TL;DR

Israeli PM Netanyahu is sending an envoy to Cairo to salvage gas import talks (Speed Round)

EGPC says it’s honoring arrangements with creditors, denies the CBE stiffed it on FX or that it’s in talks to reschedule payments on USD loans (Speed Round)

Egypt is importing vast quantities of wheat, and plenty of it is going to waste (Speed Round)

CBE sets clear definitions for what qualifies as an SME (Speed Round)

Business news this week: Watching paint dry. Next week: Two interest rate decisions, loan talks with the GCC and closing USD 1.5 bn from the World Bank (On the Horizon)

Dutch pedestrians react to verses read aloud from the Bible (New and Old Testament) while being told they come from the Qur’an (Worth Watching)

Spotlight on the automotive industry

By the Numbers + What’s clear is this: We are not operating according to a conventional monetary policy framework.

WHAT WE’RE TRACKING TODAY

CBE Governor Tarek Amer invited the heads of banks operating in Egypt to a meeting today. On the agenda: A discussion of the FX shortage, the new FX auction mechanism, and the increased cost of borrowing after issuing high-yielding CDs, Al Mal reported.

President Abdel Fattah El-Sisi will meet his counterparts from Greece and Cyprus at a tripartite summit in Athens today. The president met yesterday one-on-one with Greek President Prokopis Pavlopoulos. Talks between the two focused equally on economic ties and regional security issues, according to a readout from Ittihadiya.

Conferences including Egypt Mega Projects and Wastewater and Sanitation Egypt end today.

Reminder: If you’re speaking at this year’s RiseUp Entrepreneurship and Innovation Summit, please note that the registration deadline ends today.

WHAT WE’RE TRACKING THIS WEEK

The RiseUp Entrepreneurship and Innovation Summit 2015 kicks off on Saturday and runs through Sunday night at the Greek Campus. Register online here — please keep in mind that tickets are only available beforehand and cannot be purchased at the door. We hope to see you all there.

ON THE HORIZON

In sharp contrast to the news lull this week, we’re looking at a busy agenda starting next Sunday. Among the highlights:

• The Ismail government will reportedly resume talks for a new aid package from the Gulf countries to fund development projects including the 1.5 mn feddans land reclamation project, industrial zones, and Sinai, according to remarks earlier this week by International Cooperation Minister Sahar Nasr;
• The U.S. Federal Reserve Bank is expected to raise interest rates for the first time since June 2006 when it meets on Tuesday and Wednesday;
• The Central Bank of Egypt’s Monetary Policy Committee will meet on Thursday to review interest rates;
• Egypt is set to sign a USD 1.5 bn loan agreement with the World Bank on Saturday, 19 December. The Ismail government hopes to receive USD 1 bn of the facility before year’s end.

LAST NIGHT’S TALK SHOWS

How slow of a night was it? Lamees was AWOL, some familiar themes were revisited, and the tendency for talk show hosts to inexplicably choose to speak in their strange sing-song way, as if they were actually trying to hypnotize viewers (Watch in Arabic, running time: 4 minutes) left this reviewer falling asleep so often that an alarm eventually had to be set every 10 minutes and was directly responsible for inducing the following nightmare (Watch, running time: 1.5 minutes).

Ibrahim Eissa began a long segment on the fight against terrorism by noting President Abdel Fattah El Sisi’s comments yesterday on the subject while on an official state visit to Greece. Eissa reiterated the point he’s brought up in previous episodes that Egypt is only going after terrorists and not terrorism. Further, he went on to say the state inadvertently ends up supporting and promoting terrorism by not going after religious officials who he says harbor extremist ideology, while at the same time pursues cases against intellectuals on grounds of contempt of religion. Among his other complaints was the lack of an enforcement on the ban on religiously-based parties (an implicit reference to the Salafist Nour Party).

The usually very pro-government Youssef El Housseiny is making headlines for his denouncement of the continued travel ban against activist Israa Abdel Fattah, who has been continuously prevented from traveling abroad for at least one year. Housseiny criticized the travel ban, saying it has not resulted in further investigation or disclosure of evidence. He stressed its results don’t have to be disseminated to the public, but at the very least authorities should either pursue whatever investigation they have in mind or drop the ban.

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SPEED ROUND

National oil company EGPC is committed to paying its creditors on time and isn’t negotiating to reschedule payments, said EGPC deputy chief Ayman Hegazy in a call to Hona El Assema last night. The call came after news sources including Al Borsa reported that EGPC is “at risk of defaulting” and is “in talks with creditors,” citing an unnamed EGPC official, as we noted yesterday. An EGPC official, speaking anonymously, made the same allegation to Reuters yesterday, saying EGPC was in talks to delay USD payments after the Central Bank of Egypt failed to cover the oil company’s full USD needs for November. The piece, by the newswire’s Ehab Farouk, also notes that EGPC has formally denied it is missing payments, saying, “The EGPC is on track and on time with its payment of dues to others.”

Meanwhile, Israeli Energy Minister Yuval Steinitz was as good as his word: Israel is sending an envoy to Cairo “to find a solution after Egyptian firms were ordered to pay USD 1.76 bn to compensate [state-owned Israel Electric Co.] for a gas supply cut,” AFP reports. The story says Israeli PM Benjamin Netanyahu said he had agreed with the Ismail government “to send a special envoy to Cairo for discussions on a solution to the challenge that has emerged. I think we will find a solution because it is in both countries’ strategic interests.”

East Mediterranean Gas (EMG) confirms it is still pursuing an arbitration case against national oil companies EGPC and EGAS, according to an emailed statement from Shahid Law Firm, the company’s legal counsel. The statement notes the 4 December 2015 announcement of an arbitration award of “about USD 324 mn to EMG including pre-judgment interest” as well as payment of a “substantial portion” of EMG’s legal fees and arbitration costs. The statement notes that the arbitration ruling “held that EGPC and EGAS repudiated both the general gas sale agreement with EMG and a tripartite agreement between EMG, EGPC/EGAS, and the Israel Electric Corporation (IEC), which covers the gas volumes that EMG sold to IEC.” Meanwhile, EMG “continues to pursue substantial claims against EGPC/EGAS in another arbitration proceeding, including in relation to the majority of gas volumes which were not addressed by the ICC award.” The pipeline owner is represented jointly by Freshfields, Firon & Co. in Tel Aviv and Shahid Law Firm in Cairo.

The Israeli gas story continues to make international headlines, appearing on the front page of this morning’s Financial Times (digital edition). The FT makes the point that while Netanyahu stepping in suggests a settlement on the Israel Electric award could be within reach, EMG will be the key: “Gas executives told the FT they expected talks between the two governments aimed at mitigating the award, possibly by reducing it or making it payable over a long period. As IEC is state-owned, renegotiating with EMG will be the bigger challenge, they added.” Israeli news outlet Globes’ reported last week that Alaa Arafa and Khaled Abu Bakr’s Dolphinus’ has brought the majority of EMG shareholders on side, with the primary holdout being Yossi Maiman.

Egypt is importing vast quantities of wheat, and plenty of it is going to waste: “You can tell an Egyptian grain store by the birds circling overhead,” Whitney McFerron writes for Bloomberg, explaining the degree of wastefulness in handling and storing grain domestically. Blumberg Grain’s David Blumberg estimates that “as much as half of the wheat the state buys from its farmers is lost each year to pigeons, rodents and thieves.” The problem is not just confined to domestic purchases — a third of imported supply is also lost because of poor infrastructure, port backlogs, and aging storage sites, the EBRD’s agribusiness director estimates. Action is being taken to improve the storage capacity, however. To reduce the inefficiencies, the country is planning on building 300 warehouses that could hold up to 2.35 mn tonnes of grain. Within five months, 93 steel sheds will be ready, McFerron writes.

Egyptian banks among the best-placed in Africa coming into 2016, Moody’s says: Resilient earnings are expected to keep African banks stable, according to Moody’s Investors Service. “Structural reforms, greater political stability and the longer-term impetus from an emerging middle class will increase the demand for credit,” Constantinos Kypreos, a Moody’s VP said. “Headwinds for banks next year will come from slowing growth, lower commodity prices and currency depreciation. Combined with structural challenges such as infrastructure bottlenecks, weak governance and fiscal imbalances, these factors will threaten the lenders’ asset quality … Non-performing loan levels, currently estimated at as much as 9 percent of gross loans, are forecast to rise further in 2016,” Moody’s noted. Being in countries that benefit from low oil prices, banks in Egypt and Morocco are amongst the best-placed continentally. Institutions in Angola, Nigeria, and Ghana are the most vulnerable.

The CBE has set clear definitions for what constitutes an SME as part of its initiative to support the sector. The CBE has set four categories including micro, very small, small and medium-sized enterprises. These would then be defined by annual revenue and sales, paid-up capital, and number of employees, Al Mal reports. The CBE also makes distinctions between startups and established businesses. The parameters determine which companies can take advantage of lending benefits the CBE has set up for small businesses such as waiving a capital reserve requirement and the requirement for an auditor’s certificate. Banks and credit agencies have been given some time to readjust their policies to the new definitions, Al Mal adds.

Novartis to invest EGP 600 mn in Egypt over five years: Novartis intends to invest EGP 600 mn in Egypt in the next five years, according to head of domestic operations Alaa Nashaat. The investment is allocated to renovating the company’s existing production facility in Egypt, in addition to introducing three new lines to produce tablets, ampoule packaging and the production and packaging of suppositories. Novartis plans on introducing three new medications to the Egyptian market by early-2016 that treat heart disease and psoriasis. (Read in Arabic)

Golden Pyramids loses appeal of verdict in CityStars case: Golden Pyramids, the owner of Citystars Properties, is rejecting a court order that it pay more than EGP 600 mn in compensation to Orascom Construction Industries (OCI) and Consolidated Contractors International (CCC), Al Mal reported. Golden Pyramids says it has already submitted another appeal to Egypt’s Court of Cassation, the nation’s highest appeals court, claiming that the arbitration decision was forged. The case will be heard on 22 February 2016, according to a statement sent to the EGX. OCI also sent a statement to the bourse saying that the court decision is final and should be enforced, as Golden Pyramids’ appeal does not allow it to postpone the implementation of the court’s verdict. In 1998 and 1999, Golden Pyramids awarded the OCI-CCC joint venture contracts to build Citystars Cairo, but upon completion of the project in 2005, Golden Pyramids allegedly liquidated bonds and refused to pay for additional work performed.

The Customs Authority plans to unify and codify all legislation and policy on customs exemptions in a new draft customs act, said the head of the Authority’s technical research division Al Shahat Al Ghattoury. The law will also impose heavier sanctions on customs evasion and classify ports solely as “points of entry and exit” and will not as storage facilities. The draft will also set-out a framework for electronic processing of customs paperwork, Al Ghattoury added to Al Mal.

Following the departures of Co-Chief Investment Officers Bill Gross and Mohamed El-Erian, Pimco announced it appointed ex-Fed Chairman Ben Bernanke, ex-ECB Chairman Jean-Claude Trichet, and former U.K. Prime Minister Gordon Brown to a new board to advise on economic, political, and strategic developments. “Pimco said the board will meet several times a year at its Newport Beach, California, office and elsewhere, and attend an annual forum for the firm’s portfolio managers and analysts,” according to Reuters.

Patrick Chovanec is in Cairo and he’s tweeting up a storm. The CNBC regular, chief strategist at Silvercrest and long-time China hand’s Twitter feed is crack for at least one of us, mixing trenchant commentary on emerging markets (with a heavy dose of China) with fantastic tweetstorms on “this day in the First World War.” Chovanec’s feed suggests he’s been in Cairo since at least Monday morning. Jump back to 7 December for some very cool photos of the Pyramids, Old Cairo and some pretty shaabi neighborhoods (interspersed, of course, with China, North Korea and World War I.)

“Trump’s Muslim Partner Draws Line Between Business and Rhetoric“ runs the headline atop a Bloomberg story on reaction in the MENA region and beyond to U.S. Presidential Candidate Donald Trump’s declaration earlier this week that Muslims should be barred from entering the United States. Property developer Damac distanced itself from the candidate while not commenting on his statement, while an arm of Al Azhar “condemned what it called Trump’s ‘hate rhetoric.’ Such a ‘hostile attitude towards Islam and Muslims will increase tension within American society of which Muslims represent around 8 mn peaceful and loyal’ citizens, the organization.” The Financial Times, meanwhile, declares that “Trump’s anti-Muslim remarks spark outrage in the Gulf,” (paywall) which more rigorously than Bloomberg chronicles Trump’s local business interests.

Other international headlines this morning that either carry implications for Egypt or that are simply worth noting in brief:

• Brent crude has tumbled again, with a barrel breaking the USD 40 barrier for the first time in seven years, CityAM reports. CNBC says oil prices and reaction to a U.S. oil inventory report released after trading the States yesterday will likely drive market activity today.
• If you’ve visited Sudan, Iraq, Iran or Syria at any time in the past five years, you may soon need a visa to enter the United States — even if you hold a passport from one of 38 nations on its “visa waiver” list. That comes after the U.S. House of Representatives passed a bill tightening the ability of foreigners to visit America, Vice reports. The bill still needs to pass the Senate and be signed into law by the president.
• JP Morgan sees there’s a 76% chance of the U.S. economy falling into recession within three years, Business Insider reports, discussing how the investment bank makes its short- and long-term recession calls.

SPOTLIGHT on the automotive industry

Egyptian car distributors will move 4.8% fewer units into the market in 2015, selling 279k vehicles this year against 293k last year, according to the Automotive Marketing Information Council (AMIC). Heading into this year, the industry association had expected to market to see sales of c. 300k. Total sales value fell 3.2% to EGP 30 bn, Ahram Online quotes the association as saying.

That news came as Trade and Industry Minister Tarek Kabil said the ministry wants to see Egypt turning out 1 mn vehicles a year by 2025. The statement suggests the minister may be somewhat receptive to calls for what the industry calls an “automotive directive” that would give local assemblers some measure of protection against imports from the European Union, Turkey and Morocco, all of which enjoy preferential customs rates.

Is the Suez Canal economic zone the key to the industry’s future? That’s the claim made by AMIC’s Hussein Mustafa, who told Daily News Egypt, “We aim to implement automotive and component factories as part of the project, to be used for export. These will attract foreign direct investment and partnerships with international companies.” Mustafa said the government and industry players need to agree on a “unified vision for the automotive sector, in terms of the manufacturing process itself, trade and feeder industries.”

None of this is going to happen unless Egyptian players get incentives better than those offered to their Moroccan players, said GB Auto chief Raouf Ghabbour said yesterday, according to Al Borsa. Ghabbour said the Moroccan automotive sector was developed in only seven years and is currently producing 600k cars annually. Ghabbour also warned that without a government automotive manufacturing strategy, Egyptian assemblers would not be able to survive because of the FX shortages and tariffs that give home-field advantage to the Moroccans, Turks and to EU imports. The FX crunch is getting worse in lock-step with the expansion of the market.

Beyond the FX crisis, one of the challenges facing the domestic industry was how expensive local manufacturing is, making it more economical to import — especially in light of the gradual elimination of tariffs from EU countries, according to Mohamed Anis, chairman of the Arab American Vehicles Co., Fiat Chrysler’s distributor in Egypt. General Motor’s Wael Ammar and Mercedes Benz’s Zakaria Makary pointed to the issue of quality, with the latter stating that one of the reasons it stopped assembling in Egypt was that full imports were of a higher standard, Al Borsa reports. Ammar spoke on the need for the government to impose stringent standards in quality of products and to bolster training programs to build on the country’s human resources potential. He also directly attacked the excessive red tape when it comes to investment in Egypt. Labor laws in Egypt also fail to help companies retain talent that they have trained, lamented Karim Naggar of Egyptian Automotive and Trading.

Nissan Egypt says it could not repatriate USD 100 mn: Nissan Egypt said yesterday it was unable to repatriate USD 100 mn to its parent company in Japan and ended up being hit with losses following the drop in the value of the EGP. Nissan halted expansion plans and said revisiting the plans are contingent on increased production capacities of the major producers in Egypt, like GB Auto. Nissan Egypt is also urging the government to facilitate a more welcoming investment climate and says that, without a clear strategy for the automotive industry, increasing domestic production to 1 mn vehicles is untenable. (Read in Arabic)

The Cairo Governorate is planning to move used car markets — based largely in Nasr City today — to a new designated area in Qattamiya city, said the Deputy Cairo Governor Mohamed Ameen. The Governorate will build exhibitions in the area for the cars and will relocate offices of spare parts dealers to the new “auto city”. The move is hoped to alleviate heavy congestion in the neighborhoods that are home to the markets, Al Mal reports.

EGYPT IN THE NEWS

We may complain about how slow domestic business news has been of late, but we won’t grumble that the attention of the global media is more on Christmas tree lights and menorahs (Hanukkah started on Sunday) than it is on “Egypt’s latest outrage.” International news coverage of Egypt is light this morning, with the top business headline being news that Israeli PM Benjamin Netanyahu is reaching out to try to salvage a gas export agreement.

Otherwise, the smattering of new headlines on Egypt touches on evergreens including Gaza tunnels, President Abdel Fattah El Sisi’s talks with Greek politicians (including calls for “international mobilization“ to address the Libya crisis) and the plight of the tourism industry.

WORTH READING

Meet the Mossad’s new spy chief, Yossi Cohen: The Economist has a brief profile on Yossi Cohen, who on Sunday was appointed as the new head of Israel’s spy agency. The piece focuses on what impact Cohen will have on Israeli foreign policy, and highlights his ongoing role in regional and global diplomacy. Cohen’s two brushes with Egypt in recent months was his failed initiative to get Egypt to back down from introducing a resolution asking Israel to join the NPT (a resolution which was quashed in 61-43 vote by the IAEA in mid-September). Cohen is also reportedly involved in Israel’s low-key diplomatic efforts with its Arab neighbors, and has been a vocal proponent of Israel’s framework agreement for gas exports to Jordan and Egypt. Read ‘What the new boss of Mossad means for Israeli foreign policy’ in The Economist.

WORTH WATCHING

ICYMI- Dutch pedestrians react to verses read aloud from the Bible (New and Old Testament) while being told they come from the Qur’an. This video has been making the rounds on social media since it appeared online last weekend, and has since dominated the top ten trending videos on YouTube in Egypt for the past several days, which is pretty remarkable considering its a Dutch-language video with English subtitles. (Watch The Holy Quran Experiment, running time: 3:30)

ENERGY

Cyprus unaffected with negotiations freeze between Egypt and Israel
Egypt’s decision to freeze negotiations to import gas from Israel does not affect ongoing talks with Cyprus, Cypriot Energy Minister Yiorgos Lakkotrypis said. The negotiations’ freeze with Israel would last until at least after an appeal against the ruling, but Lakkotrypis said Prime Minister Sherif Ismail phoned him to ensure that the issue only concerns Egypt and Israel. On a commercial level, negotiations are still continuing, with BG Group reportedly still in talks with Noble Energy to buy Cypriot gas. Cyprus’ government is also processing BG’s move to acquire a 35% stake of Noble’s offshore Block 12.

BASIC MATERIALS + COMMODITIES

Agriculture Ministry negotiates selling 5 tonnes of imported meat daily with FIHC
The Ministry of Agriculture is in negotiations with the Food Industries Holding Company (FIHC) to supply it with 5 tonnes of imported meats. The supplies will be sold at its outlets for EGP 50 per kg as a unified price, said Osama Rasmy, head of the Marketing at the Agriculture MInistry’s Production Sector. Rasmy also denied that there are any shortages at any of the Ministry’s 352 outlets. (Read in Arabic)

REAL ESTATE + HOUSING

Housing Ministry signs off on Palm Hills and ARCO contracts
The Housing Ministry is expected to sign a EGP 60 bn MoU with Palm Hills Developments (PHD) and Al-Arabia Co for Real Estate Development (ARCO), said Housing Minister Mustafa Madbouly. Palm Hills is now in line to develop a 500-feddan project in New Cairo with an investment of EGP 30 bn, whereas ARCO is looking to invest as much as EGP 26 bn in a 2,800-feddan project. Both were projects inked at the EEDC, and last we heard of them was last month when NUCA was reviewing the contracts. Based on Madbouly’s statements, it is safe to assume that they Housing Ministry has signed off on them. (Read in Arabic)

Red Sea Governorate to launch an auction for 57 feddans in February
The Red Sea Governorate plans offer up 57 feddans in Hurghada, Marsa Alam, and Al Quseir in an auction for residential, tourism and commercial projects next February. The Governorate’s planning offices will parcel out the land into six plots and is issuing the ownership and licensing paperwork on them. This comes as the regional government plans to spur real estate and tourism investments through public-private partnership agreements in the future, said the head of the governorate’s housing authority Abdin Abdullah. (Read in Arabic)

TOURISM

Tourism promotion campaign complete, to be announced on Thursday
The Tourism Ministry has finalised its promotional campaign for tourism in Egypt and will unveil it publicly on Thursday, Minister Hisham Zaazou told Al Shorouk. Zaazou added that the ministry will take action to buff the image of Sharm El Sheikh, where tourism has slumped following the Metrojet air disaster. He is also seeking a larger number of tourist inflows from Arab countries to Egypt. (Read in Arabic)

AUTOMOTIVE + TRANSPORTATION

EBRD lends NAT EUR 100 mn to buy 13 new Cairo Metro trains
The European Bank for Reconstruction and Development (EBRD) is lending the National Authority for Tunnels (NAT) EUR 100 mn to finance the purchasing of 13 new trains. The trains will be operated on Line 2 of the Cairo Metro under a supply and maintenance contract. “The loan is being provided under the EBRD’s new Integrated Approach for the Cairo Urban Transport Sector. This approach aims to improve public transport services in Cairo and the surrounding areas through investment and reform… In addition to investments in the Metro, the Bank will also work with the Egyptian authorities to increase private sector participation in urban transport.” (Read)

ON YOUR WAY OUT

Misogyny for the “right” price: The Justice Ministry issued a decree requiring foreigners seeking to marry Egyptian women 25 years or more younger than them to pay EGP 50k for the marriage to be registered. The funds will be deposited in NBE-issued certificates of deposit under the name of the wife, Al Masry Al Youm reports. Egypt is a country where 17% of girls are married off before their 18th birthday, a plight that is particular to poorer rural areas and on the rise in Upper Egypt. So, instead of anchoring in a price for Egyptian females, how about we try to create a disincentive for abusive families who might be tempted to use girls for financial gain?

Remember the MoUs signed at the EEDC? The government is still working on transforming them to binding contracts, an advisor to the Investment Minister said. Most MoUs signed in the oil and gas sector have closed, but they are long term investments and will be implemented over several years, Amwal Al Ghad notes. The advisor noted, however, that four MoUs were cancelled after investors expressed no interest in taking them forward.

False Alarm: No bomb in CityStars
City Stars Mall was evacuated yesterday after security falsely suspected an identified object was a bomb. After sweeping the mall and upon further examination of the object, no explosives were detected and normal activities at the mall were resumed. Let’s hope this doesn’t happen when the Force Awakens opens. (Read in Arabic)