GIM Database

Single keyword (optional)

Document Type

Country

Business Sector

Theme

Type of Organization

Role of the Poor

Millenium Development Goals

Language

Source

Constraints

Strategies

Posts Tagged ‘housing and construction’
GIM Releases New Case Study on Affordable Housing Solutions in Egypt

About the author

Pascale Nader is an independent market research consultant, specialized in consumer knowledge management in emerging markets, across the Middle East and North Africa. She consults with a network of local and international organizations to influence their business strategy and processes. As Director of qualitative research (2006-2008), she led a regional business unit that excelled in translating consumer insight into viable and competitive strategies for product, communication and systems development. Since 2008, Pascale is also a freelance business writer in Egypt, contributing articles on trends such as SME development and microfinance. She holds a BA in Economics from the American University in Cairo.

About the case study

As a result of neglecting construction codes in informal areas, more than half of Egypt’s housing stock has been built without monitoring or assistance. Unplanned housing and public spaces have left a mark on the country’s architecture, infrastructure and environmental sustainability, creating a demand for urban planners that look at both environmental factors and affordability in building real estate for a growing mass-market. ADAPT (Appropriate Development, Architecture and Planning Technologies) is a local architecture consultancy firm that examines how to meet the opportunities of building, upgrading and renewing urban real estate in Egypt’s informal economy. The company uses innovative applications of planning technology and locally available construction material to turn inadequate low-income housing into good quality, environmentally-friendly, affordable homes. ADAPT has more than three decades of experience in this approach in rural, urban and desert locations throughout the Middle East and North Africa.

The main actors involved in the business models include government municipality, master builders, local community and specialized associations or networks, as well as Ashoka. In terms of economic results, ADAPT has upgraded areas encompassing over 10,000 affordable housing units, and out of a total of 21 projects from 1983 to 2004, it has reported a gross volume result of US$20 million. Furthermore, ADAPT has trained and aided 100,000 people, and contributed to community and women empowerment. By using locally available resources instead of traditional pollutant construction materials like cement, ADAPT is also contributing to environmental sustainability.

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

 
Q&A with Shuan SadreGhazi, author of Saraman case study (Iran)

Shuan SadreGhazi serves as a PhD researcher at United Nations University (UNU-MERIT) and is located in Maastricht, the Netherlands. He is also a tutor in International Business Strategy and Entrepreneurship at Maastricht University. In addition he has work experience with the private sector in Northern Europe and the Middle East. His academic interests lay primarily in innovation management and business strategy with a special focus on their application for development in the South. Shuan’s current research aims at studying pro-poor innovations. He holds a M.Sc. in Management and Economics of Innovation from Chalmers University of Technology (Sweden) and received his B.Sc. in Industrial Engineering from Isfahan University of Technology (Iran).

Saraman is an Iranian company co-founded by an Iranian and a German professor that designs, fabricates and erects affordable, earthquake-proof pre-fabricated steel structures for houses, schools and hospitals.

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

What is Saraman’s basic value proposition and what makes it financially sustainable?

A number of issues surround the conventional construction industry in Iran and many other countries in the South: low safety, long completion time and high cost.  Related to these are the challenges of a growing population who needs  appropriate housing and employment. Saraman addresses both of these issues in its value proposition.

Saraman designs, builds  and erects affordable, earthquake-proof pre-fabricated steel structures for houses, schools and hospitals. Through collaboration among German and Iranian universities and their corporate partners, Saraman adapts advanced technology to reduce cost and time of earthquake-proof construction, using locally available material in an environmentally friendly way. In addition, special training is provided to facilitate exchange of know-how and develop employment opportunities for young graduates who later implement the practice in Iran. New construction projects also create jobs for less-skilled workers.

Saraman sought financial sustainability through a number of ways. In the technical aspects, they optimized the process of construction and used state-of-the art technology to lower the costs associated with inefficient conventional methods, which enabled them to build affordable construction, but still going to scale was needed in order to make it a viable business.

In the formation phase of the company, Saraman paid special attention to invest in know-how to reduce the cost of technology adaptation and implementation in the long run. To fund training costs it sought support from the German Academic Exchange Service (DAAD).

Saraman started the commercialization phase by entering in construction projects that were likely to be continued and would allow it to build a foot-hold in the market. It would be rather difficult for a young company like Saraman to enter right away the turbulent market of housing. Winning the bids of school construction projects allowed them to enter a niche market to show their capability, prove the advantages of their method and get funding and more construction offers that would fuel its growth.

What were some of the challenges hindering Saraman’s development and growth and how did the company overcome them?

One challenge was low awareness and knowledge about construction safety among the actors on both the supply and the demand side. On the supply side, although regulations about safe construction exist, using conventional methods and designs makes earth-quake proof construction rather costly. The cost issue coupled with the lack of knowledge leads some constructors to turn to less-safe and/or fraudulent ways of construction.  On the demand side, due to low awareness about importance of earthquake safety and already high-costs of construction, earthquake-safety issues are often ignored in favor of having a cheaper building. In addition, since in conventional constructions the structures that ensure earth-quake safety are hidden, it is difficult for ordinary users to check the robustness of the construction.

Saraman tackled this challenge through a number of ways. First, the founders invested a lot of their time and academic credit to provide presentations and site-visits to convince contractors and sub-contractors about the benefits of their method. Second, by making the construction-safe components visible and verifiable by the users, they made constructions not only earth-quake proof and low-cost but also less prone to fraud. Of course to ensure future demand for verifiable safe construction they had to raise awareness. That is Saraman’s third plan, i.e. to start with building schools with visible structures and putting awareness slogans on it.

To what extent was the collaboration between German and Iranian universities a critical factor in Saraman’s success?

The inter-university collaboration was crucial for the success of Saraman, especially because for affordable construction they were using state-of-the-art technology.

With using new technologies, particularly in the South, there are often the challenges of scarce “know-how” and adaptation. The machinery gets imported but the knowledge to use it properly remains with the expensive consultants and/or a handful of people inside the company. In addition, the imported technology often needs adaptation to local conditions in order to be effective and the technology providers in the North are limited in addressing local conditions.  These factors lead to a less-effective and more costly use of the technology (I would compare it with the “poverty penalty” issue, but at the technical level, i.e. a “tech transfer penalty”).

Saraman started its activity by investing in human capital and know-how development, primarily by offering training to young graduates. Providing summer-schools, onsite training and establishing joint educational programs with the German institutions was a fruitful way to maintain a continuous supply of local skilled work force who have both the know-how and understanding of local conditions. The funding from the German Academic Exchange Service (DAAD) eased the financial burden of the training process.

Based on Saraman’s experience and in light of Haiti’s devastating earthquake, what are the prospects of mainstreaming earthquake-proof technology into the low-income construction industry in Iran and beyond?

One can see the prospects from two perspectives. One is through “democratizing the technology”. In many countries in the South, even if the construction codes exist, they are often either not enforced and/or the constructors find ways to get away with it. Mainstreaming certain construction technologies that give the power of verifying construction safety to people and raising awareness about it is one way to address the issue in the absence or weak presence of monitoring bodies. In line with that, training and using local skilled workforce – as we see in the Saraman case- enhances the potential of adapting the technology to what local users want rather than what a foreign company thinks the people need. Democratizing the technology is closely linked to the inclusive business approach of the GIM Initiative.

Secondly, new technologies can be employed to “leap frog” to more efficient solutions, especially in the poverty context where neglecting safety is linked to low purchasing power. As seen in the case of the Haiti earthquake, the poor are the ones who are hit the hardest during disasters. Poverty and severe effects of earthquake go hand in hand. Of course technology alone is not a panacea and it needs to be buttressed by paying special attention to know-how development, adaptation and devising appropriate business models.

Mainstreaming technologies and business models make construction agile, more robust, less costly and increases job prospects for low-skilled labor as well as job-less young graduates. Considering the significant population growth in the South, which sharply increases the need for house, there is a bright prospect for those who manage to figure out new solutions in the low-income construction industry.

What has been your personal experience going through the GIM training and case research process?

As a researcher at United Nations University I was always looking forward to cooperate with a relevant UN project and get an opportunity to learn and incorporate other ideas. The UNDP-led GIM initiative was a valuable chance for me to do so.  I found the involvement with the GIM training and case research process a rewarding and pleasant experience. It gave me the opportunity to a get a deeper insight about inclusive business, which is closely linked to my PhD research on pro-poor innovations. The wide set of GIM cases have been a valuable resource for my research and even more important, the interaction with the GIM team has been a source of inspiration. In addition, the project management of the GIM case research process was done in a very professional way, which was a great experience for me to learn about handling large scale research projects.

 
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