Monday, 18 November 2019

Hints of Cabinet shuffle + Amer’s potential successor hit the airwaves
Plus: High-profile business figures are listening to Tharaa’s pitch

TL;DR

What We’re Tracking Today

President Abdel Fattah El Sisi is in Berlin, having landed yesterday for the G20 Compact with Africa High-Level Conference, which kicks off tomorrow in the German capital, . El Sisi will represent the African Union during the event, which will also see Egypt’s Investment Ministry sign a EUR 154 mn loan to support renewable energy, water management, waste recycling, and technical education.

The president will hold talks with German Chancellor Angela Merkel at some point this week (although we’re still not sure when): Libya is expected to feature heavily in the talks following a phone call between the two leaders over the weekend. Germany recently urged countries to end foreign interference in the war-torn country, a call that was partly aimed at Egypt, which has been funding Libyan General Khalifa Haftar’s eastern forces. Germany, meanwhile, supports the UN-backed government in Tripoli.

El Sisi to meet corporate leaders: The president will also sit down with representatives of major German companies to talk trade and investment.

Our friends at AmCham are hosting the US-Egypt Future Prosperity Forum today, with Prime Minister Moustafa Madbouly, US Deputy Assistant Secretary of Commerce for Global Markets Ian Steff, and several Egyptian ministers scheduled to speak. You can check out the full agenda here.

Aramco to seek USD 1.6-1.7 tn valuation, falling short of MbS’ initial goals: Saudi Aramco is seeking a valuation of USD 1.6-1.7 tn, a significant fall from the USD 2 tn Crown Prince Mohamed bin Salman was originally looking for, the Wall Street Journal reports. The company will sell a 1.5% stake (around 3 bn shares) at between USD 8 and USD 8.52 per share, raising nearly USD 25 bn if priced at the midpoint. This would put Aramco — long expected to hold the world’s largest ever IPO — behind Alibaba which raised USD 25 bn in its 2014 offering. Despite being the world’s most profitable company and despite a big marketing push from the Saudi government, international investors haven’t exactly been rushing to grab a piece of the IPO as risks from government intervention and terrorist attacks continue to loom.

Saudi’s main stocks were largely unchanged at the end of trading yesterday, with the Tadawul closing 0.1% up despite climbing 0.4% earlier in the day, according to Bloomberg.


Don’t expect a rally in EM stocks anytime soon as volatility hits five-year lows: Emerging-market equities continue to underperform despite several months of interest rate cuts around the world and the so-called ‘golden cross’ appearing this month, Bloomberg says. And now that several major central banks have hinted that they will bring an end to the easing cycle, a bounce in EM stocks will be reliant on positive developments on US-China trade. Anders Faergemann, senior money manager at Pinebridge Investments, told the news information service that EMs are currently a “mixed bag,” but cited Egypt and Ukraine as particularly promising markets due to their reform efforts.

What is a golden cross? The golden cross occurs when an index’s short-term moving average rises above its long-term average. It is seen as a predictor of a bull market.

Share prices in developed markets are rising, so everything is rosy, right? Wrong, the Financial Times warns in an editorial. Listing a litany of problems facing the global economy, the FT says that the situation could get “substantially worse” in the months ahead despite the current optimism being displayed in rising share valuations.

*** It’s Blackboard day: Blackboard is the first of our ‘verticals’ — specialized editions that focus on individual industries. For Blackboard, that focus is the business of education in Egypt, from pre-K through the highest reaches of higher ed. Each edition of Blackboard will mix news, deep dives, analysis, raw data (plus context) and a touch of humor with the goal of making industry players think — and of getting non-experts up to speed. Our goal: To give you the inside track, whether you’re an investor or operator in the field or just passingly interested in the topic. Blackboard appears every Monday in Enterprise right after Egypt in the News in the place of our traditional industry news roundups.

Missed us last week? Catch our feature last Monday on the impact of the Education Ministry’s 20% cap on foreign ownership in private and international schools.

In today’s issue: Blackboard looks at why the demand from international schools for foreign teachers remains high, despite the impact on COGS of FX-denominated salaries in a challenging macroeconomic climate.

Day 2 of the Trump impeachment inquiry was even more dramatic than the first: The Donald was accused of intimidating a witness during the second day of the inquiry into his relationship with the Ukrainian government, after he tweeted at former ambassador to Ukraine, Marie Yovanovitch, as she was giving evidence against him.

Separately, national security aide Tim Morrison told investigators in private testimony that EU ambassador Gordon Sondland threatened to withhold military aid to Ukraine if it did not launch a corruption investigation into Joe Biden and his son, Hunter. Morrison claimed that the ambassador had discussed the matter directly with Trump. Both Morrison and Sondland will give testimony in public this week. The Financial Times and the Associated Press have more.

*** The inaugural season of our first podcast, Making It, launches on Friday. Making It is a weekly discussion with CEOs and founders who are building great businesses right here in Egypt. You’ll hear the origin story of hot startups, how family-owned businesses are institutionalizing, and the strategies publicly traded giants are using to transform themselves into the next generation of Egyptian multinationals. The goal: We want each season to be a masterclass on how visionary CEOs are building strategy, dealing with conflict, figuring out how to scale up, and staying ahead of the competition.

Season one of Making It launches on Friday, 22 November and will be available wherever you get your favourite shows, from Apple Podcasts to Google, Overcast and, outside of Egypt, on Spotify, too. You’ll also be able to listen from the new podcast tab on our website. Season one runs eight episodes, with a new episode each Friday morning.

You’ll know when each episode is released when we send you a short email on Friday morning with a quick introduction to that week’s guest and a link.

Want a sneak peek? Listen to our trailer here (listen, runtime: 2:02). You can also subscribe now on Apple Podcast.

Enterprise+: Last Night’s Talk Shows

Last night’s talk shows were remarkable for an open discussion of whether we’re getting a new central bank governor — and for intimations that a cabinet shuffle could be in the words.

El Saeed, Ezz El Arab, Okasha in the running for central bank governor post? Planning Minister Hala El Said, CIB Chairman Hisham Ezz El Arab, and National Bank of Egypt Executive Chairman Hisham Okasha are among the names that could potentially succeed CBE Governor Tarek Amer if his four-year term, which is due to end this month, isn’t renewed, Al Kahera Alaan’s Lamees El Hadidi said (watch, runtime: 11:38). Amer’s achievements since he assumed office on 27 November 2015 include eliminating the USD black market after the EGP float and increasing the level of foreign reserves to the highest recorded in Egypt’s history, El Hadidi said.

A message that a cabinet shuffle is coming? Yasser Rizk, chairman of state-owned Akhbar Al Youm and reported confidante of President Abdel Fattah El Sisi, was on Ahmed Moussa’s show Ala Mas'ouleety last night to deliver a message: We could be seeing over 10 new faces in the cabinet soon. “This is my gut feeling as a journalist who’s been in the field for 35 years,” Rizk said (watch, runtime: 3:12).

Who’s out? Rizk singled out the supply minister, who he says mishandled reform of the ration card subsidy program.

Who’s safe? Rizk suggested that the prime minister, along with the ministers of planning, electricity, housing and religious endowments, are all likely to return to the cabinet table.

GERD talks also get some airtime: Irrigation Ministry spokesperson Mohamed El Sebai provided more details yesterday on last week’s Grand Ethiopian Renaissance Dam negotiations after Sudan’s irrigation minister, Yasser Abbas, took the lead earlier with statements to the press showing signs of an impending breakthrough. Abbas said Egypt, Ethiopia, and Sudan agreed that filling the reservoir should not exceed seven years, depending on the Blue Nile’s hydrologic cycle. We have the full story in Diplomacy + Foreign Trade, below.

El Hadidi phoned El Sebai, who echoed previous statements said Egypt is looking to minimize the impact of filling on Nile water levels, while not compromising Ethiopia’s development needs (watch, runtime: 8:09).

El Hekaya’s Amr Adib, meanwhile, spoke to Ethiopia’s ambassador to Egypt Dina Mufti, who said that the talks last week were a step in the right direction and achieved notable progress (watch, runtime: 1:37 and runtime: 2:29).

Egypt has spent three years preparing a human rights progress report for the UN review, Parliamentary Affairs Minister Omar Marawan told Adib in a phone interview (watch, runtime: 7:12). Human rights has been a recurrent topic on the airwaves since the UN Human Rights Council held a periodic review of Egypt’s rights record in Geneva last week.

Speed Round

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Elsewedy eyes stake in Egypt’s combined-cycle power plants, Naguib looking at other potential investments through Tharaa: Elsewedy Electric is looking into potentially competing to acquire a stake in the three combined-cycle power plants the company co-built with Siemens and Orascom Construction, CEO Ahmed El Sewedy tells Hapi Journal. El Sewedy did not clarify whether his company is eyeing the 70% stake six international investors are already bidding for, or if it would look into some other form of partnership with Egypt’s sovereign wealth fund, Tharaa. Actis, France’s Engie, China Datang Overseas Investment, Edra Holdings, and Blacstone’s Zarou are all competing for the plant stake. Electricity Ministry source had said last week that Zarou is the top contender to acquire the stake, having submitted the best financial offer.

Elsewedy is also looking at other potential investments Tharaa will be offering up, including in the gas sector. El Sewedy noted that the fund may not necessarily have sufficient expertise in the sectors it’s currently eyeing up, but said he expects the fund’s management to tap experienced investors and partners to plug the gaps.

Naguib Sawiris, meanwhile, is keeping an eye out on a chance to invest with Tharaa in Egypt’s mining sector, the Orascom Investment Holding Executive Chairman tells Hapi Journal. Naguib said he would want his gold investment ventures with Tharaa to be limited to providing financing, and would not be looking to acquire a management role in any mining companies or ventures through the fund. The business tycoon also signaled his readiness to bid for a chance to restructure and improve the performance of Egyptian companies in the industries he’s familiar with. Among the projects he’s currently eyeing outside the mining sector is the planned overhaul of the Mogamma’ in downtown Cairo, as well as tourism investments in the area around the Grand Egyptian Museum.

In other Tharaa news, our friends at EFG Hermes reportedly advised on the fund’s USD 20 bn investment platform with Abu Dhabi Development Holding Company, according to Reuters Arabic. Helmy, Hamza & Partners also acted as legal counsel to Tharaa, two government officials tell the newswire. Tharaa and ADDH had signed the agreement last week to set up the joint investment fund, which will invest using a variety of structures in manufacturing, traditional and renewable energy, and technology, among other sectors. EFG declined Enterprise’s request for comment.

BUDGET WATCH- FinMin issues guidelines for state bodies' budgets for FY2020-2021 ahead of drafting full budget: The Finance Ministry has issued a set of guidelines for the state’s administrative units and service bodies to outline their internal budgets for the upcoming fiscal year, according to a cabinet statement. These entities are required to file their spending forecasts to ministry, which is currently preparing the overall FY2020-2021 state budget. The ministry is set to release its preliminary budget in 3Q2019-2020, the statement said.

What we know about the budget so far: The Finance Ministry has indicated it is eyeing GDP growth of 6.4% in FY2020-2021, up from a targeted 6% for the current fiscal year. The ministry is also planning to narrow the overall budget deficit to 6.2% in FY2020-2021, from an expected 7.2% this fiscal year. The budget will also look to lower Egypt’s debt-to-GDP ratio to 80%, as last week’s press reports indicated.

FRA holds consultations to prepare for introduction of short selling by the end of this year: The Financial Regulatory Authority’s (FRA) Capital Markets Advisory Committee has been meeting with industry stakeholders to review the system in place to launch short selling on the EGX, sources told Al Mal. The consultations are meant to put the final touches on the electronic system for the financial instrument ahead of its activation next month, the sources said. EGX Chairman Mohamed Farid said earlier this year that short selling would begin before the year was out, following expectations that it would be launched in the third quarter.

INVESTMENT WATCH- Egyptian healthcare company Speed Medical to invest EGP 160 mn in 2020: Speed Medical aims to invest EGP 160 mn next year in 30 labs and outpatient clinics, Chairman Mahmoud Lasheen told the local press. The company plans to self-finance EGP 100 mn of the investment, and secure a EGP 60 mn loan to cover the remainder. The company is also planning two capital increases this year and next, which would allow the company to move from the small-cap NileX, where it is currently listed, to the main market in early 2020. Lasheen had said last year that his company would list on the EGX within six months of debuting on NileX.

M&A WATCH- EKH’s bid to acquire a majority stake in Emisal Salts looks stalled: Egypt Kuwait Holding’s (EKH) acquisition of a majority stake in state-owned Emisal Salts appears stalled after shareholders pledged stock that in aggregate fell short of EKH’s target, EKH said in an EGX disclosure (pdf). No further details were provided, and it’s unclear if the tender offer has now been called off.

Background: The investment firm reportedly reached an agreement in July with majority shareholder National Bank of Egypt and the Chemical Industries Holding Company (CIHC), which owns 13.1% of Emisal, to acquire a 52.8% stake in the company. EKH submitted the tender offer back in February. It was facing competition from a consortium made up of Kuwait’s Al Madar Finance and Investment and the Saudi-Egyptian Industrial Investment (SEII), which bid EGP 700 mn for the company back in June.

M&A WATCH- Americana minority shareholders turn down Adeptio's offer price: Minority shareholders in the Egyptian International Tourism Projects Company (Americana) have rejected Adeptio's mandatory tender offer (MTO), which offered to buy Americana’s shares at EGP 3.9 apiece, according to Al Mal. The offer price is much lower than the EGP 24 / share range the minority shareholders previously asked for. The Financial Regulatory Authority (FRA) said earlier this week it is looking into the fair value report with Adeptio’s financial advisor after receiving the original bid last week.

Background: Adeptio acquired 67% in Kuwait Food Company (Americana) in June 2016 following a two-year process, giving it indirect ownership of the majority of Americana Egypt. The FRA then ordered Adeptio to submit an MTO to buy the remaining shares in Americana Egypt earlier this year and cover the 9.563% of Americana that Adeptio didn’t already own, but Adeptio had argued that its indirect ownership in the company is less than 90% of its total capital and therefore does not require an MTO submission. Adeptio submitted an appeal against the order, which the FRA promptly rejected. The company then filed a suit with an economic court challenging the FRA’s rejection, but the court also dismissed the appeal. A 15-day grace period was set for Adeptio to submit the MTO after Adeptio had requested a 30-day extension on the initial deadline that expired on 21 October on the grounds that it has yet to complete its fair share evaluation on Americana, which the FRA approved.

M&A WATCH- Ezz Dekheila Steel acquires Ezz Flat Steel in a USD 356.07 mn transaction: Ezz Steel divested its full stake in Ezz Flat Steel, selling 35.3 mn shares to Ezz Dekheila Steel for USD 356.07 mn, according to a bourse disclosure (pdf). The transaction is part of a restructuring plan adopted by the parent company that also includes buying 100% of Al Ezz Rolling Mills.

T-bill yields fall slightly in first auction after rate cut: Yields on three-month and nine-month treasury bills fell yesterday in the first auction after the Central Bank of Egypt (CBE) cut benchmark interest rates by 100 bps. Official data yesterday showed that an auction of three-month t-bills fetched a yield of 15.380%, down almost a half-point from 15.878% on 12 November. Nine-month treasuries, meanwhile, yielded 15.098%, down more than 40 bps from 15.512%. The CBE made its third consecutive rate last Thursday, and its fourth of the year. It has now cut rates by 350 bps since August, having made a single 100 bps cut in February. The overnight deposit rate now stands at 12.25% and the lending rate is at 13.25%. The main operation and discount rates were both cut to 12.75%.

LEGISLATION WATCH- Draft SMEs Act gets early nod from House committee: The proposed SMEs Act, which would provide tax and non-tax incentives for small and medium-sized businesses to join the formal economy, received preliminary House committee approval yesterday, according to Masrawy. The current 76-article draft provides a legal framework to regulate SMEs and integrate them into the formal sector, SMEs Development Authority head Nevine Gamea said. The legislation still needs to pass committee-level discussions before making its way to the general assembly for a final vote. If approved, the bill would then be signed into law by President Abdel Fattah El Sisi.

What we know so far: The Finance Ministry said in September that the act would exempt SMEs from paying stamp tax and land registration fees. Fees to register contracts to set up companies and credit facilities would also be waived for the first five years after commercial registration. The SME tax incentives package could cost the government EGP 1.5-2 bn each year.

The legislation may also give SMEs preferential tax rates: An official with knowledge of an earlier draft told us in April that SMEs would pay a fixed rate of tax over a three-year period regardless of revenue growth. Government entities will also be working to issue licenses and ensure SMEs are included in public procurement tenders and auctions, Trade Ministry advisor Hisham Ragab told the local press at the time.

STARTUP WATCH- Egyptian pharmacy locator Chefaa eyes series A funding round to finance regional expansion: Chefaa, an AI-powered platform for buying pharma products, is planning a series A funding round in January 2020 to help the company begin its expansion beyond Egypt’s borders, the National reports. Chefaa is planning to kick off its regional expansion in the GCC, with Saudi Arabia as a starting point, before expanding into African countries such as Nigeria. The targeted size of its upcoming funding round was not disclosed, but the co-founders suggest they are focusing on experienced investors who will provide expertise along with funding. “We are targeting investors who can act as strategic partners to help us achieve our milestones. This includes investors with experience in the healthcare sector or in start-ups within the GCC and Africa,” co-founder and COO Rasha Rady tells the news outlet. Chefaa last secured a six-figure seed funding round from Flat6Labs and 500 Startups in August.

STARTUP WATCH- Tech investment fund A15 has doubled its initial investment in Dublin-based retail personalization platform Intouch, according to an emailed statement (pdf). The statement does not disclose the size of A15’s investment in the company, which Intouch CEO Sameh Abdallah says will be used to expand its presence in the Middle East. Intouch uses AI to collect data on customers at brick-and-mortar retailers, which it then uses “to optimize customer interactions and operations. The tool helps retailers with physical stores personalize the shopping experience and better connect their customers to appropriate products,” the statement says. Intouch’s technology is used by tier one retailers such as Egyptian convenience store Circle K.

MOVES- Egypt finally has an ambassador from the US of A: The United States’ new ambassador to Cairo is a professional diplomat named Jonathan Cohen (bio), who presented his credentials at the Egyptian Foreign Ministry yesterday, according to the US Embassy. This finally brings to an end a two-year period without a US ambassador to Egypt. Thomas Goldberger has been chief of mission and chargé d'affaires since Robert Beecroft left in 2017. Cohen most recently served as the US’ acting UN Representative from January to September 2019. He has worked in the US Foreign Service since 1987, holding several senior posts including deputy assistant secretary of state for European and Eurasian affairs. He has served in US embassies in Iraq, France, Cyprus, and Italy, among others.

EARNINGS WATCH- Egypt Kuwait Holding 3Q profit up 15% y-o-y: Egypt Kuwait Holding (EKH) a net profit of USD 38.2 mn in 3Q2019, up 15% from USD 33.6 mn a year earlier, according to a company earnings release (pdf). Revenues rose 19% during the quarter to reach USD 141.1 mn. Growth came from “successes across EKH’s segments and subsidiaries, driven by a multitude of operational developments” in its gas and fertilizers and petrochemicals arms. One a nine-month basis, EKH’s profits rose to USD 110.1 mn on revenues of USD 414 mn.

Outlook: EKH is optimistic about the final quarter of the year thanks to its healthy performance during the past nine months, which has “already surpassed its analyst consensus.” With the company’s strong net income in 3Q2019 and “with prospects continuously rising on the back of diverse operational growth strategies, we remain confident in our ability to deliver consistently increasing shareholder value,” said Chairman Moataz Al Alfi.

Palm Hills Developments’ (PHD) net profit after tax and minority interest dropped 54% y-o-y in 3Q2019 to EGP 93 mn, down from EGP 200 mn last year, the company said in a bourse disclosure (pdf). Revenues also halved during the quarter to reach EGP 1.1 bn. PHD’s 9M2019 net profits declined 15% y-o-y to EGP 544 mn, with revenues coming in at EGP 3.6 bn, a 36% y-o-y drop.

B Investments reported net profits of EGP 37.4 mn in 3Q2019, up from EGP 35.8 mn during the same period last year, according to its financial statements (pdf). B Investments is an active growth capital investor managed by BPE Partners.

Arabia Investments Holding’s (AIH) net profits dropped to EGP 7.4 mn in 3Q2019, from EGP 17.4 mn in 3Q2018, while revenues increased to EGP 321 mn from EGP 315 mn last yea, the company said in a bourse disclosure (pdf). The company’s 9M2019 profits dropped 37% to EGP 40.5 mn from EGP 64.3 mn in 9M2018 and revenues fell by 3% to EGP 969 mn from EGP 999 mn in 9M2018.

Porto Group’s 3Q2019 profits plunged to EGP 11.2 mn from EGP 62.7 mn, while revenues during the quarter rose to EGP 587.26 mn from EGP 496.9 mn last year, the company’s financial statements showed (pdf). Net profits during the first nine months of the year also fell to EGP 91.3 mn from EGP 115.8 mn.

Eastern Company reported profits of EGP 1 bn in 3Q2019 up from EGP 991 mn in the same quarter last year, while revenues grew to EGP 3.7 bn from EGP 3.4 bn in 3Q2018, the company said in a bourse disclosure (pdf).

Arabian Cement reported a EGP 7.59 mn net profit in 3Q2019, up from EGP 2.07 mn in the same period last year, according to the company’s quarterly financial statement (pdf). Despite the positive quarter, profits largely collapsed during the rest of the year: The company has made EGP 32.97 mn in profit during the first nine months of the year, significantly down from the EGP 214.86 mn made in the equivalent period in 2018.

Naeem Holding made a net loss of USD 2.16 mn in 3Q2019, down from the USD 972k loss made in the same quarter in 2018, according to the company’s quarterly financials (pdf). Naeem is USD 2.4 mn in the red for the first nine months of 2019, compared to the USD 1.46 mn profit made in 9M2018.

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Egypt in the News

A century-and-a-half of the Suez Canal: Several outlets are running features celebrating the 150th year of the Suez Canal: The National, Gulf News, Deutsche Welle, and Haaretz all give us a rundown of the history of the canal and its global significance, complete with pictures.

Two fatal accidents receive international attention: The Associated Press covers a traffic accident in Sohag governorate yesterday that claimed the lives of nine people and injured nine others. Xinhua, meanwhile, reports that four people were killed and three others were injured when parts of an electricity transmission tower collapsed in Giza.

Diplomacy + Foreign Trade

Are Egypt, Ethiopia, Sudan are finally seeing eye-to-eye on GERD? Irrigation ministers from Egypt, Ethiopia and Sudan agreed during last week’s meeting that the timetable to filling the Grand Ethiopian Renaissance Dam’s (GERD) reservoir should be linked to the water cycle of the Blue Nile and should not exceed seven years, according to the Sudan Tribune. "It was agreed that filling should take place in up to seven years, depending on the hydrologic cycle of the Blue Nile," Sudanese Irrigation Minister Yasser Abbas said. The reservoir will be filled at a faster rate during times of increased flooding, and will be slowed in times of drought, sources familiar with the outcome of the meeting were quoted as saying by Al Masry Al Youm. The next round of talks will take place in Cairo on 2-3 December, before two subsequent meetings are held in Washington D.C. on 9 December and 13 January. The three countries agreed in Washington earlier this month that mediation will be sought if there is still no agreement after 15 January.

black board

Despite the impact on school financials thanks to high salaries and hiring costs, foreign teachers are still in demand at international schools in post- float Egypt: Egypt’s top international schools have borne substantial cost increases in the wake of the 2016 EGP float and a volatile macroeconomic climate, especially those whose staff is significantly made up of foreign teachers. This has prompted complex and sometimes difficult decisions about whether to continue paying international teaching staff in foreign currency how to maintain generous benefit packages that schools need to offer if they’re going to remain competitive in what is truly a global labor market. Schools hiring foreign teachers also need to budget for extensive (and expensive) recruitment processes, all while remaining compliant with the Education Ministry’s directives and tuition fee caps.

Despite a spike in the cost of hiring teachers post-devaluation and the ministry’s cap on tuition, schools we surveyed believe that foreign teachers are too essential to give up and are still worth the higher cost to schools (and parents) of hiring them.

Why? Factors from perceptions of quality to a school’s branding, parents’ expectations, and the need to find compatible staff.

Which schools are we looking at? Defining what constitutes an international school is not always straightforward. For this survey, we chose a sample that included 15 of the more high-profile international K-12 schools listed on the General Authority for Investment’s (GAFI) website as offering different combinations of the national, American (SATs) and British (GCSE and IGCSE) curricula, and the International Baccalaureate. These schools have a high level of accreditation by bodies established outside of Egypt and essentially determine their own curricula and programming, says Massimo Laterza, assistant head of Alexandria’s Schutz American School.

But other definitions of international schools can be much broader: In 2016, Tarek Talaat, then head of the Private and International Education Sector at the Education Ministry, identified some 260 international schools operating in Egypt and implementing curricula from outside the country.

And this part is important: Some of these schools follow a for-profit model, while others are community-associated and owned by parental associations that are regulated by the Social Solidarity Ministry. Other schools we looked at are affiliated with their respective governments or otherwise exist in a niche. These schools are not subject to curriculum review or approval from the Education Ministry. Similarly, they are largely exempt from the ministry’s caps on tuition and stipulations that tuition be paid in EGP. Examples here include Cairo American College, Lycée français du Caire, the British International School in Cairo, NCBIS and the Maadi British International School, many of whom give admission preferences to foreign schools, but most of which also accept significant numbers of Egyptian nationals.

Another quick note: The schools we’re looking at include some of the most expensive in the country. Based on publicly available figures, tuition at these schools ranged from EGP 85k to well over EGP 400k per year. Schools on with lower revenue bases find it more difficult to hire foreign teachers.

Counting the costs: For the dozen or so schools we’re focused on, teacher salaries and benefits make up the bulk of annual costs. These costs alone constitute anything from 65-80% of the yearly operational budget, say representatives from Cairo American College (CAC), the British International School in Cairo (BISC), the British Columbia Canadian International School, the American International School in Egypt (AIS), El Alsson National and British International School, and Schutz American School. This generally excludes the cost of teacher recruitment, says Laterza. That’s a separate line item on the income statement to support administrator travel to recruitment fairs overseas, fees paid to recruitment agencies, and in some cases, finders’ fees if teachers are successfully hired.

How does that translate into salaries? International teachers are on the high-end of the salary scale. Starting annual net salaries at these schools begin at around USD 30k (or EGP 481k) for newly-qualified teachers, going all the way up to USD 90k (EGP 1.4 mn) per year for vice-principals and principals. All or most of the salary is doled out in foreign currency. International teachers will also generally receive benefits that include housing or a housing allowance, medical insurance, contributions to an offshore pension plan, and an annual travel allowance to their home country.

Some Egyptian teachers with international qualifications are on similar salary schemes as their non-Egyptian peers, but do not receive the same additional benefits for resettlement, the schools said. At public schools, the situation is dramatically different, with annual salaries ranging from EGP 24k-84k. Salaries at private schools teaching domestic curriculum tend to fall in between, but much closer to the public school scale than to the international one.

Despite the economics — the EGP cost of salaries having effectively doubled since the float — schools are pursuing foreign teachers with the same vigor as before. While salaries are not determined by nationality, for most of the top international schools we spoke to, non-Egyptian faculty members made up around 80% of teaching staff (El Alsson being the notable exception, with foreign staff making up around 40%). Schools tell us that these ratios were largely the same since before 2016.

That has proven costly in the post-EGP float climate and regulatory environment: These schools have been hit by a number of economic and regulatory decisions that have made the pursuit of foreign teachers harder, namely the EGP-float in November 2016 and the Education Ministry’s 15% cap on annual fee hikes introduced in May 2017. These were exacerbated by a stipulation that fees for Egyptian students must be collected in EGP rather than foreign currency — a ministerial directive that predates the devaluation. Schools that accept payment in foreign currency can be fined or even taken over by the ministry, said Karim Rogers, executive director at El Alsson. The impact of these factors on their books has been substantial. AIS, for instance, sustained a loss of EGP 60 mn in the 2016-2017 school year, while the British Columbia Canadian International School saw its costs double, school officials told us.

Furthermore, global competition is forcing schools to pay higher salaries: “When we recruit teachers who come to Egypt, we can’t compete directly with Dubai, Qatar or China, where both the salaries and the cost of living are whopping,” says Rogers. “So we offer competitive salaries on a par with the other top 10 schools in Egypt.” International schools face a dilemma, says Laterza. They want to offer the most competitive rates for faculty members in an international market, and for a broader group of high-quality academic staff in the local market, while keeping fees reasonable. Balancing these different considerations is not easy. “We’re competing to recruit international educators in a market for international educators, but we’re also competing in the local market to hire people who will also be sought after by other schools. And we’re trying to remain competitive without forwarding higher costs onto families,” he adds.

Higher salaries and other benefits are also critical for employee retention: “A lot of teachers will come and try the school and the country for two years. If they like it, they’ll stay another two years. If they still like it, they’ll make their life here — buying or leasing a flat, getting a car,” says Rogers. “We have expats who’ve been living here 10, 20, or even 30 years, having started this way.”

For parents paying high tuition fees, foreign teachers are a school’s selling point: For these schools, and others like them, such costs are deemed absolutely necessary to attract and retain the best teachers available. This doesn’t preclude Egyptian teachers, but given the expectation that teachers will hold international qualifications, most recruits come from overseas and have extensive experience of the curricula taught at the school in question. BISC, for example, actively seeks teachers with senior-level British and International Baccalaureate (IB) experience, while CAC is looking for specialists in US and international curricula, as well as an understanding of US educational values. “I think it is an unstated assumption in the community you’re trying to serve that, if they’re paying significant tuition fees to send their children to, for example, the top British school in Cairo, a large share of the teachers will come from Britain,” says Laterza. This sentiment was echoed by officials we spoke with in other schools, including the American International School.

Some schools are also required to limit their hiring to teachers certified to teach a specific curriculum: To be eligible to provide diplomas certified by the Canadian province of British Columbia, the province’s education ministry has mandated that the British Columbia Canadian International School recruit teachers who have completed the Canadian ministry’s five-year teacher certification program, Karim Mostafa, CEO of Starlight Education — which owns the school — told us. “We are a British Columbia offshore school, so we have to hire British Columbia-certified teachers,” he said. As such, only the school’s Arabic, religion, and Egyptian social studies classes are taught by Egyptians.

So if they’re not changing the makeup of their teachers, how are these schools adapting to this climate? If you’re a parent whose kids go to one of these schools, then the first answer that comes to mind is a tuition hike, with some schools raising tuition by the maximum 15%.

#1- Some schools have chosen to amend their approach to compensation to adapt to the FX rate: “We used to pay our international teachers purely in USD or GBP, but when the devaluation kicked in we started paying in EGP. If a teacher wants to buy foreign currency, we can assist by giving a supplement — but we can’t take the full hit of the exchange rate,” says Rogers. The supplement could consist of USD 500-700 for teachers on a starting salary, he adds. The bulk of the salaries are paid in EGP but then international teachers have a small proportion of their salary paid in foreign currency. Other schools continue to pay international teachers primarily in foreign currency, and simply bear the FX translation costs and foreign currency risk. “Schools must collect tuition and expenses in EGP and then find ways to convert and transfer the salaries of foreign teachers to their country of origin, while Egyptian teachers receive transfers of EGP into their local bank accounts,” says Laterza.

A risky strategy: Schools that take this approach are facing more bank fees and foreign exchange risk. The school bears the risk that the EGP goes down against the GBP / USD, so the same teacher costs them more in their EGP-denominated financials. And the school bears the cost of paying bank fees to (a) exchange the funds into the foreign currency and (b) to transfer the currency abroad. The school will also probably have to maintain a higher balance of USD / GBP in the bank account, meaning they miss the opportunity to make more interest income. USD / GBP accounts pay virtually no interest. EGP accounts pay a very high interest rate.

#2- The 15% cap on tuition fee hikes does not apply to new students: While the ministry's 15% cap on tuition fee hikes have limited returning students as a source of revenue, this cap doesn’t apply to incoming new students. Schools are basically allowed to set whatever fee they wish for incoming students in their bylaws, which remain fixed for a set period of time. This has allowed the British Columbia Canadian International School to mitigate the impact of the EGP float, as they locked-in higher incoming tuition in 2015. “this has allowed us to make a faster recovery [from the impact of the EGP float] than other schools,” Starlight’s Mostafa tells us.

It also helps to not be regulated by the Ministry of Education: Association-owned schools and schools affiliated with embassies are not regulated by the Education Ministry — so they don’t face a cap on tuition or a requirement that Egyptian students be charged tuition only in EGP. They’re also exempt from the ministry’s 15% cap on tuition hikes. A review of their websites show that schools including the Lycée Français du Caire, BISC, NCBIS (pdf) and MBIS all collect tuition fees in foreign currency. CAC, for example, stipulates in its tuition and fee schedule that “all fees must be paid in USD.” Many of these schools charge ancillary fees (including bus fees, membership fees and one-time deposits) in EGP. You can dig deeper into the trend in CAC’s annual report (pdf).

Ultimately, the schools maintain that ethos and identity trump market pressures: For international schools, the makeup and credentials of their teachers is a core part of the “product” they offer, so schools have worked hard to keep teacher salaries unchanged (and the ratio of Egyptian to non-Egyptian teaching staff constant) despite the macroeconomic headwinds. “Our ratio is what it is for identity and culture reasons,” says Rogers. “This is not about costs; this is what suits us.”

Your top five education news stories in Egypt during a very slow news week for education:

  • The government has denied that it is considering killing universal access to public education and begin imposing fees. The story made it to the foreign press, with Sputnik Arabic noting the story.
  • Egypt’s education sector is still a very viable and attractive investment destination, argues Chairman of the British Egyptian Business Association Khaled Nasr in an op-ed piece for El Watan. Nasr does not address issues such as the cap on foreign ownership and the limit placed on how much schools can raise tuition — which limits both investment and revenue.
  • EFG Hermes’ Egypt Education Fund is expecting to close a new acquisition before the end of the year “to expand the platform’s service offering range.”
  • The Education Ministry’s reform program is a key driver in expanding smart tablet production in Egypt, Prime Minister Moustafa Madbouly said on Saturday, according to Al Shorouk.
  • Higher Education Minister Khaled Abdel Ghaffar advocated for joint academic research cooperation with Belarussian universities in energy, healthcare, manufacturing, and water, at a meeting with his Belarussian counterpart on Sunday, Al Masry Al Youm reports.

The Market Yesterday

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EGP / USD CBE market average: Buy 16.05 | Sell 16.17
EGP / USD at CIB: Buy 16.06 | Sell 16.16
EGP / USD at NBE: Buy 16.07 | Sell 16.17

EGX30 (Sunday): 14,556 (+0.1%)
Turnover: EGP 453 mn (38% below the 90-day average)
EGX 30 year-to-date: +11.7%

THE MARKET ON SUNDAY: The EGX30 ended Sunday’s session up 0.1%. CIB, the index’s heaviest constituent, ended up 0.8%. EGX30’s top performing constituents were Pioneers Holding up 1.8%, Emaar Misr up 1.0%, and Egyptian Resorts up 1.0%. Yesterday’s worst performing stocks were Sidi Kerir Petrochemicals down 4.6%, AMOC down 3.2% and Ezz Steel down 1.8%. The market turnover was EGP 453 mn, and local investors were the sole net buyers.

Foreigners: Net short | EGP -27.3 mn
Regional: Net short | EGP -12.9 mn
Domestic: Net long | EGP +40.1 mn

Retail: 63.6% of total trades | 60.6% of buyers | 66.6% of sellers
Institutions: 36.4% of total trades | 39.4% of buyers | 33.4% of sellers

WTI: USD 57.72 (+1.7%)
Brent: USD 63.30 (+1.6%)

Natural Gas (Nymex, futures prices) USD 2.69 MMBtu, (+1.6%, December 2019 contract)
Gold: USD 1,468 / troy ounce (-0.3%)

TASI: 7,927 (+0.1%) (YTD: +1.3%)
ADX: 5,060 (-1.5%) (YTD: +3.0%)
DFM: 2,705 (+0.1%) (YTD: +6.9%)
KSE Premier Market: 6,262 (+0.1%)
QE: 10,317 (-0.5%) (YTD: +0.2%)
MSM: 4,092 (+0.2%) (YTD: -5.3%)
BB: 1,499 (-0.4%) (YTD: +12.1%)

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Calendar

November: Suez Canal Conference for Investment, organized in cooperation with the European Union.

November: British Egyptian Business Association’s Annual door knock mission, United Kingdom.

November: ITIDA to announce the winning bid in a tender to manage three new innovation centers.

18 November (Monday): AmCham’s US-Egypt Proposer Forum in Cairo. US trade delegation visits Cairo to discuss investments in health, energy and information technology as part of the gathering.

19 November (Tuesday): President Abdel Fattah El Sisi attends the G20 Compact with Africa conference in Berlin, Germany.

20-29 November (Wednesday-Friday): Cairo International Film Festival, Cairo Opera House, Egypt, Cairo, Egypt.

20 November (Wednesday): The Investment Ministry and the Islamic Development Bank will organize the “leaders for change” startup competition as part of the Fekretak Sherketak initiative, location TBD, Cairo, Egypt.

22-23 November (Friday-Saturday): Invest in Africa 2019 conference, New Administrative Capital.

23 November (Saturday): HHD extraordinary general assembly to approve the 10% stake + management request for proposal

24 November (Sunday): Arabia Investments lawsuit against French Peugeot (after being postponed)

25 November (Monday): Global Trade Matters international dialogue on climate neutrality, Marriott, Cairo.

December: A Chinese automotive company delegation will visit Egypt to sign an agreement with El Nasr Automotive Manufacturing Company

December: Indian automotive delegation to visit Egypt

1-6 December: Vietnamese trade delegation visits Egypt.

1-4 December (Sunday-Wednesday): E-payment and Innovative Financial Inclusion Expo and Forum (PAFIX), Egypt International Exhibition Center, Nasr City, Cairo.

2-3 December (Monday-Tuesday): Second round of technical talks in the Egypt-Ethiopia-Sudan Grand Ethiopian Renaissance Dam negotiations, Cairo, Egypt.

3 December (Tuesday): Emirates NBD / Markit PMI for Egypt released.

3-6 December (Tuesday-Friday): Cairo WoodShow, Egypt International Exhibition Center, Nasr City, Cairo.

4 December (Wednesday): Subscription to the Aramco IPO will begin (expected).

5-7 December (Thursday-Saturday): RiseUp Summit, American University in Cairo, New Cairo Campus

8 December (Sunday): Pitch by the Pyramids, Giza Pyramids

9-11 December (Monday-Wednesday): Pacprocess Middle East Africa, Egypt International Exhibition Center, Nasr City, Cairo.

9 December (Monday): Third and penultimate round of technical talks in the Egypt-Ethiopia-Sudan Grand Ethiopian Renaissance Dam negotiations, Washington DC.

9-11 December (Monday-Wednesday): Food Africa 2019 Expo, Egypt International Exhibition Center, Nasr City, Cairo.

10 December (Tuesday): Egypt Automotive summit, Nile Ritz Carlton, Cairo.

10-11 December (Tuesday-Wednesday): US Federal Open Market Committee will hold its two-day policy meeting to review the interest rate.

11 December (Wednesday): First day of trading on the Aramco IPO (expected)

12-14 December (Thursday-Saturday): 16 Egyptian real estate development companies will showcase their products at IPS Riyadh, Riyadh, Saudi Arabia

14-17 December (Saturday-Tuesday): World Youth Forum 2019, Sharm El Sheikh.

17-21 December (Tuesday-Saturday): 2019 Automech Formula car expo, Egypt International Exhibition Center, Cairo.

26 December (Thursday): Central Bank of Egypt’s monetary policy committee will meet to review interest rates.

January 2020: 2019 Confederation of African Football (CAF) Awards, Albatros Citadel Resort, Hurghada, Egypt.

January 2020: UK-Africa Investment summit, London, United Kingdom.

9-12 January 2020 (Tuesday-Sunday): PLASTEX, Egypt International Exhibition Center, Nasr City, Cairo.

13 January 2020 (Monday): Fourth and final round of technical talks in the Egypt-Ethiopia-Sudan Grand Ethiopian Renaissance Dam negotiations, Washington DC.

25 January 2020 (Saturday): 25 January revolution anniversary / Police Day, national holiday.

25 January 2020 (Saturday): Midterm break for public schools and universities. Also known as: Two weeks of good commute.

February 2020: An Italian business delegation will visit Egypt to discuss investments in the Port Said industrial zone.

February 2020: A delegation of Swiss businesses will visit Egypt to discuss investment.

8 February 2020 (Saturday): Midterm break ends. Traffic in Cairo stinks once more.

11-13 February 2020 (Tuesday-Thursday): Egypt Petroleum Show, Egypt International Exhibition Center, Nasr City, Cairo.

March 2020: The Middle East and North Africa Financial Action Task Force (MENAFATF) will visit Egypt to assess the progress of actions taken to combat money laundering and terrorist sponsoring activities.

4-5 March 2020 (Wednesday-Thursday): Women Economic Forum, Cairo.

25-26 March 2020 (Wednesday-Thursday): Mega Projects Conference, Egypt International Exhibition Center, Nasr City, Cairo.

23 April 2020 (Thursday): First day of Ramadan (TBC).

23-26 May 2020 (Saturday-Tuesday): Eid El Fitr (TBC).

5-7 May 2020 (Tuesday-Thursday): AFSIC – Investing in Africa, London, United Kingdom.

30 June 2020 (Sunday): June 2013 protests anniversary, national holiday.

November 2020: Egypt will host simultaneously the International Capital Market Association’s emerging market, and Africa and Middle East meetings.

30 July 2020-3 August 2020 (Thursday-Monday): Eid El Adha (TBC), national holiday.

19-20 August 2020 (Wednesday-Thursday): Islamic New Year (TBC), national holiday.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2018 Enterprise Ventures LLC.