Egypt will outperform in 2017, Franklin Templeton says

Egypt is hosting the Organization of Arab Petroleum Exporting Countries (OAPEC) in Cairo today. Oil Minister Tarek El Molla told Al Masry Al Youm the meeting will include some market discussions as well as moving forward with a number of procedural issues.

PM to sign off on pricing agreement between Big Pharma and MoH: Health Minister Ahmed Rady is expected to present to discuss with Prime Minister Sherif Ismail today the Health Ministry’s final agreement to allow pharma manufacturers to raise prices, according to Al Borsa. “Government sources” recommended that Ismail approve the proposal, as long as the new prices don’t come into effect until February 2017, the newspaper reports, which the head of FEI’s pharma division tells Al Mal is the plan anyway. Meanwhile, Al Borsa reports that the House Health Committee is expecting to meet with Rady next week to discuss the pact. The committee has also formed a sub-committee to look into the shortages of medicine in the local market, according to Al Masry Al Youm, and is asking the government to hold off on implementing the price hikes until the sub-committee establishes a tally of the meds in short supply. Meanwhile, the Pharmacists’ Syndicate also said it will reject any agreement on the matter if it is not included in the talks, as we noted yesterday.

Are Russian tourists coming back soon? That seems to be the message backing a report in Russian state-owned news site Sputnik, which notes the highlight of a call yesterday between President Abdel Fattah El Sisi and his Russian counterpart, Vladimir Putin, as The leaders noted the progress in joint efforts by Russian and Egyptian experts and security personnel aimed at strengthening flight and airport security, which could expedite the resumption in near future of regular air travel between Moscow and Cairo.” Russian Transport Minister Maxim Sokolov had said in late November that flights could resume before the end of this year. The story is being picked up in the local press, with Al Masry Al Youm’s coverage being typical.

Furniture expo Le Marché will kick off on 12 January, Al Shorouk quotes event owner Tarek Nour as saying, explaining that the Interior Ministry postponed the expo from its original 22-25 December for “unknown” security reasons that have yet to be made public.

CIB raised its limits yesterday on credit card use abroad to the USD equivalent of EGP 250K a month for Platinum cardholders (up from EGP 150K), while raising cash withdrawal limits for Platinum cards to EGP 60k for clients. Fees on card use outside of Egypt to 3-4%, depending on which card you hold. The bank’s latest table of limits for all cardholders is here (pdf).

The Ismail cabinet will discuss Investment Minister Dalia Khorshid’s proposed Investment Act on Sunday, 25 December.

The Central Bank of Egypt’s Monetary Policy Committee will discuss interest rates for the last time this year on Thursday, 29 December

Amr Adib hosted 10 members of the business community last night on Kol Youm to discuss the impact of the EGP float, and all of them are complaining of growing debts that they are unable to repay because of the devaluation.

Most of the complaints appear to stem from banks not refinancing temporary overdrafts on their LCs, as instructed by the CBE, a complaint we’ve been hearing frequently of late. Five Stars Feed, Mills and Animal Produce Company chairman Mahmoud El Shorbagy, said his sector has lost EGP 1.2 bn so far and has had to cut production by 50%. “Some banks have frozen our accounts on grounds of exceeding our legal limit,” El Shorbagy said. “Some banks have stopped dealing with us altogether.” He added that the government must meet with representatives from the sector to hear their problems and discuss possible solutions (watch, runtime 1:39).

Domty CEO Mohamed El Damaty, also the head of the food industries division at the Egyptian Federation of Industries, told Adib in a call-in that Egyptian companies will bear a collective loss of EGP 70 bn in 2016 on the back of an import backlog worth USD 6.5-7 bn (watch, runtime 2:19).

We’ve noted earlier this month that over 100 importers have signed a memo to the prime minister and CBE governor calling for them to step in and save them “from bankruptcy,” with some 65 companies reportedly owing banks EGP 4.6 bn. This issue has been receiving widespread coverage in the local press last night.

Adib is also back to taking aim at the judiciary, calling for the government to prioritize reforming the justice system in Egypt (watch, runtime 7:50).

Ibrahim Eissa was equally concerned with the economy last night and held his weekly Wednesday debate, this time with the former Egyptian Private Equity Association head Hany Tawfik and Al Ahram Chairman Ahmed El Sayed El Naggar on how the float has impacted the economy. Tawfik said it is still too early to judge but that initial indications are positive, pointing to foreign appetite for both Egyptian shares and FDI opportunities. He added that price increases were expected and that Egyptians now need some belt-tightening (watch, runtime 2:33).

On the other side of the fence, El Naggar indulged his inner Nasserist, saying it’s too early to say anything about the investment outlook and mumbling something our not knowing how things are looking until the government issues an official statement on the floatation “helping or harming” foreign direct investment. What’s more, foreign buying on the EGX is a “loss” for Egypt “because these stocks are worth more than what they are going for.” El Naggar said that the only immediate effect from the float was “higher prices for consumers” and ballooning inflation rates (watch, runtime 2:38).

Yahduth fi Masr’s Sherif Amer was optimistic last night about prospects for the return of Russian tourists, saying President Abdel Fattah El Sisi’s phone call with his Russian counterpart was the first step in the resumption of flights between Moscow and Cairo.

Lamees El Hadidy was off the air last night.

Franklin Templeton sees Egypt outperforming in 2017: The UAE and Egypt are the Middle East stock markets “poised to perform best in 2017,” Bassel Khatoun, Franklin Templeton Investments’ MENA equity CIO, told Bloomberg. Khatoun says the house view on Egypt is “more controversial” than their bullish outlook on the UAE, but they like it because they believe that, with the float of the EGP, “things will be adjusted. [Egypt] has fantastic demand and a growing population, but since 2011 it has suffered from a lack of [USD] availability and from security issues, resulting in a drop in tourism. We think that will change now. With the IMF funding, and the [USD 12 bn] it is getting now, we think there is an opportunity for Egypt to come back to those very high growth levels that it used to have between 2003 and 2008.” Franklin Templeton is bearish on Saudi Arabia, Qatar, and North African markets, but neutral on Kuwait.

Elsewhere on Bloomberg: The biggest challenge for Egypt’s currency market now is for commercial banks to attract USD from within the market, the news service’s Alaa Shahine says on Bloomberg Markets: Middle East (runtime 03:04). The country also awaits more foreign investment inflows, he adds, saying that one of the key benchmarks to keep an eye on is the performance of the local currency fixed income market and the revival of the carry trade.

“Egypt’s long-term trade prospects are mostly positive,” according to HSBC’s Egypt Trade report, picked up by Daily News Egypt. The report cites potential infrastructure development, recent natural gas discoveries, the support of the International Monetary Fund to Egypt’s economic reform agenda, and foreign investment from Asia as backing its outlook. “This comes despite current challenges, such as global economic uncertainty, high security risks, political turmoil, fiscal constraints, and rising inflation due to the liberalisation of the exchange rate,” according to the report. While the report views petroleum exports as key for export growth, the sector’s contribution to GDP is expected to decline to 16% in 2021-2030 from 22% in 2015, while offshore investment from Eni and BP are expected to boost GDP and export growth while reducing the country’s imports. Saudi Arabia, Turkey, and the UAE are expected to remain Egypt’s largest export markets (two-thirds of this list doesn’t really like us much these days), whereas China, India, and Bangladesh are projected to be Egypt’s fastest growing export markets.

The Electricity Ministry is reconsidering its five-year plan to phase-out electricity subsidies, as its subsidies budget has nearly doubled as a result of the EGP float and fuel price hikes and is expected to reach EGP 63 bn in FY2017-18, a government official tells Al Borsa. Three options are on the table to replace the plan, which would have seen power subsidies cut 50% from their 2014 levels by 2020 and fully eliminated by 2025. The first would see electricity prices rising next July as planned and subsidies scrapped entirely by FY2018-19, while the second would cut subsidies completely starting FY2017-18, except for low-tier consumers. The third scenario would see lower-tier segment continue to receive subsidized power until 2019 while eliminating subsidies for high-tier consumers by FY2017-18. A ministry committee is expected to present a new proposal to the minister in two weeks’ time, before the Ismail cabinet reviews it at the end of January.

Placing the Principal Bank for Development and Agricultural Credit (PBDAC) under central bank regulation instead of the Agriculture Ministry is a significant reform that did not get much attention, Patrick Werr writes in The National. He says: “There is a plan to develop and restructure [PBDAC] under the supervision of the Dutch financial services group Rabobank… Hopefully, under central bank management, the bank will be required to adhere to reserve ratios and loan classifications and forced to increase its capital… The central bank should force the bank to stick to banking and to lending that is profitable and self-sustaining. It should be charging commercial rates of interest.”

ECA can probe telecoms market, court says: The Administrative Court issued a verdict saying that looking at anti-competitive behavior in the telecoms market is within the Egyptian Competition Authority (ECA)’s remit. Mobinil (before rebranding as Orange Egypt) had filed a case against the ECA arguing it did not have authority over the sector and that overseeing the market was solely the duty of the National Telecommunications Regulatory Authority (NTRA). ECA Chair Mona El Garf, still one of our favorite public servants in Egypt, naturally enough praised the decision. She said her office works in parallel with the NTRA as it probes the market for any anti-competitive or monopolistic behavior, whereas the NTRA is responsible for technical oversight.

Careem joins Ousta in campaign against Uber? Ride-hailing app Careem joined market newcomer Ousta in lodging a complaint with the Egyptian Competition Authority against competitor Uber for “flooding the local market,” Al Mal reports. As we noted yesterday, Egypt’s Ousta filed a complaint after Uber decided to not raise fares and forgo the 20% service fee it charges drivers until the end of January 2017. ECA Chair Mona El Garf told the newspaper the authority will look into with a view to resolving the dispute before the year is out.

The international press takes one more kick at the can before sliding (we hope) into the holiday quiet season, with Egypt being the subject of op-eds this morning in the Financial Times, the New York Times and the Wall Street Journal — three of our favourite newspapers, anywhere.

Egypt’s nostalgia for the rule of former President Hosni Mubarak is misplaced, Roula Khalaf writes in The Financial Times. “A charitable revisionist view of Mr Mubarak is emerging. It is true he might not have been the worst among Arab dictators, even if his administration was repressive and corrupt. But some are now fond of pointing out that Mr Mubarak … ‘He allowed the business community and the intelligentsia to have some space,’ says one business person,” Khalaf writes, but Ahdaf Soueif says “it’s hard to see why, if the system had carried on, things would’ve gotten better. It would have gotten worse but at a slower pace.”

Meanwhile, the FT is running a letter to the editor from one Chris Somes-Charlton arguing that Khalaf’s piece from earlier in the week (“Sisi’s Egypt: The march of the security state”) “points up the problems, but pulls its punches.” Somes-Charlton, a translator and business manager for Palestinian singer Reem Kelani, is particularly upset about the role of the military in the economy and the state’s management of water resources.

In a passionate and well-argued piece for the Wall Street Journal, Samuel Tadros — a fellow at the Hudson Institute at Stanford’s Hoover Institution — estimates that we have lost more than 1 mn Copts to emigration since the 1950s. “The Egyptian revolution of 2011 accelerated the process. The security vacuum, the empowering of Islamists in villages, and the Muslim Brotherhood’s rise to the presidency pointed to the coming doom.” Tadros argues that while President Abdel Fattah El Sisi “may be personally sympathetic to the Copts,” the government needs to do more to protect them— and US President elect Donald Trump should make the protection of Copts the cornerstone of his Egypt policy. Read: “Trump’s Opportunity: Saving Coptic Christians” (paywall).

Tadros’ piece stands alongside one by Farid Y. Farid for Quartz arguing that Copts in Egypt are “an easy target for a callous terror group” and yet still “under a different kind of threat from the authorities.” He claims “most incidents go unpunished, filtered through ‘reconciliation sessions’ under the auspices of the government that aim to move past the violence in order not to inflame the sectarian climate.”

Evan Hill explains how he believes “Egyptian ‘democracy’ really works” in The New York Times. He says “in Egypt, managed democracy appears to be the Sisi administration’s solution to a delicate problem: how, after removing his predecessor in a coup, Mr. Sisi can claim to oversee a democratic country without having to subject his government to any real opposition.” What we have, he argues, is a “‘managed democracy,’ a term experts often use to describe Russia under President Vladimir V. Putin and other countries ruled by strongmen. It’s a system in which elections and other formal trappings of democracy persist but lose their meaning; in reality, authority is centralized.”

Australians love visiting Egypt despite government warnings, Debra Killalea writes. “Although they remain ‘dangerous,’” she says, “Aussies continue to visit Lebanon and Egypt in droves with visitor numbers up in these countries during the past year.”

Wait, there are white people in Cairo? OMG. Oh, and a Kiwi writes of travel to The Exotic Orient (read: Egypt) under a pen name, serving up — not as satire — such astute observations as “What surprised me about the bar wasn’t Drake but that these kids were so white. The streets of Cairo are filled with people of various shades of brown. But here in this bar, the people were white. … It wasn’t for a couple of days that I worked out that these were the decedents of the Mamluks, the Caucasian slave-boys that ended up ruling Egypt for centuries. These kids were the product of hundreds of years of privilege.” It goes rapidly downhill from there. Read “A weekend in Egypt, five years after the eruptions of the Arab Spring,” but warn a loved one before you do that they should be ready to stop you from strangling yourself half-way through.

Where is the NGO law approved by the House of Representatives on November 29 and sent to the president for ratification, former Deputy Prime Minister Ziad Bahaa Eldin asks in Ahram Online. There has not been any news of it in the last three weeks, he says. Bahaa Eldin hopes that President El Sisi has used his “constitutional power to send the law back to parliament for reconsideration, which could offer the chance to save the country from this dreadful law.”

People are struggling and their patience is finite, says Emad Adib: People will run out of patience if the government doesn’t take swift action to alleviate some of the pressure caused by the EGP floatation and the accompanying inflation, Emad Adib writes for El Watan. “President Abdelfattah El Sisi praised Egyptians’ patience in his interview with the Financial Times,” he says. “But this praise won’t solve anything because life has become hard and harsh after the float.” Adib argues that the government needs to work fast to help the population by accelerating the implementation of things like cash subsidies and the ration card purge. “Please, don’t bet on people’s patience, because like everything else in the world, it’s finite.”

If you’re brown and flying Delta Airlines, watch out. You may be “politely” asked to give up your seat and move to the back — or off the plane: In the latest case of it “taking all allegations of discrimination seriously,” Delta Airlines staff escorted Arab-American celebrity prankster Adam Saleh off a flight after his having had a phone conversation in Arabic with his mom made over 20 passengers uncomfortable. In a video of the incident that has subsequently gone viral (watch; runtime: 3:21), his claims appear to be corroborated by passengers mockingly waving goodbye and jeering at him. Saleh tells CBS News that the angry passengers suggested his presence and speaking in another language echoed this week’s Christmas market attack in Berlin. Delta issued a statement saying it was investigating the incident, only to update it and claim Saleh “sought to disrupt the cabin with provocative behavior,” and pointing to him being a known online prankster. “This type of conduct is not welcome on any Delta flight.”

The story has been widely picked up, with reports in the Guardian, the BBC, the Daily Mail,

This is the latest in a string of mostly US airlines kicking passengers out because their skin tone, language or facial hair made pigment-challenged passengers “uncomfortable.” We hope these passengers enjoyed their brief flight back to Selma, Alabama, c. 1953. We won’t be flying Delta soon (despite one of us having a remarkably good flight from JFK to Rome on Delta quite recently), and anyone speaking any language other than ‘Murican don’t have to, either.

Egypt going back to the Nile Basin Initiative? There are attempts to bring Egypt back to participate actively in the Nile Basin Initiative, away from the dispute that erupted after member countries signed on the Entebbe agreement, a source told Al Shorouk. Egypt had frozen its membership of Initiative when five upstream countries signed the Entebbe agreement in 2010.

President Abdelfattah El Sisi asked Malta’s Foreign Minister George William Vella to “clarify the reality of developments in Egypt and region” to members of the European Union during its six-month term at the head of the Council of the EU, Al Shorouk reported. El Sisi met with Vella in Cairo on Wednesday to discuss ways to boost relations between both countries. El Sisi also met with Iraqi Foreign Minister Ibrahim al-Jaafari on Wednesday, Al Ahram reported, with the president stressing that Egypt supports Iraq in its fight against terrorism and is willing to provide assistance where it can.

Investment Minister Dalia Khorshid signed an agreement with BNP Paribas for a USD 650 mn financing package to fund the development of the Assiut Power Station and the West Damietta one. Al Mal says the project will convert two existing plants into combined-cycle facilities, increasing their output from 1,500 MW to 2,250 MW each. The project is part of the government’s emergency electricity plan it undertook last year.

Canada’s TransGlobe Energy announced it is on track to achieve its production recovery plan target of 13-14k bpd by the end of 2016, according to its mid-quarter update. It also said 4Q2016 production will meet or exceed guidance. TransGlobe also provided an update of production startup at the North West Gharib concession and on the operations at the South Alamein concession along with its 2016 drilling programme.

The General Authority for Supply Commodities (GASC) has canceled a tender to import 50k tonnes of refined sugar, traders told Reuters. GASC did not buy any quantities after receiving only one bid. Only Sucden presented an offer to deliver sugar to GASC at a price of USD 548 per tonne. GASC had canceled a separate tender on Saturday also because it received only one offer. As for wheat, the Supply Minister said that the country’s reserves will last until the beginning of April 2017, according to Al Ahram.

None of the many countries to which Egypt exports peppers have complained, said the Agriculture Ministry’s spokesperson Hamed Abdel Dayem, who spoke to Al Shorouk on Saudi Arabia’s reported ban on Egypt peppers. Saudi authorities claim the Egyptian produce is contaminated with pesticides. Saudi authorities have not yet issued a formal complaint or notice to the government over the ban, Abdel Dayem added. Saudi Arabia is one of Egypt’s most important agricultural buyers at 400K tonnes of goods per year, 4K of which are peppers.

Orascom Telecom Media and Technology Holding (OTMT) announced it has sold its entire 100% shareholding of subsidiary Middle East and North Africa Submarine Cable (MENA) to Network i2i, a subsidiary of Bharti Airtel. According to a bourse statement, OTMT aims to conclude the transaction by the end of 1Q2017. “The decision to divest MENA comes in line with OTMT’s strategy in divesting its non-core assets. OTMT intends to utilize the proceeds of the sale in the recently expanded lines of operations being mainly the Financial, the Real Estate and the Logistics Sectors among others, aiming to strengthen OTMT’s profitability position and support its strategy to develop higher-growth / higher-yield businesses.” No details on the value of the transaction were provided.

10 banks have agreed to provide Etisalat Misr with EGP 6 bn in financing to fund its expansion in the market and acquisition of a 4G license. A source told Al Mal part of the syndicated funding will be an EGP 3.5 bn revolving credit line and the other part is an EGP 2.5 bn long-term loan. The source said NBE was the loan’s lead arranger, supported by CIB, Banque Misr, HSBC Egypt, and NBAD.

Zain Iraq will pay USD 94 mn to settle a tax case related to the 2007 acquisition of rival operator Iraqna from Orascom Telecom, its Kuwaiti parent Zain said, according to Reuters. Iraq’s tax authority had claimed Zain Iraq owed USD 187 mn in capital gains tax due on its USD 1.2 bn purchase of Iraqna and “unusually, the government tried to levy the capital gains tax on Zain Iraq as the asset buyer, rather than on the seller, Egypt’s Orascom Telecom, which was later renamed Global Telecom.” The newswire notes that under the settlement Iraq’s tax authority “will drop its claims against Zain Iraq, cancel associated owed interest and penalties, and allow Zain Iraq to appeal against additional tax assessments on itself and Iraqna for the respective periods of 2004-2010 and 2004-2007.”

The Ismail cabinet has received the automotive directive from the House of Representatives, according to Al Borsa, and will be amending the legislation after MPs objected to some of its clauses. As we noted last week, House members rejected articles imposing a 0.5% tithe on company profits to endow an industry development fund.

Japan’s Sumitomo is looking to build an EGP 200 mn automotive wiring harness factory in Sixth of October City, Trade and Industry Minister Tarek Kabil announced, according to Amwal Al Ghad.

France’s Alstom is “close to winning” a bid it had entered to supply the National Authority for Tunnels (NAT) with 64 new metro cars worth EGP 8.4 bn, Al Borsa reports, citing anonymous sources. Bids from Alstom and Korea’s Rotem, the only other contender for the contract, are still under review. The ability to bring project finance will be a key factor in the decision on who wins the award, the newspaper says.

Put two tablespoons of salt in your coffee before you read this: The Egyptian Automotive Traders Association is in talks with three Chinese companies to build a new assembly plant in Egypt, Al Mal reports. The project aims to produce a local, reasonably priced vehicle for the market.

The European Bank for Reconstruction and Development (EBRD) announced it is partnering with Bank of Alexandria (AlexBank) to support SME activity in Egypt with a USD 100 mn financing package. USD 50 mn will be used for on-lending to local SMEs and another USD 50 mn will be extended by the EBRD to AlexBank under its Trade Facilitation Programme. The EBRD is also extending AlexBank EUR 550,000 to enhance the skillsets and competitiveness of Egyptian enterprises by providing them with dedicated training and workshops, as well as forums with technical assistance focusing on improving existing processes, products, customer experience and technical expertise at the bank.

The Social Fund for Development (SFD) is in talks with the World Bank, European Union, and Islamic Development Bank for funding of approximately EGP 4 bn (or slightly over USD 200 mn) to be delivered by mid-2017, Al Mal reports. The funding will be directed to labor-intensive projects in underdeveloped governorates over the following four years.

The Investment Ministry issued the executive regulations for the Movable Assets Act last week. The legislation will help provide SMEs with access to funding by allowing them to collateralize assets such as equipment, inventory and crops. The regulations will establish a database for these assets.

The government leveling unfounded accusations against local companies hampers investment in Egypt, business leaders and experts tell Daily News Egypt. Head of the Food Export Council, Alaa El-Bahy, told the newspaper that the face-off with Edita is a case-in-point, saying that the government is responsible for the sugar crisis and made an “irresponsible mistake” by seizing the company’s sugar supplies.

Central Bank of Egypt Governor Tarek Amer will bank the second USD 1 bn tranche of the World Bank’s USD 3 bn loan package to Egypt to bolster reserves, he told President Abdel Fattah El Sisi during a meeting on Wednesday, according to Al Masry Al Youm.

USD 4.6 bn have gone into covering letters of credit since the EGP float on 3 November, according to a CBE statement issued on Wednesday. Banks have issued USD 3.3 bn in new LCs since the float, the statement read.

The Interior Ministry has taken “exceptional, unprecedented measures” to secure churches during Christmas, including conducting regular sweeps, banning parking within a specific radius of houses of worship, setting up security cameras, and stepping-up bomb sweeps, Al Shorouk reports.

Baby steps towards combating the stigma of HIV: A nationwide advocacy campaign is being launched this month (HIV / AIDS awareness month) to combat the negative perception of HIV in Egypt, Ahram Online reports. Also: The World AIDS Campaign (WAC) Egypt is collaborating with the Cyclers running community in a bike run on Friday to raise awareness on the issue. These events are nothing new to Egypt, a country considered by some to be is a regional leader in the fight the negative stigma against HIV / AIDS patients. Dance4life, a global initiative that aims to mobilize youth from around the world to raise awareness of the disease, has held concerts in Egypt.