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PLANS SET IN MOTION
Minister of Transport Mohamed Mansour's appointment to the cabinet three years ago put him in charge of one of the government's most difficult portfolios. He has inherited a mess. But with strategic planning and shrewd management Mansour believes he can turn the loss-making transport sector into a revenue-generator. It all starts with recognizing the sector's vital role as the backbone of the nation's economy. Without an extensive and efficient transport network, the economy grinds to a halt.
BY RÉHAB EL-BAKRY
From day one, Mohamed Mansour knew he had inherited a difficult portfolio. But he had no idea just how bad it was. "When I became minister of transport, everyone told me, 'Mohamed, may God help you,'" he says. "I really didn't know what I was getting into when I took the post, to be honest. I didn't expect [the portfolio] to be in the shape that it was in."
The Ministry of Transport encompasses four basic forms of transportation - road, rail, marine and river. The infrastructure to develop these networks requires enormous capital, yet the opportunity for revenue generation was, until recently, unrealized. And with its two biggest moneymaking portfolios - information technology and civil aviation - spun off into separate ministries in the last 10 years, the ministry has struggled to balance its budget.
When Mansour took his post in late 2005, the ministry was deep in the red. More than half of the ministry's annual budget was being fed into the country's aging railway network, which was hemorrhaging almost LE 1.4 billion a year. The LE 400 million allocated to roads was not even enough to fill the potholes, let alone build new highways. And river ports sat empty, their quays overgrown with unlicensed vegetable markets.
But Mansour, as anyone who knows him will attest, is a maestro when it comes to turning around flagging organizations. The son of an Alexandrian cotton magnate, his privileged life was turned on end while completing undergraduate studies in the US. "I came from a very well-to-do family," he says. "We had the second largest cotton export company in the country [until my father's company] was nationalized in the early 1960s. My father was unable to send me money because he didn't have a cent outside the country, so I ended up living in a basement with water and sewage in it. I couldn't eat anything except eggs because I couldn't afford anything else. I had bills to pay, so I had to work as a dishwasher."
With nobody to bail him out, Mansour realized that success would only come by his own effort. Determined to succeed, he went from flunking university to becoming a straight-A student, graduating with an engineering degree from North Carolina State University with one of the highest averages in his class. He channeled this drive into his MBA, securing a two-year grant from the US government to provide small and medium-sized enterprises (SMEs) facing bankruptcy with advice on how to turn their businesses around. His project identified the problems faced by each SME, and developed individualized strategies to get them back on track.
The management insights proved invaluable when he returned to Egypt in 1973 and, in partnership with his father and two brothers, started a small business. The Mansour Motor Group, the local dealer and distributor of General Motors, has since grown into a diversified group of companies spanning the automotive, IT and food sectors, with more then 20,000 local employees. A prominent member of the local business community, and a tireless advocate of free market economics, Mansour served as president of the American Chamber of Commerce in Egypt for two terms from 1999 until 2003.
Mansour's riches-to-rags-to-riches story has had an indelible impact on his character. He is a fighter, able to identify problems, but unwilling to let them stand in his way as he works to turn vision into reality. His critics argue that this dogged determination may work fine in the private sector, but the cumbersome government is a far less disciplined beast.
Yet Mansour sees it differently. Management techniques that work in the boardroom are no less effective, he says. Challenges must be identified, solutions found and strategies outlined. "A ministry is different because first of all, in a company, you have the choice of who the people are. In the ministry, this is not the case. Then there are regulations, procedures and systems that are different. But at the end, the instruments needed to manage a ministry are the same. The instruments and vision are most important."
Mansour's vision for the nation's transport sector goes beyond balancing the budget. Transport networks must have sufficient capacity to support a growing economy. Ports are useless without rail and road connections to carry goods to or from cities, factories and sources of raw material. Freight trains travel empty if they lack rolling stock or their lines bypass factory complexes. "If we're building an industrial zone in Cairo and we are unable to transport the raw material or the goods on an efficient freight-forwarding system, the cost of our production goes up and we will be unable to compete," he says.
He highlights the correlation between transportation infrastructure and economic growth. "It's now realized by the cabinet that without infrastructure and a good transport system, [our] 7.1-percent growth will not continue," he says. "It is sustainable only with a very good and effective transport system, which we have the chance to develop."
The minister is optimistic about the prospects of turning the sector around. He believes that with a sound strategy even perennial loss-making services such as railways can be transformed into revenue generators. "Transport will become the engine for growth in Egypt," he boasts. "We will have better roads; we will have a better rail network; we will have one of the most important ports operating in the Mediterranean... we will construct a third metro line; and we will [revive] river transport."
Location, location, location
Egypt's position on the main Asia-Europe sea route is an enormous competitive advantage in seaport operation. But the country's aging port facilities and poor service made it an unattractive destination for shipping lines. Some ships traveling the route preferred to detour to Dubai for transshipment losing two days, because the port of Jebal Ali offered better services.
Mansour has no illusions about how bad things had gotten. "In the past, because our services were not up to par, the main shipping [companies] were bypassing Egypt. In the port of Alexandria, we did the tugging; we did the food; we did security; and we employed 54,000 people. But when it came to productivity, it was very low."
In the early 2000s, a strategic decision was made to invest heavily in Egypt's ports. The government committed itself to upgrading the infrastructure, but sought the private sector's expertise in managing the facilities, Mansour explains. "[Now] we are operating by the landlord concept. So we let the main operators come and run the terminals in Egypt. They have the know-how, the marketing ability and the shipping lines connections. So now if there's a terminal, the government should not operate it."
For the ports of Sokhna, Port Said East, Dekheila, Damietta and Alexandria, the Ministry of Transport has initiated public-private partnerships (PPPs), where the government provides the land and infrastructure, and the private sector builds and runs the port, or manages the existing facilities. The PPP model is in favor, he says, "because it is the most logical and businesslike way to get it to work. Egypt is on the map as far as ports are concerned because of this model."
Arguably the most successful of these PPPs has been at Port Said East, a government-built port and privately-run container terminal located at the north end of the Suez Canal. The port's facilities have expanded rapidly to capitalize on the growing volume of east-west sea trade and the port's zero deviation location. The 575,000-square-meter container port is the third largest in the Mediterranean by transshipment volume, behind Algeciras in Spain and Gia Tauro in Italy.
Unlike many of its regional competitors, Port Said East has room to grow, with over 35 square kilometers of hinterland slated for development as an industrial center, distribution center and logistical center for the port. "Most traffic coming east to west over the past five years [has not been] stopping at the port. But now, we're giving them reason [to]," says Mansour. "There is a terminal for them to refuel. There is a terminal for bunkering. If a large Chinese company wants to have a distribution center, it could ship its commodities in bulk, then repackage and then distribute them. This is the natural place [to do it]."
Mansour explains that his ministry has examined the micro and macro economic trends of sea trade, both at the domestic and international level, to develop a comprehensive strategy for development of Egypt's ports through 2020. "Each port should have its own niche, and should be able to attract one of the [global] shipping trends. We look at these trends and we look at the forecasts... to see where business is coming from and going to," he explains.
Well-conceived ports are easy-sells, attracting some of the world's biggest names in investment. Since Mansour's tenure, Egyptian ports have attracted over $4 billion in private sector investment. It's an impressive number, but Mansour is confident there is more to come. How much more, he isn't saying. But he beams whenever asked.
Paving the way
Ports are natural revenue generators, but roads require a little more creative fiscal sense. The high cost of building and maintaining the nation's highway system has the government looking at new models that can reduce the burden on the national budget. The Ministry of Transport is responsible for 23,000 kilometers of intercity roads, bridges and tunnels; road networks within city limits fall under the auspices of other ministries and the governorates.
According to Mansour, the ministry has invested about LE 400 million per year into building and maintaining the roads and bridges under its authority. The figure sounds far less impressive when put into perspective: the average cost of one kilometer of road is LE 1 million. "You're talking about 400 kilometers of road a year and that doesn't even include the maintenance," he says. "That's why we have a very ambitious plan to invest the equivalent of LE 30 billion in the road system over [the next] five years."
To stretch its budget further, the ministry is exploring options for PPPs in the road sector. The government intends to commission private operators to build highways, from which they would generate revenue from tolls and concessions. A portion of this revenue would be designated to cover the maintenance of the roadway. Mansour reckons that toll roads with more than 30,000 vehicles per day can turn a profit for the private investor. Major routes such as the Cairo-Alexandria Desert Road receive over 35,000 vehicles per day, and promise high return on investment.
But smaller intercity roads are unlikely to attract much investor interest. "We've got roads that have traffic of around 25,000 vehicles a day. Now in this case, [the government] will have to think outside the box [to find ways] to compensate the investor," Mansour says. The ministry could sweeten the deal by subsidizing the toll or providing additional concessions such as a cut on roadside advertising. This would still prove much cheaper than if the government had to build, operate and maintain the road itself.
Getting back on track
If there's one area of his portfolio that Mansour would rather not have, it's railways. Egypt's railway network, the second oldest in the world, is even by his own admission an antiquated mess. It is also a money pit, tallying up LE 2 billion in losses per year. "Trains are a problem - a big problem," he admits. "The railroad is a problem because it is the second-oldest railway in the world and we have not invested in [its] upkeep. So it needs a shake up... a complete restructuring and rebuilding, which is what we are working on today."
There are no quick fixes, he says. Egypt was averaging five head-on train collisions a year when he came to office, and everything from the signaling equipment to the railway tracks to the dilapidated carriages needed attention. But most important was changing the mindset of Egyptian National Railways (ENR) employees. Mansour is determined to work with what he's got. Training, pay raises and performance-based incentives are part of a package aimed at improving the efficiency of ENR's employees. "We're redefining the jobs of these 75,000 people and upgrading [their] skills [while] upgrading the structure of the entire organization. We have to communicate to them that their jobs will not be lost."
Armed with a fatter budget, he is also attempting to curtail ENR's perennial losses by cracking down on ticketless travel. An estimated 30 percent of all train passengers, or about 450,000 people per day, ride trains without purchasing tickets. Lax enforcement costs the railway authority millions in unrealized revenue. But the recent decision to steeply increase fines for passengers caught traveling without tickets has met fierce resistance - with the loudest opposition coming from an unlikely camp.
In January, train conductors staged a sit-in to protest the tougher fines, arguing that the higher fines were making their job more difficult. Ticketless riders have always been troublemakers, but when faced with stiff fines tend to become downright nasty - and physical about it.
Another tough decision was to increase ticket prices for first- and second-class air-conditioned trains by 15 percent annually. Mansour says these measures might be unpopular but are necessary if the railway system is to ever generate profits.
Mansour claims the PPP model that works well with other modes of transportation is not a viable option here. Passenger service will always be a loss-making business because of the government's mandate to make rail service affordable to all Egyptians - a commitment that requires deep subsidies. Meanwhile, there are not enough locomotives and rolling stock to greatly increase freight service. "With the railroad, what makes money is not passengers; what makes money is freight," he explains. "And we have not been using freight because most of the locomotives have been going to passenger transport."
But here he sees room for improvement. The ministry recently ordered new locomotives from the US and China to be used for passenger service, replacing aging engines that will be reconditioned and passed down to freight service. He has also approved an increase in the price of freight service - the first increase in over 50 years. "The [same] prices have been charged since the 1950s, which is ridiculous," he says. "So we're going with the market price."
The new rates should bring freight service closer to the cost of trucking, its main alternative. Mansour explains that if it costs LE 1 to ship a ton of goods from Point A to Point B, the newly adjusted cargo rail service will be in the same range, though almost certainly cheaper. "You might end up paying something like LE 0.80, but you're not going to pay [the ridiculously cheap old rate of] LE 0.02."
The higher cost for freight rail service makes sense if Egypt develops its intermodal transport system. Mansour compares a good transport network to the human body - where all the various organs are interconnected to function as a unit. The highest value is attained by linking the various modes of transport, allowing a shipment to travel by the cheapest mode on each stretch of its journey from raw material to end consumer.
River of dreams
River transport could be the key to unlocking this potential. The Nile runs the entire length of the country, yet is used for less than one percent of all domestic cargo transport. A well-developed river transport network would allow container ships to unload their cargo in Alexandria on a fleet of river barges, which would transport the goods to ports, railheads or truck depots as far upstream as Aswan.
The Nile saw heavy cargo traffic until the 1950s, and the ministry is working to revive it as a cheap, efficient and environment-friendly transport system. Almost 80 percent of the dredging has been completed to allow barges to travel from Alexandria or Damietta to Cairo, and upstream to Aswan. Locks are being upgraded to accommodate larger ships and tenders will be held for the construction and operation of six new river ports under a PPP model. Two of these will be in Cairo.
Mansour's taste for PPPs does not sit well with some. Critics have accused the minister of relying too heavily on the private sector for solutions and conceding too much in the process. "There is this mindset that there is this private sector guy coming in as a minister and he's going to sell the country. That is not true. This private sector guy is coming to serve the public sector. And the best way to serve it is through my experience. But it's going to take time."
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