Assignment 1 Sherook A.

Ghaly

The External Audit Assignment A00442412

External Audit: ELSEWEDY ELECTRIC

Elsewedy Electric can be considered as one of the main contributors to the economic
growth in Egypt and a key player in the region in various industries.1 Up-and-running since
1938, and listed on the Egyptian Exchange since 2006, Elsewedy Electric manufactures a
holistic suite of start-to-finish energy and infrastructure solutions in efforts to accelerate the
global transition toward a sustainable future. The company’s comprehensive suite of product
offerings includes Wires, Cables and Accessories, Electrical Products, Engineering &
Construction, Digital Solutions, and Infrastructure Investments.2

Using the macro-external analysis tool “PESTEL” the following part elaborates how and
which are the political, economic, socio-cultural, technological, environmental and legal
factors and events that might be affecting the businesses of the firm (in-&) directly without
the firm having any control on them.

Political

The instabilities and energy crisis caused in the region by the war between Russia and
Ukraine is delaying major raw material supply to arrive at some of the manufacturing plants
as well as significantly affecting the demand in the regional & local markets.

Economical

Overall economic slowdown after the pandemic did not impact the manufacturing industries
of Elsewedy in terms of produced quantities or sales revenues but what did have a strongly
negative impact later on was the devaluation of the Egyptian pound.3 The entire industrial
manufacturing sector, importing raw materials from overseas, have trouble making payments
with many foreign currencies with the recent inflation rates of more than 21% and after a
25% devaluation followed by another 6.34% devaluation on January 5, 2023 and floatation
of the Egyptian Pound falling to record lows.4 According to Ahmed Farouk Ghoneim, the
deputy minister of planning, the Egyptian government and economy promised to be
“Fostering a better business environment as well as promoting exporting goods and utilizing
the comparative advantage in trade and services, which will play a critical role in putting the
Egyptian economy back on track.”5

1
https://www.marketwatch.com/investing/stock/swdy?countrycode=eg&mod=search_symbol
2
https://ir.elsewedyelectric.com/
3
https://ir.elsewedyelectric.com/en/share-corporate-info#share-information
4
https://businessforwardauc.com/2023/01/16/a-currency-conundrum-inflation-devaluation-and-flotation-in-
egypt/
5
https://foreignpolicy.com/2023/02/07/egypt-needs-democracy-to-fix-its-economy/
Assignment 1 Sherook A. Ghaly

The External Audit Assignment A00442412

Socio-Cultural

The pool of the employees in Egypt is improving with better calibers available in the
industrial market not in Egypt or North Africa only but in all the countries where the
expansions happen in, whether with a country office, show room or plants. The Improvement
can be felt on the different levels of white- and blue-collar employees and managers.
Programs and initiatives with the vision of enhancing Egypt’s socio-economic environment
through the reform and development of Egypt’s most valuable resource-human capital.6

Technological

The newest telecommunication cables demand in the export market is growing with great
potential. The technical specs in such a market are in constant developments, which have to
be monitored & adapted to, in the business and through the manufacturing process. The
research efforts all R&D engineers have to do to stay UpToDate is enormous.

Environmental

Natural disasters are most of the times unavoidable and unforeseeable. The latest
earthquake in Turkey & Syria affected some of the main raw material supplies’ -previously
agreed on- delivery dates with various materials’ vendors in Turkey.

Legal

The constantly changing and newly set regulations and laws create an instable work
environment for business leaders, like the older tax regulation update to a stricter one that
lets the invoices between sister companies get taxed. On the other hand, some tax
incentives and amendments could possibly impact the new capital gains tax- are being
considered to attract foreign investors’ money into the country and creating some economic
stimulus.7

Using the 5 Forces analysis model by Michael Porter, the following paragraph explains
the most significant micro competitive elements known to Elsewedy Electric holding.

Buyer Power
6
https://tvetegypt.org/
7
https://businessforwardauc.com/2023/01/16/a-currency-conundrum-inflation-devaluation-and-flotation-in-
egypt/
Assignment 1 Sherook A. Ghaly

The External Audit Assignment A00442412

The various costumers to all the different business lines, products and services Elsewedy
Electric offers, come from multiple sectors with either standard products with stable
agreements which minimize costs and time of production and profits, this puts pressure on
the salesforces to maximize the costumers’ satisfaction and minimize the risks.

Supplier Power

Raw material suppliers of the high running material needed for the industries, e.g. Plastic,
Copper and aluminum rods, are provided by sister companies (Egyplast, United Metals,
steel wire, etc.…) as the feeding Polyethylene and metals needed for the core industry, the
cable manufacturing plants and other electrical products’ business units (Transformers,
meters, busways…).

Threat of new entrants (Barriers to market entry)

Elsewedy electric enjoys a luxury rare for its competitors to find, which is the strong
customer loyalty and preference to the brand. As it started as a trading company in 1938 and
through growth and recognition, it became one of the leading energy providers worldwide.

Elsewedy diversifies the business lines to adapt to the markets’ demands, creating more
opportunities in multiple sectors while possessing the required certificates and approvals.

Threat of substitution/Development of Products

Pressure increased during the pandemic with the increase in raw material prices, which led
some costumers to search for lower quality substitutes to Elsewedy services & products to
minimize their costs.

Elsewedy allocated a R&D department across all sectors in order to keep up with the market
trends and to minimize the assumed threats of substitution, focusing on being UpToDate
with the latest products’ developments.

Competitive Rivalry

The rivalry in the Egyptian market is felt between the governmental and private sector
companies the most, as the interest in the involvement in the energy field increases.
Assignment 1 Sherook A. Ghaly

The External Audit Assignment A00442412

Opportunities

1. Strong global presence at strategic locations for the plants, sales presence, show rooms &
country offices gave the business the chance to set foot & grow in different regions during
the pandemic.
2. High demand and potential (Climate change threats: turned into opportunities to expand
business lines in green & sustainable energy supply) 8
3. Diversity in business (Manufactured products, available services, EPC projects)
4. Several mega project opportunities in the MENA Region /Continents: Africa & Asia.
5. Partnerships/ JVs with foreign investors interest in several businesses / services Elsewedy
offers.
6. Strategic position in the local market (Considered to be the market leading brand in
manufacturing electrical products).
7. Increased global market demand on Aluminum cables instead of Copper conductors’ cables.
8. Enhancements in the employees’ market (Better calibers available to hire).
9. CSR corporate social responsibility opportunities in Egypt (Chances to have a direct positive
impact on society).
10. Improved logistic & distribution due to improvements in the Egyptian roads & network map
(e.g. dry ports)
Threats

1. Creating a healthy & safe environment & culture for the operators at the plants (HSE).
2. Ability to reduce the carbon footprint (Specially in plants in different locations).
3. Reduced demand (based on the economic slowdown, mega projects kept on hold).
4. Combat counterfeited products (Considered to be the biggest competitor).
5. Governmental involvement in the industry (As a player in the market). 9
6. Strong new competitors entering the market (private companies).
7. Global economic or nature disasters: effecting the RMs supply.
8. Global economic or nature disasters: Export sales affected.
9. Economical-political turmoil in the region leading to e.g. Logistical obstacles in some regions,
or; causing delays in test certificates approvals or results.
10. New Tax Laws & Regulations.
Step 5: EFE -External Factor Evaluation matrix for Elsewedy Electric-

8
https://www.egypttoday.com/Article/3/122502/Egypt-moves-steadily-toward-attaining-green-recovery-
Finance-min
9
https://english.ahram.org.eg/NewsContent/50/1201/488117/AlAhram-Weekly/Egypt/Inflation-up,-ratings-
down.aspx
Assignment 1 Sherook A. Ghaly

The External Audit Assignment A00442412

Key External Factors Weight Rating Weighted

score
Opportunities 66%
1. Global presence & expansions in strategic locations 0.05 3 0.15
during export & import restrictions.
2. Potential to expand business lines in the highly 0.09 3 0.27
demanded green & sustainable energy.
3. Lower threat if a business has to be stopped or 0.06 2 0.12
abandoned with various alternative businesses in
multiple sectors.
4. Constant growth in the regions of Africa & Asia where the 0.12 2 0.24
business has already set foot.
5. The new capital gains tax is being considered to attract 0.08 2 0.16
foreign investors and create some economic stimulus.
6. Strong position in the market, having access & authority 0.07 4 0.28
to a big market share, locally & regionally.
7. Increased demand on Aluminum cables. 0.09 4 0.36
8. Better calibers available to hire in the markets. 0.03 1 0.03
9. Improved logistics & distribution, thanks to the new roads 0.06 2 0.12
network.
10. Corporate social responsibility roles. Unlimited chances 0.01 4 0.04
to have positive impact on the societies around.
Threats 34%
1. A sensed HSE culture & mindset between operators. 0.02 1 0.02
2. Reducing the carbon footprint in all plants. 0.02 4 0.08
3. Economic slowdown keeping governmental mega 0.08 2 0.16
projects on hold leading to reduced demand on some
products & services.
4. Counterfeited products as the biggest competitor. 0.04 1 0.04
5. Government involvement & competition in the industry. 0.01 2 0.02
6. New entrants to the market (private companies). 0.01 1 0.01
7. Raw materials’ supply delays due to natural disasters. 0.05 3 0.15
8. Export sales reduced due to global economic slowdown 0.02 2 0.04
(e.g. Pandemic).
9. Economical-political turmoil in the region leading to 0.06 1 0.06
delays and obstacles for demand & supply.
10. Newly set laws & regulations. (e.g. strict taxations) 0.03 1 0.03

Total 1.00 2.38