3. INTRODUCTION & OBJECTIVE
The current economic situation in Egypt is facing obstacles that might affect the status of
firms and institution’s position in the Egyptian market, consequently the whole economy.
Through this report we shall put forward and analyze one of the obstacles that is the local
currency floating-policy and the fluctuation & devaluation of the exchange rate of the local currency
against the foreign currency.
And how this important factor affects Menatel, the company in which we work, as an
example of how this factor affects the Egyptian market.
And we shall also show how firms can overcome this obstacle or minimize its affect to
achieve efficiency, productivity and profitability in its line of business. Consequently guarantying
stability and prosperity to the Egyptian economy.
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5. 1. FIRM PRESENTATION
Egypt’s emerging market has been a major motivation for France Telecom (FCR) to
establish a shareholding company with powerful partners to offer the Egyptian citizen their public
pay-phone service at top international quality.
Managing Director statement. (Dec.1999)
1-1. About Menatel
Menatel is a joint stock company under Investment low # 8/1997 registered in 1998 under #
314030, Menatel is granted a ten years renewable license, to install, operate and manage a
telecommunication network of at least 20,000 public pay-phone.
Menatel is determined to achieve this target in less than three years. Egyptian shares are 51
% and foreign shares are 49 % the company’s shareholders are:
1-France Telecom (FCR) 44 %
2-National Bank Of Egypt 18 %
3-Egytel 18 %
4-Orascom Telecom 10 %
5-Ascom Monetel 5%
6-Adcom 3%
7-Telecom Egypt 2%
company's shareholders
T/E
ADCOM
ASCOM
ORASCOM
FCR
EGYTEL
NBE
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13. 3. ECONOMY SITUATION & PROBLEM IDENTIFICATION
3-1. Economy Situation
One of the obstacles facing the business community in Egypt these days, shading its climate
with uncertainty, and its decisions with caution is the devaluation of the Egyptian pound, although
long awaited, that came at a time when people were already feeling the squeeze of a depressed
economy.
The major issue in the procedure of the local currency free exchange rate is how to obtain
and maintain the supply and demand low to be the sole indicator to the exchange rate. How to
increase the supply and rationalize the demand? To reach a stable and balanced average exchange
rate.
The devaluation of the local currency and the increasing demand of the foreign currency are
two aspects of the consumer uncertainty or what we might call mistrust in the credibility of the
economic situation represented in the local currency and the government institution represented in
the banks.
The Egyptian government took some steps on the way to increase the supply in the short
term also to regain its reliability such as convincing exporter to sell the revenue of their exported
goods to banks in exchange of their needs of foreign currency. Tourism companies also are asked to
do the same too, but these procedures take the shape of moral obligation not a legislated one though
it should be, as the individual welfare shouldn’t contradict with the general one. As for the long run
reformation procedures are all about increasing the efficiency and productivity of our economy and
enhance its computational capability to increase the growth rates of export and private investment
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14. 3-2. Problem Identification
Open Economy Mechanism & Equation
GDP = C + I + G + X - M
From the simple shape presenting the mechanism of an open economy structure and its
general equation we can identify the problem that caused by the devaluation of the local currency
not only causing the inflation rate to increase and the GDP to decrease. But also it has a great affect
on the consumer purchasing attitudes changing his priorities, forwarding low–price over quality.
Thus changing his choices to match his economic state and priorities
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16. 4. METHODOLOGY APPROACH & ANALYSIS
Profit General equation
Profit /Minute = Revenue /(Minute) - Cost / (Minute)
Cost Revenue
Marketing Number
Cost Of Minutes Sold
Financial & Price
Administration Of Minutes Sold
Cost
Other Income
(Interest income)
Production
Cost
As shown in both the above diagram and the general profitability equation. Menatel faced
the problem of the local currency devaluation against the foreign currency in certain approaches
based on the fact that Menatel revenue is on local currency but most of its variable expenses come
in foreign currency that led to a factious increase in the expenses mounted to 65%. Which put us in
a situation where the increase of the revenue and the decrease of the expenses are inevitable to
achieve the expected profitability and to fill the gap caused by the devaluation of the local currency.
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17. Tariff Price Approach
Menatel `s revenue relies on the tariff of the calls made by Menatel public payphones. As
shown in the diagram the great portion of this income comes from the local and long –distance calls
this is mainly why Menatel shoes to increase the tariff for these calls to approximately 20%
Menatel Calls Category Analysis
1. Volume
Call Category Local National I National II International
Percentage 55.5 % 19.6 % 24.2 % 0.7 %
60 1%
24%
50
40
30
20
10
0
55%
20%
L N (I) N (II) I L N (I) N (II) I
2. Value
Call Category Local National I National II International
Percentage 25.3 % 29.3 % 37.9 % 7.5 %
8%
40 25%
35
30
25
20
15
10
5
38% 29%
0
L N (I) N (II) I L N (I) N (II) I
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18. Tariff Price Analysis
Category Old Tariff New Tariff Increasing Percentage
Local 10 12 20 %
National I 35 39 11 %
National II 60 65 8%
International I 413 413 0%
International II 480 480 0%
International III 620 620 0%
700
600
500
400
300
200
100
0
Local Nat. I Nat. II Intl. I Intl. II Intl. III
Old Tariff New Tariff
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20. In this approach and as a result of the former studies and researches, we find that Menatel
10L.E. Card is our Black horse in the market.
By a simple calculation of its cost against its profitability to Menatel, assuming that this card
consists of 10 units 5units forms the cost the other 5 are Menatel `s actual revenue. This might have
been the situation in the beginning, but now and after this devaluation of the exchange rate the cost
units raised to 8.25 and the profit units decreased to 1.75 - after the deduction of all due taxes - the
profit units will be (0.25) only quarter unit or 2.5 %. From an investor point of view putting the
capital in the bank will gain him an interest that mounts to 9 %.
This is mainly why we thought of producing a new face value to the market to increase the
profitability margin, and to fill the gap of the increase of the expenses due to the devaluation of the
exchange rate.
Still we do not want our position in the market to get affected; also we do not want to loose
our Black Horse for nothing. This is why Menatel thoroughly planned the whole operation of
producing and following up this card before the 10L.E.card call off from the market to guaranty the
success of the whole operation.
Expenses Approach
Without going into any further details concerning the nature of these expenses. Menatel
general policy concerning all financial, administrative, production and supplies expenses is as
follows:
Revise all Menatel contracts with suppliers, contractors or dealers to
reduce discounts and to get the best price possible. But with Menial’s
quality -being the secret of its distinctiveness- intact
Searching for a local efficient supplier’s meeting the quality standard required by
Menatel as an alternate to some of the foreigner suppliers of some tools and equipment
used in operation
Freezing any investment in new fixed assets and optimize the use of current fixed assets.
Reviewing all Menatel resources to achieve optimum utility and productivity.
Applying the rational- consumption policy on all the financial and administrative
expenses.
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22. 5. CONCLUSION AND RECOMMENDATIONS
The current situation needs more effective support from the government to secure a safe way
out of this dull state and reactivate investments once more, taking each and every path leading to the
light at the end of the tunnel such as: -
The media roll now is to enlighten the plain citizen that since the reformation policy is on and
its credibility is reliable there is no need to freeze their savings in foreign currency away from
the banks.
The adjournment of the outstanding payment of the foreign currency debits till the current
situation is off, with a lower rate of interest.
Increase of the incentive taxation whether to tourism sector or exporter.
Fundamentally alters the whole economic climate in which the private business sector is
considered an effective and essential partner in the growth and stability of the economy, while
the people in this sector’s image is that they are opportunists and frauds.
The central bank being the head of the banking institution should revise the legislation and
develop and the mentalities of the people executing these rules, to verify accuracy and
efficiency along with flexibility.
Credibility and reliability of every executive is the only hope to end this state of uncertainty
and mistrust.
The situation in Menatel doesn’t differ much from the economic situation. We are working on
how to develop ourselves, revising the whole business plan to reach a new strategy by which we can
direct Menatel to in this dull environment. As we are reaching to each employee of Menatel to
participate in the embraced policy of cost control so that we can face the unexpected devaluation of
the local currency and its exchange rate. On the hope that the government interference in the matter
of the local currency fluctuating exchange rate will fast and effective to cut short the expected loses
resulting from the devaluation of the local currency.
In Menatel we have a lot of ideas, suggestions, recommendations as the stuff of Menatel is
teamwork and all ideas are subject of welcome and analysis from a specialized department some of
these ideas are: -
Expanding abroad can be the answer to opening new and growing market from which we can
increase the foreign currency cash flow. The Middle East region is a full of potentials market;
still this idea needs a lot of thorough study, as there are factors to be considered such as
Political, Legal, Cultural and economic factors.
Making a deal with the travel and tourism agents to include Menatel in the package they offer
to tourists is a way to secure more foreign currency.
Establishing a H/R consulting and training center serving the Middle East and Africa region by
which we export our expertise and secure another source of foreign currency.
Establishing or finding a local business partner that can secures the Menatel needs of smart
cards technology, which will decrease the cost of the cards.
Approaching the idea of a rechargeable smart card is an approach by which we can decrease
the cost of the smart card, which the customer uses just once.
Redistributing the density of our public phones to achieve the maximum revenue through the
project of Low Revenue.
Starting e new administration its mission is to establish and supervise an effective strategic
intelligence unit to serve the company’s potential development plans in coordination with
other respective functions.
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23. References …
Annual Report, Menatel, 1999.
The Statistical Year Book 1994 - 2001, Central Agency for Public.
Mobilization & Statistics – June 2002.
Retail Audit Report 2002, MEMRB.
Principles Of Economics, N. Gregory Mankiw, Second Edition, 2002.
http://william-king.www.drexel.edu/top/prin/txt/EcoToC.html
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