Spurned by Canada's federal government that last week branded his interest in the country's telecoms sector a national security concern, Egyptian billionaire Naguib Sawiris has pledged not to invest "even a single penny" in the country.
"I am finished with Canada, I tell you," the telecoms tycoon told Ahram Online after the fibre optic company he thought he was set to acquire for C$520 million ($US504 million) said it was 'extremely surprised and disappointed' Canada blocked the bid.
Though Africa's ninth-richest person according to Forbes said he has no plans to sue Canada's government, Sawiris found its decision to block "totally a farce because it's just unimaginable."
"The world is big and my money can go anywhere," said Sawiris, the eldest son of the Coptic Christian family that controls the sprawling Orascom corporate empire. "I regret that we wanted to invest in Canada," said the tycoon in an interview in Cairo, weary and defiant in the wake of the takeover deal that Canada quashed.
In the wake of Mohamed Morsi's downfall, "the only good news" about the ill-fated review according to Sawiris is that he can invest the money - the equivalent of LE 3.5 billion - that was allocated to Canada in Egypt whose political and economic situation he is now "very optimistic" about. "I think it will move forward," said the founder of the liberal Free Egyptians Party and opponent of the Muslim Brotherhood.
After the Brotherhood's ascent to public office and until recently, to many his course appeared set on a path of divestment from his Egypt-based enterprises. Earlier this year, Sawiris sold nearly all his shares in Russian telecom giant VimpelCom (VIP), which acquired the Sawiris' Orascom Telecom Holding in a cash and stock transaction two years ago, and saw his net worth fall US$0.6 billion in March against Forbes ratings a year before. "I have a right to be upset. I won't even go to Canada," he said.
Accelero Capital Holdings S.a.r.l. Group, a Paris- and Cairo-based investment firm co-founded and controlled by Sawiris, in May announced its plan to acquire Allstream, the wireless enterprises services division of regional Canadian telecom company Manitoba Telecom Services Inc. (MBT).
Last Monday, Canada's Conservative Harper government scampered that plan: the transaction didn’t meet the 'net benefit' test of the Investment Canada Act. The country's foreign investment law weighs a potential investment's benefit on Canadian employment, exports, and productivity, but also allows for a veto based on national security concerns.
"They don't have anything specific to say," according to Sawiris, referring to Canada's citing of unspecified national security concerns. "They were very worried we could sue them. We spent millions of dollars to prepare [for the transaction]," said the would-be buyer who also sits on the international advisory committee to the New York Stock Exchange’s Board of Directors.
Only a brief statement from Canada Industry Minister James Moore supplemented the rejection: MTS Allstream operates a national fibre optic network that provides 'critical telecommunications services to businesses and governments, including the Government of Canada.'
Canada's government shouldn't have allowed the sale in the first place if they had restrictions, said Sawiris, who added he was "never told" about any objection to the bidding in the 136 days since the transaction was announced: "We had been totally pre-cleared." Manitoba said in its statement that Accelero had proposed 'far-reaching, comprehensive and binding undertakings' to the Canadian government, including a commitment to invest $300 million over three years to pursue Allstream's capital plans.
Sawiris returned to Egypt in May after a period of self-imposed exile and as the Egyptian government settled for US$1 billion a controversial tax dispute with Orascom Construction Industries SAE (OCIC), Egypt's biggest listed company by market capitalisation run by Naguib’s brother Nassef Sawiris. Naguib heads investment firm Orascom Telecom, Media and Technology SAE (OTMT).
North Korea cellular network link concern
Five years ago, the Egyptian business magnate had success in a bid for a Canadian mobile licence and backed start up carrier Wind Mobile there with a $700 million loan. That loan helped finance Wind's purchase of advanced wireless spectrum (AWS). After the success of the 2008 Wind licence auction, Sawiris found no reason to expect otherwise this time around. "I am the same person," he said, noting that his money was held in escrow at Winnipeg-based Manitoba.
Manitoba said in a statement the Canadian government's previous 'active support' of Accelero played a 'significant role' in its decision to sell to Accelero. It said Accelero had led an investment of about $1 billion in Canada's telecommunications sector, beginning with the 2008 AWS auction.
After the veto, the only issue Sawiris can think of is that the company he is chairman of - Orascom Telecom, Media and Technology - has a 75 percent stake in Koryolink, North Korea's sole 3G cellular operator that launched its service in 2008.
In 2008, "I still had the mobile licence in North Korea," said Sawiris: "There is nothing new. Where does the national security threat come from now? The Cairo administration should send a letter to Canada to ask why an Egyptian guy is a threat to Canadian national security. I want to know."
"Maybe they thought there was a link between North Korea and Egypt, and that Egypt was sending agents to spy on Canada" on behalf of North Korea, "like a James Bond movie," said Sawiris, whom North Korea's official news agency in 2011 reported met with the late North Korean leader Kim Jong Il to discuss business opportunities.
"That's their level of sophistication," said Sawiris, referring to Canada's government, which he said he puts on a par with China for its restrictions on foreign direct investment in its telecoms sector.
"Eyed by a spy?"
When the transaction got held up in the Canadian approval process, Accelero and Manitoba made a series of concessions to appease Canada's government, according to the Globe & Mail newspaper, citing people familiar with the discussions.
According to those people, the Canadian newspaper reported that Allstream, which carries voice and data for governments and corporations, said it would agree to stop carrying sensitive government data and not use telecom equipment from China's Huawei Technologies Co. Ltd. on its network. While Huawei declined the allegation at the time, the U.S. House Intelligence committee had said that China's biggest phone-equipment maker allow Chinese intelligence to interfere with U.S. telecommunications networks for spying.
A separate report by Canada's Financial Post cited unnamed sources saying though Allstream's fibre-optic network doesn't use Huawei equipment, Sawiris' 'association with Wind [Mobile] and his history of using Huawei for past Orascom investments, this was said to be a concern.' Australia last year banned Huawei from bidding on a national broadband network, citing 'national interests.'
"We were buying a fibre optic telecommunications network that was already built by AT&T," Sawiris told Ahram Online. "There was no Chinese network. And if it was the case that it wasn't allowed to buy from the Chinese, [the Canadian government] should have informed us."
When examining the deal, Canadian federal officials raised questions about Sawiris' investments in North Korea, specifically in connection with the Koryolink cellular network relationship, the Globe & Mail reported, citing the same unnamed sources.
Sawiris said Canada shouldn’t have double standards for its own companies against foreign companies. "If a Canadian company [owns] a network, is there enough security to make sure this network is not being eyed by a spy?"
The thinking that a Canadian won't betray his country but a foreigner "definitely will be coming with bad intentions... is [rejected] in the whole world except Canada and China," he said. But with China, "you can understand, because it's not a real democratic regime, not open, not liberal. With Canada, it’s a joke."
"Pretence of national security"
"It's totally unacceptable to have foreign investors waste their time and money, hold their capital captive, and then come up with a comment like that," said Sawiris, referring to the Canadian government decision based on national security concerns. Canada's investments in Egypt "should be treated in the same way,” he added.
The national security threat issue is “clearly very difficult to prove," said Sara Hassan, an analyst at Oxford Research Group’s Middle East Research programme. “Some of the statements made by the Canadian government figures are unhelpful for creating more productive ties with countries in the region.” Still, even if there had been extensive trade links between Canada and Egypt, the impact would have been minimal, because this is not a state-to-state issue, Hassan said.
The Allstream-Manitoba veto follows a relaxation by Canada's parliament last June of foreign ownership restrictions in Canada's Telecommunications Act, permitting foreign control of carriers that have a less than ten percent market share by revenue.
George Addy, a senior partner heading Toronto-based law firm Davies Ward Phillips & Vineberg LLP's Competition and Foreign Investment Review group, said in a statement the decision appears to be the first time since the national security review provisions added to the Investment Canada Act in March 2009 that Canada's government has publicly announced a decision to prohibit a proposed investment on national security grounds following a completed review.
The ill-fated Accelero MTS Allstream review follows two other high-profile Canadian telecoms sector veto decisions. One of those foreign takeover rejections was based on national security concerns: the 2008 blocking of a proposed acquisition by Alliant Techsystems Inc. (ATK) of Canadian aerospace company MacDonald Dettwiler & Associates Ltd. (MDA).
Mohamed Metwally, deputy chief executive of HC Securities & Investment based in Cairo's 6th of October City financial district, said it's hard to call for open doors to foreign direct investment by international companies in emerging markets when developed countries are "blocking investments under the pretence of national security."
Developed countries should "practice what they preach to the rest of the world," said Metwally, who made a return to investment matters in Egypt's post-revolutionary economic environment after more than 30 years working abroad, in Dubai, Abu Dhabi, Bahrain, the United Arab Emirates, the United States, Britain, and elsewhere.
"Someone like Sawiris has the whole world to look at for the right investment opportunity," said Metwally, who served as senior advisor to Egypt's then finance minister Mohamed Medhat Hassanein between May 2003 and April 2004.
In a 2011 television interview with the Canadian Broadcasting Corporation, Sawiris had said that without foreign direct investment in Canada, Canadian companies were "inefficient" and that there was "no real political will to introduce competition to a closed market."
For Sawiris, the Accelero blocking has only confirmed that judgment. "The incumbents have enough muscle to prevent real competition in the market, and my advice for any foreign investors is not to waste their time investing in Canada,” he said. “They change their laws for foreign investment, and then they block you."
Sawiris declined to name the incumbent Canadian telecom companies, but said they have "again won through lobbying to push competition out of the market. They have a very easy arrangement and they don't want anyone to disrupt the comfortable competitive environment they're in."