House to vote today on intervention in Libya

Good morning, friends. We hope this holiday-shortened workweek is treating you well and that you’re looking forward to the coming long weekend.

The most frequent question we’ve been asked in the past 24 hours: What does this 17 October start date for schools mean to parents with kids in private schools? We have an answer of sorts in this morning’s Blackboard (below), and it’s simple: Nobody knows just yet. An Education Ministry official told us yesterday that private international schools are free to start teaching whenever they want, but wouldn’t say how much of that instruction could be face-to-face. Education Minister Tarek Shawki later took to the airwaves and strongly hinted that blended learning will be on the menu this fall.

Whether you’re the CEO or the head of people at your company, take note: It looks as if you’re going to have to be flexible with your support of working parents when schools go back.

It’s shaping up to be a big day in the House: Urging all MPs to attend the session, Speaker Ali Abdel Aal said yesterday that today will feature a “long” and “important” meeting. Here’s what we know:

MPs will discuss whether to grant President Abdel Fattah El Sisi a mandate to intervene militarily in Libya — but there are conflicting statements about how the vote is going to be held. Deputy Speaker Sayed El Sherif told Ala Mas’ouleety’s Ahmed Moussa last night that parliament would discuss the proposal in a closed session today (watch, runtime: 8:24), while House spokesperson Salah Hasaballah said on El Hekaya that it would likely to be put to a public vote in the general assembly (watch, runtime: 7:50). The vote comes a day after President Abdel Fattah El Sisi told security chiefs that “no effort will be spared” in safeguarding Libya’s security and less than a week after lawmakers in eastern Libya called on Egypt to deploy forces to the country.

The House will also vote on extending the emergency law if a quorum is met.

Major economic legislation may also be put to a final vote today, Abdel Aal suggested yesterday, without providing specifics. Final votes on the Banking Act, the amendments to the Public Enterprises Act, and the 1% corona tax on salaries were postponed during yesterday’s session. We have more on yesterday’s legislative activity in this morning’s Speed Round, below.

Some 762 candidates will be running in next month’s Senate elections. The tally includes candidates running on lists and those standing as individuals. The National Elections Authority rejected paperwork 150 candidates who failed to complete their paperwork, Authority head Lasheen Ibrahim said in a statement late yesterday. The 300-member chamber was reconstituted earlier this year.

The EGX is now the worst performing exchange in the region this year: Egyptian stocks fell for the fifth consecutive session yesterday, leaving the index the worst-hit in the region so far this year, down 26.4% year-to-date. Shares fell 1.5% during yesterday’s session in light trading as investors became skittish over the prospect of military intervention in Libya.

Government entities are now required to collect dues electronically, according to a new Finance Ministry directive. All government agencies will now rely on the ministry’s e-payments platform managed by E-Finance.

Egypt will be one step closer to a future filled with electric vehicles with the Public Enterprise Ministry set to present to Cabinet this week its strategy to stimulate sales of EVs, Minister Hisham Tawfik tells Al Mal.The news comes after a state holding company inked an agreement with China’s Dongfeng Motor Corporation to start assembling EVs in Egypt late next year.

The future of HHD may be a bit clearer today as the Holding Company for Construction and Development is set to hand Tawfik its plan for Heliopolis Housing and Development, according to a local press report. The plan comes after HHD failed earlier this year to find an investor willing to purchase a stake with management rights.

Foreign Minister Sameh Shoukry is in Ramallah this morning as part of a regional tour that saw him visit Amman yesterday, the ministry said in a statement.

COVID-19 IN EGYPT-

MORE GOOD NEWS- Yesterday saw another large fall in new infections: The Health Ministry reported 603 new infections yesterday, a significant fall from the 698 confirmed on Saturday. Egypt has now disclosed a total of 87,775 confirmed cases. The single-day death count also fell to 51 from 63 on Saturday, bringing the country’s total death toll to 4,302. We now have a total of 28,380 cases who have fully recovered.

Some 74% of Egyptians have seen their incomes shrink since the covid-19 pandemic, according to a study by CAPMAS adviser Heba El Leithy, Al Masry Al Youm reports, with about 33% saying their income was no longer sufficient to cover their basic requirements. At least 56% were working less hours and 18% were out of work, she found. She recommended the government look at expanding social assistance (including cash transfers) and school meal programs.

Japan is providing a USD 9 mn grant for covid-19 medical equipment to the Health Ministry, according to an International Cooperation Ministry statement (pdf).

ON THE GLOBAL FRONT-

The coronavirus might be on the wane here in Egypt, but the pandemic is still gathering strength globally: The World Health Organization reported a record rise in global cases for the second consecutive day, Reuters reports. Almost 260k cases were reported in 24 hours on Saturday, breaking the previous record of 237,743 set on Friday.

EU deadlock on covid-19 stimulus: European leaders remained divided over what shape their package of covid-19 recovery loans and grants would take until the end of a three-day summit that wrapped up yesterday in Brussels, reports the Financial Times. The deadlock: A group of richer member states — comprised of the Netherlands, Austria, Denmark and Sweden — are demanding large cuts to the non-repayable grants proposed in the EUR 750 bn package.

A “devastating” and sustained rise in joblessness could be in store for Europe, as furlough schemes begin to wind down and job cuts ramp up, Bloomberg reports.

GLOBAL MACRO-

Beware the ‘W’ as covid-19 cases continue to rise in some of the world’s largest economies: The likelihood of the global economy experiencing a rapid ‘V-shaped’ recovery is diminishing as infection rates spiral in the US, Brazil and India, economists at IHS Markit have warned. The failure of these countries to get the outbreaks under control, as well as governments of other developed countries resorting to localized lockdowns, heightens the risk of an uneven ‘W-shaped’ recovery caused by an extended demand slump, they said in the research firm’s July World Flash report.

And BNP Paribas is also here to shoot down the idea of a V-shaped rebound: The CEO of BNP Paribas Asset Management is forecasting the “mother of all recessions” as most economies around the world see a “very, very substantial drop” in activity, the Financial Times reports. “We have a view that the recovery will be more U-shaped than V-shaped in most countries,” Frédéric Janbon said, warning that most of us are likely to be spending a longer time in recession before returning to growth.

US companies are thinking the same: Large US companies are beginning to resort to layoffs and production cuts as CEOs lose faith that the economy will recover quickly from the crisis, the Wall Street Journal says. The news comes as the global airline industry is bracing for the recovery to last 3-4 years after the pandemic cut air traffic by 55-75% this year, according to Moody’s (pdf).

Bond markets are signaling a risky future for the US economy, with 10-year real yields — which are a “more-pure read on growth” as they strip out inflation — having dropped over the past six weeks to reach -0.85%, says Bloomberg. Unlike equity indices, which remain well above the early pandemic lows, the plummeting bond yields are reflective of the growth in covid-19 cases and expectations of more Fed easing. “The decline in real yields and the bid for safe-haven assets, such as gold, is another troubling signal of uncertainties ahead,” the business information service says.

AND THE REST OF THE WORLD-

Israel takes a step closer to directly shipping natgas to Europe — and undercutting our plans to become the region’s gas hub: The Israeli cabinet approved yesterday plans to install a pipeline linking its east Mediterranean gas fields to Europe, in a plan that could undermine Egypt’s ambitions to be the premier exporter of the region’s gas. The plan for the USD 6 bn pipeline, agreed by energy ministers of Israel, Greece, Cyprus and Italy, would allow Israeli and Cypriot gas to be shipped directly to European markets by 2025. Bloomberg has the story.

Equitativa Dubai, the company that manages Nasdaq Dubai-listed Emirates REIT, faces investigation by the Dubai Financial Services Authority (DFSA) over “matters connected to the management” of the trust, the DFSA said in a statement on Sunday (pdf). The DSFA is probing (among other matters) possible violations to corporate governance regulations, according to the statement. The move comes after a group of shareholders accused Equitativa of “misrepresenting” REIT’s market value to investors. “Equitativa intends to co-operate with the DFSA investigation,” according to the statement.

REIT may resort to delisting: The fund will launch a “comprehensive review of strategic options … including a potential de-listing from Nasdaq Dubai,” it announced in a statement (pdf) yesterday. “The advantages of remaining publicly listed are heavily outweighed by the disadvantages,” it said, referring to the “current climate” in UAE stocks and the country’s real estate downturn as having a “significantly large impact” on its share price. The FT and Bloomberg both picked up the story.

Kuwait’s ruler, Sheikh Jaber Al Ahmad Al Sabah, underwent surgery yesterday, state news agency KUNA reported without providing details on the procedure. The kingdom’s crown prince has had to rule the country temporarily since Saturday, when it was announced that the 91-year-old emir was receiving treatment.

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed. Blackboard appears every Monday in Enterprise in the place of our traditional industry news roundups.

In today’s issue: When can private international schools reopen?

IMF director Kristalina Georgieva on Egypt, covid-19 and the future of education: Al Kahera Alaan’s Lamees El Hadidi aired her full interview with IMF boss Kristalina Georgieva. The two talked about the Egyptian government’s response to the covid-19 crisis, the IMF’s expectations for the global economy, and the need for robust education systems. Here are the key talking points:

Egypt’s response to covid-19: Georgieva praised the speed at which Egypt responded to the crisis, in particular its efforts to firm up the social safety net and protect vulnerable citizens through the pandemic. Egypt has implemented appropriate monetary policies for the USD 8 bn in emergency loans it has received from the IMF, she said, adding that it is important for the country to stay the course and continue on the reform journey it started back in 2016.

Don’t bank on a global recovery until we have a vaccine: Although some parts of the world are now seeing a partial economic recovery from the chaos witnessed earlier this year, Georgieva warned that any return to a semblance of pre-covid normalcy is dependent on scientists finding a vaccine. Fiscal measures aside, she urged governments to focus on strengthening their health and educational systems.

Digitizing our education systems is paramount: Failing to harness technology in our education systems and investing in digital infrastructure will reduce the productive capacities of countries in the coming years, she said. This is particularly critical in lower-income countries with less reliable internet connections, which she warned could face a lost generation as children lose access to education through the pandemic.

Governments need to do more to help small businesses: Georgieva called on governments in developing economies to provide more support to SMEs and warned that bankruptcies could triple if policy measures are inadequate.

Oil exporters need to diversify: Georgieva expressed optimism that the crash in oil prices has bottomed out, noting that prices have regained around 50% of the losses seen during the first four months of the year. She advised oil-exporting countries to diversify their economies and not rely on one sector to insulate against future commodity price shocks.

Tap/click here to watch the full interview (runtime: 28:41).

EXCLUSIVE- Egypt’s economy is on track to grow this fiscal year, but needs to keep an eye on EGP flexibility + industrial investment –RenCap: Renaissance Capital is maintaining its expectations that Egypt will manage to eke out growth this fiscal year at around the same rate as FY2019-2020, thanks partly to the government’s decision against imposing a full lockdown, but the country now needs to focus on shoring up investments in domestic manufacturing, Global Chief Economist Charles Robertson and North Africa CEO Amr Helal told Enterprise.

Egypt deciding against a full lockdown helped to cushion the economic blow from the pandemic: While some EMs, including South Africa and India, decided to impose tight lockdown measures, there is a growing consensus among developing markets that a partial lockdown akin to Egypt’s is “the way to go”: Domestic demand and consumption are proving to be the key driver of growth as other sources of income come under pressure. There’s been a divergence in trends between countries that locked down successfully, like in East Asia and Europe, versus lower-income emerging markets — below USD 10-15k per capita GDP — where lockdown has not worked. The main hit to EM will ultimately come not from lockdowns, but as a result of the global slowdown thanks to lost demand in Europe and America, Robertson suggested.

Local consumption will continue to be the key driver of growth in Egypt and EMs at large: For data like retail sales, RenCap expects that by the end of 2020, developed markets will likely show a bigger hit than emerging markets, where people never really stopped going to work and shops were only closed for a few weeks or only at nighttime in countries like Egypt that imposed curfews. As a result, domestic demand should hold up a bit better in these countries.

It’s difficult to pinpoint an exact figure for growth forecasts, but Egypt is still on track to record 2-4% growth in FY2020-2021, which is the same view the bank put out in April. “I’ve got no confidence in a point figure,” Robertson said, but suggested it is more likely the current fiscal year will end at a growth rate on the lower end of the investment bank’s forecast range. He stressed that these assumptions are not set in stone and could change as the situation evolves.

Part of the difficulty in formulating a clear outlook is the lack of complete and timely data, Robertson said. “This is an example of why it would be great to see CAPMAS revamping its output both in terms of what it produces — as far as I’m aware, they don’t produce retail sales figures — but also in how quickly they produce the data.” He pointed to this data output as a potential structural figure that would be “hugely important” for policymakers, including the Central Bank of Egypt.

Expect the CBE to remain hawkish for now to shore up domestic confidence: Keeping inflation in check and achieving the year-end target of 9% is the CBE’s primary policy priority, not least because this has been a stated goal, meaning the CBE’s success in achieving that target is key for maintaining confidence.

The EGP’s performance is helping in that regard — and is also a key priority for the CBE: The easiest reference point for the average Egyptian or any person living in another emerging market looking to assess the strength of their country’s economy is how the domestic currency is faring, Robertson said. “If you can maintain a reasonably stable and strong currency, which is how I would characterize the EGP right now, that helps to maintain domestic confidence.” Aside from inflation, currency stability is another primary priority for the CBE, and it “just so happens” that these two goals are closely related and “coincide very well,” suggesting that the CBE will continue to be very cautious with its monetary easing.

On the EGP’s valuation: In the medium term, it’s “not ideal” to have an overvalued currency, Robertson said, noting that the investment bank sees the EGP as 21% overpriced at its current rate. RenCap’s view is based on its real effective exchange rate model, which compares inflation and exchange rates between countries to determine the currency valuations. “What we should see is that if Egyptian inflation is 10% more than in America, the currency needs to sell off by 10% to make sure that it’s not overvalued,” Robertson explained. The EGP has not depreciated steeply despite high inflation over the past three years, which is partially because the currency sold off at a rate that was steeper and more rapid than inflation would have dictated in 2016 when the CBE pulled the trigger on floating the currency.

Egypt remains very attractive for portfolio investors, even if the EGP were to slip to somewhere around 17 to the greenback, he said. Interest rates on one-year instruments remain high enough that a small depreciation by the end of 2020 would still allow portfolio investors to walk away with money in their pockets.

There’s “no reason to suggest” the EGP come under significant pressure, but “the valuation tells you that there is a medium-term risk that, over the next few years, the EGP is going to get cheaper. This could happen either very quickly or gradually,” Robertson said.

The antidote? Start boosting domestic manufacturing and foreign investment in local industry. Egypt currently has a high enough adult literacy rate and adequate energy security to truly begin industrialization, but investors also look for stability, Robertson said. He suggests that allowing for “a gentle depreciation” over the next few years through interest rate cuts would both help reduce the risk for currency volatility and encourage capex borrowing that would spur real economic growth.

We were supposed to see Chinese manufacturing investments in Egypt this year, but right now, who wants to build a factory? It’s unlikely that FDI is going to be pouring in this year for industrial and manufacturing projects, including factories that Chinese investors were planning to build in Egypt, but Helal sees ample options for investment in other industries. “If we look at agriculture, especially agri-foods that are export-oriented, we’re seeing a lot of investor interest in the sector, and we expect that trend to continue” thanks to the wide domestic market base and Egypt’s ability to tap into export markets, Helal said. Egypt also has competitive advantages on the export side, such as freight rates.

Watch this space: NBFS + fintech: Non-banking financial services and the fintech space are also generating investor interest, particularly restrictions imposed over the past several months driving consumers to digital payment channels, Helal said. “This also dovetails quite nicely with the government and the CBE’s initiatives to drive digitization and financial inclusion.”

M&A WATCH- Ibnsina Pharma is looking potential investments in unnamed pharma manufacturing companies through a newly-established special purpose vehicle (SPV), according to an EGX disclosure (pdf). The company is studying “a number” of potential investments and is closing in on signing non-binding offers for the purchase of minority stakes.

INVESTMENT WATCH- ODE, NIS to invest over EGP 500 mn in two int’l schools in O West: A recent partnership between Orascom Development Egypt (ODE) and Nermine Ismail School (NIS) will see upward of EGP 500 mn invested in a project to develop two K-12 international schools in ODE’s residential compound O West, NIS said in a press release (pdf). Two schools, one offering an American diploma and another a British IGSCE and International Baccalaureate are slated for inauguration in September 2022, one year before the first unit in O West is delivered. We took note of the partnership agreement last month.

Nearly half of Egypt’s small and medium businesses with a Facebook presence aren’t generating revenues from their FB pages, according to a recent survey by Facebook, the World Bank and the OECD. The survey showed that only 57% of these SMBs are “operational or engaging in any revenue-generating activities” online. As many as 73% of the operational SMBs expect sales to be lower this year than in 2019, 25% expect maintaining cash flow to be a challenge, and 51% have reduced their workforce. The silver lining: 35% of the operational SMBs said over a quarter of their sales were made digitally and a quarter are still optimistic about the future.

CBE issues circular to banks to clarify measures to unblock assets frozen due to tax disputes: Cabinet’s decision to allow taxpayers to make 1% down payments to unblock holdings that were frozen by the Tax Authority will only apply to cases where no tax appeal was filed, the Central Bank of Egypt (CBE) said in a letter to banks (pdf). In these cases, the taxpayer will be able to file an appeal disputing the final value of the unpaid dues. For cases in which a decision by any state appellate committee or court had ordered the taxpayer to pay back taxes, the taxpayer would have to make a 5% downpayment to unlock their assets. The Finance Ministry in April halved to 5% the downpayment required to unlock assets as part of the tax dispute resolution bill ratified on 8 March.

LEGISLATION WATCH- House approves amendment to Public Enterprises Act, postpones approval on Central Bank Act, covid-19 salary tax: The House of Representatives yesterday approved an amendment to the Public Enterprises Act that would allow the Sovereign Fund of Egypt to assume ownership of assets belonging to public sector companies, Al Masry Al Youm reports. Public Enterprises Minister Hisham Tawfik said the purpose of the amendment was to improve the sector’s efficiency and restructure companies that are running a deficit. The move comes as part of plans to streamline the public sector that could see the number of state-owned enterprises (SOEs) cut by 25% through mergers and liquidations during the current fiscal year. Other proposed legislative amendments will impose new rules designed to shore up the finances of SOEs, many of which make bns of losses each year, and make management more accountable to shareholders.

House rejects proposal to allow APA to investigate CBE officials under Banking Act: The House of Representatives’ general assembly shot down yesterday amendments to the Banking and Central Banking Act proposed by the Administrative Prosecution Authority (APA). The changes would have allowed the authority to summon Central Bank of Egypt (CBE) employees and officials for questioning, Al Mal reports. House Speaker Ali Abdel Aal said the proposed amendments would threaten the independence of the central bank and negatively affect the banking sector.

What is the APA and why is it weighing in on the law? The APA is one of Egypt’s four main judicial bodies, alongside the Court of Cassation, the Council of State (Maglis El Dawla), and the State Lawsuits Authority. The APA is mandated with investigating financial and administrative wrongdoing and has the authority to weigh in on legal issues pertaining to its operations.

Background: The House of Representatives approved in May the long-awaited Banking and Central Bank Act with several new provisions and shipped it off to the State Council for final legal review. The draft Banking Act, which has been in the works since 2017, will replace the 2003 version of the act and will give the CBE more oversight of the sector, introduce measures governing e-payment, fintech businesses, and cryptocurrencies, as well as strengthen data protection and consumer privacy. A final vote on the bill has been postponed to the general assembly’s next session, before being sent to President Abdel Fattah El Sisi for ratification.

Votes on Public Enterprises Act amendments, Banking Act, corona tax postponed: Final votes on both pieces of legislation — as well as the bill mandating the 1% corona tax on salaries — were postponed yesterday to a future plenary session.

Also during a busy day in the legislature:

• MPs gave preliminary approval to amendments to the draft law governing Dar El Ifta, outlining the powers of the authority and those of the Grand Mufti. The Secretary General of Al Alzhar’s Senior Scholars, Mohamed El Duwaini, voiced concerns about the bill, warning that Dar El Ifta should not operate independently of Al Azhar for fear of issuing conflicting rulings, Masrawy reports. The bill will now be sent to the State Council (Magles El Dawla) before heading for a final vote.
• Amendments to exempt Al Azhar’s Zakat and Charity House from paying VAT were passed by the House.
• New penalties for illegally distributing questions and answers for high school examinations ahead of time were given an initial nod. Violators of the bill would face seven-year jail terms and faces ranging between EGP 100k-200k.
• An initial nod was given to amendments to the draft law governing civil and commercial lawsuits to distribute them evenly between courts.
• Preliminary approval was given to a draft law to set up endowment authorities for the Catholic Church.

LEGISLATION WATCH- Gov’t plans to set up planning council under Unified Planning Act: The government is planning to set up a council to formulate nationwide and governorate-level development plans and have a say in all future laws related to economic, social, and urban planning, the local press reports. The council, which would be set up under the Unified Planning Act currently under discussion in parliament, would be headed by the president and include the prime minister, several cabinet ministers, the heads of the Administrative Control Authority and the General Intelligence Directorate, and five “experts” chosen by the Planning Minister. The House Planning and Budget Committee began reviewing the legislation yesterday and will ship it to the House for a final vote once discussions wrap up.

MOVES- Amr Mahfouz (LinkedIn) has been appointed as an assistant to CIT Minister Amr Talaat and as CEO of the Information Technology Industry Development Agency (ITIDA) for one year, according to a ministry statement. Mahfouz has 33 years’ experience in the industry, having previously held several senior positions at tech giant IBM.

It’s a reasonably quiet morning for Egypt in the international press, with the UK’s Independent looking at conditions for MDs in Egypt during the pandemic and Voice of America running with a video report on [redacted] harassment in Egypt.

Bulk of EUR 1.1 bn EIB loan to finance transport upgrades -Al Mashat: More than half of the EUR 1.9 bn loan agreed with the European Investment Bank (EIB) last week will go towards upgrading public transport infrastructure, International Cooperation Minister Rania Al Mashat said yesterday. A total of EUR 1.1 bn will be allocated to part-finance the restoration of the Alexandria tram network, the electrification of the Abu Qir-Alexandria railway and the extension of Cairo Metro Line 2, while the remaining EUR 800 mn will be used for “covid-19 related business investment,” Al Mashat said.