SEKEM Insight 04.11 EN

Nr. 104 - April 2011

Insight

SEKEM‘s Journal for Economy, Culture, and Society in Egypt

Editorial Dear Readers,

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Egypt

USA

Potatoes

New Challenges for Entrepreneurs

Under the Nile Boost US Organic Markets

New Sinai Harvest Brought in

Egypt After the Revolution: Chances and Challenges Ahead The future Egypt may offer new opportunities for innovative initiatives like SEKEM. For the moment, however, big insecurities and challenges prevail.

The Egyptian revolution of January 2011 was launched by the middle class youth of Cairo and other Egyptian cities. Many of them are still protesting.

T

he Egyptian revolution that took place at the beginning of this year ousted long-reigning Hosni Mubarak and put a transitional government in place that is presently made up of a military council. These changes in the political landscape have also brought major new societal and economic challenges to the country and its people.

They are having far reaching consequences also on the work of SEKEM, its companies, and its social and cultural initiatives. Specifically in the short

term the changed environment presents especially the companies with formidable challenges that first and foremost bring more uncertainty and unexpected need for restructuring.

Societal insecurity Firstly there is a risk for SEKEM as contact persons in the ministries are suddenly gone due to a change of personnel. Secondly, however, there is the opportunity that people come to SEKEM Insight | April 2011 | Page 1

Economy

these blockades that prohibited it from exporting goods at all for a certain time or reduced their quantities to a trickle. For instance, for some time even after the revolution, ISIS could not export any vegetables at all.

The „tent city“ still serves many protesters as the basis for their manifestations.

power which pursue a political agenda more conducive to the areas of work of SEKEM and its companies. The current agricultural minister Dr. Ayman Farid Abu-Hadid for example is said to support sustainable agriculture, the core business of SEKEM. Another important political contact for SEKEM, the ministry of environment, has been spared from any major changes and stands for continuity in the so far overall positive political relations to SEKEM. The fact that the military will be heading the government at least until September is neither conducive to cooperation with international companies nor for the general business climate in Egypt. Illustrative are the expansion of the already bloated state apparatus and the rather business-hostile economic policy with its general suspicion towards and even frequent allegations against companies which stood in closer contact with agencies or ministries of the former government.

Economic losses Not only the political but also the economic framework conditions in Egypt have changed. The economic decline triggered by the revolution hit almost all industrial sectors. One reason why economic growth estimations for 2011 were downgraded from 5,3% to 3,5% recently are the decreasing quantities of exported goods resulting from the blockade of crucial infrastructure such as ports, factories, and other installations during but also well after the revolution. SEKEM, too, has been substantially affected by

The production in many Egyptian companies was brought to a halt during the revolution. SEKEM’s companies were among the few businesses that were able to continue production and distribution without interruption at all. The reasons are to be sought mainly in the exceptional loyalty of the employees of the SEKEM companies and the geographically rather distant location away from the revolutionary hotspots like Cairo or Suez.

In general, this halt of production in companies in Egypt resulted in drastically diminished turnovers. The companies, naturally, reacted by laying off staff. One consequence of such behaviour are shrinking wage levels which in turn negatively affect consumption.

Decreasing consumption coupled with the current inflation of 20% on foodstuffs in some urban areas negatively affects the usually stable food sector.

Those parts of the population who tend to emphasize a nutritious diet and therefore often decide to purchase organic foodstuffs from ISIS have not been spared from the crisis.

Those among them also presently confronted with lay-offs and salary cuts often think twice now whether they should not also save money when buying foodstuffs. This frequently leads them to rather buy cheaper, lowerquality foodstuffs. One consequence is that local sales of the high quality products of ISIS decreased by about 30%.

For NatureTex, the drastically increased cotton price is a serious concern. The price of cotton increased more than 171 percent in the past year hitting a 150-year high on February 11.

This means an increased purchasing price which can only be passed on to the end-consumer in rare cases, if at all.

Business adaptation The examples mentioned illustrate how strongly the political and economic framework conditions for SEKEM have changed within the last weeks since the January revolution. SEKEM is currently meeting inherent challenges with a package of measures that emphasizes shortterm cost saving measures and prioritises consolidation. The core focus is on increasing efficiency, particularly with regard to logistics. Business processes are thoroughly reviewed in order to spot slack and waste. These measures will be implemented coop-

„Early February 2011 saw the highest market price for cotton in one hundred and fifty years.“ eratively by all SEKEM companies and under the management of Dr. Ibrahim Abouleish.

Outlook The revolution in Egypt has had a remarkable impact on politics and the economy that will shape the way innovative business can be done in Egypt for some time to come. SEKEM has not been spared by the fallout of the revolution days and meets the new challenges with a number of in part drastic measures. Even if turnover decreases in the short-term, SEKEM is properly prepared for the future.

There are nonetheless some external factors SEKEM has limited or no influence on. Among these are in particular the elections of the coming September that will be crucial for the Egyptian political landscape, the economic stability, and therefore also for SEKEM. It remains to be seen whether the transitional government headed by the military will soon be replaced by a democratically elected government of the people.

Matthias Keitel

SEKEM Insight | April 2011 | Page 2

Economy

Business Development of the SEKEM Group in the 1. Quarter of 2011 Sales (consolidated)

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010 had already been a difficult year for the SEKEM Group’s companies due to the financial crisis. The 1. quarter 2011 turned out even worse seeing a 10% fallback in sales over the same period one year earlier. The reasons for this development are to be sought in greatly diminished national demand and substantial export problems during and after the revolution. The situation negatively affects investment planning and the strategic finance planning.

Cost reductions, increases in efficiency, and the consolidation of product portfolios are now required to stabilise the business situation.

Sales (consolidated)

Q1 2010

58 Mio. EGP

Q1 2011

52 Mio. EGP

EBITDA (consolidated) Due to the bad market situation the initially projected EBITDA (earnings before interest, taxes, depreciation, and amortisation) could not be realised. This led to a net loss in the first quarter of 2011.

The structural modifications that are now required need time to be implemented and cannot be easily installed as the SEKEM Group had originally prepared its companies for a time of growth this year. For this reason the year was begun with substantial surplus production capacity. Higher raw material costs further worsened the situation. EBITDA is expected to rise to 4.5 mio. EGP again by the 4th quarter of 2011.

EBITDA (consolidated)

Q1 2010

18 Mio. EGP

Q1 2011

13 Mio. EGP

Shares of operations in sales mix

Shares of operations in sales mix There was only little movement in the sales mix in the first quarter of 2011 over the same period in 2010. The FMCG (food) share was diminished by 2% to 53%. The share of the pharmaceutical sector was reduced by 3% to 15% while the agricultural share climbed from 15 to 19%.

19%

Sales (domestic vs. foreign markets)

SDF is partially financed by company profits. In general the companies spend at least 10% of their profits to finance the activities of the SDF. Even though these social and cultural institutions still enjoy the highest priority at SEKEM, the foundation is currently more dependent on external donations.

13%

Agriculture Landwirtschaft

As discussed in the lead article in this issue, the export share was diminished somewhat due to the temporary breakdown of all exports. The local sales share grew by 3% over the same period one year earlier.

SEKEM Development Foundation (SDF)

15%

Pharma Pharmazeutik

53%

Textiles Textilien

FMCG FMCG

Sales (local vs. export)

Q1 2010

Q1 2011

70%

30%

73%

27%

Lokal Export Export Local

SEKEM Insight | April 2011 | Page 3

Economy

Under the Nile: Partnering with SEKEM for Global Development Under the Nile works with SEKEM to produce organic clothes. Through commercial cooperation, both businesses succeed in strengthening human development.

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artnering with Sekem since 1998, organic cotton baby clothing and toy company Under the Nile has since worked to expand the organic market in the U.S. and globally; and in doing so, the company has created global environmental awareness as well as economic opportunities for impoverished communities in Egypt and the Philippines.

When Under the Nile was born over 13 years ago, “organic” was something unheard of in the U.S. mainstream. Since then, Under the Nile has worked to change that—using only biodynamic 100% organic cotton. The company has continued to grow and maintain its place at the head of the organic baby clothing industry.

Introducing the Treasure Box Recently, Under the Nile launched a new branding campaign with the creation of its new Treasure Box gift set.

Hand crafted with 100% recycled chip board and wild grass paper, and tied together with a coconut shell button closure, the Treasure Box comes with a 100% organic cotton baby gift set. A peek-a-boo window in the shape of a crescent moon allows consumers to feel the organic cotton, while the curved edge of the lid represents the Nile River.

This gift box is one-of-a-kind in that it is created on a platform of Sustainability and Fair Trade. Each one is hand made from abundant and renewable resources, by artisans who are paid fair wages.

By contributing both to improvements in standards and to economic growth, Under the Nile believes that foreign trade can play a major role in the development of countries and can help to lift people out of poverty. Produced in third-world communities in the Philippines which are very needy and remote, the Treasure Box plays a part in creating new economic opportunities in small towns where there is no industry or job availability. As fair trade practitioners, all artisans are also ensured safe and good working conditions, and benefits like a scholarship program which funds children education, text books, school supplies, and school uniforms.

This way, families thrive, children have futures, and local economies flourish.

The philosophy behind the production of the Treasure Box goes hand in hand with Sekem’s core philosophy of creating products that give back to the earth as well as to the communities that make them possible.

The ’13 Villages Project’ In partnering with Sekem on the 13 Villages Project, Under the Nile is providing healthier living conditions for impoverished communities in Egypt.

The 13 Villages Project was founded to bring new economic opportunities to impoverished villages that suffer from unemployment and poor quality of life.

In partnership with Sekem, Under the Nile engages t h e s e communi-

Under the Nile‘s development project on the Philippines.

ties by teaching them a new trade and by providing jobs ensuring continuous income and promoting healthier living conditions. As a result of this project, these communities learn how to maintain a clean working environment and are trained in water and waste management, receive medical care, and earn fair wages. Many of Under the Nile’s products are handmade by participants of the 13 Villages Project.

The Endangered Species Collection Under the Nile’s Summer 2011 collection is fresh and exciting, featuring a brand new Endangered Species Collection. Created to educate young children about endangered species and to encourage social and environmental responsibility, the collection includes plush animals that come with a description of why that animal is endangered and needs help.

Each of these products is made by Sekem with quality and care—care for the environment and for the workers.

These joint efforts have impacted not only the lives of impoverished communities, but also the perception of organic products globally. Under the Nile is proud to call Sekem its partner.

Shereen Masoud (Under the Nile)

SEKEM Insight | April 2011 | Page 4

Impressions

Impressions from SEKEM

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n April as an expression of their solidarity with Dr. Ibrahim Abouleish and Helmy Abouleish, students of 9. grade from the SEKEM School launched a campaign aiming to collect signatures in support of the work of both the founder of the SEKEM Initiative and managing director of the SEKEM Group of companies. Within a short time they succeeded in collecting at least 1.000 signatures from students and co-workers at SEKEM. They even included the various communities in the villages in the vicinity of SEKEM’s farm and mobilised their support.

The students had proclaimed that the SEKEM initiative’s work, it’s community, and the ideals represented by them can act as a model in the creation of a “New Egypt”.

SEKEM Insight | April 2011 | Page 5

News in Brief

Invitation to the SEKEM Day in Stuttgart This year, the „SEKEM Day”, the regular yearly meeting of the friends and supporters of the SEKEM initiative and the General Meeting of the support society will take place on 14 May starting at 11am in the Schillersaal of the Stuttgarter Liederhalle. SEKEM and the SEKEM Friends of Germany cordially invite every friend of SEKEM to attend.

Aside from the general meeting the programme will feature contributions

by Dr. Ibrahim Abouleish on the current situation in SEKEM and in Egypt and the development of the Heliopolis University that is scheduled to open in 2012. Dr. Hermann Becke, president of SEKEM’s Austrian support association, will present the project “House of Culture” (Dar al-Salaam), subsequently introduced in greater detail through contributions by several other speakers. These include Dr. Albert Schmelzer on education, Michael Debus on the role of religion, Martina Dinkel (SEKEM) and Christian Czesla on the planned activities of the house in the sectors of the arts and business. The board of the association will also look back on the activities of the SEKEM initiative in 2010.

SEKEM‘s Early Potatoes in Stores Again

Like every year, in spring, around the beginning of April, the first new potatoes from the Mediterranean and North Africa arrive in European stores.

About 1.3 tons weighs one of those bags with the precious commodity of which the SEKEM staff on our image is just about to load and prepare one for shipment to Germany.

The export of potatoes has a long tradition at SEKEM. This year SEKEM is particularly proud to be able to export for the second time and with a significant increase in quality and yield the potatoes grown on the new Sinai farmgrounds on the Sinai peninsula close to the Suez canal. Since 2008, the newly created farm area has undergone very rapid development and has now become an important pillar for agricultural production at SEKEM, and not only of potatoes.

“This year we have converted to the new variety Inova, an early, waxy variety that is known for its robustness in cultivation and high-quality yields”, says Christoph Kampschulte, sales manager of SEKEM in Europe.

The team of organisers from the German “SEKEM Friends” will be available for an exchange of ideas. The purchase of products will be possible.

The SEKEM potatoes, that naturally bear the demeter label for bio-dynamic farming, can be found from now on until about early June in selected German health food stores and organic supermarkets like Alnatura.

Source: SEKEM Friends Germany

Source: SEKEM Europe

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More information: http://www.sekem-freunde.de

You can visit SEKEM yourself: www.SEKEM-reisen.de www.aventarra.de

Dr. Ibrahim Abouleish to Speak at „think more about“ We live in a time of upheaval and change. Everywhere there is much talk about sustainability, but few know exactly how it can be successfully implemented in daily business practice. The Congress “think more about” „intends to close this gap by showing entrepreneurs the wealth of opportunities in the field of the ‘blue economy’: in product development, marketing, and the establishment of meaningful, stimulating corporate cultures. Dr. Ibrahim Abouleish will hold the opening keynote on 19 May on „The art of relationship”.

The 21st May will provide additional opportunity to deepen the congress’ thematic topics in dedicated seminars.

The Free University of Bolzano, the University of Innsbruck, the Kloster Neustift, and the Terra Institute Brixen as organizers look forward to rethinking economy together with their guests.

Source: Think More About

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More information: http://www.thinkmoreabout.com

Masthead: The editors of SEKEM Insight wish to thank all contributors to this issue.

Editors: Christina Boecker Bijan Kafi Contact: SEKEM-Insight c/o SEKEM Holding P.O.Box 2834, El Horreya, Heliopolis, Cairo, Egypt insight@SEKEM.com Pictures: 1, 2, 7r: Bijan Kafi; 4, 6: SEKEM; 5: UTN; 7l: KKC Liederhalle No republication without written consent by the publisher.

SEKEM Insight | April 2011 | Page 6