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Q&A with Samir Youssef, author of case study: Orascom in Egypt

Samir Youssef is currently Professor of International Business and Organization at the American University in Cairo. He teaches in the fields of international business, organization, and business ethics. His publications cover the areas of IT outsourcing, cross-cultural relationships, business strategies, business-government relationships, and business social responsibility. His preferred research approach is using cases from the Egyptian environment.

Orascom Housing Communities (OHC) is part of t Orascom Hotels and Development (OHD); a developer of high-end housing communities.

To download the Orascom case study from the GIM database, please click here.

What is Orascom’s basic value proposition and what makes its financial model sustainable?

The value proposition is based on selling a large volume of units with a small margin. This is facilitated by the large size of the Haram City project. This large volume of sales requires a large effective demand which is facilitated by the mortgage scheme established by the government. Also ,the mass scale of producing units will facilitate providing services to the community in exchange for a small fee. Sustainability will be maintained so long as there is a large volume of units sold which is dependent on the success of the mortgage scheme. This is dependent in turn on the interest rate and acceptance of the idea by a largely Muslim population which views interest as a form of usury. The Egyptian economy is still largely a cash-based economy.

What are the main challenges in terms of providing housing for the poor in Egypt?

The government should full heartedly support the model of a private-government partnership scheme based on the Orascom model in order to increase competition and lower prices. The government is still heavily involved in playing the role of a developer itself by directly supervising or building housing units for the poor and displaced people and experience has shown the inefficiency of the government in this regard.

What are the main benefits of public-private partnerships such as this one in contributing to more inclusive markets?

The private sector can more quickly respond to market needs than the government. It is better equipped to synchronize construction stages with building the internal infrastructure of these communities. The government should stick to the role as a regulator and a subsidy provider for the land and the buyers of units. Since the government has limited resources it should have a coherent strategy to fully utilize private sector capabilities and not to spread its resources too thin by attempting to continue play the role of the developer itself.

What are the main challenges of scaling up this model?

  • Inadequate effective demands due to reluctance to buy on mortgage basis either because of high interest or religious reasons
  • Rising prices of inputs which forces prices up especially that prices are market-controlled and not government-controlled
  • Government bureaucracy which raises obstacles or creates de facto situations like forcing the company to provide housing units for displaced people from shanty towns which turned off potential buyers for a while