CBE seen leaving rates on hold when it meets on Thursday –Enterprise Poll

ENTERPRISE POLL- The Central Bank of Egypt will likely leave interest rates on hold when it meets this Thursday as it looks to keep inflationary pressures in check, according to an Enterprise poll. All 12 analysts and economists we surveyed expect the central bank to err on the side of caution for the sixth consecutive meeting and continue to keep a close eye on rising global commodity prices, which have been translating into higher energy and raw material costs at home.

Where rates currently stand: The overnight deposit rate is at 8.25%, the lending rate at 9.25% and the main operation and discount rates are at 8.75%. The central bank slashed rates by 400 bps last year, including an emergency 300-bps cut in March to protect the economy from the fallout from covid-19, as well as two 50-bps cuts in September and November. It has since maintained rates for five consecutive meetings, including its most recent in June.

Inflation is still on the minds of policymakers: The CBE still has “an incentive” to keep rates steady, especially as global inflation remains heightened and as we’re expecting local price pressures following the latest round of fuel price hikes, EFG Hermes’ Mohamed Abu Basha said. Policymakers need to pre-empt heightened food prices stoked by rising international commodity prices, Beltone’s director of macro and strategy Alia Mamdouh told us. Others, including Pharos head of research Radwa El Swaify, CI Capital senior economist Sara Saada, and Naeem Brokerage’s Allen Sandeep, also cited continued inflationary pressure as the reason for the low likelihood of policy action this month.

Inflation has been on the upswing across the world in recent months as supply bottlenecks and ultra-loose monetary policy fuel rallies in raw materials and consumer goods. In the US and Germany prices are accelerating at their quickest pace in over a decade.

Egypt has remained insulated so far: Inflation in Egypt has barely moved from 4.3% in January, with the headline urban rate inching up only 60 bps to 4.9% last month, remaining below the lower-bound of the central bank’s 7% (±2%) target range. The rate was effectively unchanged in June, rising just 10 bps from the previous month due to a favorable base effect and a slower rise of monthly food prices.

The Egypt carry trade could face some competition: Emerging-market central banks including Brazil and Russia have reversed their easing cycles and begun aggressively hiking interest rates to curb rising prices, and last week’s US Federal Reserve meeting say chairman Jay Powell suggest that the central bank is moving closer to taking a decision about when to start scaling back stimulus. That news comes after the Fed signalled last month it may have to raise rates “sooner and faster” than it had previously signalled.

Better safe than sorry: While this leaves room for a cut, analysts agree that the CBE is better off cautious to give it room to maneuver. Suez Canal Bank’s Mohamed Abdel Aal and HC Securities Monette Doss are among those penciling in a gradual increase in the headline rate throughout the remainder of 2021, with Abdel Aal expecting an average of 5-6% by the end of the year and Doss seeing a rate of 5.6% in July.

Keep those portfolio flows coming: Policymakers will also want to maintain Egypt’s position as one of the world’s most lucrative carry trades. Egypt currently has one of the highest real interest rates in the world, which has helped portfolio flows rebound following the covid-induced emerging-market sell-off last year, to reach record highs earlier this year.

Analysts are split on whether we’ll see any cuts later this year: “We see a window for a rate cut toward the end of the year as tourism kicks off strongly offering a key alternative to current debt inflows,” Arqaam Capital analyst Noaman Khalid told us. Prime Holdings’ Mona Bedeir and Renaissance Capital, meanwhile, think the CBE will hold off on making further cuts for the rest of the year.

Consensus has been largely unchanged in the past few months, with almost all market watchers agreeing that the CBE’s easing cycle is on pause until the end of 2021, and will only resume in full force throughout 2022, when inflation is likely to remain anchored below the CBE’s target range and remain subdued going forward.

Moody’s has affirmed Egypt’s credit rating at B2 with a stable outlook that balances the country’s “significant shock exposure” with our track record of successfully weathering volatility, the ratings agency said in its latest review of Egypt’s credit rating on Thursday.

The rationale: The country’s “volatile financing conditions,” due to “very weak” debt affordability and rising gross borrowing requirements, are balanced out by “improving shock resilience” backed by the state’s economic and fiscal reforms, the ratings agency said. Also working in our favor are Egypt's broad funding base, growth of FX reserves and narrowing budget deficit, which provide a shield against future capital outflows, boost export competitiveness and increase state revenues.

FX liquidity is likely to remain a buffer: FX reserves are expected to “remain sufficient to fully cover annual external debt service requirements accruing over the next three years,” Moody’s said. The IMF earlier expected foreign reserves to continue to rise and hit USD 44.1 bn by the end of the current fiscal year, before surpassing pre-pandemic levels in FY2022-2023.

Moody’s expects the Egyptian economy to grow at a 5.5% clip during the current fiscal year, slightly higher than the 5.4% targeted by the government and the IMF’s forecast (pdf) for 5.2% growth.

And debt-to-GDP is expected to fall further: The country's public debt is expected to fall to 84% of GDP in FY2023-2024. Public debt already dropped to 90.6% of GDP in FY2020-2021 and the government expects this trend to continue during the current fiscal year, with debt falling to 89.5% of GDP by the end of June 2022.

The recovery of FX reserves means that Egypt now has a better buffer against large capital outflows, but it remains exposed to liquidity and external financing shocks. Egypt has one of the weakest debt positions in the world when measured by interest / revenue and interest / GDP, while its susceptibility to funding shocks is made worse by its high gross borrowing needs, which now amount to some 35% of GDP. Egypt’s large banking sector mitigates funding risks though, thanks to the Finance Ministry’s shift to longer tenor debt, which has lengthened from 1.3 years before June 2017 to 3.45 years as of June 2021.

Russia is getting one super-sized RIZ: Egypt and Russia agreed last Thursday to expand the scope of the Russian Industrial Zone (RIZ) within the Suez Canal Economic Zone (SCZone), according to a statement. The two sides inked an agreement that will hand Russian companies an additional 5 mn square meters distributed between East Port Said and Ain Sokhna. The pact came after two days of meetings in Moscow.

A new Russian company will be established by the end of the year to manage the RIZ, ahead of the zone’s completion in the next five months. The SCZone team in Moscow met with Russian firms in the transport, pharma, and fertilizer industries interested in setting up shop here.

A Russian delegation will visit RIZ next month. Russian companies that have expressed interest in setting up shop in SCZone will visit RIZ by September.

Egypt is now offering better terms: An agreement signed last week will allow Russian companies to sell up to 100% of their locally-made products in the Egyptian market.

ALSO FROM THE SCZONE-

Chinese home appliances giant Midea Group, a Fortune Global 500 company, will establish a USD 25 mn factory in China’s TEDA industrial zone, and on Friday laid the foundation stone for the facility, the SCZone said in a statement. The factory will produce 1.5 mn washing machines each year for export to the Middle East, Africa, the EU and the US, with the facility slated for completion at the end of 2022.

A Russian delegation has finished carrying out health checks in airports and hotels in Sharm El Sheikh and Hurghada ahead of a resumption of Russian flights to Red Sea resort towns on 9 August, a source in Egypt’s Civil Aviation Ministry told Russian news agency Tass on Friday. The source cited a decrease in the number of covid-19 cases as proof of the efficacy of preventative measures promoted by the government.

The assessment may determine whether Russia increases flights in the coming months: The country’s covid crisis center said last month that authorities could decide to increase the number of weekly flights after the epidemiological team has visited. The delegation will submit its report “in the near future,” according to Tass.

Why has Russia been keeping us on our toes? The delegation wants to make sure of the situation in Egypt before direct flights between Russia and Red Sea resorts resume. Direct flights between Russia and Red Sea destinations have been suspended since the 2015 Metrojet crash, and Moscow has been extra cautious about their resumption, initially for security reasons, but more recently because of the pandemic.

Would-be travellers rejoice: Vaccinated individuals will now be able to get official, QR-code bearing vaccination certificates at 126 dedicated centers nationwide, the Health Ministry spokesperson Khaled Megahed announced over the weekend. Certificates will cost EGP 100 for Egyptian citizens, and USD 10 for non-Egyptians. Hit the link for the list of centers.

The ministry is also working on an Egypt Health Passport app that will allow individuals to display their vaccination status on their mobile phones.

There’s still no word from the ministry on when it will start offering vaccines that comply with entry requirements of a traveler’s destination. A ministry official had suggested last week that international vaccination centers would be opening to ensure travelers have access to the jabs they need to qualify for admission to their destination countries without suffering through quarantine.

MEANWHILE- Ten mn doses of made-in-Egypt Sinovac should be available in 500 vaccination centers nationwide by mid-August, Health Minister Hala Zayed said over the weekend. The health minister had previously said that state vaccine-maker Vacsera would produce 10 mn doses by the end of July, and aims to deliver around 15 mn vaccines a month starting August onwards. The company said in early July that it had manufactured the first 1 mn doses of the vaccine, and was targeting 80 mn by the end of the year.

The Health Ministry reported 47 new covid-19 infections yesterday, up from 45 the day before. Egypt has now disclosed a total of 284,262 confirmed cases of covid-19. The ministry also reported 6 new deaths, bringing the country’s total death toll to 16,524.

Importers and their agents will be able to defer paying 70% of taxes and fees to clear cargo at shipping ports till after the cargo arrives, under new amendments (pdf) to the Advanced Cargo Information (ACI) system — also known as Nafeza — set to come into effect in October. Importers will be required to pay 30% of dues in advance before cargo arrives at Egyptian ports and will be entitled to a refund in the event that their shipment is banned from entry or disposed of. The new rules were approved last week by Finance Minister Mohamed Maait.

The Nafeza digital customs system is being rolled out by the Finance Ministry to speed up customs procedures and improve border security. Through Nafeza, businesses importing goods at ports will file shipping documents and cargo data digitally and ahead of arrival via the ACI, which is a World Customs Organization (WCO) protocol that runs on blockchain technology. The government had originally set a 1 July deadline for registration on the new system, which was then postponed in response to calls from the business community, who said they needed more time to prepare.

Want a breakdown of all you need to know on how to prepare for the new ACI system? We have this in-depth explainer here.

The amendments are the latest in a series of government attempts to reduce trade red-tape: The Customs Authority said earlier this year that it would establish a new unit dedicated to investigating complaints from exporters about customs procedures, while the cabinet decided to bring back the long-dormant export council to drive policymaking aimed at increasing exports.

An extra EUR 250 mn for Abu Qir metro, courtesy of EBRD: The project to convert Alexandria’s Abu Qir railway into an underground metro will be getting an additional EUR 250 mn from the European Bank for Reconstruction and Development, after the bank approved a formal loan request submitted by the government last year. The loan will go towards upgrading the electrification of the metro line, installing signalling and control systems, and purchasing rolling stock.

Europe is now covering the bill for more than two-thirds of the project’s EUR 1.6 bn sticker price. The EUR 250 mn in EBRD financing is in addition to EUR 750 mn from the European Investment Bank; the remaining financing for the project will come from the French Development Agency and the Asian Infrastructure Investment Bank.

EBRD has been upping its infrastructure investment in Egypt: Last week saw the bank agree to provide USD 29.6 mn to finance half of the development of the Sixth of October Dry Port. A EUR 3.05 mn grant from EBRD for the financing of Cairo Metro Line 1 was greenlit by Ittihadiya earlier this year, with the bank having provided EUR 205 mn for the line’s renovation two years prior.

Egyptian startups landed some USD 194 mn in venture capital finance in the first half of this year and accounted for 26% of all transactions inked across MENA in the same time period, ITIDA CEO Amr Mahfouz said last week in a statement (pdf). Mahfouz said in public comments that the USD 194 mn figure was a 30% year-on-year increase from 2020.

The biggest funding rounds in 1H2021: Trella closed a USD 42 mn funding round co-led by Maersk Growth in June, followed by payment gateway Paymob, which completed a USD 18.5 mn series A round in April. Digital banking app Telda landed USD 5 mn in pre-seed funding in May. Egyptian fintech startup Dayra closed a USD 3 mn pre-seed funding round in March, logistics startup Flextock raised USD 3.25 mn in pre-seed investment in May and agri-fintech startup Mozare3 raised a seven-figure investment in a pre-series A round.

Egypt lured in more international investors than any other MENA country in 2020: International VCs represented 32% of all investors supporting Egyptian startups in 2020, compared to 21% in the UAE and 18% in KSA, according to a report (pdf) by Magnitt. There were 69 VCs actively investing in Egypt as of 2020, up from 31 in 2017.

The Madbouly cabinet approved a draft bill last Thursday to launch a new fund to develop urban areas, it said in a statement. The fund will work alongside existing agencies such as the New Urban Communities Authority (NUCA) and the General Authority for Urban Planning to develop areas chosen by the board of trustees in partnership with the private sector and real estate developers, as well as remove buildings in unsafe areas. It will report directly to the prime minister. The statement does not mention how much money the fund will be allocated.

Major French financing agreement approved: The EUR 3.8 bn in French financing agreed in June was approved by the cabinet last week. The money will be used to fund a variety of transport projects including Cairo Metro Line 1 and the Abu Qir metro conversion project, as well as a number of wastewater and energy projects.

Qatar has named a new ambassador to Egypt as the two countries continue to improve bilateral ties. The office of Qatar Emir Sheikh Tamim bin Hamad Al Thani announced on Thursday that Salem bin Mubarak Al Shafi will serve as the country’s new ambassador to Cairo, a month after Egypt followed Riyadh in naming a new ambassador to Doha for the first time since joining the blockade of the island state in 2017. The UAE and Bahrain are yet to follow suit.

Egypt, Saudi Arabia, Bahrain and the UAE all severed diplomatic ties with Qatar in 2017 and blockaded the country over its alleged support for terrorism and interference abroad. The rift now seems to have ended after the countries agreed to normalize relations earlier this year. Foreign Minister Sameh Shoukry has since met with his Qatari counterpart in Cairo and President Abdel Fattah El Sisi for an official visit to Doha. The story got coverage in Reuters.

IN OTHER DIPLO NEWS-

Ethiopia said the second filling of the Grand Ethiopian Renaissance Dam (GERD) was carried out in line with the 2015 Declaration of Principles signed with Egypt and Sudan: Ethiopian Foreign Minister Demeke Mekonnen Hassen drove this point home during a meeting with his Algerian counterpart Ramtane Lamamra in Addis Ababa, Sputnik news reports. Ethiopia also called on Algeria to play a role in correcting misconceptions by the Arab League over GERD. Ethiopia has completed the second filling of GERD despite warnings from Egypt and Sudan.

Lamamra was also in Cairo yesterday for an official visit to discuss bilateral ties, and met with Foreign Minister Sameh Shoukry (watch, runtime 9:25) after wrapping up his visits to Ethiopia then to Sudan. Algeria’s potential involvement in GERD negotiations was also on the airwaves, with Sada El Balad’s Ahmed Moussa referring to unconfirmed reports of Algeria’s mediation (watch, runtime 2:57).

Egypt, France pledge to support Tunisia: Egyptian Foreign Minister Sameh Shoukry and his French counterpart Jean-Yves Le Drian said their countries support Tunisian in its efforts to achieve stability and resolve its economic crisis, Egypt’s foreign ministry said in a statement. During a phone call on Thursday the two ministers agreed to support Tunisia’s institutions and emphasized the importance of respecting the democratic will of the people. Shoukry also discussed the importance of reaching a fair agreement with Ethiopia over the Grand Ethiopian Renaissance Dam, and ensuring that a Lebanese government capable of undertaking economic reforms can soon be formed.

It was a quiet evening on the airwaves last night, what with Amr Adib and Lamees El Hadidi being on summer holiday. Otherwise, Egypt’s football team exiting the Olympics after their loss to Brazil yesterday got airtime, with Al Hayah Al Youm’s Lobna Assal praising the team’s performance despite their loss (watch, runtime 2:07) while Sada El Balad’s Ahmed Moussa criticized Egypt’s team captain Shawky Gharib, saying the team could have tried harder (watch, runtime 4:07).

The tumult in Tunisia is still a favorite topic among pundits, with Al Hayah Al Youm’s Lobna Assal saying Tunisia’s President Kais Saied has “opened fire” on Islamists, but that nobody had been arrested and his actions are all legitimate under the Tunisian constitution (watch, runtime 9:01). Meanwhile, Sada El Balad’s Ahmed Moussa called the Nahda party “a gang of criminals” and babbled on about his contention that he was among the early supporters of President Saied and a secular government in Tunisia (watch, runtime 6:39). Because, you know, they needed his approval to go down that path.

And GERD also gets a nod: Former irrigation minister Mohamed Nasr El Din Allam told Moussa that Ethiopia was exaggerating the amount of water it had stored in the dam’s second filling for political reasons — and that according to Egyptian estimates, Ethiopia had only managed to store 7.5 bn cubic meters, rather than the 13.5 bn it had claimed, (watch, runtime 6:31).

A similarly quiet weekend in the foreign press. Among the few stories of note:

• Heatwave ruins mango crops: Farmers in Ismailiya have been struggling to grow their mango crops because of an extreme heat wave. You can thank global warming. (Reuters)
• GERD: Egypt is making overtures to Senegal to get its support on the Grand Ethiopean Renaissance Dam crisis before the west African nation assumes the presidency of the African Union next year. (Al Monitor)
• Theatre: UK playwright Ben Okri found inspiration in Ancient Egyptian poem The Tale of Sinuhe for his new play tackling immigration. (Financial Times)

Israel blames Iran for Gulf tanker attack: An Israeli oil tanker was attacked by drones off Oman on Thursday, killing two crew members from Romania and the UK. Israel blamed Iran for the incident and called on world powers to mount a strong response. Bloomberg and Reuters have more.

Tunisia’s political crisis has cast a shadow over its Islamist movement: Moderate Islamist party Ennahda has played a central political role in post-revolution Tunisia, but President Kais Saeid’s decision to fire the prime minister and suspend parliament has party officials worried of an impending crackdown and a polarization of politics against Islamists, Reuters reports.

23 July-11 August (Friday-Wednesday): Tokyo 2020 Olympics.

2-4 August (Monday-Wednesday): Egypt is hosting the Africa Food Manufacturing exhibition at the Egypt International Exhibition Center.

5 August (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

9 August (Monday): Islamic New Year.

9 August (Monday): Russian flights to Sharm El Sheikh, Hurghada resume.

12 August (Thursday): National holiday in observance of the Islamic New Year.

September: Delegation of Russian companies to visit Russian Industrial Zone.

3-5 September (Friday-Sunday): The World Karate Federation will hold the third competition of the 2021 Karate 1-Premier League in Cairo.

12-15 September (Sunday-Wednesday): Sahara Expo: the 33rd International Agricultural Exhibition for Africa and the Middle East.

15 September (Wednesday): The CFO Leadership & Strategy Summit is taking place in Egypt.

16 September (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

21-22 September (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

30 September-2 October (Thursday-Saturday): Egypt Projects 2021 expo, Egypt International Exhibition Center, Cairo, Egypt.

30 September-8 October (Thursday-Friday): The Cairo International Fair, Cairo International Conference Center, Cairo, Egypt.

30 September: Closing of 2021’s first oil and gas tender in the Gulf of Suez, Western Desert, and the Mediterranean.

October: New legislative session begins.

1 October (Friday): Businesses importing goods at seaports will need to file shipping documents and cargo data digitally to the Advance Cargo Information (ACI) system.

1 October (Friday): Expo 2020 Dubai opens.

1 October (Friday): State-owned companies and government service bodies selling goods and services to customers that have not yet signed on to the e-invoicing platform will suffer a host of penalties, including removal from large taxpayer classification, losing access to government services and business, and losing subsidies.

6 October (Wednesday): Armed Forces Day.

7 October (Thursday): National holiday in observance of Armed Forces Day.

11-17 October (Monday-Sunday): IMF + World Bank Annual Meetings.

12-14 October (Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria, Egypt.

18 October (Monday): Prophet’s Birthday.

21 October (Thursday): National holiday in observance of the Prophet’s Birthday.

24-28 October (Sunday-Thursday) Cairo Water Week, Cairo, Egypt.

27-28 October (Wednesday-Thursday) Intelligent Cities Exhibition & Conference, Royal Maxim Palace Kempinski, Cairo, Egypt.

28 October (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

30 October – 4 November (Saturday-Thursday): The first edition of Race The Legends, Egypt.

31 October – 12 November (Sunday-Friday): The 26th UN Climate Change Conference, Glasgow, UK.

November: The French-Egyptian Business Forum is set to take place in the Suez Canal Economic Zone.

November: Egypt will host another round of talks to reach a potential Egyptian-Eurasian trade agreement, which can significantly contribute to increasing the volume of Egyptian exports to the Russia-led bloc that includes Armenia, Belarus, Kazakhstan and Kyrgyzstan.

1-3 November (Monday-Wednesday): Egypt Energy exhibition on power and renewable energy, Egypt International Exhibition Center, Cairo, Egypt.

2-3 November (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

1-12 November (Monday-Friday): 2021 United Nations Climate Change Conference (COP26), Glasgow, United Kingdom.

29 November-2 December (Monday-Thursday): Egypt Defense Expo.

12-14 December (Sunday-Tuesday): Food Africa Cairo trade exhibition, Egypt International Exhibition Center, Cairo, Egypt.

13-17 December: United Nations Convention against Corruption, Sharm El Sheikh, Egypt.

14-19 December (Tuesday-Sunday): The Cairo International Festival for Experimental Theater.

14-15 December (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

16 December (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

14-16 February 2022 (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, New Cairo, Egypt.

1H2022: The World Economic Forum annual meeting, location TBD.

May 2022: Investment in Logistics Conference, Cairo, Egypt.

27 June-3 July 2022 (Monday-Sunday): World University Squash Championships, New Giza.

**Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish below between the actual holiday and its observance.