Home » Tea with emerge85 » The Egyptian Industrial Entrepreneur Aiming for the Next Big Thing
The lounge at the Park Hyatt Washington, a favoured destination of the World Bank, IMF, and finance set in Washington, DC.
Basil: Earl Grey
Basil El Baz is the consummate entrepreneur. When I tell him that some 6bn cups of tea are consumed every day, he arches an eyebrow and jokes: “I should get into the tea business.” If he did, he might find a way to give Lipton or Tetley a run for their money. El Baz has that entrepreneur’s mix of resilience, courage, intensity, and nerve wrapped in an earnest salesman’s enthusiasm.
“I drink a lot of tea in the factory,” El Baz says, as we settle down. “Drinking tea with my team gives me a chance to step back and say, ‘how are you? How is your family?’ After all, I set up the structures and raise the finance, but I am nothing without the assembly workers and the engineers and the like, so I want to know them better, and tea drinking is part of that.”
El Baz and I had just come from an event hosted by the emerge85 lab at Johns Hopkins SAIS where he spoke to students and specialists about his journey, telling the students that the most important quality of an entrepreneur is resilience. “When you see a building burning, you need to have the attitude that says: ‘Ok, let’s stop the burning first, and, now that’s over, this is a good opportunity to build an even better building’. This is resilience.”
During the SAIS session he took apart a pen and described the manufacturing process that went into the seemingly simple object, explained the importance of microwave ovens as a development indicator, and outlined everything in the room – and it was virtually everything – that had some petroleum/petrochemical element to it.
After an hour of speaking at SAIS El Baz still seems highly charged, wired for our tea conversation and his next meetings. Clearly, this is a man with many moves left in him – and he seems to be enjoying the ride.
After ordering an Earl Grey tea, we started with the cultural difficulties of being an entrepreneur in Egypt.
(Editor’s note: We had our tea in mid-March, and some of El Baz’s excerpted remarks below come from a session he conducted with emerge85 lab earlier in the day)
“I was seen as a failure”
In Egypt and across the developing world, when parents think about what they want their children to be, it ranges from doctor to engineer to maybe banker or lawyer. These were my parameters, too. I also happened to attend one of the better academic institutions so the idea was that I could easily become one of these, but I chose a different path and it wasn’t always easy to handle the questions – especially for my mother.
At family events people would ask my parents what I was doing, and, after they couldn’t really explain it, the reaction they got was: ‘What a shame’, or, ‘what a waste’, and, ‘how can we help you?’ I was seen as a failure. I had friends and relatives calling me to promise to set up an interview for me with this bank or that firm.
I believed so strongly in the fundamentals of what I was doing.
But you cannot let this sort of thing phase you because I believed so strongly in the fundamentals of what I was doing. It made so much sense to me, so I kept going.
The day after financing
After six years, we finally got the financing for EBIC (to build an ammonia plant) and then it hit me: This thing needs to be built. We haven’t started work yet. I have spent so much time and energy on this and it starts from now. I was the only employee of the company but I needed 400-500 people. For the first three months, I could not find people, especially engineers, willing to leave their jobs and come work for me.
We were a start-up but you don’t normally see start-ups in this sector. They are usually publicly listed multinationals or national oil companies. For the first two months, I was essentially alone trying to figure out what was going on. Only after the concrete foundations started to appear did a couple of adventurous engineers say, ‘let’s try this out’. And then when I began hiring, that’s when I saw resistance from competitors.
I was relatively young and not cognisant of the severity of this situation, but I felt I was in the right.
Showdown in the governor’s office
In order to attract engineers, I did what any company would do in my position: I offered to raise salaries. Not by much, but I was offering higher salaries than the competition. A couple of chairmen of some domestic companies decided to seek counsel from the governor of Suez and complain that “this young guy” was paying outside the norm so the governor decided we would have a meeting. I was relatively young and not cognisant of the severity of this situation, but I felt I was in the right.
I told the governor I offered the engineers a job at competitive pay and the failure was on the other companies for not being able to retain their workforce. I then said: “Wouldn’t you like for your citizens to make more money and provide better for their families? Why don’t you ask the chairman on my right how much his company made last year?” After all, we were only talking about a monthly raise of about EGP500 or 1,000 per month, so, I said, “ask them how much they are making”. The chairman said that was not relevant, so the governor asked, and I told him the answer: He made $800m!
I explained that the men complaining about salary hikes were spending at most 4% of costs – but more likely 2% – on salaries. I then turned to another chairman and asked: “What were your revenues?”
The governor looked at them and said everyone should increase their employees’ salaries by 25% as of now. If [they did not, he said, they would face] serious problems.
Engineers at the gate
As I began hiring, some of the managers of other companies took draconian measures and made the exit process really [hard for their staff]. In one case, a popular engineer was treated very badly as he was leaving to join my company. I was in the US and I got a phone call from our general manager. He told me there were 50 people at the gate who wanted to come in and sign contracts; an entire shift was so upset by how that company treated the popular engineer that they walked out and were now outside my door – literally. The general manager asked me what he should do, and I said: “Open the doors; open the conference room and get them signed up.”
I’ve learned that we should never underestimate our labour force.
I’ve learned that we should never underestimate our labour force. They mean everything to me, and I tell them what our vision is and what we are trying to do, and that helps give meaning to their work. It’s very interesting to see how people respond when they genuinely believe that their work is making a difference; when it has meaning.
The safety protocols
I take safety very seriously. We hold the record in Africa for the number of construction hours worked without a lost-time incident (a recordable injury) – 13,500,000 hours. I wanted to show everyone how important safety is but I also wanted to show people how we ran a lean organisation without hierarchy.
There are safety rules and you abide by them. That’s it.
So, sometimes I would go onsite and not wear gloves and wait for the safety inspector to remove me from the site, and he would do so. People would see that: The CEO is being asked to put his gloves on and come back. There is no one who can say “I outrank you” on this or that. There are safety rules and you abide by them. That’s it.
Why industry? Why ammonia?
I was always very curious as to how countries industrialise because one doesn’t have to look very hard to see that a lot of the developed world managed to accomplish what they did on the back of heavy industry. And you had your industrial revolutions. You had various moments in history where heavy industry was at play and then, the economy transforms.
Industrialisation gives countries a certain independence.
Industrialisation gives countries a certain independence. You are able to create products that are made locally. You cannot do that if the raw materials that are acquired to create this or to manufacture that are not produced domestically. This is where ammonia comes in.
Ammonia is an intermediate chemical. It has a variety of uses. It can be used in fertilisers, or in explosives, which are utilised in the mining sector. It can also be used in manufacturing of plexiglass and nylon.
I like products that have multiple uses that would not be related to one specific commodity cycle. That to me means that you can be more resilient in the down side and shift your product to different end users.
Those who are employed by the company I think at some point are just surprised that, even though the organisation is very large, it’s still extremely intimate in the way it does business.
Our Egypt story
We’ve deployed almost $2bn-worth of assets in Egypt today. We employ a little over 1,200 people directly but we still have the mindset of being in the dormitory. Those who are employed by the company I think at some point are just surprised that, even though the organisation is very large, it’s still extremely intimate in the way it does business.
The organisational structure is still relatively flat. Everyone is accessible to a certain extent and we’re having a lot of fun.
I believe in high-impact entrepreneurship.
I believe in high-impact entrepreneurship. If you really want to start looking at how to employ as many people as possible, how to transform the lives of a large number of people quickly, you start looking at what I call high-impact entrepreneurs, and they are not in the tech space.
The tech space is relatively low labour in comparison. For a developing country, a mining operation might require 50,000 workers. You’re changing the lives of 50,000 immediately.
If you start putting in place a programme in which you’re going to look at increasing real wages for people above the per capita income levels in the country, you become a desirable place of employment and you begin to have a high impact on society.
The microwave oven is a great development indicator because it basically means that there is food on the table that has not been eaten and must be frozen.
The microwave as a development indicator
When I found that my staff were buying a second television, I saw this as a good sign. A second television is a luxury. I also always asked them if they had a microwave. The microwave oven is a great development indicator because it basically means that there is food on the table that has not been eaten and must be frozen.
And so that means, from a nourishment point of view, from a calorie intake point of view, that this house is whole, so to speak, and there is now more food than actually is necessary on the table. This, and a second television, are good signs. When I see staff with a microwave and a second television, it gives me the sense that there is indeed progression in their lives.
The South Korea lodestar
After WWII, South Korea looked around for models to follow and they found this country in North Africa that had a population of similar size but with an economy almost three times as large, and that country was Egypt. And so they said, “we are going to replicate the Egyptian governmental organisational structure so that in 50 years we can be like them from a financial point of view”. But they made one slight change.
They said to kick start this, what we are going to do is invest in petrochemical plants in the south. We’re going to produce all these chemicals and products that we have no clue about, and with no industry to consume them, so we’re going to export them all. But, eventually, someone local is going to come knocking on the door of that factory and say, “may I have five tonnes of this – I’m going to try to make a plastic pen”.
Deconstructing a pen
A plastic pen is interesting because it is a single, hollow injection mould. This is your most basic thing to manufacture. You’ve seen bad pens where you click them or try to write and they just fall apart in your hand.
That manufacturer has not perfected the process of injection moulding. And after you get good at this, the next thing you do is make a whistle. The whistle is a lot more interesting because it’s got a moving part; it’s crude engineering.
After the whistle, you go onto a lighter. And the lighter is nice because a lighter has a piece of steel on it. Now, you’re talking material engineering.
How do you get the steel and the plastic to stay together without falling apart? You go through these steps until, eventually, you get to the composite airframe of a jet. But you cannot start with the composite airframe of a jet.
This is where the developing world has made significant errors. This is what I‘ve watched Egypt do from the 1980s onwards – we want high tech.
But you can’t have high tech first. You’ve got to make whistles and monitors and pens first and then you can have high tech later.
But you can’t have high tech first. You’ve got to make whistles and monitors and pens first and then you can have high tech later.
Why does Egypt import so many diapers?
The reality is that when you start looking at the very basics, Egypt has a tremendous trade deficit. We import far, far more than we export. Take one example: Diapers. Egypt imports 6bn diapers every year because we don’t have the super absorbent polymer (SAP) that makes the lining. It doesn’t make sense to manufacture them in Egypt.
Now we have a population that’s growing, so we’re going to need more diapers. I said, whoever builds the SAP plant, that polymer plant on the ground, the diaper factories will come behind them.
These are the conversations I’ve had to date with manufacturers. I said, “I’m thinking of doing this product”. The answer is: “Well if you do that we’re going to build right next to you. Is there real estate available next to you?” These are good conversations. This is how an economy develops; this is how a country industrialises.
The second journey
We sell ammonia to a French company which sends it across the Suez Canal to Marseilles and discharges it into a refrigerated tank. From there they re-load it onto a small barge and up the river about 400 km to a petrochemical plant producing mining grade ammonium nitrate to be put in a container. Afterwards, it is shipped back across the Suez Canal into Africa to be used in mines.
I would be a dummy if I can’t get this to work.
I thought to myself, well, I’m selling the raw material and these vessels are passing me on the way back, so what if I position an ammonium nitrate plant here, in Suez, south of the Suez Canal? I would be a dummy if I can’t get this to work.
And then I find out that Africa is basically importing all of their materials for the mining sector from Australia and Europe. That was it. I decided I needed to set something up.
I would almost say that I was very close to arranging the financing by text message.
So off I went onto the second big project. And I would almost say that I was very close to arranging the financing by text message. We had the credibility and the fundamentals. It was put together lightning fast – four months. I had $350m of debt, investors lined up, and then, guess what? The financial crisis happened in 2008.
My financing dried up. There was no project. But the fundamentals were solid. So, I go, okay, that’s not a problem. I will reshift my financing story. I will deal with banks in Egypt, banks in the region.
I signed my loan facilities on November 22, 2010. Financial close geared for January 31, 2011. I was all set, right? Wrong. Of course, a week before my close, a few people went to Tahrir Square.
(El Baz is referring, of course, to the Egyptian uprising)
At that point, I was standing near the exit sign and trying to stop the banks and the shareholders from running out. And in July 2011 we ended up closing.
And so we deployed and we constructed this facility in probably one of the most complicated times you could imagine.
Because the fundamentals were so sound, the backdrop of revolution in Egypt, lack of government, and complete chaos ultimately did not affect the viability of the project. And so we deployed and we constructed this facility in probably one of the most complicated times you could imagine.
I will say that the executive management team we have in-house took a crisis management course that you cannot take in any school.
Petroleum is everywhere
Everything you see around you today – with the exception of wood, steel, concrete, and glass – is made with petrochemicals (El Baz made this remark at Johns Hopkins SAIS). Although, in saying that, the staining on the wood that you see and the glues and adhesives bonding it are petrochemicals.
I mean, this carpet here is polypropylene fibre grade. The nylon, your shoes, basically, with the exception of the leather, are entirely petrochemical products.
The glasses that you’re (he says, pointing to Afshin) wearing, these lenses, that’s actually ammonia, that’s ammonia and propylene and that’s how you make them, assuming this is a polymer and not glass.
When you go into the details beyond the basic manufacturing process you will be dealing with speciality steels which are designed to withstand certain temperatures. If you’re galvanising the steel then you’re going to get into petrochemicals.
It’s everything around you.
If you’re painting, you’re getting into petrochemicals. It’s everything around you.
That’s why crude oil is very valuable. People have the misconception that crude is valuable because of fuel. In fact, 50% of the barrel is petrochemical products, maybe 60%. The fuels that come out that you see in the jets in planes, and the diesel, all of this is maybe 20%-30% at best.
You want to maximise that petrochemical component that you can extract.
Even electric vehicles need petroleum because they use about 30% more petrochemical products to manufacture, as well as all these plastic charging stations and the housings and what have you. All of this requires petrochemicals and more mining to find copper to power the batteries.
When I called my company Carbon Holdings, people said I was crazy. Carbon is a bad word, they said. But this is the building block of life. I mean, the one that comes after it and maybe before it is oxygen. But if not there they are side by side.
We are in the carbon family. And that’s what we do.