Omar Effendi:

Who’s to blame?

A case study in a company’s

mismanagement and failure to

comply with IFC standards

Bank Information Center

MENA Program

April 2011

The Bank Information

Center partners with

civil society in

developing and

transition countries to

influence the World Bank

and other international

financial institutions to

promote social and

economic justice and

ecological sustainability.

Contents

I. Executive Summary p1

II. Methodology p2

III. Project Information p3

IV. Background p4

V. Company’s wrongdoings p6

VI. IFC’s shortcomings p10

VII. Recommendations to the IFC p13

Acknowledgements

The Bank Information Center credits MENA program’s Nadia Daar as the primary

author of this case study. However, this study would not have been possible

without the support of Amy Ekdawi, Angelina Jarrouj, and most importantly, an

unnamed labor activist in Cairo who provided a vast amount of data and analysis

needed for this study. We thank this person greatly and recognize that this piece

would not have been possible without them.

© 2011 Bank Information Center

Content may be reproduced with permission, provided that BIC is credited as the

source

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I. Executive Summary

In November 2007, the International Finance Corporation (IFC) invested in the then

newly privatized chain of retail department stores, Omar Effendi, 90% of which had been

purchased by Anwal United Trading Company Limited of Saudi Arabia (Anwal). The

IFC’s investment was comprised of a $40 million loan as well as an equity investment of

$6-$10 million (which gave the IFC a 5% stake in the company). The project would

entail a store refurbishment and turn-around program since the once prosperous stores

were in poor condition at the time of Anwal’s purchase. Already a subject of controversy

as a result of a non-transparent and, what many perceived as, corrupt privatization

process, this historically economic and cultural jewel in Egypt has been a focus of the

Egyptian media since 2007 for all the wrong reasons.

Most notably, Anwal let go of over 2000 workers, several of whom felt coerced into early

retirement, and others who reported inadequate consultations when it came to the

retrenchment package that was given to them. One of the key problems, as this case study

demonstrates, is that Anwal, in carrying out its obligations as part of the IFC’s

Performance Standards, failed to do so in an effective way.

Beyond the labor concerns, another major consideration is the question on development

outcomes. According to the IFC’s website, “the proposed IFC investment would

significantly improve the standards in Egypt’s retail sector” as well as “promote SME

and private sector development”, “upgrade business practices” and “improve employment

quality”.

Meanwhile, however, it has become apparent that Anwal has failed to pay wages on time

and has refused to pay suppliers after deliveries. Moreover, some of the major stores,

such as the Abdel Aziz store in downtown Cairo, are barely functioning. With such a big

labor cut and with these types of results, one has to wonder where the development

impacts are.

This case study also questions how the IFC might be implicated in the company’s

failures, not only because the IFC is a lender to this company, but also because of its own

shares in the company which it acquired through the equity investment. It is also

accountable due to its assigned role as an honest broker between Anwal and the

government of Egypt (GoE) which it committed to as part of the project, since many of

the client’s failures also related to its failures to abide by its own contractual obligations

with the GoE in the purchasing of the company.

The case highlights the weaknesses of the current IFC Policies and Performance

Standards that beg to be addressed during the current review process. Such examples

include providing more capacity building training prior to investments, regular due

diligence to ensure clients are adhering to IFC’s Performance Standards and continuous

and timely disclosure of a wider array of information, including contracts, risk

assessments and project evaluations.

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Moreover, stakeholder consultations must be done through direct community

engagement, and there should be forums for communities to be involved in designing the

consultation methodology to reduce the risk of misrepresentation. It is also essential for

the IFC to have a better assessment process through which to determine if an investment

is likely to produce actual positive development results. The IFC’s stated purpose is to

“create opportunity for people to escape poverty and improve their lives.” That needs to

be the primary rationale for every single IFC investment.

II. Methodology

The Bank Information Center’s Middle East and North Africa program requested the help

of a labor activist in Egypt to assist in the collection of information for this case study as

well as in the writing and analysis. This case study builds its analysis on the impacts that

the IFC identified as potentially problematic in its Environmental and Social Review of

the project as well as the remediation measures that the IFC suggested. It also builds on

the IFC’s obligations as lender to and part-owner of Omar Effendi, as well as its

obligations as a development institution.

Interviews

Interviews were conducted with 10 individuals: some of them were workers at various

Omar Effendi stores who occupied different positions including managerial ones. Retired

workers were also amongst those interviewed as well as workers who had been

suspended from their work. Finally an interview was also conducted with an engineer

who was responsible for designing the layout of several stores. We include references to

workers’ comments within the text of this case study, but we cannot always provide

documentation to support their comments. All views that are credited to interviewees are

those of the interviewees and do not necessarily reflect the views of the Bank Information

Center. Nevertheless, we felt it was important to include their voices and include their

comments since documentation is simply unavailable in many circumstances.

All interviewees requested that their names remain anonymous due to fear of losing their

jobs or even for their safety. The retired workers were more open to speaking to our

interviewer although they were also fearful for their names to be disclosed.

Some background information for the case study was also established during two

meetings with IFC staff in Washington, D.C. and a phone conversation with relevant IFC

staff in Cairo.

It is worth noting and a limitation of this study, that for a number of reasons, we did not

conduct interviews with spokespeople for Anwal United Trading Company Limited of

Saudi Arabia, the majority shareholders of Omar Effendi.

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Other methods of data collection

For the sake of this case study, the researcher(s) made visits to various Omar Effendi

stores in downtown Cairo, Mohandeseen, Misr elgadida, Shoubra and Giza (all in the

Greater Cairo area). Meetings were also held with various journalists who had been

working on covering the Omar Effendi case for several years.

We collected limited documentation from the IFC website and from excerpts of the

purchasing agreement between the owners of the company and the government which

was published in El Wafd newspaper some years ago. We also relied on press archives

for additional information.

The lack of information available through the IFC was a major hindrance in the

preparation of this study.

III. Project Information Omar Effendi

Omar Effendi is a major department store chain which was privatized by the Government

of Egypt (GoE) through a bidding process for 90% of its holdings. Anwal United Trading

Company Limited of Saudi Arabia (Anwal) and its shareholders who are mainly Saudi

were successful in their bid to purchase the company. The sale was completed in

November 2006. The remaining 10% of the company remained in the hands of the

government under the Holding Company of Commerce (which became the National

Company for Construction and Building) which is part of the Ministry of Investment

(IFC website). One year after the stores were privatized, the IFC invested in the company

with the aim of contributing towards the development plan for the stores. The investment

included an A loan from the IFC’s own account amounting to $40 million as well as an

equity investment of $6 – $10 million, which essentially added up to the IFC having a 5%

stake in the company (IFC website). The company’s investment plans include

refurbishment and an infrastructure upgrade of the Omar Effendi chain of retail

department stores. The World Bank Group’s (IFC’s umbrella institution) Board of

Directors approved IFC’s investment in 2007.

The development impacts that the IFC sought to achieve through this investment included

the promotion of SME and private sector development, upgrading business practices and

improving employment quality which also included good labor practices. As the

following case will show, it is unclear which, if any, of these development outcomes have

actually been achieved. Moreover, since the IFC actually is now an owner of 5% of the

company (as opposed to just a lender), it holds an additional responsibility to fulfilling

these development goals, even if it does not have a seat on the Omar Effendi Board of

Directors. Finally, as the role of “honest broker” between Anwal and the GoE, IFC had

the responsibility of holding each party accountable to the purchasing agreement.

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In recent months, Anwal has been negotiating the sale of its 85% shares to Egyptian

businessman Yassin Aglan, and it is assumed that the IFC will retain its 5% share though

no new information is available on the IFC website. While Anwal failed to abide by

several of the IFC’s policies and guidelines, it is not even clear whether the new owners

will have a contractual responsibility with the IFC. Apparently, as part of the purchasing

agreement with Anwal, Aglan would have a responsibility to pay all the obligations of

the company to banks, suppliers and tax authority (Al-Ahram Weekly), but in terms of

meeting the IFC’s Performance Standards and project commitments, it is unclear if Aglan

will take on these obligations. This opacity speaks to the inadequacy of the IFC’s

information disclosure framework.

Given that the research and information for this case study was gathered in 2009 and

2010 and that any new purchasing agreement is still unconfirmed, this paper will focus

on the failed responsibilities of Anwal and the IFC.

IV. Background

Omar Effendi

The first store in this chain was established in 1856 by a Hungarian businessman named

Orosdi. It stood in the same historic six-floor building on Abdel-Aziz Street in downtown

Cairo where it remains today. Orosdi established other similar stores in Baghdad, Beirut

and Istanbul and now boasts 82 branches and 68 warehouses. The stores were the first

retail megastores of their kind in the Middle East and were called Orosdi-Bak since they

were developed with the help of the Bak family. In 1920, the branches were sold to a

businessman who changed the name of the stores from Orosdi-Bak to Omar Effendi.

Then, in 1957, under Gamal Abdel Nasser’s presidency, and along with several other

major assets including the infamous Suez Canal (nationalized in ’56), the Omar Effendi

stores were nationalized.

Under the influence of the international financial institutions, Egypt began a process of

becoming an “open market economy” through privatization and structural adjustment in

the 1980s and 1990s. New legislations, laws, bylaws and the legal arsenal more generally

were designed to support the transition era towards this new laissez-faire state. For

example, law number 203 was established in 1991 to govern the processes that

companies in a transition phase would have to follow in order to become privatized (Read

the full version of the law in Arabic). Consequently, and in correspondence with the

political and economic context at the time, many public sector companies were officially

declared to be a burden on the government and the economy due to inadequate profit

margins that contributed to the country’s growing deficit. According to some economists

and writers, the unavailability of accurate information about the real market value of the

public sector’s assets and stocks allowed the government to dramatically lower the sale

price of companies thereby encouraging the private sector to buy them up. To legitimize

the sales, the government blamed public sector corruption and argued that privatization

would be the only way to save the economy. Rashed Abdel Majeed, an economic writer,

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has named this trend the “systematic looting” in Egypt, stating that it is unknown how

much money was embezzled through these opaque transactions (ahewar.org).

In reality, Omar Effendi was no longer the jewel of Egypt as it once was, but was already

on a downward spiral as a result of poor management under the government’s ownership.

Whether or not this was a deliberate strategy by the government to make privatization a

more attractive option, as many have suggested, is unclear. Either way though, under the

broader trend of encouraging privatization, the Omar Effendi stores were privatized and

bought by Anwal United Trading Company Limited of Saudi Arabia (Anwal) in 2006.

Jameel Al Gnaibit became the new Chairman of Omar Effendi and in 2007, announced a

new strategy to upgrade the whole department store chain. The new makeover was to

include changes in image, brand selection for personal and household products,

management and operation facilities. The stores would also start providing a variety of

goods from budget-friendly to expensive goods. Between 5 and 10 of the 82 stores were

selected, according to region, to cater to a higher class clientele, while the rest would

continue to provide quality goods at inexpensive prices (Omar Effendi website1).

As part of this development process, the IFC invested in the company in 2007 and in

2010, Anwal began negotiations to sell its shares of the company. It is unconfirmed

whether this deal has been finalized but it appears to be on hold given the recent events in

Egypt. It is worth mentioning that the potential buyer, Yassin Aglan, is currently

appealing a court ruling that found him guilty of corruption (after having already spent

four years in prison for other charges of corruption).

IFC’s Policies and Performance Standards

The IFC, the private sector lending arm of the World Bank, has a set of social and

environmental policies which it must adhere to in all of its investments. In addition, it has

eight separate 'performance standards' (PS) which govern the client's role and

responsibilities. These performance standards include social and environmental

assessment and management systems; labor and working conditions; and land acquisition

and involuntary resettlement among others. Both the IFC’s policies and performance

standards are currently being reviewed in consultation with various stakeholders.

Prior to IFC financing, each proposed project is subject to a social and environmental

review during which potential impacts are identified and mitigation measures proposed.

In the case of the Omar Effendi project, IFC’s environmental and social due diligence

indicated that the investment may have impacts which must be managed in a manner

consistent with the following Performance Standards:

PS1: Social and Environmental Assessment and Management System

PS2: Labor and Working Conditions

PS3: Pollution Prevention and Abatement

PS4: Community Health Safety and Security

1 This website account has now been suspended but may be active again which is why the authors have

kept the link.

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This study focuses on PS1 and PS2.

V. Company’s wrongdoings

In its assessment of the investment in Omar Effendi (OE), the IFC identified key social

and environmental issues and the client’s capacity to manage these issues. This included

information about the client’s human resource management and other issues. In response

to the IFC’s analysis of potential problems to be aware of throughout the lifespan of the

project, Anwal presented an Environmental Action Plan that can be found here.

1. Labor and Human Resource Management

i. Inequitable wages

Omar Effendi claimed to recruit a highly experienced human resources professional who

was to oversee a complete revision of the company’s human resources policy as well as

the management and employment relationship with staff. The promised objectives of this

revised human resources structure are that it is non-discriminatory, fair and enables Omar

Effendi to attract and retain high caliber staff.

According to the interviewees from OE, new staff had been hired when Anwal

first bought the company, and were given inequitably higher salaries than existing

staff. The IFC has explained that this new staff had a set of different skills which

may explain the difference in salaries. The salaries of the new staff ranged from

L.E 3,000- 18,000 /month (approx $500-$2,500), and in some cases reached L.E

60,000/month ($10,000) (L.E stands for Livre Égyptienne or Egyptian Pound). In

contrast, some of the interviewees had been working at OE for 15 years and were

only earning L.E 299/month ($50) as a basic salary (which could be increased to

L.E 800 [$135] with other incentives). One interviewee mentioned that he had

two female coworkers at the store; one who had recently been appointed with a

salary of L.E 1200/month ($200), and another who had been working for OE for

15 years and who was still earning L.E 400/month ($70). These salary

discrepancies are consistently being questioned by older staff as to whether OE is

ensuring that policies are non-discriminatory and fair.

If the newer staff had more relevant skills and this was the reason for the higher salaries,

this may be fair in and of itself. However, the older staff had been expecting training to

increase their capacities and their own salary potentials, but this did not happen.

According to Performance Standard 2 on labor as well as Anwal’s contract with the GoE,

the workers should have been provided with additional training to improve their skills

and qualifications (which was also included in IFC’s page on expected development

impacts of this project).

None of the ten interviewees, as of May 2010, were aware of any such trainings.

So what happened? Did OE management not recognize this deliverable as

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important enough? Did it not have the financial capacity to do the trainings? What

is clear is that while on the face of it, these skill-building trainings may not have

been a priority for management, when unskilled staff are being paid an

inequitably lower salary because of their inadequate skills which should have

been strengthened through these trainings, then these trainings are directly linked

to salary increases, and are therefore a priority for the staff and necessarily have

to be a priority for management.

ii. Representation during negotiation

According to the IFC’s website, OE’s human resource changes would include a new

human resources policy, new employment contracts and a retrenchment program, which

would be made in consultation with the trade union representing employees through its

thirteen member representatives.

However, the chairperson of the General Union of the Workers in Commerce,

Mohamed Wahballah, admitted in a TV talk show called "90 minutes- teseen

dekika" on March 20th 2010 that he had not heard about the contents and terms of

Anwal’s purchasing agreement prior to November 2007, indicating that even the

person who should have been representing the workers was unaware of labor

policy changes until a year after the contract was signed and after the

retrenchment program had begun (youm7.com).

More importantly, neither Wahballah nor the head of the OE workers union

committee, Mohamed Elgibelly, are seen as representative of the workers.

Wahballah at one point even made an announcement where workers argue that he

sided with Al Gnaibit in a dispute, prompting the workers to challenge his

representation of them (youm7.com).

All the interviewees mentioned that Elgibelly, the head of the OE workers union

committee is seen as an illegitimate representative and supportive of the owners

against the workers. They speculate that he was appointed by Anwal. If this is the

case, then, they say, this is a violation of Egyptian Union Law.

According to the IFC website, the new employment relationship would be based upon

written contracts with staff that define the rights and responsibilities of the company and

its employees, and that cash and non-cash remuneration would be fully compliant with

Egyptian Labor Law 12 of 2003 and IFC’s Performance Standards. Salaries would be

determined by collective bargaining or individual agreement depending upon the post.

However, according to the press news from the official Middle East News

Agency, in May of 2008, it was decided in a meeting between Al Gnaibit,

Wahballa and Elgibelly to increase the employees' wages (3,100 employees) at

OE by 50% from the basic salary. In May 2009, workers held a demonstration

against Al Gnaibit in one of OE’s branches (downtown) to expose and protest the

broken promises of higher wages which had not been given to the workers

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(adaweya.com). These protests were one of many (that continue today) that ought

to have alerted the IFC that workers had grievances that needed addressing.

iii. Retrenchment program

According to the contract between Anwal and the GoE, the number of workers at OE

before the Anwal administration took over was 5,929 workers. According to article 13 of

the contract which is concerned with labor rights; early retirement should have been

optional, and it was to target a maximum of 600 workers over the first three years

following the date of the 2006 contract.

However, according to interviewees, within the first three years, 2600 workers

had submitted early retirements. Interviewees stated that most of those they knew

who had retired had done so because they felt they had few options to do

otherwise.

The IFC's managing retrenchment guidelines stipulate that Anwal should consult,

discuss, negotiate and talk with the staff through an appointed committee before offering

the retirements system. The guidelines also state that the sponsor should avoid

misinformation about the retrenchment program. The IFC has noted that it performed a

spot check on a selection of OE retrenchment cases to ensure that the retrenchment

program was done correctly and that the results demonstrated that everything was in

order.

According to the interviewees, no consultations or negotiations had taken place

before offering the retirements system, and no committee was appointed to do so

as far as interviewees were aware.

Anwal has failed to be transparent during the retrenchment process. According to

the interviewees, workers were confused by the vaguely worded announcement

made by the company about early retirement. Also, as mentioned earlier, the head

of the General Union of the Workers in Commerce had not been privy to the

labor-related details of the purchasing agreement before November 16, 2007,

which would be 2.5 months after the early retirements had taken place

(youm7.com). It is clear then, that Anwal was neither transparent with the

workers about the early retirement process, nor did it consult with any workers’

representative about the retrenchment program.

A feature of the early retirement system that has been repeatedly stressed by the GoE, the

General Union, and by IFC guidelines is that the early retirement system must be

voluntary.

According to interviewees, workers felt pressured to take the early retirement

option through negative incentives. Examples of such pressures included:

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- Whereas salaries used to be paid on the 24th

or 25th

of each month, under

Anwal’s ownership, salaries were paid on the 7th

or 8th

of the following

month. This affected the workers’ family commitments that had to be met

by the beginning of each month and made the working conditions

unfavorable.

- While employees used to get a percentage share of annual profits based on

their basic salaries, under Anwal’s ownership, there was no profit-sharing

scheme. According to the IFC, the scheme still exists, but OE does not

have any profits to share at the moment, rendering the scheme moot for

the time being. Moreover, while there used to be awards and incentives

during occasions such as Eid and Ramadan, under the new ownership

there were none – yet another incentive which was taken away.

- The annual wage increases of 10% that should have been paid in May

2009 in regulation with GoE and to coincide with the annual Labor Day

event had still not been paid as of May 2010.

2. Failure to fulfill project plans

Under the IFC’s section of Social and Environmental management, Anwal claimed that

several of the OE stores would be developed and refurbished.

No documentation is available about the timeframe for this project’s completion,

so it is impossible to know when project plans are expected to be carried out and

hold the client to account on its responsibilities. What we do know from

interviewees is that, as of the time of the interviews, the project had targeted

select stores such as Adli (Down town), Mourad (Giza), Abbas Elakad (Nasr

City), Maadi, Hegaz (Masr Elgedida), Orabi (Mohandseen), Talat Harb (Down

Town), and Ellakani (Masr Elgedida) which are all located in Greater Cairo but

that very little progress can be seen thus far. In one of the most important and

historic stores located in Abdel Aziz (downtown Cairo) only one floor is

functioning and the rest of the building is not functioning at all.

In another demonstration that the stores are failing, in 2010 after Al-Arabiya Lel-

Istithmar was expected to buy Anwal’s shares, it instead chose not to “after the

due diligence study revealed "unacceptable findings" in the department store

accounts” (Al Ahram Weekly).

3. Supply Chain

Omar Effendi is in the process of completely revising its supplier base, in line with the

new ownership’s assessment of consumer needs in the different regions where the stores

are located.

According to interviews with workers and information collected from various

press archives, the following issues prevail:

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- Some store sections had been closed and as a result certain workers were

re-located to other OE stores. According to interviewees, these sections

were closed because the suppliers stopped dealing with the company due

to Anwal’s failure to make current or outstanding payments to suppliers.

- The more recent deliveries to the stores are apparently of very poor quality

(second hand in some cases) indicating the new Management’s desire to

spend as little as possible on the stores.

- According to the interviewees, suppliers have also complained that they

have had bounced checks when dealing with OE in recent months.

Overall, it is an understatement to say that Anwal, under the leadership of Jameel Al

Gnaibit, failed to fulfill its obligations to its workers or to the IFC. But can we place all

the responsibility solely on the shoulders of Anwal? The following section outlines IFC’s

possible shortcomings with the managing of this particular investment.

VI. International Finance Corporation’s shortcomings

Given that the IFC has invested in OE, Anwal alone cannot be blamed for the

aforementioned and numerous cases of mismanagement in OE. The IFC, a development

institution whose best practices are replicated across the world, has also failed to adhere

to its responsibilities. This section sites some of the key short-comings of the IFC with

respect to this project.

i. Selection of investments

While there is risk associated with every investment, there are several elements of this

project which it seems the IFC failed to research adequately before guaranteeing the

investment.

Development Outcomes

In an IFC press release, it was said that this investment would “support the

deepening of local supply chains” and that “with IFC’s assistance, the newly

privatized company [OE] will enhance the development of the retail sector, which

is a catalyst for growth in the country. In addition, Omar Effendi’s increased sales

levels will impact a wide range of local textiles and other general merchandise

manufacturers and suppliers”(IFC website).Moreover, the OE project page states

that the expected development impacts were to promote SME and private sector

development; upgrade business practices; and improve employment quality (IFC

website).

The question is, what evidence did the client provide to demonstrate that these

results would be accomplished? How rigorous was the IFC’s analysis of the

development impacts of this proposed investment? These anticipated results do

not appear to have taken place and sometimes investments fail, but were there

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signals ahead of time to alert the IFC that this investment would not have the

anticipated results it sought?

Capacity/willingness of company

In order to submit an investment proposal to the IFC, it is necessary for the

company to submit information on a range of issues. Beyond that submission

requirement, it is unclear which other information the IFC requests from clients,

but what is clear is that this particular client did not have the capacity or possibly

the willingness to adhere to IFC’s Performance Standards. The client made

several guarantees to the IFC about how it would mitigate the foreseen negative

social and environmental impacts, yet it failed on numerous occasions to do so as

was shown in the previous section on Anwal’s wrong doings. So the question

becomes, what client track record did the IFC look to before making this

investment? Moreover, IFC ought to have evaluated its client’s records in meeting

previous contractual obligations such as the ones made in the purchasing

agreement between Anwal and the GoE.

Most importantly, was the company and the new management trained on the

IFC’s Performance Standards adequately? Did the IFC understand the client’s

capacity and willingness to undertake the mitigation efforts?

Allegations of Corruption

Before the World Bank’s Board of Directors approved the IFC loan to OE, there

had already been allegations of corruption with respect to OE’s privatization

process and Anwal’s purchase of the company. The local press declared that the

Ministry of Investment “had rigged the evaluation process by creating a parallel

valuation committee to come up with a sticker price that would allow the state to

sell to Anwal” (Business Intelligence Middle East website). It was thought that in

the government’s adamant attempts to privatize a major company, it had accepted

a buying price far below what the store was actually worth. While official charges

of corruption were temporarily dropped, there remained heavy suspicions about

the deal. Indeed several cases were brought forward over the years and most

recently two old cases were re-opened in February 2011 (Al Ahram Weekly).

Given that there was even suspicion of corruption prior to the IFC’s commitment,

again we have to question whether this was a sound investment on the IFC’s

behalf. Were governance issues part of the risk assessment for this proposed

project and if so, what were the results?

According to the IFC’s website, as of June 2010, the IFC had committed over $2 billion

of its own funds in Egypt. While this case study does not seek to make generalizations

about IFC’s other investments in Egypt, based on this particular investment in OE, one

has to wonder how the IFC is making decisions on its investment portfolio in the country.

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ii. Community engagement

According to the IFC’s website, “any Egyptian stakeholder with even a passing interest in

Omar Effendi is most unlikely to be unaware of the ownership and operational changes at

the stores which are in place,” and that “Omar Effendi has and continues to make

periodic announcements of developments in its renovation project, and these will

continue” (IFC website). While superficial changes to the stores may have been obvious

and announcements about renovations may have been made, this is not adequate in terms

of community engagement, and the IFC has not publicly identified that inadequacy.

Community engagement is perhaps most important with respect to the 6000 workers of

OE and recognizing them as the “stakeholders” who needed engaging. Unfortunately,

Anwal did not seem to view these workers as needing to be engaged directly even though

it is the workers who are responsible for keeping OE running on a daily basis. The IFC

has commented that it does in fact consider the workers “affected people” or

“stakeholders” and that the workers are represented by their union. However, OE staff

felt completely misrepresented by the head of the General Union of the Workers in

Commerce and felt that they had no voice in the decision-making processes that

determined life changes for them such as wages and retrenchment programs.

iii. Disclosure of information

IFC’s currently weak framework for the disclosure of information combined with the

OE’s closed-door decisions and the Egyptian media’s tendency to publish stories without

documentation that backs it, all make for a lot of anger, confusion and surprises. Without

access to detailed documentation about OE’s development plans, workers and other

stakeholders still do not have information about crucial changes taking place at OE.

iv. Honest Broker role

According to the IFC’s website, “given the high profile nature of the privatization [of OE

stores], IFC has been selected by the Sponsors to play an important honest broker role

between the GoE and the company’s new, foreign owners” (IFC website). In other words,

the IFC should have helped their client adhere to its contractual promises as outlined in

the purchasing agreement between Anwal and the GoE. Anwal broke these contractual

promises with respect to the retrenchment program. According to the Middle East

business website, MEED, the GoE apparently also broke some contractual obligations by

not paying Anwal the complete amount it owed them (in the form of debts to OE) during

the sale (MEED website).

It is unclear what the IFC has done since 2007 to play the role of “honest broker”

between the GoE and Anwal.

v. Due diligence

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Perhaps due to the lack of available information, or perhaps because the IFC has actually

not monitored their investment in OE closely enough, it is unclear what due diligence the

IFC has done with respect to ensuring that its client has fulfilled its obligations with

respect to the Performance Standards and ensuring that this project is on the right track

towards achieving its development objectives. While the Performance Standards are the

client’s responsibility to implement, it is the IFC’s responsibility to ensure

implementation is carried out effectively. Referring to the previous section outlining

OE’s failures, many of the points highlight the company’s failure to mitigate the key

issues that were defined in the IFC’s Environmental and Social Review Summary (IFC

website), especially issues related to labor and human resource management.

In terms of due diligence, relevant IFC staff have said that they monitored Anwal’s

adherence to its social and environmental action plan and that several checks were done

regularly which demonstrated that things were in order. However, the IFC staff admit that

all checks were done with Anwal management and not with any of the OE employees

themselves.

The IFC has said that one of their environmental specialists performed a spot check of

retrenchment packages of the workers laid off from OE and found everything was in

order. The IFC says that when the retrenchments took place, there were no grievances,

protests or complaints, and so once the spot check went smoothly, the matter was put to

rest and the IFC did not look any further into the retrenchment process. The IFC

representatives said it was only much later that some workers started complaining, but

that from the IFC’s perspective, Anwal had fulfilled the requirements of engaging

stakeholders and conducting the retrenchment properly.

The concern here is that regardless of when the workers began protesting, given that the

protests were, and continue to be, covered quite broadly in Egyptian media and that the

IFC has staff in Cairo, would the IFC not have then begun to question whether the

workers had legitimate grievances? Did the protests not alert the IFC that its business

partners may have been negligent? Checking a box to state that a spot check has been

done is simply not adequate due diligence. It is about much more than that, but at the

very least, it is about questioning the accuracy of your information when you see street

protests that alert you to another side of the story.

While we can blame Anwal and maybe even the global economic downturn at large for

the problems at OE, it is also these above mentioned failures on the part of the IFC that

have contributed to OE not having the positive development impact that rationalized the

IFC’s investment in the first place. Strong due diligence and closer supervision post

Board approval on the IFC’s part then, is imperative to ensuring strong development

outcomes.

VII. Recommendations to IFC

The IFC should have a more rigorous and realistic assessment process for

determining if an investment is likely to produce positive development results.

Such an assessment should involve a formalized evaluation of capacity and

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commitment of the project sponsor to achieving development results as a

prerequisite of each IFC investment.

In order for the IFC to fulfill its mandate of reducing poverty, IFC needs to

clearly communicate to the client its poverty reduction expectations. IFC

should consider including development objectives in investment agreements

and offering financial incentives tied to development results achieved.

Towards this objective, IFC should provide more guidance on how to achieve

development results. Given that IFC clients may not systematically prioritize

development results, IFC should outline this objective in depth with each client

and ensure routine updates on development impacts.

IFC’s due diligence with respect to stakeholder engagement as well as

regarding clients’ adherence to the IFC’s Performance Standards should

seek feedback directly from affected stakeholders and not only from

representatives (such as a union leader who may or may not be representative).

Stakeholders ought to be involved in the design of the stakeholder

engagement/consultations to ensure that they are fairly represented during the

actual engagements. Moreover, the IFC should advise the client on how to consult

and engage with stakeholders in a meaningful way and require the client to

disclose results of community engagement.

Continuous and timely disclosure of information to stakeholders is absolutely

critical. Project information, assessments of project risk, contractual agreements

between the IFC and the client and monitoring and evaluation documents should

all be proactively disclosed in a language that is accessible for communities to

understand. This means translating the information into local languages but also

into simple terms that people will understand.

Continuous disclosures will also help stakeholders hold clients (for example in

this case, workers could have held the company’s management) accountable to its

contractual obligations to the IFC and any commitments made under Action

Plans, ensuring that the project is moving along a path that will enhance

development impacts.. Contentious matters such as retrenchment may require

extra supervision and proactive guidance from the IFC. Likewise, IFC may

organize additional site visits in cases of non-compliance risks.

The IFC should publicize its investments, not just in the form of press releases,

but also in the local newspapers and at the project site, so that all affected

communities (including workers) know that the IFC is involved and that

performance standards and accountability mechanisms are available to help hold

the client accountable. Moreover, if communities feel that they are being

negatively affected by the project, and are aware of IFC’s involvement, they can

turn to the IFC’s recourse mechanism Compliance Advisor Ombudsman (CAO).

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The IFC ought to provide more training and capacity building to its clients on

how to adhere to the Performance Standards. Particularly in cases when retrenchment is likely, IFC should ensure that the

client establishes its own grievance mechanism and proactively notifies

stakeholders of access to CAO before staffing decisions are made. It is crucial

that the CAO mechanism is as visible and accessible as possible and that affected

communities are guaranteed their security in cases where they do file complaints.

For example, the workers in the OE case did not feel that their security could be

guaranteed and therefore did not want to submit a case to the CAO.

In addition, in projects with potentially large scale impacts on labor and social

services, IFC may require that clients prepare a Social Action Plan, which would

identify and address approaches to retrenchment or staffing evaluations as well as

identify any gender or pay discrimination in a transparent and consistent manner.

The use of Social Actions plans can serve as a tool for negotiations and

accountability with stakeholders. In the case of OE, only an Environmental

Action plan was prepared.

A lingering question to leave the readers with is what can be done when a company fails

to deliver on Performance Standards? Adherence to the Standards is a part of the IFC’s

contract with the client, but what are the implications if a company does not fulfill this

requirement? What if the client cannot fulfill the requirement due to a lack of financial

capacity as was likely the case with OE? Would the IFC be willing to inject more money

into the project? If not, then its investment is even more likely to have negative impacts,

but if it does, then it could be spending more money on a poor investment. Moreover, if it

has already disbursed its entire loan, what does a client’s repeated breach of contract

mean in real terms other than potentially being black-listed in the future?

While this case study only looks at one project, we hope the IFC will see these questions

in a broader light and extract lessons for all current and future investments.