German University in Cairo

MBA
Dr. Raghda El Ebrashi

Spring 2015

Bar Code

Business Dynamics
Spring 2015
Midterm Exam

Read the instructions carefully before proceeding.

1- This is a take home exam.
2- This exam booklet contains 2 pages, including this one.
3- Staple your answers into this exam sheet, and please type your answers.

Maximum
Score
20

Question

10

10

Maximum
Score
Obtained
Score

Page 1

Answer the following questions using internet search:

Note: you do not need to draw flow diagrams. Just explain your answer without drawing,
as what is done in Romania case.
Question 1:
Answer the following questions with regard to the Oil and Gas industry in Egypt:
- How is the industry contributing to the economy in Egypt (employment, GDP
etc)? Mention as much details and numbers as possible.
- What are the problems or negative effects on the country from such an industry?
Try to explain your answer through a problem/crisis that one of the companies
caused in Egypt.
Question 2:
You are the Managing Director of SEKEM and you are currently exporting your organic
products to Germany and Austria. Check SEKEM website and reports in addition to
reports about organic farming in Egypt and fill the following table and explain these
variables:
Exogenous variables affecting SEKEMs
efforts to export to Germany and
Austria

Endogenous variables affecting

SEKEMs efforts to export to Germany
and Austria

Best of luck!

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The oil and gas industry in Egypt is one of the main pillars of the national
economy; it is the main source of energy and a significant source of revenues. It
plays a key role in satisfying the energy required for social, industrial and
economic development plans, and providing a better life for the Egyptian people.

The petroleum sector has succeeded in achieving the highest economic growth
rate among all the other economic sectors of the country despite the financial
crisis, where it contributed to about 17.5% of the countrys economic growth rate
in 2008/2009, compared to 8.3% the previous year. Furthermore, the petroleum
sectors foreign direct investments ( FDI ) increased to 76% of Egypts total
foreign investment in 2008/2009.

From 2005-2009, oil and gas accounted for 44 to 55 percent of total exports, and
6 to 10 percent of GDP. Egypt is not involved in the Extractive Industries
Transparency Initiative and does not have a Publish What You Pay coalition.
The country produces approximately 270 million barrels of crude per year.
Egypts crude oil reserves were approximately 4.4 billion barrels in 2011, making
it 27th in global proven reserves. Production levels have remained relatively
steady in recent years, with modest gains between 2006 and 2009, when
they rose from 254 million barrels to 271 million barrels. The country exported
approximately 70,000 barrels per day in 2010, which is when the country
reportedly became a net oil importer.
A recent focus on exploration has caused national natural gas reserve levels to
increase to 77.2 trillion cubic feet in 2011; yearly production was 2.17 trillion
cubic feet in 2010.

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Country Analysis Brief Overview

Egypt is the largest non-OPEC oil producer in Africa and the secondlargest dry natural gas producer on the continent. The country also serves as a
major transit route for oil shipped from the Persian Gulf to Europe and the
United States.
Egypt is the largest oil and natural gas consumer in Africa, accounting
for more than 20% of total oil consumption and more than 40% of total dry
natural gas consumption in Africa in 2013. Energy subsidies, which cost the
government $26 billion in 2012, have contributed to rising energy demand
and a high budget deficit.
One of Egypt's challenges is to satisfy increasing oil demand amid
falling production. Total oil consumption grew by an annual average of 3%
over the past 10 years, averaging almost 770,000 bbl/d in 2013. Egypt's oil
consumption has outpaced production since 2010.
Egypt has the largest oil refinery capacity in Africa, although it operates
well below capacity. The countrys refinery output declined by 28% from 2009
to 2013, despite growing domestic oil consumption.
Egypts dry natural gas production has declined by an annual average
of 3% from 2009 to 2013. Substantial gas discoveries in the deep offshore
Mediterranean Sea and in other areas in Egypt remain undeveloped because
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the price that Egypts government is willing to pay foreign operators for the
gas is too low, making some investment projects commercially unviable.
Egypts natural gas exports have declined since 2009 because of
increasing consumption and declining production. Egypts government has
been diverting natural gas supplies away from exports to the local market. The
country plans to start importing LNG after September 2014 when it installs a
regasification unit.
The Suez Canal and SUMED Pipeline are strategic routes for Persian
Gulf oil and natural gas shipments to Europe and North America. Closure of
the Suez Canal and Sumed Pipeline would add an estimated 2,700 miles of
transit from Saudi Arabia to the United States around the Cape of Good Hope
via tanker.
The revolution in Egypt that started in 2011 did not have any noticeable
effect on oil transit flows through the Suez Canal. Oil transit via Suez has
increased each year since 2009. In 2013, almost 3.2 million bbl/d of total oil
transited in both directions, of which 1.5 million bbl/d was crude oil. This is
the largest amount ever shipped through the Suez Canal. Total crude oil flows
via the Suez Canal and SUMED pipeline accounted for about 6% of total
seaborne-traded crude oil.
LNG flows through the Suez Canal in both directions were 1.2 Tcf in
2013, accounting for 10% of total LNG traded worldwide.
Egypt experiences frequent electricity blackouts because of rising
demand, natural gas supply shortages, aging infrastructure, and inadequate
generation and transmission capacity. Ongoing political and social unrest in
Egypt has slowed the governments plans to expand power generation
capacity by 30 GW by 2020.
As of 2009, most Egyptian gas exports (approximately 70%) are delivered in the
form of liquefied natural gas (LNG) by ship to Europe and the United States.
Egypt and Jordan agreed to construct the Arab Gas Pipeline from Al
Arish to Aqaba to export natural gas to Jordan; with its completion in July 2003,
Egypt began to export 1.1 billion cubic feet (31,000,000 m3) of gas per year via
pipeline as well. Total investment in this project is about $220 million. In 2003,
Egypt, Jordan and Syria reached an agreement to extend this pipeline to Syria,
which paves the way for a future connection with Turkey, Lebanon and Cyprus by
2010. As of 2009, Egypt began to export to Syria 32.9 billion cubic feet
(930,000,000 m3) of gas per year, accounting for 20% of total consumption
in Syria.
negative effects on the country
The East Mediterranean Gas (EMG), a joint company established in 2000 and
owned by Egyptian General Petroleum Corporation (EGPC) (68.4%), the private
Israeli company Merhav (25%) as well as Ampal-American Israel Corp. (6.6%),
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has been granted the rights to export natural gas from Egypt to Israel and other
locations in the region via underwater pipelines from Al 'Arish to Ashkelon which
will provide Israel Electric Corporation (IEC) 170 million cubic feet (4.8106 m3)
of gas per day. Gas supply started experimentally in the second half of 2007. As of
2008, Egypt produces about 6.3 billion cubic feet (180106 m3), from which
Israel imports of 170 million cubic feet (4.8106 m3) account for about 2.7% of
Egypt's total production of natural gas. According to a statement released on 24
March 2008, Merhav and Ampal's director, Nimrod Novik, said that the natural
gas pipeline from Egypt to Israel can carry up to 9 billion cubic meters annually
which sufficiently meet rising demand in Israel in the coming years.According to
a memorandum of understanding, the commitment of Egypt is 680 million cubic
feet (19106 m3) contracted for 15 years at a price below $3 per million of British
thermal unit, though this was renegotiated at a higher price in 2009 (to between
$4 and $5 per million BTU), while the amounts of gas supplied were increased.
Exporting natural gas to Israel faces broad popular opposition in Egypt.
Nevertheless, agreements between Egypt and Israel allow for Israeli entities to
purchase up to 7 billion cubic meters of Egyptian gas annually, making Israel one
of Egypt's largest natural gas export markets. The decision to export of natural
gas to Israel was passed in 1993 at the time when Dr. Hamdy Al-Bambi was
Minister of Petroleum and when Mr. Amr Moussa was Minister of Foreign
Affairs. The mandate to sign of the Memorandum of Understanding (MoU) to
delegate to the Ministry of Petroleum represented by the Egyptian General
Petroleum Company (EGPC) to contract with EMG Company was approved by
the former Prime Minister Dr. Atef Ebeid in the Cabinet's meeting No. 68 on 5
July 2004 when he served as the acting "President of the Republic" when
President Hosni Mubarak was receiving medical treatment in Germany.
In early August 2014 the Egyptian press reported that the Sinai gas pipeline had
been attacked. It was the twenty-fifth time the pipeline had been exploded since
the overthrow of the Mubarak regime. By then the attack had no effect on Israel;
it reported in 2013 that the nation had reached self-sufficiency in natural gas. As
usual, the major damage done was to the movement of natural gas through the
subsea pipeline
People find that the Israeli contract is the most controversial. Why are we
wasting time in reviewing the contract with Israel or any other country? Egypt
needs every cubic feet of gas for the domestic demands. The Jan 25th revolution
came to secure the peoples wealth and the Egyptian natural gas is a major asset
The petroleum sector has been hearing the sounds of the streets demanding to
terminate the gas contract between Egypt and Israel.
CONCLUSION

How can the Egyptian oil and gas industry attract more investment?
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What measures need to be taken to expand refining capacity in Egypt?

What efforts are being made to bridge the gap between supply and
demand for gas?
Has any progress been made rebooting the North Alexandria deep water
gas project?
What other measures are being taken to meet domestic demand for
natural gas?

Egypt will continue to experience obstacles in developing further oil and natural
gas reserves, especially with a continuing decline in Egyptian oil and gas
production and a subsidies system that encourages over consumption. As Egypt's
oil and national gas industry has a widespread economic impact throughout all
sectors of its economy, the Egyptian government should use all available policy
instruments and all sorts of complementary packages in order to maximise the
benefit of oil and gas for the Egyptian economy. At present, the fears of an
outbreak of an energy crisis in Egypt are temporary resolved by new discoveries
or by aid from the Gulf countries (mainly Kingdom of Saudi Arabia, United Arab
Emirates and Kuwait). It is not a question of running out of oil but rather a
matter of ceasing to look to oil as the main source of future increases in energy
supply. Egyptian government will need to take difficult decisions to put the public
finances on a sustainable path. Education and awareness of our interdependence
can be important factors, but the objectives and time horizons of decision makers
vary widely and it would be naive to suppose that any ideal policy exists. Energy
problems are embedded in wider economic and social issues and there will
always be compromises and trade-offs. There is no single energy problem, there
is no ideal strategy, there is no easy way out. As returns of natural resources are
the main drive to economic development, It is very important to correctly
calculate the estimated reserves for oil and natural gas, hence revise the policies
of exporting oil and gas as they are based on the estimated reserves. In addition,
Egyptian government should take a long term plan in order to decide the 'best
possible use' of such estimated reserves available. The Egyptian government
should spend the returns from oil and natural gas sector in investing to develop
the business in sustainable ways; such as, investing in new oil and gas drilling
projects, refinery improvements, research and development of new products and
new technology to reduce the cost of finding and producing oil and gas in order to
extend the life of existing oil fields, etc. Fuel subsidies should be gradually
removed. Any sudden decrease in subsidies will have varying effects on the
Egyptian economy. The decrease of subsidies will increase the inflation rate.
Egypt should be in a position to start considering alternative sources of energy.
The nuclear option should be at the top of the list as it will provide a cheaper
source of electric generation for the next hundred years. Government should give
incentives to companies that implement an alternative source of energy, such as:
wind turbines and solar power. For example the Suez Cement Group is planning
to produce electric energy using wind turbines. This project will secure 35% of
electricity used by the Suez Cement Group.
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Page 8

Exogenous variables affecting SEKEMs

efforts to export to Germany and
Austria
Soil
Seeds
Energy
Water
Technology
Social insecurity
Economic loss
Laws and regulations

Endogenous variables affecting

SEKEMs efforts to export to Germany
and Austria
Safety and benefits
Labor rights
Cost and price
Motivation
Competition
Research and development
Education

Endogenous:
Safety and benefits: many consumers think about which ways the products they
buy actually takes. Was it produced fairly? Have employees been exploited or are
they receiving reasonable salaries and benefits? Is the production overseen by
independent controllers?
SEKEM invents a safety data sheet that provides the ingredients are listed for
each product. This list is revised annually also an annual reports about the
employees benefits and treatment standards.
Labor rights: This SEKEM Code of Conduct (CoC) summarizes the framework of
values guiding the operations of SEKEM. Based on the SEKEM vision for
sustainable development, the principles of the UN Global Compact and the
relevant UN and ILO conventions, it formulates explicit commitments regarding
legal compliance, business ethics, anti-corruption, labor standards, human rights
and environmental responsibility. Code of Conduct applies to SEKEM operations
and all associated business partners and is subject to regular review and
development.
Cost and Price: One crucial question posed when thinking of changing from the
standard agricultural practice is: Will we face higher costs? The SEKEM model of
organic, resource efficient, and soil-protecting, sustainable agriculture requires
10-30% more manual labor on average than conventional agricultural
production. Employing more workers usually leads to overall higher expenses.
Also, organic products on supermarket shelves always cost more than the
conventional alternative.
Healthy soils with a high content of solid organic matter increase the water
holding capacity, decrease water consumption, and inhibit erosion. Compared to
business-as-usual agricultural production, biodynamic agricultures increased
energy efficiency, lower greenhouse gas emissions, and increased soil carbon
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sequestration, make it a superb tool to mitigate climate change. Resilient crops,

crop rotation, and diversification methods such as agro-forestry, mean that the
risk of crop failure is minimized. Lower expenditure on external inputs makes
financial resources available to cover the costs of higher employment.

Motivation: Each working day, we serve our employees a warm and healthy lunch
including organic vegetables. Furthermore, small sporting club uses the football
field, which built for the school at the main premises. Even more important is the
individual medicinal support for all employees, which they receive at the Medical
Center.
Also employees feel responsible as they meet annually to discuss the related
company statistics and to formulate action plans for prevention if needed.
Competition: the European Union works with a difficult system of taxes, fees and
special regulations to stem the uncontrolled inflow of overseas goods onto
European markets and into European supermarkets. Even though the Schengen
Accord and the Common Market have opened most borders for peoples and
goods and allow them to move unrestricted the outer borders of the European
Union have been heavily fortified. They have become less permeable for peoples
and goods alike. To bring fresh produce from SEKEM onto the German market,
for instance, is a daunting task particularly in those cases when they are in direct
competition to local groceries.
This is fortunately not the case with SEKEMs new assortment of a typically
Egyptian staple: dates. The products arrive at German supermarkets in several
variants and in a decorative basket. They have become increasingly popular with
SEKEMs overseas customers over the past years. Now SEKEM fulfils the
European Unions regulations and bring more high quality products from the
Arab world to the demanding European customers.
Research and development: Research and development is a core aspect of
SEKEM. Through R&D the venture aims to directly contribute to finding
solutions to pressing practical problems and thus encourage innovation and the
development of applicable tools and instruments.
SEKEM has recently launched two new commercial ventures the goals of which
are to improve the visibility for organic products and sustainable energy
solutions. In both cases SEKEM cooperates with partner from Denmark and
Austria.

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Education: Integration into the community The Objective of this program is to

foster, encourage and guide people with special needs to self-reliance as much as
possible and engage them in the on-going business processes to become a useful
member of society.
SEKEM takes this one step further by trying to create job opportunities within
the institution for those who are less capable, to help them achieve maximum
independence and social integration
Exogenous:
Soil: is a living organism. The solid and limited surface of the Earth is the habitat
of countless organisms and offers stability for the roots of the plants. Soil is the
fundamental basis for food production. In the future, the global surface can only
produce enough food for all human beings if we preserve its fertility, avoid
erosion and enable an adequate water storage capacity.
SEKEM reclaims large desert areas by applying technologies from biodynamic
agriculture. Large quantities of compost are required to accomplish this task and
they are produced directly in SEKEMs own facilities. Exclusively from organic
waste SEKEM produces approximately 85.000 tons of the natural fertilizer
annually that, by the way, also serve to avoid some 100.000 tons of CO2equivalent greenhouse gases - TV certified.
A continuous conducted research to adapt plants to local conditions and find out
new ways for biological pest control and fertilization methods.
Seeds: Securing seeds is not only important to sustain and protect old varieties,
but also to prevent the danger of mono cultures.
Therefore, they are maintaining their own seed bank since 2009.
100% of the seeds we used in 2013 are organic and untreated.
Energy: the last decade will likely remember the days when gasoline was cheaper
than bottled water. Since then, much has changed. The government has gradually
reduced subsidies on fossil fuels. But social problems have grown in tandem in
many places, not just Cairo.
SEKEM has been trying to reduce its companies dependence on fossil fuels and
to increase the share of renewable energies it consumes as well as produces for a
long time. At the same time we want to set an example of how things might work
differently in a greener world. Egypt lacks the know how that just is not so
easily available in a country where relatively cheap oil is still relatively plentiful.
SEKEM maintains on-going small scale renewable energy projects, such as a
small photovoltaic station at the head office, several hybrid solar dryers for herbal
production, two Sheffler mirrors to produce steam for production processes at
the main farm and several solar water heaters on the roof of production sites.
Water: Water constitutes the basis of all life. The hydrological cycle of planet
Earth is similar to the human blood circulation system: Water evaporates, falls
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back down as rain and runs from fresh water rivers into the salty oceans. Without
the influence of human beings, the water clears and cleans itself along the way.
71% of the surface of the Earth is covered by water, mainly salt-water. Potable
water is a scarce resource and must neither be wasted nor polluted any further.
Waste water treatment with effective organisms

EM stands for effective microorganisms in a watery mix of 84 aerobic and

anaerobic varieties such as the family of yeast, lactobacilli and photosynthesis
bacteria. When applied to waste water, two effects can be observed. Due to the
activities of the microorganisms, the odor is drastically reduced and sludge in the
sewage treatment plant is decreased by 50%. SEKEM get the high quality EM
from a company in Germany and re-breed them only twice to avoid
uncontrollable mutations.

Technology: High initial investment cost and need for technology and know-how
SEKEMs ISIS market leader in Egypt in the field of tea-bagged herbal teas, has
introduced a new tea-bagging machine in February after overcoming many
obstacles and almost a year of preparation.
The new IMA C27do double as fast as its predecessor and increases the product
on of tea bags for the Egypt an market significantly.
SEKEM, the German DEG and a number of other partners have now launched a
PPP project in the field of photovoltaics to change this. The Heliopolis University
is one of the partners and will benefit from the establishment of a special
research unit in the field. The required test facility has already been built as the
lead article in this issue reports.
SEKEM has been working with modern Internet technologies for a long time. The
newest development project, realized in cooperation with the European Union, is
also managed using sophisticated technologies for accounting, monitoring and
evaluation. Even if it often does not look like it, high tech can have a substantial
impact also for the poorest of the poor.
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 power which pursue a political
agenda more conducive to the areas of work of SEKEM and its companies
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.
Economic losses: the economic framework conditions in Egypt have changed.
The economic decline triggered by the revolution hit almost all industrial sectors.
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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 these blockades that prohibited it from exporting goods
at all for 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.
Laws and regulations: in Egypt that encourage the exportation of food and
agricultural products in general and, in particular, organic products.
No national regulation is present in Egypt. Certification is assured by local and
foreign organizations.

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