MICHAEL CUTLER CEO of the Oyoun Tourism Development Company

P.M. Communications: Could you please tell us about the history of Oyoun?

Mr. Cutler-Hodgson: Oyoun was the first, and as far as I know, still the only joint-stock tourism development company established and registered in Egypt that is owned and managed by British investors! That was a landmark. More to the point, it is a joint stock company established under the rules and investment regulations of Law No. 8 of 1997 and Law No. 95 of 1992. In Egypt, the Law 8 investment regulated companies are considered the highest category, as the regulations governing both the establishment requirements and the incentives for doing so, are the most severe!

P.M. Communications: What is the strategy behind they day-to-day running of the company?

Mr. Cutler-Hodgson: The investment side of course is one thing, but to actually be physically involved, legally and practically responsible in the running of the company, is something else altogether. I will give you an example; in recent years there have been a number of problems associated with the region (Palestine-Israel, Libya, Syria-Lebanon, etc), the occasional acts of terrorism (Egypt, Saudi-Arabia, Jordon, etc), the war in Iraq, etc., all of that associated with the before and after implications of the war in Iraq, all of which and on each occasion causing various degrees of mayhem re the local economy, and especially that as associated with the Egyptian pound Vs the dollar, and of cause, the recent local currency devaluation. Of course, everybody was losing money and getting worried, more so whenever there are such degrees of uncertainty. At the British Embassy, we have monthly 'business group' meetings and sometimes bring in economic, industry, political advisors and speakers to assist in clarifying understandings associated with or resulting from such events, especially when there is such a general feeling of pessimism amongst those present. In one such typical event, after listening to all of those worried and/or complaining, they asked if there was anybody with any good news, I said "well, I'm still happy! and that in accordance with what really matters, there is no change". They all looked at me like 'with daggers' or at best simply agog! Then I explained how, from our point of view, it is all about planning and not living day-by-day and week-by-week. From the outset, I had to plan 3 or 4 years ahead and it is still the case now! We are working for things ahead all the time, and because of that we are not dramatically or otherwise seriously affected by such short-term problems.
In 'tourism', the need to plan ahead is even more the case because everybody in tourism, irrespective of where in the world they are located or working, knows that the industry is extremely fickle. The slightest things can affect the best-laid plans, even from afar.

P.M. Communications: Being British and working in Egypt, from your perspective, how do you see the business environment as compared to others working here?

Mr. Cutler-Hodgson: We are dealing with many people who are employed from the UK. They are receiving state benefits, health and pension schemes, salaries, etc. all from the UK and they are typically totally insulated to the domestic market downturns. They are actually happy when the market goes down because they are getting more living money (Egyptian pounds) to their pounds sterling. When I first came to Egypt, the exchange rate was 5.7 Egyptian pounds (LE) to the pound sterling (GBP). At one point it went up to over 11 almost 12 LE to the GBP. These days it is around 10.7, that means that if you get paid or are otherwise earning in Egyptian pounds, you are losing money in real terms. Accordingly, there is a big difference in priorities when someone comes to Egypt on a contract being paid from outside, as opposed to someone working in Egypt and receiving their salary, profits or other such remuneration in Egyptian pounds.

P.M. Communications: What was the reason that made you decide to come to Egypt and invest your own money in the Egyptian economy?

Mr. Cutler-Hodgson: Actually, things happened gradually. I was finishing a consultancy job in tourism in another country and we finished three months earlier than scheduled. Then I got a phone call from the UK asking if I would be interested in a project in Egypt. I did not know anything about the Middle East or Egypt at that time. I asked what was going on and they explained that by all accounts, there were some incredible things going on, that there were huge projects being undertaken with huge amounts of money involved, as well as an awful lot of problems associated with this and more yet to come up, so they needed to understand better the scale of things, and find out just exactly what is going on and how! They told me they needed somebody who knew what he was doing and was stubborn at the same time! I had to think about the last part, but I took it as a compliment and said I would think about it, albeit the last thing on my mind in those days was going to Egypt.

In the end, I decided to go to Egypt for two or three weeks with the sole purpose of giving my evaluation. I wanted to see what was going on and get a good feel for this new developing recreational tourism market. Before this time, tourism in Egypt was only 'cultural tourism' and it was very small with about 2 to 3 million tourists per annum.

P.M. Communications: What were your first impressions when you came to Egypt?

Mr. Cutler-Hodgson: We flew in to Alexandria to have a quick look around there and then took the car to drive through the desert down to Cairo. We had our first big shock when we approached Cairo and suddenly, around the corner, we saw the Pyramids! For some reason, I had always thought they were in the middle of the desert and I never realized they were so close to the City (Cairo).

Once in Cairo, we took a taxi to get to our first place of appointment and after driving for a while we asked the driver where we were, and he replied: "in Cairo". We kept on driving, and later on, again we asked "well, where are we now"? He answered: "We are still in Cairo"! The size of the city was my second shock. I wondered how big Cairo was?! I was in awe with all the noise, the heat, the colors, the language, the traffic. Everything was alien, and yet I kept wondering how they wanted to develop tourism here. I had been to many places and have developed and turned many greenfield projects into turnkey, but I kept on thinking, they want to develop recreational tourism here … 'No way', how could this be achieved!

P.M. Communications: So given this first, rather chaotic impression of Egypt how did you proceed?

Mr. Cutler-Hodgson: I started looking around for the main tourism development areas. Everybody was talking about the North Coast given that it was already reasonably well established and had good seasonal use by Egyptians and Arabs alike, but given the European needs and based on my own experience in satisfying such things I was more interested in the Red Sea and the potential of the developments in and around that area.

At that time, the main thrust of development was taking place in Hurghada, so we went there. We fixed a meeting with one of the developers we had been introduced to, he was pleasant, helpful and his company seemed to be well organized. Then we had another shock; they were talking about a 200,000 m² plot for development as a small project, and that was only the land according to the contract, not the total area available that in the end was in excess of 300,000 m2! The average size of development undertaking in Europe at that time was around 45,000 - 50,000 m², and we were supposedly in a third world country, one short of money and having no serious experience in the recreational tourism field and all of that associated with it, but a 2-300,000 m² development was a 'small project'!

I tried to explain to them that a project of that size would take forever to finish, and the best thing to do was to phase it or zone it. But they said they had to finish the whole thing, because they were building with loan monies from the banks and were frightened that if they started to bring money in, they would not get all of what had been promised from the banks, or additional monies if needed.

I could not understand how a third world country with no serious banking infrastructure and no FDI at all, could do such a thing. We all know the history and culture of Egypt, but this time we were talking about developing a tourism industry to cater to leisure tourism, not cultural. Imagine the financial pressure that these people were under! But truthfully, it was not their money; most of it was the loan monies coming from the banks. The banks back then, were seeing it as a new investment environment and they were expecting huge returns based on the optimism of the Government and the Ministry of Tourism at that time. The banks did not understand that most of those developers were cheating; they were not providing reasonable levels of equity, the financial projections provided were completely wrong; costs were shown 100% more than what they should have been and most of the accounting estimates were the same. It was a fledgling industry where everybody was jumping in and taking advantage. They did not consider that within a few years, their dream would most likely turn into a nightmare, and as it turned out, that is exactly what has happened, in most cases, with dire personal consequences.

P.M. Communications: Given the highly unsustainable economic environment you have just described, how did you decide to become involved in this market?

Mr. Cutler-Hodgson: I started thinking about the combined need and potential of doing business in Egypt. There is a huge need here to 'catch up' and a huge potential to 'go forward'; to have both of these factors present at the same time in a country with such interesting logistics, is incredible.

I forecasted that within 4 to 5 years there would be a number of tremendous opportunities in this country for people who both knew how, and would be willing to capitalize on such serious opportunities. Realistically, they would just have to come in and pick up the pieces, put them back together the way they should have been from outset, and they would make money!

Then I thought, well, I'm from the North of England, my feet are firmly on the ground and I can deal with this! You know that under Queen Victoria, the British ruled 2/3rds of the world and we are pretty adventurous, we know how to go out and get things done. I have the education, I have the right mentality, I am willing to work, I make my own money and I can support myself for a while. Why not do it yourself?

P.M. Communications: At that moment, did you decide to stay permanently in Egypt or you intended to do some business and then return to the UK?

Mr. Cutler-Hodgson: This is always somewhat unknown but from previous experience, two years in any one place is the benchmark. After two years, your way of life gets so integrated into that location, that everything you are doing, friends, work, social life, business, recreational; everything comes from and becomes a part of that environment.

The one thing I already knew for sure was that in Egypt, everything would take a lot longer than had been the case anywhere else. It could easily turn into 4 or 5 years, the potential was here but the necessary support infrastructure and level of sophistication was not. I remember thinking that if I was going to have to stay here for 4 or 5 years to get the job done properly, then I might well never leave, and would probably end up staying here for the rest of my life. You never know for sure, but that was a decision I had to make and it was not an easy one, especially at that time!

P.M. Communications: After deciding to remain in Egypt, what steps did you take to develop your business?

Mr. Cutler-Hodgson: First of all I spent one year working inside another company to get a feel for what was going on, you know the 'how', where and 'why' of things. Then, I left and started my own consulting firm. It was an interesting experience, because I realized that most of the time, people were just not serious. They would listen, nod and say yes, be polite and pretty much agree with all that you had said, then they would walk away and forget everything. When their problems then continued and got worse, they would later come back, apologize and ask again for help, but how could you then accept working with them?

I could see a lot of opportunities coming up and people not taking advantage of them. I decided therefore to start capitalizing on some of those opportunities myself and that was when I determined to establish my own business so as to be able to be a part and have a role, rather than just to advise or consult.

This initial foray opened in 1997, just 6 weeks before the terrorism disaster in Luxor. Everything I was then providing for and intending to do was focused on the potential for incoming tourism, in the event and due to that single act, I had to close the business down overnight and lost all the money invested in it. I returned to Europe wondering how best to proceed, but as there is some positive in all experience, no-matter how bad, the good and positive thing here was that I now understood this market and that of its potential, together with its needs, shortfalls and other more general requirements, and I used the time back in Europe to put things together for the time when I would return, better prepared and better equipped.

I came back mid-1999. The government was now providing greater incentives and improved protection for foreign investors. Suddenly, we did not have the need nor the necessity to operate through an offshore company as had been anticipated, we could once again establish a company in Egypt but this time, there would be better protection and less risk of losing your money, which was very important. So once again, I started thinking about the pro's and con's of setting up a new company in Egypt.

P.M. Communications: After your initial loss on investment, what was your new strategy for this company?

Mr. Cutler-Hodgson: Capitalizing on Egypt's location was the core strategy, followed by strategic development and acquisition. Egypt has the history, the culture and the strategic location in Africa, the Middle East and the Southern Mediterranean. Simply, I have been developing and consolidating the activities of the business on a 'broad band basis' and have concentrated on both keeping things together and moving in the right direction to ensure the appropriate and meaningful benefits at the end of the day.

P.M. Communications: How was the investment climate at that time? Did you face many difficulties in developing the business?

Mr. Cutler-Hodgson: It was a difficult situation because given the dramatic downturn in fortunes for tourism in 1998 and 1999 and especially being 'a foreigner', you could not get support from banks or anywhere else. You had to finance everything yourself. Nowadays it is much easier, but the banks are still very reluctant to invest in tourism developments because they got burnt so badly in the past. The feeling is that it will take some time yet before their confidence returns.

Since that time and given that as stated re the banks, everybody has increasingly looked for and relied more and more on various sources of FDI to support their developments. Of course, most sources of FDI were coming with certain expectations which were not exactly in line with the Egyptian business mentality. For instance, the accounting systems used in Egypt were not in compliance with the UK, American or European standards. They needed to upgrade and improve it, and go through a big education process. All this in their own best interest.

On the other hand, we always have to keep in mind that tourism is fickle and only the strongest survive. There will always be downturns and those who are better prepared, integrated and more capable, come out of the downturn, capitalize on the experience, strengthen, grow and move forward.

P.M. Communications: How have the recent reforms contributed to the development of the market?

Mr. Cutler-Hodgson: There has been a definite improvement over the last 18 months mainly because the new cabinet has allowed the ministers to act as individuals and do 'their' job. There are new Ministers with serious capability and the levels of co-operation between them have also improved because the Prime Minister is taking a manager's role as the Head of Ministers. The Ministers do their work and he is managing the Ministers and that is very good.

P.M. Communications: And what was the impact of the reforms on the tourism industry in Egypt?

Mr. Cutler-Hodgson: Allow me to give you an example to answer that question In 1994 Egypt received 2.75 million tourists, whereas our neighbor Cyprus, the little island with 700,000 people, had 3.35 million tourists. At the same time, people here were saying that they were doing very well! I replied: "What are you talking about?! You have 66 million people and only 2.75 million tourists and you are saying you are doing well?!" The development of tourism is a driving force for the economy in Egypt. This country has a natural history, a strategic location and all the physical attributes and cannot be happy with only 2.75 million tourists.

On another occasion, a few years ago I attended a conference focused on the development of tourism in Egypt during which I also gave a presentation. According to the statistics published at that time, there were approximately 78 million tourist arrivals in France, and around 35 million in Spain. Egypt then had 4.25 million tourists and was ranked 48th in the world by the number of tourist arrivals, while Spain was number 2. There were 200 travel journalists in the room and I asked them if anyone could tell me what is was that Spain had that Egypt did not have when it came to the attractions of Tourism. Nobody had an answer. I asked the question 3 times, and at the end I had to give the answer. There were only two things; the first being that Spain was part of the EU, so there was confidence in their legal system, which by comparison is non-existent here, and the second is that you could travel to Spain by road, whereas you need a plane to come to Egypt. Aside from that, there is nothing that Spain has and Egypt does not have and yet there are so many things that Egypt has that Spain will never have.

You can easily come to the conclusion - they do not know how to promote their industry. Marketing was nonexistent for a long time, and still to this day it is much neglected. Everybody else in the world knows that marketing is critically important. Here, it took them a long time to understand that they need to be very careful about how they portray the country to others. Egypt needed to get the right message across to the outside world.

I told the Minister of Tourism at that time that they needed to change the promoted name of 'the Arab Republic of Egypt' to simply 'Egypt'. The "Arab Republic" causes too much unwarranted association with regional difficulties and greatly reduces the potential of attracting people from outside to come here for recreational tourism. They did finally get the message and in 1999-2000 for the first time, we started seeing the new style of promotions: "Egypt is more than just monuments", "Egypt - year-round sunshine", etc.

Changing ministers also helped because the new Minister's they were bringing in had real experience working in the private sector. The previous Minister of Tourism, Mr. El-Maghraby, held the post for only a year but he was familiar with commercial requirements and he knew that without necessary components, business could not function. If you are promoting tourism at a global level, people abroad must understand you. Egypt is the only country in the region that still insists on communicating everything in Arabic, simply because they insist on staying different instead of evolving and opening up. They do promote in different languages, usually incorrectly. Tourism is a global industry, and if you want to be truly successful, you have to use the most common global and business language, which is English.

They have made many mistakes and still continue some of them. For example, they do not learn how to finish things properly, it is a typical 95% syndrome. They do not seem to understand that particularly in real-estate, it is precisely the last 5% of the work that gives 95% of the image, the overall impression and the appreciation to the whole undertaking.

Another issue in the past effecting the potential of tourism growth was the aviation sector as a whole (Airports and Aircraft Services). It was a complete mess when considering such fundamentals as capacity, capability, reliability, organization, etc. If you want to open up a country you have to have a good domestic infrastructure with international links, which they did not have either. People came to Sharm el-Sheikh believing they had seen Egypt!

When you are doing business in Egypt you have to deal with all these and other such problems, but at the same time, there are some very positive things taking place. We have started a new period where government officials are getting together with private sector representatives, giving them a voice. We have made progresses in marketing, consultancy, human awareness, servicing needs, quality of offering and FDI. We are striving to make sure that people understand that this is a broad industry benefiting Egypt as a country and all therein.

P.M. Communications: What is the best way to capitalize on the diversity of the tourism offer in Egypt?

Mr. Cutler-Hodgson: We want the tourists to feel that each time they come to Egypt they will have to come back again to see, experience, discover and appreciate even more. The huge and diversified tourism offerings are just some of Egypt's potential. The most important point is that they can come back to Egypt at any time of the year and get exactly what they expect from their vacation, as long as they come with the right travel agent or tour operator. There are very few places close to Europe offering true 'year-round' sunshine. Additionally, Egypt boasts the longest river in the world, 2 different Seas (on seven distinctly different coastlines), 3 different Deserts, 4 neighbouring countries, 5 different Ministerial posts supporting (Tourism, Culture, Transport, Aviation and Housing), has a recorded past of over 6 thousand years, Is the only remaining of the original 7 wonders of the world and contains 8 completely different regions with different attractions, nature, environment, incentives, excursions, monuments and museums, etc., both indoor and outdoor.

P.M. Communications: So what has Oyoun done to capitalize on these advantages?

Mr. Cutler-Hodgson: A referred to earlier, we evolved from basic consultancy to direct investment activity and then brought all the components together. We started by looking at our future needs and potential. We then needed to have the proper structure, foundations, and framework to be able to provide in accordance with those needs and potential as well as becoming a serious player from the global industry point of view. We undertook the necessary corporate restructuring and commercial expansion via internal provisioning and/or acquisition of specialist services.

P.M. Communications: Property development is an important part of Oyoun. What challenges have you faced in this market and how do you operate?

Mr. Cutler-Hodgson: We are following the European mentality when it comes to property development. If you are going to construct 200 villas, then the best way is to build the first few and sell them, and then build another few and so on. The construction industry is important in Egypt and the banks here just keep giving money to companies until one day they realize they have financed 2000 properties without a single one being sold. This is a consequence of ignorance from both the developers and the banks. You really cannot blame a developer if the bank wants to keep giving him money; he needs to keep working and paying his employees. This has caused a saturated market in some areas, especially in the suburbs of Cairo as well as a glut of court proceedings from banks trying to redeem their depositors funds. Therein of course lies one of the investment opportunities we referred to earlier!

Evaluating the cost of property is also extremely difficult. There is no official place in Egypt where you can get a proper and impartial evaluation, and because there is no basis to fundamental local, district and regional comparatives, prices everywhere are different. You have to determine, accept and agree all of the fundamentals like the acquisition cost of the land, infrastructure and the actual development costs and legal fees etc, from there, if the costing seems reasonable, and the bottom line is it usually is, if it is a good project regarding location, size and image etc. and is being marketed and managed properly by a reputable company, there is a very good chance that this property will maintain its value.

In the past 18 months there has been an increase in the activities of promoting such direct investments in Egypt, partly because there is already an abundance of housing stock available. In most cases it is good value for money but European investors will not come into a foreign country with foreign laws and regulations in Arabic, and put their money into a foreign property unless they feel that at a minimum, their money is secure. That is exactly what we have provided for. We are totally focused on the needs of the foreigners to give them the necessary confidence, because Egypt needs the investment. The opportunities are here and foreign investors will not lose their money if they do things correctly, follow the proper procedures and deal with the right people. Not only that, you can secure meaningful returns on investment if the property you invest in is within a commercially integrated development and that is exactly what we specialize in.

At Oyoun we have always focused on the development of what we call resort based real estate, because you get the best of all options. Regarding the investment, you receive enhanced banking, commercial and legal protection as well as the full compliment of tourism industry programs and use as well as many other aspects that protect and support such investments in addition to the investment requirement itself. Whether from the developer or the purchaser, having a secure and protected investment is crucial.

P.M. Communications: Could you tell us more about the developments you have available at Oyoun?

Our current development is the prestigious Panorama Safaga Resort, a beach front development that will be the proverbial 'Jewel in the Crown' for Safaga when it is fully completed. Presently built are sixty two, two bedroom apartments, forty four, two storey villas and twelve, single storey villas, all freehold, beachfront, title deeded properties, situated at the panorama of the town, hence the name. Most villas include a private swimming pool and all properties benefit from and fully maximize the potential of tourism, recreational and commercial use applications which help to make them seriously sound and secure investment considerations.

You have to remember that in Safaga the air is very clean, there is no pollution and practically no rain. There is no sea traffic where we are because of the proximity of the nature island protectorate. In the water you can move 500 meters away from the beach and it is still only 3-4 meters deep. The seabed is exactly the same as it was 1000 years ago and you can go snorkeling and see colour and life you would not believe. There are things right in front of this project that you can not even see in Sharm El Sheikh!

When I say Panorama Safaga, I mean that this is really at the front of the town and that immediately opposite us, there is a big island which they call Safaga Island and it is a protected nature reserve.

The majority of the villas in this project are 98% built. When fully finished and furnished, everything will be there, even down to the soap, and we are now finishing a show model to reflect precisely that. From the time you pay your deposit, 90 days later you can walk in and use your property.

This development is built based on the fact that we know what the Europeans want. They want independence but at the same time community. Arabs on the other hand want more privacy. Our European life style and recreational expectations are entirely different and this resort is designed to provide for just that.

P.M. Communications: What ownership structures do you offer to potential clients?

Full ownership, Fractional ownership and Timeshare. You have the option to pay from as little as US$ 9,000, own and use it for one month every year because that is probably what you were going to do anyway. With us your ownership is fully secured. Every purchaser will receive a registered title deed confirming their ownership. You can sell it on at anytime thereafter if you prefer, because it is real ownership and it is yours.

I think that the Fractional ownership option is a good option because the facts of life are that most people only vacation for 3 to 4 weeks per year with the typical maximum being around 10 weeks, so why buy more than 3 months? That is why we now offer the variable combinations of 1 and 3 month fractional ownership, up to full ownership, on all resort based real-estate developments. Additionally we offer time-share packages for 1, 2, 3 and 4 weeks use.

P.M. Communications: Investor confidence and minimizing risk, especially in an Arabic speaking country are important. What can you say with regards to this?

You are working with the same people and you are dealing with the same company, everything is fully integrated. If you have a problem you can step down and you can also upgrade. The actual investment is perfect as everything is 100% secure and fully guaranteed. There are no legal problems with contracts or the investment itself, and all documents are provided and signed in English and Arabic and there are no risks. There are guaranteed income returns and/or guaranteed value growth; it is a serious and all embracing commercial integration package.

P.M. Communications: Would you like to send a message of invitation to our readers to come and visit Egypt as tourists and potential buyers for second properties?

Mr. Cutler-Hodgson: They will love it here and they should know that anything they want, we can accommodate. All we need to know is that they are serious and that they are truly interested in taking advantage of a meaningful investment opportunity, better weather conditions and year round utilization options. To showcase our properties we can offer fly-buy programs, short stays with inspections and also data on the investor's purchase protection positions etc., everything is available.

Our job is simply to make sure that we are doing our job correctly, then to make sure there are no avoidable problems or risk. This is how you make serious long-term gain and profit.

Our philosophy for our clients is: pickup your suitcase and come, do not worry about anything else, it has already been taken care of!

P.M. Communications: Thank you very much for your time and your comments.