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Mohamed Eltaweel 2008 1

Table of contents

I.  Small Business Simulation: Mission Statement…………………………..1

II.  The Entrepreneur and his characteristics………………………………….1

III.  What is a Small Business?...........................................................................3

IV.  Sources of business ideas………………………………………………….4

A.  Internal environment…………………………………………………..4

B.  External environment………………………………………………….4

V.  The Business Plan…………………………………………………………5

A.  Executive Summary…………………………………………………...5

B.  Company Summary……………………………………………………5

C.  Product/Service………………………………………………………..6

D.  Market Analysis……………………………………………………….7

E.  Strategy and Implementation…………………………………………7

F.  Management…………………………………………………………..8

G.  Financials ……………………………………………………………10

VI.  The Art of Management …………………………………………………12

VII.  Legal Affairs……………………………………………………………..15

VIII.  A word from the moderators……………………………………………..21

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Start your business, manage it, and share a slice of Egypt’s business pie. Small

Business Simulation is the guide that will show you the steps to start the most efficient,

effective, and profitable business in the Egyptian market.

Mission Statement: To enhance the entrepreneurial skills of participants which will

enable them to start up and manage a small business as a means to realize growth in the

Egyptian market.

What is an entrepreneur?

An entrepreneur is someone who perceives an opportunity and creates an

organization to pursue it. He is someone who creates a new business, willing to face risks

and uncertainty for the purpose of achieving profit and growth. An entrepreneur identifies

opportunities and assembles the necessary resources to capitalize on them. Managers are

usually more concerned with managing available resources, as for entrepreneurs they are

more capable of spotting and capitalizing on opportunities.

Characteristics of entrepreneurs:

Entrepreneurs have certain characters and personal attributes that will affect their career

and help them face challenges of the business, some of which are:

1.  Focused: they focus on niche markets and put their efforts searching and possibly

creating demand that exists in the market. Businesses in general do not occur

unless there is a need for them, and so success in a given market relies heavily on

the principle of finding what is called a "vacuum" and filling this void. If an

entrepreneur is the first to offer the public a good or service then he has a real

chance to accumulate wealth and growth.

2.  Fast: decisions in the world of entrepreneurs are made quickly and implemented

immediately. This of course requires extensive information on the market.

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3.  Flexible: entrepreneurs have to be open to change and be able to adapt to the

changing demands of customers and environment.

4.  Forever innovating: they are tireless innovators as it is what keeps them going.

For example, IBM began in the wire and cable business and later expanded to

time clocks, there sales were a few million. After their successful mainframe

computer business and then their personal computer business they have been

constantly innovating. They are no longer entrepreneurs but they have

intrapreneurs in their organization who are responsible for opportunity seeking

and pursing.

5.  Future Orientation: They have a vision/dream of what the future could be like for

them and their businesses.

6.  Details: Desire for immediate feedback, entrepreneurs thrive for details about

their business. They like to be on top of the critical details.

7.  Desire for responsibility: they want to be in charge of their own destiny rather

than dependent on an employer. They want to be in control of their resources and

use them to achieve self determined goals.

8.  Doers: entrepreneurs operate in an ever changing, turbulent environment. Their

ability to handle uncertainty is critical because they constantly make decisions

using new and sometimes conflicting information from unfamiliar sometimes not

very credible sources. They must have a tolerance for ambiguity.

Businessmen VS Entrepreneurs

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Very similar to the Investor but fundamentally different is the Businessman. He is

the one who sniffs the opportunities for making money. The difference between him and

the Investor is that these opportunities are not in the form of investments, but rather more

closely related to business operations. His focus is on market opportunity, striking the

right deals and employing the right Manager to run the operation. For example, a

Businessman will sniff out the fact that there are a lot of car owners in a particular estate

with are no car mechanics nearby. He will then approach an Investor to invest money to

start the car workshop and employ a Manager to run the operations. The Businessman

will drop by to ensure that the operation is addressing the opportunity and that the

operations are optimal. The difference between the Businessman and Manager is that the

Businessman looks at operations from a more macro perspective while the Manager

micro manages. The difference between the Businessman and Investor is that

Businessman sniffs the opportunities while the Investor decides whether or not to invest

in a particular deal.

On the other hand, entrepreneurs have a different attitude. Similar to the business

men, they would realize the demand for the car work shop and create a business to satisfy

that need in the market. However, entrepreneurs would do that differently. For example,

an entrepreneur would create a workshop that would have something similar to the

assembly line in which the customer’s car would pass on different stages were it would

receive full service in only fifteen minutes. Therefore, there business would be

characterized as innovative, time conserving, and attractive to customers.

What is a small business?

The definition of "small business" often varies by country and industry, but is

generally businesses that have less than 100 employees. These businesses are normally

privately owned corporations, partnerships, or sole proprietorships.

To start a small business, an entrepreneur needs to find a feasible business idea that

can be translated into reality.

Sources of New Business Ideas

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To start a business one must have the proper paradigm that will enable him to

select the business that is most suitable to him and the environment around him. “There is

nothing new under the sun” is not what we mean by the proper paradigm, instead “there

is a lot new under the sun” is a necessary paradigm to have in order to start your search

for the business idea. Once one realizes that there are numerous ideas and business

opportunities, selecting the business idea comes from looking into the internal and

external environment. 

Internal Environment

The internal Environment is one of two main sources of business ideas. We allhave ideas, skills, knowledge, passion, and experiences of our own. These can well be

sources of business ideas.

- Look in the mirror, know what you do well.

- Skill equals money. Bruce Lee started a kung fu school this is an example on how one

can capitalize on his skills.

- Experience that one may get form work, internships, and trainings can always be a

source of business ideas.

- Knowledge 

- Passion can be a strong drive that can guide you to start and manage your business. If 

you love it then giving it all you got must be a logical thing to do.

External Environment

The external environment is all that lies outside your business, it is an important

aspect that has a direct relationship with businesses. Looking at the external environment

is necessary when starting a business. For example, a manufacturer of clothing must

know where and how to find the natural resources needed to run the business? How much

does it cost? In addition, when starting a new business one must first study the market

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and observe the competitors in the field. Looking at the external environment would be

looking at points such as:

- Economy and GDP

- Laws and Regulations

- Natural Resources

- Exchange Rates (especially for businesses involved in exports and/or imports.)

Ideas alone do not make money but it is proper planning and implementation of the idea that brings about profit and growth. Ideas that are written down on paper provide

a better ground to build on, as it better prepares you to start your own business.

Business Plan

A Business Plan is a defined proposal for doing or achieving a goal through a

number of steps. “I have no time to write a business plan” is a common misconception.

Business plans are important, they are usually written for objectives such as:

1.  To provide a good basis upon which to negotiate finance. To bring investors to

 join your business or to get a loan from a fund a business plan can show othersthat you have done your homework.

2.  It acts as a step-by-step explanation of how you intend to achieve your businesssuccess.

3.  Set out the business objective

4.  When the objective should be achieved5.  Resources used to achieve the objectives

There is not one form of a Business plans as they can be written in different ways.Nonetheless, it usually consists of 7 parts. These are:

1)  Executive Summary: It is a brief summary of the business plan.

It may include:a.  Objectives: Of starting the business, short term and long term objectives

that the business is aiming for.

b.  Mission: Mission statement and Visionc.  Keys to success: What will make the business successful ex. Location

2)  Company Summary: It should explain what the company is all about.It may include:

a.  Company Ownership: Is it a sole proprietorship, partnership, or franchise?

If partnership, then how much percent belongs to whom of the partners. If franchise, then who is the mother company.

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b.  Start up Summary: Explains the start up expenses, start up assets needed,long term assets, funding, short term and long term liabilities.

c.  Location/Facilities: The location of the main offices and branches.

3)  Products/Services:

-What is it that you are selling?-Why would it sell? Is there demand it? Is it unique?-To whom and how will you sell it?

-Do you offer warranties or guarantees?

-Comparison with competitors

-Future growth: List your future growth plans

4) Market Analysis: you need to know the market inside out, there are many sub-

topics to this part in the business plan however they are all interlinked.

A. Market Segmentation: it is the division of the market into distinct

groups of customers. You need to segment the market in order to be able

to target potential customer.

B. Target Market Segment Strategy: it is the strategy chosen to reach a

specific group of customers (Target Market.)

i. Market Needs: what the market lacks and consumers needs, how

your business can satisfy the needs and wants of the consumers.

ii. Market Trends: it is the attitude of the market. For example

today in the Egyptian market opening up cafes is a trend that is

being noticed. In addition market trend could be studied with

regards to one product. In the coffee market, Turkish coffee has the

largest market share, however the instant coffee share is growing at

a much higher rate than the Turkish, and this is an example of the

market trend.

iii. Market Growth: how is the market performing? Is it in a

growing stage or in a recession period? Although a growing market

does not necessarily mean that your business will grow, however

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market growth can have an indirect relationship with your

business.

C. Industry Analysis:

i. Industry Participants: know who is in the industry and know your

competitors size and power.

ii. Distribution channel: The series of firms that facilitate the

movement of the product from the producer to the final

consumer. Explain how the process goes. For example,

supermarket is a distribution channel, where you can buy bread

milk and meat going to one place instead of three.

iii. Competition and Buying Patterns: When and why the

consumers buy the competitors product? What makes them buy it?

How often does the consumer buy the product? (Product life

cycle). You need to know that in order to find your competitive

edge that will enable you to compete in the market.

iv. Main Competitors: Study the competition in the market, who

are they? What do they provide, for how much? How can your

business out compete them, what do you have to provide in order

to make your product sell more.

5) Strategy and Implementation: This is where the strategy of the organization

is stated. How the business is going to go about the marketing. The tools and

tactics you will use to maximize your profit.

A. Strategic planning: a decision process that matches an organizations

resources and capabilities to its market opportunities for long term growth

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and survival. In other words it is the strategy a company uses to achieve

profit and growth.

B. Value Proposition: it sums up the value that will be realized if the

product or service is purchased. Ex, when consumers buy a laptop they

have to be able to value the benefit he gets out of it, (the level of 

satisfaction he gets out of the product or service.)

C. Competitive advantage: to outperform the competition, thereby

providing customers with a benefit the competitors cannot. An example

could be a café that provides food and Wi-Fi, while others only provides

food. Then the competitive advantage the first café has is the Wi-Fi.

D. Marketing Strategy

i. Positioning Statements: how consumers position the product in

there mind. So that the image of the product, attracts the target

market.

ii. Pricing: in order to profit the price of the product must be more

than the costs. In addition pricing may also sends a signal about the

quality of the product. Some brands are a much more expensive

than others, it is not because they cost more to produce but it is to

reflect the image of he product. Example Lamborghini, prices their

cars at a high price, due to the good quality and mind you the

image you as a consumer have if you are driving a Lamborghini.

iii. Promotion: the activities marketers do to increase sale of their

product/services, and to encourage potential customers to buy

these products.

6) Management: This part should include the main points and an overall general view of 

the management. That includes how many employees the company has, how many

managers, how many of the managers are founders. It is important to state whether your

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management team is complete or are there gaps that need to be filled. Moreover, job

descriptions should cover all the responsibilities set and assigned to the key members of 

your managerial structure.

A. Organizational structure: The organizational structure is usually seen as an

organizational chart also known as an “org chart”, you can also just describe your

organizational structure in words without a chart. This part should include the

explanations of the job descriptions and how the main company functions are

divided. You should mention how the authority is distributed, do you have jobs

that have responsibilities but without responsibilities? Do you have resources to

cover your organization? 

B. Management Background: The most important members of the management

should be listed. It should include their background experience which adds to

your business plan. Their functions within the company should be described.

C. Management Gaps: Management gaps may exist in any company but mostly in

start-up companies there are obvious gaps. These gaps should be mentioned and

addressed in the plan which is a sign of acknowledgment of your potential weak 

spots in order to be fulfilled latter on. “It is far better to define and identify a

weakness than to pretend it doesn’t exist”. 

D. Personnel plan: It is a table that includes your projected personnel costs,

including direct compensation and indirect costs. Indirect costs include vacation

pay, sick pay, insurance benefits, education, and payroll (salaries) taxes and other

costs. This is also called the “personnel burden” which is the cost over and above

the wages and salaries.

Here is an example of a personnel plan of a coffee kiosk and mobile service

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7. Financials:

A.Sales forecast: The sales forecast Is essential for the financial part of the

business plan. The initial demand for the first month should be estimated, from

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that future resale can be predicted. The future resale is calculated by taking apercentage of the initial demand and basing the sales of the rest of the year on it.

The forecast must have sound backing from the information which has beendescribed in the earlier parts of the business plan, such as the market size,

customer needs, customer segmentation, state of development of the market,strengths and weaknesses of competitors, etc.

B. Break even analysis: The ultimate confirmation of the feasibility of the

business plan is the demonstration of the break-even point when sales revenue

first equals the sum of fixed and variable costs (initial investments).

Note that:

Fixed costs arise from regular payments, which are not affected by changes in the

level of sales. These include items such as rent, rates, and interest payments on

loans and administration costs.

Variable costs include payments, which change in relation to the level of salesrevenue. Examples of this include material costs and energy costs. The question

of whether labor costs are fixed or variable costs is one that must be answered in

terms of the nature of the business.

C. The Pro-Forma Balance Sheet: The balance sheet will be a statement of the

source of funds for the business in terms of loans, equity participation and

retained profit and how these have been allocated. The allocation of the funds willbe broken down according to investment in fixed assets of land and equipment,

and also current assets, which are defined as working capital. The current assetsrefer to the stock of materials and completed manufactured goods and also cash

funds, which are held by the company. The balance sheet will also include thecompany's current liabilities, which are money owed to creditors, bank overdraft

and tax liability

D. The Pro-Forma Profit and Loss Statement: The function of the profit and lossstatement is different to that of the balance sheet. While the latter will include a

reference to the retained profit of the company, it will only do this in the context

of a source of finance for the company and will not indicate how the profit arose.The profit and loss statement is a tabulation of the gross sales income to the

company from which must be deducted all costs. For the purpose of the business

plan it will be necessary to prepare the first year's projected profit and loss

statement in some considerable detail. This is likely to require the year to bebroken down into monthly figures or on a quarterly basis at the very least. For the

remaining four years of the five-year business plan it will be adequate to produce

annual profit and loss statements. The assumptions on which the figures have

been produced must be clearly stated.

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Importance of Human Resources Department

It is an essential department to help you NOT:

  Hire wrong person

  Find your people not doing their best

  Commit any unfair labor practices

  Allow lack of training to undermine your department’s effectiveness.

What do managers do?

1. Job analysis:

This is the procedure for determining the duties and skill requirements of a job

and the kind of persons who should be hired for it. It is used for writing the job

description and job specification.

Job description: A list of job responsibilities, duties, reporting relationship and

working condition.

Job specification: A list of human requirements that is the education level, skills,

personality needed to perform this job.

Job analysis is used for:

  Recruiting and selecting

  Determining Compensations

  Determining unassigned duties.

2. Write job descriptions: 

There is no standard format to write job description, however it usually includes the

following sections:

1.  Job identification

2.  Job summary

3.  Relationship with other jobs.

4.  Responsibilities and duties.

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5.  Authority of incumbent.

6.  Standard of performance.

7.  Working conditions.

8.  Job specification.

Legal Affairs

What is law?

•  The law regulates relations between different people, it sets out rights and obligations

of individuals towards other individuals and towards the state, and it organizes the state.

•  The law sets standards for both businesses and individuals and it provides remedies in

the event that one business or individual believes it has been injured by another.

•  It is basically a framework under which a state functions in all fields and areas.

The characteristics of law

1.  law should be issued by legislative power 

-  a certain organ in the administration of the state, in Egypt it is the people’s

assembly.

2.  constitutional law

-  Law should be in accordance to the constitution which is the fundamental

law of any state. If law is unconstitutional then it is void.

3.  territoriality of the law

-  The law is to be applied in the state and can not be extended to other

territories that fall outside the ambit of the state.

4.  law is non-retroactive

Any law once is issued by the legislative power then it must be appliedimmediately, from its date of issuance, and it does not apply to the past.

EXCEPTION: any law that should have retroactive effect, then it should

be approved by 80% of the representatives of the People’s Assembly.

5.   principle of non ignorance of the law

-  Everyone is assumed to k now the law; you can not raise the argument of not knowing the law.

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Sole proprietorship from a legal prospective:

It is a person who engages in commercial activity for his or her own account. To

be licensed as a sole proprietor, the person should apply to the competent Commercialregistration Office to register in the commercial registrar.

 Important requirements for the registration:

a.  The applicant should be at least 21 years old

b.  The applicant should carry the Egyptian nationality unless he or she will carry out

the activity under the investment law or will engage in exporting activity.

c.  The applicant should use his/her own name as a trade name. This trade nameshould appear on the business firm or shops and in all the business

correspondence.

d.  The applicant should provide the Commercial Registrar office with other relevantimportant data such as the nature of the business or trade, the capital of the

business (no minimum capital is required), the addresses of the main firm and

details of trademarks or copyrights.

The categories of companies in Egyptian law

1. First category partnership

a.  General partnership

It is a business co-owned by two or more general partners who are liable

for everything the business doesb.   Limited partnership

It is a business co-owned by one or more general partner who manage thebusiness however it has limited partners who invest money in it. 

c.  Partnership limited by shares

It is similar to the joint stock company with the exception that at least oneof the founders has unlimited liability in meeting the company’s financial

liabilities. The company is prohibited from conducting the business of 

insurance, banking or savings or investing funds on other people’s behalf.

The minimum share capital required of a limited partnership by shares is

250,000 L.E. the capital is divided into two categories: 1) shares owned by

founder partners. 2) Shares of equal value belonging to shareholders. Thefounder partner have unlimited liability while the shareholders liability is

limited to the value of their respective shares. The contract of foundation

of a partnership l limited by shares is called “preliminary Articles of incorporation” and the company’s by law or statues.

Advantage of partnership

•  Easy to start up with regards to regulations in comparison to the formation of 

a corporation.

•  Combined business skills, knowledge and financial resources.

•  Possible tax advantage (i.e. 5 year tax exemption)

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 Disadvantage of partnership

•  Unlimited liability: they are personally liable for the companies affairs whichmeans that in the case of debt they will pay out of their personal assets.

•  Lack of continuity: conflict between partners could result in the termination of the

partnership.•  effects of management disagreements

2. Second category: corporations

 A. limited Liability Company

It is a form of business ownership that provides limited liability protection. TheEgyptian limited liability company is a closed company where the liability of each

partner is limited to the value of the shares in the company. The number of 

partners of this corporation cannot be less than 2 persons and cannot exceed fifty.Its shares cannot be traded in the stock change either.

Limited liability companies cannot raise funds as capital or as loans throughpublic offering. Also such companies may conduct a variety of business activities,

with the exception of insurance, banking, savings, receiving deposits or investing

funds on behalf of others.

The contract of foundation of a limited liability company is called the “articles of 

incorporation.”

 B. joint Stock Company

It is an artificial person created by law, with most legal rights of a real person.

It is a regulated company whose capital is divided into shares, the liability of each

shareholder is limited to the value of his or her shares and the shares can be tradedin the stock exchange. The number of shareholders cannot go below three at any

time.

The contract of foundation of a joint stock company is called the “preliminaryarticles of incorporation” and the company’s by-laws or statutes.

Advantage of corporation:

•  limited liability: non of the investor’s personal assets are at risk, only the

amount of their investment.

•  ease of transfer of ownership: since the ownership is through the purchasing

of stocks, they can easily be exchanged.

Disadvantage of corporation:

•  difficulty with paper formulation

•  high expense of formation

•  Extensive government regulation

•  double taxation

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•  lack of secrecy

Available ways to establish a business in Egypt

  [A]Through the General Authority for Investment and Free Zones &In accordance

with Law No. 8 of 1997 on Investment Guarantees and Incentives.

The advantage of this way is tax exemption for a period of five years which start from the

day of production

The steps to be followed are as follows:

Step One:•  Go to the specific competent administrative authority inside the General

Authority for Investment and Free Zones which would be responsible for the

specific activity of your company. These are:

1.  The Legal Department

2.  The Industrial Projects Department

3.  The Agricultural & Constructional Projects

Department

4.  The Financial & Services Projects Department

Give the following documents to the governmental clerk: (Required Documents)

A. Models of incorporation:

1.  A request for the founding of the company on a standardized form (2 pages)

2.  The company’s contract of incorporation according to the company’s structure

(sole proprietorship, joint stock,…etc)

B. Ownership documents or what proves the possession of the investment land or giving

A 1 year notice to provide the ownership documents.

Other Documents for special situations:

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1.  A certificate showing that the company’s name does not

conflict with another existing company’s name. This

certificate is to be extracted from the commercial register.

2.  A bank certificate of the deposit of 10% of the company’s

issued capital in joint stock companies or of the full

capital in Limited Liability Companies.

3.  In case the location of the project is in north or south of 

Sinai, a rough plan for the company is required.

Note: the approval of the municipality on starting the business activity in their area is

highly required.

Step Two:

3.  The entrepreneur presents the required documents to the consultancy room before

he officially hands them in, in order to receive free help and support in filling

these documents.

4.  The documents are then handed to the legal department for further check.

Step three:

5.  Receive the documents from the Legal Department of the General Authority after

it’s reviewed and proceed to the Lawyers’ Syndicate inside the General Authority

to ratify the lawyer’s signature.

Step four:

6.  Proceed to the Public Notary inside the General Authority to ratify the investors

or partners signatures.

7.  Return the contract to the Legal Department of the General Authority in order to

receive the decision of the licensing of the company’s formation and pay the fees

of publishing in the investment Gazette.

8.  You should receive the decree of the establishment of the company from the

Legal Department in addition to:

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1.  The decision of the licensing of the founding of the

company

2.  A letter to the Commercial Registration Office to

register the company in the companies’ register

3.  A letter to the Investment Tax Authority

 [B]through commercial Registration office

The steps to be followed for the formation of a sole proprietorship or any kind of partnership are as follows:

Step one

Draft a contract for the company.

Step twoAuthenticate the contract and its summery at the commercial registrar office that is at the

same locality as t he company. This procedure is free of charge. The employee in the

commercial registrar will stamp both the contract and its summery with a certain stamp

called “eligible for registration”Or authenitenticate the contract at any public Notary office

Step three

Go to the commercial department in the court of first instance in the same locality as the

company to registrar the contracts summery. The fees are 0.002 % of the company’scapital. Then a memorandum of the summery is done and is posted on special board at

the courts entrance.

Step four

Go to the tax authority to receive the tax card. Take the following documents with you:

-  contract of ownership or rent of place for the business-  electricity bill in the name of either landlord tenant

-  identification cards of the partners

-  the company’s summary

Step five

Go to the chamber of commerce in the same locality as the company, where you will be

issued a certificate for activity of the company. This is an annual membership; have topay this amount on an annual basis for continual membership.

Step six

Go to the commercial registrar office with all above documents in order to register the

company’s registrar. Then you will receive your commercial registrar

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A word from the Moderators

Dear participants,

We had the honor of working with you as a group during the sessions and the simulation.

As a team, we have learned a lot from this experience and have gained new friends. We

hope that you have found SBS 06 an experience that was both fruitful and enjoyable. We

look forward to stay in contact with you after the convention inshallah.

Yours truly,

Mohamed Eltaweel

Mariam Kumara

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