Sainsbury's Egyptian fiasco Egypt's repressive Sisi regime held a glitzy conference in Sharm el-Sheikh last month designed to attract foreign investment. More than 1,700 investors, government officials and consultancy experts attended – along with such luminaries as Christine Lagarde, head of the IMF, John Kerry, the US secretary of state, Philip Hammond, the British foreign secretary, and the ubiquitous Tony Blair.
A few days earlier, to create a more attractive climate for foreign businesses, the regime had approved a new investment law aimed, in the words of a Reuters report, "at making deals less vulnerable to legal disputes or changes in government, and reducing stifling bureaucracy".
Writing in the Guardian, Jack Shenker noted that it was not the first time Egypt had tried this sort of thing:
"A foreign-investment led, GDP-growth orientated economic model was the hallmark of Mubarak’s dictatorship and received glowing approval from the IMF. The outcome was epic corruption, eye-watering riches for a crony capitalist class at the top and immiseration for everyone else."
One company which sought to profit from Egypt during the Mubarak years – and got its fingers badly burned in the process – was the British supermarket giant Sainsbury's (in which Qatar currently has a stake of just under 26%).
Besides highlighting the risks of doing business in Egypt, the Sainsbury's saga shows that the vagaries of the Egyptian justice system can trap foreign investors as well as political dissidents.
Last September, Sainsbury's chief executive, Mike Coupe, was tried in his absence by an Egyptian court and sentenced to two years in jail, supposedly for trying to seize some cheques. Coupe, who denies being in Egypt at the time of the alleged incident, apparently didn't find out about his trial and sentence until December.Sainsbury's didn't see fit to inform its shareholders that its boss was a wanted man (at least in Egypt) and the Guardian wonders if it should have done so. The story eventually became public in the British press earlier this week.
Today, The Times newspaper reveals that a former chief executive of Sainsbury's, Justin King, was also tried in Egypt for "breach of trust" last year and given a three-year jail sentence. His sentence was later overturned but the Egyptian public prosecutor has since filed a fresh application to review King's acquittal.Coupe has now launched an appeal against his conviction but in order to start the process he had to travel to Egypt – which he did last weekend, at the risk of being arrested and thrown into prison. To prevent anything untoward happening, his trip was "carefully orchestrated by the British ambassador" (according to Sky News) and he was accompanied by a security team as well as lawyers.
The events that led up to this began 16 years ago with Sainsbury's ill-fated attempt to break into the Egyptian market. In the process of doing so, Sainsbury's acquired a 80% stake in an existing local food business, Egyptian Distribution Group SAE (known as Edge), at a cost of around $65 million.
However, the project soon ran into trouble. Rumours spread in Egypt that Sainsbury's had Jewish connections and supported Israel (which it emphatically denied). However, the real motivation for opposition to its new venture probably lay elsewhere: the rumours were said to have been started, or at least encouraged, by small shopkeepers who feared – perhaps justifiably – that Sainsbury's price-cutting policies would drive them out of business. Mosque preachers and pro-Islamist newspapers also joined in by denouncing the company and there were several incidents where school students, protesting at Israel’s treatment of the Palestinians, threw stones at Sainsbury’s branches.
After just two years the company pulled out, blaming heavy trading losses, though not the boycott, as the reason for its decision.
The withdrawal from Egypt resulted in heavy losses for Sainsbury's, plus a series of legal claims by Amr el-Nasharty, an Egyptian businesman who was the leading figure in Edge. (There appear to have been others involved in Edge, but they are as yet unnamed.)
As Sainsbury's withdrew, Nasharty agreed to buy out its stake in Edge, but his cheques reportedly bounced. Both parties are said to have agreed that if any disputes arose they would be settled by arbitration under the rules of the International Chamber of Commerce.
Meeting with the prime minister
In 2007 Nasharty (who was then living in London where he had been evicted from a flat in Mayfair over £29,000 of unpaid rent) tried unsuccessfully in a British court to prevent arbitration from going ahead, and the reasons he gave for doing so are interesting.
In a witness statement, Nasharty claimed that when he agreed to buy back the shares from Sainsbury's (along with the agreement about arbitration) he had been acting under duress – on orders from President Mubarak. He said:
"On about 27 February 2001 I was summoned to attend a meeting at the offices of Dr Atef Ebeid, the prime minister of Egypt. At that meeting Dr Ebeid told me that he had recently had several meetings with senior personnel from JS [Sainsbury's]. These included Messrs Coull and Mills-Hicks. He explained that during these meetings he had been told that JS was minded to liquidate Edge SAE and to dismiss all of its 5,000 employees.
"Dr Ebeid explained that presidential instructions had been issued requesting that I purchase the shares, then owned in Edge SAE, by JS. Dr Ebeid stated that he wished me to comply with this request.
"My conversation with Dr Ebeid was conducted in Arabic. It is therefore not possible to precisely reproduce the words that he used. However he explained that if I did not buy the JS shares in Edge SAE, I could not regret what would then happen to me. The plain meaning of the statement was that I would not be in a position to regret what would happen to me if I did not comply.
"The result of my meeting with Dr Ebeid was that I believed that if I did not buy the shares in Edge SAE, then owned by JS, I would be imprisoned, or suffer very severe other penalties, or both. I had no choice but to comply with the request made to me.
"Within about a day I attended a meeting with personnel from JS. I was asked at that meeting if I was going to buy the JS shares in Edge SAE. I said that I was. It was obvious to me from what was said at that meeting that the JS personnel were well aware of my meeting with Dr Ebeid and of the purport of what I had been told at that meeting."
According to an account of the hearing, Nasharty also claimed he was unable to pay the $740,000 required for arbitration, since he had been declared bankrupt in Egypt. However, it emerged that his wife was still extremely wealthy – which raised questions about why she could not chip in to pay the $740,000. In another witness statement Nasharty said:
"The defendants [Sainsbury's] in their skeleton argument allege an inconsistency between my inability to raise $740,000 for the arbitral fee when my wife is in a position to lend me $40,000,000 to repay my creditors. In fact, there is no inconsistency. When my family and I fled Egypt, the totality of our assets were frozen by the prosecution, that is to say, not merely my personal assets, but those of my wife and three teenage children.
"There is a procedure in Egypt whereby my wife is able to apply to the Prosecutor General to remove the freeze on some of her assets to enable her to pay my creditors. I would then be in the position of owing that money back to my wife. There is no equivalent procedure that would enable me to unfreeze her assets for the purpose of speculating on litigation or funding litigation."
The judge in the case, Mr Justice Tomlinson, appears not to have been convinced by Nasharty's claim that he was acting under duress, or that he could not afford the arbitration costs:
"The claimant must have known that, if he wished to rely on his impecuniosity, he would have to make full and frank disclosure as to his means ... The evidence as a whole falls far short of satisfying me that the claimant does not have access to resources which would enable him to pursue his claims against Sainsbury in his chosen forum, arbitration."
See more at:
www.al-bab.com/blog/2015/april/sainsbury-egyptian-fiasco.htm
