Egypt’s New Battleground: Dark Forces Block a Major M&A Transaction 1

Investors considering a return to Egypt received stern words of caution last month.

They came from the man who knows better than just about anyone else. After all, Naguib Sawiris, Egypt’s wealthiest businessman, finds himself blocked from buying a local bank.

“I am no longer able to keep quiet about what is wrong,” Sawiris wrote in a column published by the state-owned Al Akhbar newspaper. “Be warned if you wish to invest in Egypt because the state will enter and compete with you using public funds.”

His battle has exposed the rift between President Abdel Fattah el-Sisi’s talk of opening up to private enterprise and the reality of an economy held in an arm lock by the military and its crony patronage networks.

Beltone’s Bid

Sawiris, whose empire straddles telecoms and media, bought the building blocks for a new investment bank late last year when Orascom Telecom Media & Technology, the investment arm of his telecoms giant, purchased 97.3% of Beltone Financial in partnership with a new lender, Act Financial.

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The company was to focus on the financial services sector, energy, transport and logistics.

A month later in December, Sawiris made the second part of his plan clear by offering to buy the investment unit of Commercial International Bank, or CIB, the country’s largest private-sector lender. Beltone’s purchase of CI Capital would be the genesis for Sawiris’s own investment bank.

Everything was going as intended. Sawiris and CIB struck a deal at $118 million. The share purchase agreement was signed, with the intention to complete acquisition by the end of March.

But that’s not what happened next.

Hostile Elements

Less than a week before the deal was scheduled to close , a rival bid came in for CI Capital. It was from the state-owned National Bank of Egypt via its subsidiary, Al Ahli Capital. Sawiris cried foul. His deal, he said, was being stalled by hostile elements in the Egyptian security establishment. He claimed the order for Al Ahli to compete against Beltone’s bid came directly from Tarek Amer, the head of the Egypt’s central bank.


Amer was appointed governor in October 2015, replacing Hisham Ramez. His nomination turned the tables after Ramez had defeated Amer for a top job at CIB. Amer, in an apparent fit of pique, resigned as Chairman of the National Bank of Egypt shortly after.

But now, with his appointment to the central bank putting him in command of regulating the lenders, Amer wasted no time in showing who’s the boss. The central bank in March introduced a nine-year term limit on all CEOs of commercial lenders, purging many of Egypt’s most active banks of their top executives. Up to a quarter of the managing directors of 42 banks could be affected by the new legislation.

Settling Scores

Predictably, the move has been greeted with howls of protest from the private sector. Egypt’s Banking and Credit Law explicitly prohibits the central bank from determining the duration of tenure for executive officials.

Among those who now face the prospect of early retirement is Hisham Ezz Al-Arab, the CIB chairman, whose signature is on the agreement with Beltone. Over the years, he’s been one of Ramez’s most loyal supporters, backing him not only at the bank but as a potential candidate for Prime Minister.

By extension that has made him an enemy of Amer. Yet there’s more to the Sawiris saga than settling one banker’s old scores. It’s part of a much broader agenda of centralizing control of the economy in the hands of the opaque military interests that profit from Sisi’s leadership.

Mirroring other industries, leadership decisions are effectively being taken away from elected bank boards and entrusted to the state. In this context, Sawiris represents unwanted competition. Merging CI Capital and Beltone would give Sawiris control over approximately 25% of all brokerage business in Egypt.

The loser would be EFG-Hermes, Egypt’s first investment bank and a poster child of success during the Mubarak-era privatizations. On April 17, EFG-Hermes Leasing announced an incredibly ambitious plan to double its market share in the course of this year through a growth strategy to be funded by national financial leasing companies. Competition from Sawiris isn’t part of the plan.

Bloated Deficit

EFG-Hermes has long been associated with the Mubarak name. The former President’s heir-presumptive, Gamal Mubarak, had previously owned 18% of EFG-Hermes Private Equity. As an institution, it remains the dominant force in Egyptian investment banking. Sawiris has been turned away on several attempts to buy EFG-Hermes over the years, most recently in 2014.

But now, there’s new urgency. Economic reform and restructuring are coming, and Sawiris is trying to position himself to benefit from the potential spoils.

On April 20, the newly elected Parliament finally approved the economic and political program submitted by Prime Minister Sherif Ismail. The vote of confidence in Ismail suggests that the upcoming budget will entail significant financial restructuring from the state as the government seeks to cut a bloated subsidy regime and budget deficit.

Approval of this budget would almost certainly have been a prerequisite for the World Bank’s planned $3 billion loan to Egypt. First discussed in December, the money is to be released in three stages, contingent on suitable economic reforms.

Free Egyptians

Sawiris’s influence already stretches far beyond his businesses. A cabinet reshuffle by Ismail in March installed Dalia Khorshed as Minister of Investment. Khorshed began her career at CIB and was previously Chief Executive of Orascom Holdings, owned by the Sawiris family. He also has his own political party – Free Egyptians – which he founded and finances. It’s the single biggest bloc in the House of Representatives, with 65 of 596 seats.

The party is at the forefront of parliament’s drive to evolve beyond the compliant rubber-stamping body the president planned it to be. Successive policy blunders have underscored a progressively vocal opposition. It wouldn’t be in Sisi’s – and, by extension the military’s – best interests to sit back and watch Sawiris chip away further at his already eroding authority.

Beyond Mega

Fundamentally, Egypt needs investment. Its economic structure must adapt to survive. This cannot be achieved solely through the state-led mega construction projects that have to date been Sisi’s preferred strategy. Subsidy reform is a necessary evil that is going to bite hardest on peoples’ living standards.

But real change to boost industrial capacity is going to require an overhaul of the rampant inefficiencies that are interconnected with crony governance.

On this, there’s little sign of progress.

Days after making its counter-offer, Al Ahli reportedly pulled out because of due diligence concerns. Yet it made no difference to Sawiris’s fight.

Instead of smoothing the way for Sawiris, the Egyptian Financial Supervisory Authority declared that the sale would be delayed pending an examination of Orascom’s purchase of Beltone, and Beltone’s offer for CI Capital.

Vanishing Independence

With the central bank’s independence vanishing, the best hope of challenging the clique around the executive lies with the judiciary.

The Court of Cassation, Egypt’s highest appeals court, on April 20 overturned a previous ruling, removing a key obstacle to the sale that had been imposed by the Egyptian Financial Supervisory Authority. EFSA had required that CIB present a mandatory tender offer for shares in its investment banking arm before the deal could go ahead.

If Amer is being directed by the political authorities to stall and undermine the purchase of CI Capital, it also raises serious concerns about the central bank’s independence in setting monetary policy.

Managing Egypt’s volatile economy and banking system wouldn’t be an easy task at the best of times. Amer’s decision in March to finally devalue the Egyptian pound against the dollar was widely regarded as a long-overdue response to an out-of-control black market.

But after this one step forward, meddling in the affairs of commercial banks takes Egypt two steps back.

“This gives a negative and harmful message to the investment climate,” Sawiris wrote in the Al Akhbar newspaper. “As for me and my investments, God’s land is wide.”


Jack Kennedy is the lead Middle East & North Africa analyst at West Sands Advisory Ltd.  An Arabic speaker, Jack has traveled the wider region and last worked in Egypt in 2014 with the European External Action Service.

West Sands Advisory is a business intelligence and geo-political risk advisory firm that has, since 2006, helped clients identify opportunities and reduce risk in emerging and frontier markets. More information at


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