take much of the burden from my shoulders.

So how are you structuring the company to prepare for the future?
I am structuring the company so that the investor takes risk on the countries and not a person. Look at Vodafone or other multinationals, the CEO will add plus or minus ten or twenty per cent to the company during his time but he will not drive it down the drain because he will be replaced by the board of directors… We also have separate, independent companies in each country where we are active. We act as the server that anybody can access for information, know-how and experience. We give them help. But ultimately these companies will mature so that each one, on its own merit, has a set up like here and we will meet for consolidation on the balance sheets at the end of the year.

Do you hope one day your kids will play an active role in the company?
I have a lot of kids and if they want to be party to this company they are more than welcome but it’s not my aspiration just to hand over the keys to junior and say, “Here, go and take care of it.” They have to earn it and if they don’t earn it then its better they just stay as shareholders, do their own thing and know in the back of their mind that they can always access cash if they need it for their businesses.

Is that how your father was with you?
Yes, every one of us did it on his own. And I think that is the perfect formula. Even if my kids do a wonderful job they will always be accused of having had an easy ride, but if they want to, they can. 

How much support do you get from the other Orascom companies?
Zero, just the name. We do no business together as we believe we should not have inter-company relations. There would be a conflict of interests.

So none of the brothers profit from their siblings’ companies? 
Naguib started Orascom Telecom (OT). Nassef started Orascom Construction Industries (OCI) and I started OHD. Even the shareholders are different. I profit only from OCI because I happen to be a big shareholder. But I have practically no shares in OT and Naguib owns very little shares in the other two companies.

What was the greatest lesson you learned from your father?
You have to push your kids to do their own thing and not to count on you. You should stay in the background and offer advice but do not push it on them because they might take short cuts and say, “You tell us what to do.” There are certain deliverables and as long as they are bringing them, the rest is their choice.

What are the deliverables?
You have to do good at school, go to a decent university and earn your own money.

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