Rejoice, for the PMI is in positive territory for the first time in 14 months

Good morning, wonderful people, and welcome to the next-to-last business day of the week as banks and the EGX prepare to join the rest of the business community in taking Thursday off in observance of Armed Forces Day. The central bank and the stock exchange made it official yesterday. The 6 October holiday has been pushed to the end of the week as part of the government’s new (smart) policy of moving midweek holidays to the weekend.

Enterprise will also be off on Thursday, but keep an eye out for the first episode of season three of Making It, our podcast on how to build a great business in Egypt. The episode will drop on Thursday morning — just in time for the long weekend — with new episodes available each Thursday thereafter. Making It is brought to you in association with our friends at CIB and USAID.

Tap or click here to listen to this season’s trailer on our website | Apple Podcasts | Google Podcasts.

SMART POLICY- You can now open a new bank account with just your national ID thanks to new KYC regulations from the central bank, according to a statement (pdf) yesterday. Micro enterprises, freelancers, and craftsmen will now also be able to open an account by declaring their occupation, instead of requiring proof of employment from a company or other requirements to document their income.

This year’s annual meeting of the European Bank for Reconstruction and Development kicks off tomorrow, with International Cooperation Minister Rania Al Mashat set to take part. The meeting will be held virtually.

Results for the Egyptian Scholastic Test (EST) will be announced tomorrow and Thursday, the Education Ministry said in a statement yesterday. American diploma high school students who took the test seeking to enrol in Egyptian universities will be sent emails to collect their certificates at the ministry. The EST was offered as an Egyptian equivalent to the SAT, which was suspended in September until June 2021 after test questions were leaked.

Other news triggers over the coming weeks:

• Foreign reserves figures for September should be out this week.
• Inflation data for September will land on Saturday, 10 October.
• Voters go to the polls to elect a new House of Representatives in a multi-stage process starting 21 October (voters abroad) and 24 October (in Egypt).

The Health Ministry reported 98 new covid-19 infections yesterday, down from 108 the day before. Egypt has now disclosed a total of 103,781 confirmed cases of covid-19. The ministry also reported 9 new deaths, bringing the country’s total death toll to 5,990. We now have a total of 97,398 confirmed cases that have fully recovered.

Egypt isn’t the only country in the region to shore up its food security amid the pandemic: Jordan has boosted its wheat reserves to a record 1.35 mn tonnes, while Saudi Arabia and the UAE are investing in overseas agriculture projects. The UAE is also importing dairy cows from Uruguay. As part of Egypt’s April plans to increase its wheat reserves to cover six months, the government boosted purchasing from local producers, and had imported 6.6 mn tons of wheat by September 2020.

On the global front:

• Paris will see its bars close among other safety measures as the capital city and its suburbs go into “maximum alert” following a surge in covid-19 cases, reports CNBC.
• Ireland is debating going back into a full lockdown as recommended by their health officials, reports the Irish Post.
• An apparent “glitch” saw nearly 16k positive cases left out of the UK’s daily figures for over a week, which health officials have called “shambolic,” writes the Guardian.

COVID / US ELECTION WATCH- The world’s most (in)famous covid patient is now back in the White House and is saying “don’t be afraid” of the coronavirus. US President Donald Trump left the hospital after going three days without a fever and will continue his convalescence at home. Trump’s prognosis and whether the treatment he is on may have had an impact on his mental state dominates front pages globally.

Kamala Harris and Mike Pence square off tomorrow night in the vice-presidential debate. The two will be separated by plexiglass, Politico reports.

Democratic presidential hopeful Joe Biden is still willing to participate in a presidential debate scheduled for 15 October in MIami, reports Reuters. The two candidates had their first parley last Tuesday. You can catch the full encounter here, in case you missed it.

As a first-class leading golfing destination, Somabay will be hosting a 2020 edition golf tournament on its world renowned golf courses, upgraded with new innovative tweaks, driving ranges and floodlights.
Somabay’s golf course stands out when it comes to sustainability as solar energy is used for seawater desalination, in addition to applying smart irrigation systems to ensure minimum water consumption and cost of sand.

Emerging market stocks and currencies could continue to be attractive to investors holding out for a global economic recovery next year, despite uncertainty caused by the US election and the prospects for a second fiscal stimulus package, Bloomberg reports. EM equities had their best week since August last week, suggesting that the high yields offered by emerging economies and persistent USD weakness may still be holding the attention of investors.

But there are signs that last week may have been a blip: Investors withdrew USD 10.8 bn from EM equities in September, in a signal that the potential for US election mayhem may cause darker days ahead. “Our data shows that a big ‘risk-off’ is brewing in emerging markets,” IIF economist Jonathan Fortun wrote in a note picked up by business information service. “We are tracking high-frequency outflows from EM in the final weeks of September almost as big as in the 2013 taper tantrum,” he said, referencing the sell-off that occurred after the US Federal Reserve first tried to raise interest rates after the global financial crisis.

SMART IDEAS- Businesses are pushing G20 nations to agree to broad policy reforms to boost post-covid economic recovery during the G20 summit in November, CNBC reports. Their 25 policy recommendations — which included strengthening multilateral trade agreements, investing in digital infrastructure, and empowering women and youth — will be formally presented to the G20 during the Business Twenty (B20) virtual business summit on 26-27 October.

Other biz / econ headlines worth knowing about:

• Advanced economies need to ramp up public investment in infrastructure by taking advantage of low interest rates, the IMF said in its semi-annual Fiscal Monitor Report.
• The greenback could crash 35% by the end of 2021 as levels of domestic saving collapse and the current account deficit continues to widen, Yale economist Stephen Roach writes in the FT.
• As Big Oil finally starts to get on board with the renewables revolution, ExxonMobil has other ideas: The US oil giant plans to increase its carbon emissions by as much as the entire output of Greece each year, according to internal documents seen by Bloomberg.
• Google and Oracle’s legal dispute over APIs is heading to the US Supreme Court this week in a case that could substantially shape the future of software development and possibly limit open-source code, the FT reports.

Virologists who discovered Hep C take home Nobel prize: The 2020 Nobel Prize in Physiology or Medicine was awarded jointly to Harvey J. Alter, Michael Houghton, and Charles M. Rice, who discovered the Hepatitis C virus. Their discovery paved the way for “highly sensitive blood tests” for Hep C to essentially eliminate the virus post-transfusion.

The Nobel Prize in Physics will be announced later today, while the prizes for chemistry, literature, peace, and economic sciences will be announced over the course of the next few days.

Yesterday was the first Monday in October, which close watchers of US affairs will know is the date on which the US Supreme Court reconvenes. The First Monday in October is also the name of a classic 1981 Walter Matthau film, wherein the rumpled actor’s best line is that “a telephone has no constitutional right to be answered” (as The Colonel reminded us when we were kids). That notion that the phone has no constitutional right to your time is perhaps more relevant today than it was in the days of rotary-dial phones, though we would substitute the word “WhatsApp” for “telephone.”

Regional diplomacy was the order of the day on last night’s talk shows, with the talking heads diving into the latest on the Grand Ethiopian Renaissance Dam (GERD) and the situation in Libya.

Ethiopia’s announcement yesterday that it will begin generating power from the GERD should be met with sanctions from the international community to ramp up the pressure on Addis Ababa to reach an agreement on filling and operating the dam with Egypt and Sudan, Former Irrigation Minister Mohamed Nasr Allam told Ala Mas’ouleety’s Ahmed Moussa. Allam also noted that Egypt can take the matter to the International Court of Justice if negotiations continue to hit a wall (watch, runtime: 15:57). We have more on the story in Diplomacy + Foreign Trade, below.

Efforts to end the war in Libya and create a unified government would be best served without Turkey’s intervention, the Arab League’s Permanent Observer at the UN Maged Abdel Fattah said in a phone-in with Al Hayah Al Youm’s Mohamed Sherdy. Ankara’s involvement in our western neighbor is part of its attempts to further its interests in the Eastern Mediterranean, Abdel Fattah said. The path forward for Libya must begin with a comprehensive agreement between warring factions for a ceasefire and the expulsion of all foreign forces and mercenaries from the country he said (watch, runtime: 27:39). Ahmed Moussa also took note of Foreign Minister Sameh Shoukry’s participation yesterday in a ministerial meeting on Libya on the sidelines of the UN General Assembly (watch, runtime: 8:10). Again, we have more on this in Diplomacy + Foreign Trade.

Back on the home front, El Hekaya’s Amr Adib looked at the ongoing reconciliation of building code violations, which has seen some 1.7 mn settlement requests so far, Local Development Ministry spokesman Khaled Kassem said. The majority of the violation settlement requests came out of Beheira, followed by Menoufia and Qaliubia, according to Kassem. Revenues from these settlements will be funneled into the Social Housing and Mortgage Finance Fund and help finance government investments in infrastructure, health, and education, he noted (watch, runtime: 9:20).

Day laborers are getting an additional EGP 500 monthly stipend through the end of the year from the Egyptian Zakat and Charity House, secretary general Mohamed Amr Lotfi told Masaa DMC’s Eman El Hosary. The government is already providing day laborers with a monthly payout, bringing the total monthly stipend to EGP 1,000 (watch, runtime: 5:10).

The House of Representatives also earned some airtime last night from Lamees El Hadidi and Mohamed Sherdy. Mostakbal Watan Secretary General Hossam El Kholy had an extensive conversation with Lamees to defend the party’s track record (watch, runtime: 26:51), while parliamentary hopeful Youssef El Husseiny discussed with Sherdy his candidacy for the House and the National List for Egypt coalition (watch, runtime: 25:25).

Egypt’s non-oil private sector expanded for the first time in 14 months in September on the back of a rise in consumer demand and strengthened business activity, according to IHS Markit PMI figures (pdf). The gauge rose to 50.4 from 49.4 in August, indicating the first month of economic expansion since July 2019. The figure is only marginally above the 50.0 mark that separates expansion from contraction but is “strongly above” the trending average of 48.1, said David Owen, economist at IHS Markit. “This suggests that the non-oil economy is seeing a modest turnaround after the devastating impact of the covid-19 pandemic,” he said. The recovery from April’s collapse in business activity has been uneven: Activity improved in July (but didn’t break into growth territory) before falling back in August due to a sharp increase in job cuts and slowing output and sales growth.

Sales grew at the fastest pace in more than five years last month as the government continued to ease its covid-19 restrictions. New orders and export sales also experienced strong growth, helping the private sector to record a rise in new business for the third consecutive month.

The rate of job cuts fell to a 10-month low as businesses ramped up hiring, signaling “a stronger outlook for employment in the last quarter of the year," Owen said. Backlogs rose for the fifth consecutive month, indicating a resumption of demand and some pressures on production capacity that could mean hiring is on the radar for some firms.

Stock levels ended a nine-month run of depletion: Companies reported that stock levels were unchanged from August, partly due to new orders allowing some companies to draw up stocks to boost output.

Sentiment remains down: Expectations for the next 12 months were unchanged from August, when sentiment fell to its lowest level since May. Little more than a third (36%) of businesses expressed confidence that business conditions will improve during the period.

Sentiment also improved in the GCC, where Saudi Arabia and the UAE also recorded higher PMI figures. Private sector conditions improved for the third time in the past four month in the UAE (pdf), while Saudi’s (pdf) posted the first monthly expansion since February. Bloomberg has more on the figures here.

INVESTMENT WATCH- Volkswagen wants to produce natgas-powered vans in Egypt — if it gets the right incentives: Egyptian Automotive and Trading, the local agent for Volkswagen, is looking to strike a seven-year partnership agreement with the Arab Organization for Industrialization to produce natural gas-powered versions of its Crafter and Caddy 5 vans for the local market, CEO Karim Naggar told Al Mal. The Crafter would be designed to replace microbuses used for public transport, while the Caddy 5 would substitute old passenger cars and taxis as part of the state’s plan to convert vehicles to gas-powered engines. Volkswagen last year announced plans to assemble natural gas-powered cars in Egypt, using more locally-produced components, and export the surplus to foreign markets with which Egypt has trade agreements.

The catch: Volkwagen wants customs and tax breaks, as well as a relaxation of labor laws to allow it to bring in more foreign staff before it goes ahead with an agreement, Naggar said. Company officials have met with the government to discuss its plans, he said, adding that they had a “positive impression” of the government’s natgas auto strategy.

Meanwhile, Russian-produced gas-powered versions of Skoda’s Octavia and Rapid models will be imported for the local market, once Kayan Egypt and Volkswagen sign an MoU before the Christmas holidays, according to Naggar, who is also Kayan’s CEO. Naggar did not provide additional details.

Want a refresher on the natgas conversion strategy? We took a deep dive this summer into the government’s multi-year plan to replace car engines in a three-part series in our weekly infrastructure vertical Hardhat: Part 1 | Part 2 | Part 3.

M&A WATCH- Al Ahly Capital is expected to close its acquisition of 100% of El Nada Hospital for EGP 300 mn before the end of the month, by which time its due diligence will be complete, Al Mal reports, citing sources close to the transaction. The acquisition is a precursor to the establishment of a holding company focused on the health sector, the sources said. CEO Karim Saada said earlier this year that Al Ahly will set up a JV with UAE’s MBF Group to invest in healthcare and said the company plans to invest USD 150 mn in the sector. Al Ahly — the investment arm of the National Bank of Egypt — has reportedly already received offers from local and international investors to participate in the new company.

INVESTMENT WATCH- US oil and gas producer Apache could spend as much as USD 900 mn at its Western Desert oil concessions this fiscal year if oil prices mount a recovery, Al Mal reports, citing a senior official at the Egyptian General Petroleum Corporation (EGPC). The company spent some USD 840 mn in Egypt last fiscal year through its Qaroun and Khalda subsidiaries, both of which are JVs with EGPC. The recovery in the oil markets from the crash in March and April has stalled in recent weeks. Despite more than doubling from its nadir in April, Brent remains well below its pre-covid January peak of USD 68.91 bbl.

Background: Khalda Petroleum and Qaroun Petroleum plan to increase production rates to 185k bbl/d at the close of 2020, from the 175k bbl/d they clocked at the end of FY2019-2020. EGPC signed nine oil and gas exploration and production agreements this year that will see companies including Shell, Apache, and Petronas invest at least USD 452 mn to drill 38 wells in concessions in the Mediterranean and Western Desert.

DEBT WATCH- Egypt just got the first USD 332 mn tranche of a loan from JPMorgan to finance the construction of two monorail lines, one linking the new administrative capital to Cairo Stadium Station and the other linking Gameat El Dewal Station to Sixth of October, Al Mal reports, citing sources it says are close to the matter. The sources said the payment was the first installment of a larger lending agreement, but didn’t disclose the total value of the loan. JPMorgan is leading a syndicate of international lenders that is providing a USD 2.5 bn loan with support from UK Export Finance for the monorail projects, construction consortium member Orascom Construction said in August (pdf). The two lines are expected to cost more than USD 4.6 bn, USD 3 bn of which will be spent on construction and USD 1.67 bn on operating and maintaining the lines for a 30-year period.

About the project: The monorails will extend a 54-km line (expected to be completed in 2022) between the new capital and Nasr City, and another 42-km line (scheduled for completion in 2023) from Sixth of October City to Giza. A consortium led by Bombardier, Orascom Construction, and Arab Contractors signed a 30-year contract for the construction and maintenance of the lines last year. Orascom and Bombardier broke ground on the new capital-Nasr City line in May this year. UK Export Finance

Trains to start arriving next year: Egypt will begin importing locomotives from July 2021 for the new capital-Nasr City line, Transport Minister Kamel El Wazir said on Saturday. Bombardier, Orascom and Arab Contractors have completed 80% of the design work on the line’s 22 stations, he added.

Car prices have inched up 1-5% over the past year due in part to a growing supply shortage brought on in part by the covid-19 pandemic, said Chairman of the Egyptian Automotive Dealers Association Osama Aboul Magd, Al Masry Al Youm reports. Output at some major car manufacturers was lower this year on the back of covid shutdowns and as demand slumped in major global markets. Although demand has picked up in recent months after the covid-19 lockdown brought the sector to a standstill in the second quarter, Aboul Magd said that it’s unlikely car sales will reach 150k this year, a 25% fall from 200k in 2019.

How covid-19 shaped Egypt’s policies on working with int’l development partners: Egypt has developed a framework to cooperate with international development partners that is grounded in multilateralism and international cooperation after the covid-19 pandemic highlighted that no country could stand on its own when facing economic and health crises, International Cooperation Minister Rania Al Mashat said in an interview with Sky News Arabia (watch, runtime: 33:52). The framework rests on three key principles: Encouraging dialogue between the government and bilateral and multilateral partners about priority areas for funding; keeping a record of success stories to encourage cooperation; and seeking funding that is in line with sustainable development goals, Al Mashat told Khoury. The ministry was also out with a press release (pdf) on the interview’s key points.

In case you missed it: We recently spoke with Al-Mashat on Enterprise After Hours, our new podcast featuring business leaders, policymakers and cultural icons. You can listen to the episode on our website, Apple Podcasts, Google Podcasts, Anghami, Omny, or Spotify (for non-MENA accounts). You can also check out edited excerpts of our conversation.

MOVES- The National Bank of Kuwait has accepted the resignation of deputy CEO and board member Omar Wahby, according to an EGX statement (pdf). Meanwhile, Omar Bohdeiba (LinkedIn) and Soliman Barrak Al-Marzouq have been named to the board, the bank said. Al Marzouq currently holds a deputy CEO position at the bank’s Kuwait division and Bohdeiba formerly served as CEO of the group’s international banking division.

Enterprise Explains: The carry trade: Much has been made recently about the return of the carry trade to Egypt, long an appealing source of high returns for foreign investors and an important source of hard currency. It showed resilience in the face of the economic fallout from covid-19, and rebounded over the summer, making Egypt once again a priority destination for carry trade investors.

But what is it, exactly? The concept is fairly simple. An investor takes a currency with a low interest rate (think: the USD, EUR, JPY) and buys a currency offering a higher rate of interest. The idea here is that the investor pockets the difference in interest (or the “spread” if you want to sound smart) when converting back to the first currency (also known as the “funding currency”).

It sounds simple in theory. In reality, carry trades can be incredibly risky. Things get more complicated when we start to factor in fluctuations in the exchange rate, which can either boost your return or plunge you into a loss. Take this example. You buy USD 1k at a 0.25% interest rate and convert it to EGP 15k, which is currently paying a 8.75% rate of interest, in the hope of getting that 8.5% return. This would be fine if all other things stayed equal. The thing is, exchange rates rarely stay put, fluctuating on a daily basis. Let’s say the USD falls 10% against the EGP. Great news: you can now buy more USD with that EGP 15k, raising your return. But what if the value of the EGP fell through the floor? Now you can only buy a fraction of the greenbacks you once held, more than likely handing you a loss on the trade.

Egypt returns as a carry trade darling: Prior to the pandemic in February, Egypt was considered one of the world’s best carry trades. The EGP had been rallying for more than a year, gaining almost 13% against the greenback since the beginning of 2019. This was interrupted by the huge capital outflows that came during the EM sell-off in March and April, but the tide quickly began to turn again in Egypt’s favor. The EGP remained stable and the Federal Reserve’s stimulus stoked investor appetite for high-yielding investments in emerging economies. The bondholders began to return in June and July, attracted by the high rate of interest offered by Egyptian debt instruments and comparatively low risk. Egypt’s carry trade is now one of the most profitable among emerging markets, with double the risk-adjusted return on one-year treasuries offered by its EM peers.

Want to know more?

• Khan Academy is the gold standard for YouTube econ tutorials.
• Explainers are available on our two favorite financial news sites: Bloomberg | Financial Times.
• Why does everyone want to trade the yen?
• When the carry trade goes wrong.

It’s another quiet morning for Egypt in the foreign press. Al Monitor takes note of the Grand Egyptian Museum’s receipt of some 54k artifacts for display so far ahead of its inauguration next year. Over in Sinai, the outlet looks at how Bedouins from Saint Catherine are going back to basics after their livelihoods were severely disrupted by the covid-19 tourism slowdown, says Al Monitor. Meanwhile, AFP writes that families in the Egyptian town of Dahmasha are mourning the likely deaths of their sons who were trying to migrate to Europe on a boat that was reported to have sunk.

Topping diplomatic coverage this morning: The Grand Ethiopian Renaissance Dam will begin generating power within the next year, Ethiopian President Sahle-Work Zewde said yesterday, according to Reuters. Head of Ethiopia’s Civil Aviation Authority also said yesterday that all flights over the dam would be banned for security reasons. The decision follows Ethiopian Maj.Gen. Yilma Merdasa’s comments last week that the country was prepared to defend the dam from any attack. Egypt, Sudan and Ethiopia have yet to reach an agreement on the filling and operation of the dam.

Also on the diplomatic front, Foreign Minister Sameh Shoukry called for a political settlement in Libya based on the outcome of last year’s Berlin conference during a ministerial conference attended by his German counterpart, Heiko Maas, and UN Secretary-General António Guterres, according to a cabinet statement.

In trade news, a ban on exports of beans and legumes will remain in place for three additional months as the Madbouly government prioritizes the needs of the local market, according to a Trade Ministry decision. The ministry originally introduced the ban in March as part of a basket of measures to shore up food security in the early days of the covid-19 pandemic and renewed it for three months in June. Industry players claimed last month that authorities agreed to end the suspension, provided export requests are reviewed on a case-by-case basis.

Japanese manufacturer Sumitomo Wiring Systems is planning to set up a EGP 1 bn factory in Tenth of Ramadan City to manufacture pigtail cables used in cars. Production will be earmarked for both for the local market and for export to Europe, a cabinet statement said. The factory is slated to come online in December, Sumitomo Egypt’s managing director Ahmed Magdy said in a meeting with GAFI CEO Mohamed Abdel Wahab.

Real estate developers are now required to meet a minimum solvency test on land purchases worth more than EGP 1 bn for service and mixed-use projects under regulatory amendments issued by the New Urban Communities Authority (NUCA), Al Mal reports. NUCA currently requires investors to make a 10% “commitment deposit” within a 30-day notice window (or 60 days if paying in USD) under the new land allocation mechanism introduced last year for mixed-use developments in new communities.

Samcrete has agreed to guarantee subsidiary Aldau Development’s planned USD 12 mn loan agreement with the European Bank for Reconstruction and Development (EBRD) to finance a new hotel in the Pyramids Heights compound, according to an EGX filing (pdf). Aldau’s portfolio of hospitality projects includes three Steigenberger hotels located in Hurghada.

The National Bank of Egypt has requested Central Bank of Egypt approval to launch its planned digital bank, which it announced last year, Vice Chairman Yehia Abou El Fotouh told Al Mal. A growing number of Egyptian banks are planning entrances to the digital banking space, with Banque Misr, Suez Canal Bank and ABC Egypt all beginning studies into launching digital arms.

The Cooperative Insurance Society has distributed a guide on sustainable insurance principles to local companies in a bid to encourage ethical business practices in the sector, Youm7 reports. The guide identifies nine key areas of focus for sustainable insurance such as climate change, digitization and the future of work, and explains best practices for the design and management of products, underwriting, customer service, and distribution and marketing. The guide was developed in collaboration with the Financial Regulatory Authority.

Redcon Construction has signed a EGP 625 mn syndicated loan agreement with the National Bank of Egypt and Qatar National Bank to help finance the construction of several towers in New Alamein, according to Al Mal. The company was originally seeking a EGP 1.7 bn loan from the banks, according to reports last year.

The Micro, Small and Medium Enterprise Development Agency (MSMEDA) has signed a EGP 500 mn agreement with Banque Misr to provide micro financing to SMEs, according to a statement (pdf). The initiative will provide EGP 50k loans to some 33k small and micro projects, Trade and Industry Minister Nevine Gamea said.

Netflix dropped the first teaser trailer for “Paranormal,” Egypt’s first Arabic original series on the streaming platform (watch, runtime: 1:13). The show, which will land on 5 November, is an adaptation of the novels by the late Ahmed Khaled Tawfik. The series is written, produced, and directed by Amr Salama, with Mohamed Hefzy as executive producer.