AM — PMI slides again in sharpest decline since mid-2020 + Washington sounding warning on global economy, food shortage

Good morning, wonderful people, and happy almost-THURSDAY. It’s a brisk-but-not-busy news day here at home — by far the most interesting news today is happening abroad, where policymakers are taking stock of how bad they think the global economy could get this year.

THE BIG STORY AT HOME- Private sector growth was weighed down by war last month. Egypt’s non-oil private sector activity saw in March its sharpest decline in 21 months, according to S&P Global’s purchasing managers’ index survey. We have the rundown in our Economy section, below.

SMART POLICY- We could be getting a new authority to manage policy on population growth if a Senate proposal moves forward and eventually passes the House of Representatives. We already have a council that looks after the issue, but the new body would apparently report in to Ittihadiya and (presumably) have more teeth (and a fresh mandate) to push policy measures as a result. Youm7 has details.

PSA- The heatwave continues, with our favourite weather app suggesting the mercury will hit 38°C this afternoon and 40°C tomorrow.

SO, WHEN DO WE EAT? You’ll be breaking your fast at 6:17pm CLT this evening in the capital city, and fajr prayers are at 4:08am.

THE BIG STORY ABROAD- With 12 days to go before the IMF / World Bank spring meetings, Washington is sounding the alarm — and, separately, setting off alarm bells in some corners:

• Treasury Secretary Janet Yellen will warn today “of major consequences for the global economy as a result of Russia’s invasion of Ukraine,” the New York Times reports. You can check out her prepared remarks for a congressional committee here (pdf).
• Washington officials are “scrambling” to “limit damage from fast-spreading food shortages” that threaten a global food crisis — and their work is being complicated by both climate change and covid-19, Politico writes.

This comes as the Fed “spooked markets” after top officials confirmed they are committed to high interest rates and a “rapid” reduction of the Fed’s balance sheet starting next month and as Washington and its allies ready more aggressive sanctions on Russia in the wake of the atrocity in Bucha and other villages in Ukraine.

MEANWHILE- “Ladies and gentlemen, are you ready to close at the UN? Do you think the time of international law has gone?” Those were the questions posed by Ukrainian President Volodymyr Zelensky in an impassioned speech to UN Security Council members yesterday. Zelensky called on the council to kick Russia out — or else dissolve itself — over alleged war crimes by the Russian military in western Ukraine. We have more on that and other developments in the war in today’s War Watch section, below.

SIGN OF THE TIMES- Deserted streets and robot dogs: The streets of the world’s third-largest city are looking pretty dystopian right now. Check out this drone footage showing the deserted streets of Shanghai after authorities plunged the city into lockdown to curb an outbreak of covid-19. Shanghai is home to some 26 mn people and is the largest city to be subject to the full zero-covid lockdown treatment. It’s also one of the first cities in the pandemic era to have deployed Boston Dynamics’ robot dog, apparently letting them loose on the streets to broadcast public announcements about the lockdown. Not creepy in the slightest.

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MARKET WATCH-

Saudi Aramco has raised crude prices to an all-time high for Asia as part of a global price hike, according to a document obtained by Reuters. The Saudi oil giant will sell a barrel of its Arab Light crude to Asia in May at USD 9.35 a barrel above Oman / Dubai crude, the grade’s highest premium ever.

Asian oil buyers will likely seek alternatives on the spot market or reduce purchases of Saudi contracts in response to the hike, traders tell Bloomberg. Additional flows from the US’ strategic reserves have pushed down the spot price in recent days, while premiums in other parts of the Middle East have fallen due to demand concerns following China’s covid-19 outbreak.

CIRCLE YOUR CALENDAR-

Expect movement on fuel prices this week or the next: The government’s fuel pricing committee is due to have its quarterly meeting at the beginning of this month, when it will likely opt to hike prices in 2Q. If it does so, it would be the fifth time in less than a year. The committee increased prices of 80, 92 and 95-octane by EGP 0.25 when it last met in February in response to rising international prices, and since then, the war in Ukraine has sent Brent up another 15% past USD 107 a barrel. Prices at the pump have risen by up to 16% since April last year.

ALSO THIS WEEK AND NEXT-

• Foreign reserves: March’s foreign reserves figures will be announced some time this week;
• Inflation figures for March are expected on Sunday, 10 April.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, and urban development, as well as social infrastructure such as health and education.

In today’s issue: We take a deep dive into how the International Energy Association (IEA) expects western sanctions on the Russian economy to impact oil markets in the coming months. The energy body warns that we could soon be entering the “biggest supply crisis in decades” as punitive measures on one of the world’s biggest oil producers limits global oil supply by a projected 3 mn barrels per day.

Activity in Egypt’s non-oil private sector saw its sharpest decline in 21 months in March as the effects of the Russia-Ukraine war and the devaluation of the EGP hit output and new orders, according to S&P Global’s purchasing managers’ index (PMI) survey (pdf). Rising inflation and slowing demand caused activity to decline at a faster pace last month, pushing the gauge down to 46.5 from 48.1 in February, deeper below the 50.0 mark that separates expansion from con}traction.

This is the sixteenth consecutive month Egypt’s non-oil private sector has been in contraction since mounting a brief recovery from the covid shock in 2020.

Wait, isn’t the PMI done by IHS Markit? The monthly PMI releases are now being published under the S&P brand after it completed its USD 44 bn merger with IHS Markit at the end of February. There’s plenty more here if you’re curious.

What they said: “The non-oil economy was clearly hit by the effects of the Russia-Ukraine war during March, with firms often seeing clients pull new orders back amid increased prices and economic uncertainty,” said S&P Global economist David Owen.

Output, new orders and inventory purchases saw their steepest declines since the first wave of the pandemic, driven by a fall in demand as prices rose in key areas like energy, food, fuel and raw materials. “Egyptian firms reacted to higher prices and lower demand by severely reducing their purchasing activity at the end of the first quarter,” S&P wrote.

Manufacturers + retailers were the most affected: "The downturn was clearest to see in industrial sectors such as manufacturing and construction, where businesses and clients were more greatly exposed to energy and material price rises due to the war.” Also impacted by the war: wholesale and retail firms hit by rising food prices amid disruptions to imports of basic commodities like wheat.

The 16% fall in the EGP will provide “some short-term support” but will also “likely accelerate cost pressures,” said Owen.

Businesses cut back on jobs for the fifth month running in response to falling output, according to the survey. Employment fell at the fastest rate since November but remained “modest,” S&P said.

Confidence fell to another all-time low: Outlook for business activity in the year ahead fell to the lowest level in the survey’s history for a second consecutive month. “Worries over inflation and the Russia-Ukraine war meant that hopes of future output growth were greatly depressed in March,” Owen said

The foreign press is taking note of the survey: Bloomberg | Reuters.

ELSEWHERE IN THE REGION- Strong output and new business continued to propel non-oil private sector growth in Saudi Arabia and the UAE last month:

• Saudi Arabia saw its fastest growth in activity since December 2017. The KSA PMI registered 56.8 in March, up from 56.2 in February, on surging output, rising client demand and recovering supply chains. (PMI, pdf)
• Output and new orders in the UAE continued to rise despite inflationary pressures tempering purchasing activity, holding the country’s PMI at 54.8 for the second month in a row. (PMI, pdf)

We imported 24% more wheat from Russia in March than we did the same time last year, buying some 479k tons of Russian wheat last month despite the ongoing war in Ukraine and its impact on the global grain market, Reuters reports, citing freight data.

That means nearly 30% of Russian wheat exports in March headed our way. The country exported some 1.7 mn tons of wheat in March — up 60% y-o-y despite disruption caused by its war. Shipments were running at a “rapid” rate in the second half of the month after an initial slowdown in February, as most challenges with payments and shipping vessels were resolved, Bloomberg previously reported.

Russian wheat has kept on coming — but it hasn’t necessarily been paid for yet. Payments have been settled on some cargoes bought before the war broke out at the end of February, but sanctions have complicated fresh transactions. Buyers are still “trying to figure out a secured channel” to pay for March purchases and are negotiating with banks to resolve issues on a case-by-case basis, traders told Reuters.

Ukrainian wheat is another story: Our imports of Ukrainian wheat plunged 42% y-o-y last month, to record 124.5k tonnes.

Ukrainian grain exports could go back to pre-war levels as soon as the country’s ports re-open, Deputy Economy Minister Taras Kachka told Bloomberg Asharq (watch, runtime 1:24). The global grain shortage and price jumps are “all because of Russia’s closure of Ukrainian ports,” he said, adding that Ukraine is sitting on 6 mn tonnes of wheat. Blockaded ports mean there’s little to no grain coming out of Ukraine. Russia and Ukraine combined usually account for more than 80% of our wheat imports.

SOUND SMART- The private sector is driving wheat imports right now. The data doesn’t break down the split between public and private wheat purchases. That said, state grain-buyer GASC hasn’t made a successful tender since the war began — and doesn’t plan to try again until mid-May, after having received all its backlogged orders of Russian wheat. This marks an acceleration of a trend that last year saw the private sector eclipse the state as Egypt’s leading wheat importer. The government is instead focusing on the local harvest, and will spend around EGP 36 bn to purchase 6 mn tons of wheat from local farmers to replenish strategic reserves.

And private wheat players are diversifying away from Black Sea wheat: Higher prices amid the supply squeeze haven’t deterred the private sector from tapping suppliers beyond Russia and Ukraine, according to Reuters data. Traders have secured shipments from “unusual” suppliers including France, Brazil, Lithuania, Bulgaria, and even Germany — which hasn’t sent us wheat in years, the newswire notes.

SCZone to ink agreement on grain packaging facility

SCZone signs agreement with Emirati-Egyptian consortium to build grain packaging factories in East Port Said: The Suez Canal Economic Zone (SCZone) will within days sign an agreement with Emirati firm Rosa Grains and local player Roots Commodities to build eight grain packaging factories worth EGP 100 mn each in East Port Said, SCZone head Yehia Zaki told Enterprise, confirming a report from Al Mal.

Background: The factories form part of the EGP 2.2 bn bulk grain terminal the two companies will build for the SCZone’s planned East Port Said logistics hub. The agreement for the terminal — through which 7.2 mn tons of grain are expected to be traded each year — is separate to the factories and is still pending House approval.

Expedition cleared for DD on Domty: Domty’s board of directors has given Expedition Investments the all-clear to start due diligence in connection with Expedition’s bid for control of the company, the EGX-listed cheese maker said in a regulatory filing (pdf) yesterday.

The bid: Expedition is looking to acquire up to 90% of the company at EGP 5.00 per share in a transaction that values the food producer at more than EGP 1.4 bn, based on our math. This is a 27% premium to its EGP 3.94 closing share price last Thursday, before Expedition’s play was announced. Domty shares are up nearly 15% so far this week and rose 2.7% during yesterday’s trading to close at EGP 4.52.

The bidder: Expedition Investments is an offshore SPV controlled by unknown investors in Egypt and the Gulf. Domty Chairman and MD Omar El Damaty and Vice Chairman Mohamed El Damaty hold stakes in Expedition and did not take part in this week’s board vote. The company is domiciled in Mauritius and counts veteran investment banker Mohamed El Akhdar as a board member.

New M&A advisory shop Pie acquires business marketplace Exits

Newly-launched Cairo-based M&A advisory outfit Pie Consulting has acquired Exits, a regional online marketplace for buying and selling apps, websites and other firms, it said in a press release Monday, without disclosing the value of the transaction.

This is the first we’ve heard of Pie, which aims to address what it says is a gap in the M&A advisory market for startups and SMEs looking to bring in investors. The firm was set up six weeks ago by Mohamed Aboulnaga (LinkedIn), co-founder and CEO of Egypt-based fintech Klivvr and co-founder of Halan (now MNT–Halan), he told Enterprise. Aboulnaga aims with PIE to “build a MicroAcquire in the Middle East,” he said. MicroAcquire is a Silicon Valley startup acquisition marketplace that connects investors with potential targets.

Pie has already been busy: The firm has advised on a merger in the tech sector and an acquisition in e-commerce, he told us, adding that an announcement on the transactions will be made soon. Their pipeline of mandates include acting as sell-side advisor for three firms operating in mobility, on-demand service and e-commerce, and working on the buy-side for a Gulf company on the lookout for an acquisition in Egypt, he said.

Rated Egyptian banks have little direct exposure to Russian and Ukrainian assets, according to an S&P Global Ratings report looking at the impact of the war on the banking sector in eight Middle East and African markets. “We do not expect the conflict will have significant direct effects on bank asset quality indicators,” the report read.

The impact on banks of the EGP’s depreciation is also set to be limited given that foreign-currency lending accounts for only 20% of the loan books of the banks S&P concerns.

And from the Dept. of the Obvious: Credit losses in the sector could tick up on the back of turbulence in the wider economy given all that’s going on right now, the rating agency suggests.

Local banks face no funding or liquidity challenges, according to the report. Our banking sector has an “ample” local customer deposit base, “where growth has proven resilient even at times of weakened stability,” S&P said, adding that it expects leverage to remain low at a loan-to-debt ratio of around 50% throughout 2022.

The 18% CDs offered by state-owned banks Banque Misr and National Bank of Egypt after the central bank upped interest rates put pressure on banks’ net interest margins, depending on uptake and whether private banks follow suit. Investors had poured some EGP 423 bn into the CDs as of Monday, Al Arabiya reports.

IMF support could help mitigate overall economic risks in Egypt in general and to the banking sector in particular, the report suggests. The government is in talks with the international lender over a fresh round of assistance, following two rounds of funding in 2016 (coinciding with the float of the EGP) and in 2020 (amid the pandemic) totaling USD 20 bn.

ELSEWHERE IN THE REGION- The main risks across the region remain high food and oil prices and a decreased risk appetite in emerging markets among investors, the report notes. Banks in Turkey and Tunisia are most exposed to the impact of Russia’s war, the report read, while Saudi, Emirati and South African banks show little to no vulnerability.

A Hassan Allam Properties subsidiary has secured EGP 1.8 bn in financing from the National Bank of Egypt (NBE) and AAIB to finance its residential project Swan Lake West in Sixth of October, according to a statement (pdf).

The project: The financing is set to accelerate construction at Swan Lake West, which will house around 550 units over 173 feddans, the statement says.

Advisors: Adsero-Ragy Soliman & Partners acted as legal advisor for the two banks, and Matouk Bassiouny & Hennawy acted as legal advisor for Hassan Allam Properties. Misr Company for Management and Engineering Development acted as the independent engineering advisor.

Zelensky tells UN Security Council to kick Russia out — or dissolve itself: Ukrainian President Volodymyr Zelensky told the UN Security Council that it should remove Russia from the council so it can no longer exercise its veto power on votes about the war in Ukraine. “If there is no alternative and no option, then the next option would be dissolve yourself altogether,” Zelensky said during a speech to the council yesterday (watch, runtime: 20:00). Zelensky made the speech following a visit to the Ukrainian city of Bucha, where civilian bodies were found in the streets following Russian forces’ withdrawal, many of them having apparently been executed a point-blank range or indiscriminately killed. The Ukrainian president warned the council of similar scenes in other cities currently under the Russian occupation.

Foreign Minister Sameh Shoukry landed in Warsaw for the second leg of an Arab League peacemaking mission, according to a tweet by Foreign Ministry Spokesman Ahmed Hafez. The Arab League delegation met with Polish Foreign Minister Zbigniew Rau, Hafez said in a separate tweet, but there’s been no official word yet on the outcome of subsequent talks with Ukrainian Foreign Minister Dmytro Kuleba. The Arab League delegation made a brief visit to Moscow yesterday for talks with Russian Foreign Minister Sergey Lavrov, where it offered to mediate ceasefire talks between Russia and Ukraine.

IN ECONOMY- US tries to drain Russian USD reserves — or tip it into default: The US government blocked the Russian government on Monday from using reserves held at US banks to make a USD 600 mn bond payment, Reuters reports. Russian authorities will now have to choose whether to drain the country’s remaining USD reserves for payments on its debt, or face a historic default. The country 30 days before the grace period on the payment runs out.

A fresh round of sanctions against Russia will likely include coal export and investment bans: The US, European Union and the G7 are working to hit Russia with more sanctions, a US official told Bloomberg. The new round of sanctions could include a US ban on investing in Russia and an EU ban on coal imports, as well as tougher penalties on Russian financial entities, and officials and their families.

Sanctions extend to the dark web: The US Treasury announced sanctions targeting prominent Russian darknet market Hydra to “disrupt proliferation of malicious cybercrime services, dangerous drugs, and other illegal offerings.”

Mahmoud Momtaz (LinkedIn) has been appointed to serve a full four-year term as chairman of the Egyptian Competition Authority, according to a Trade Ministry statement. Momtaz has headed the authority since January 2021 in an interim capacity. He holds a PhD in competition law and economics from the University of Hamburg and previously worked for the World Bank.

The talk shows can’t get enough of this year’s Ramadan dramas. The holy-month news void continues: Ala Mas’ouleety’s Ahmed Moussa praised Yasser Galal’s performance as President Abdel Fattah El Sisi in Al Ekhtyar 3 (watch, runtime: 3:11), while Al Tasea was joined by film critic Tarek El Shenawy, who had only good things to say about Galal’s show and Mohamed Ramadan’s El Meshwar (watch, runtime: 2:47 | 1:43).

If you still haven’t settled on what to watch this month, head to our Ramadan TV guide.

Mohamed Salah is all over the UK press, after Sports Minister Ashraf Sobhi claimed the Egyptian King told him he intends to extend his stay at Liverpool, against Sobhi’s advice. (BBC | Daily Mail | Mirror)

Also making headlines:

• How Swvl SPACed: Swvl CEO Mostafa Kandil gave an interview on the mass transit app’s Nasdaq debut via a merger with SPAC Queen’s Gambit Growth Capital. (Bloomberg)

• Egypt cozies up with Rwanda as it tries to push Nile Basin countries to pressure Ethiopia over the Grand Ethiopian Renaissance Dam. (Al Monitor)
• Human rights: Prominent activist Alaa Abdel Fattah has begun a hunger strike in prison to protest jail conditions. (AFP)

Japan’s Yazaki to build Fayoum auto parts factory for export: The General Authority for Investment and Freezones has signed an MoU with Japanese auto parts maker Yazaki to establish a EUR 20 mn factory in Fayoum that will export auto parts under freezone rules, a cabinet statement read. The factory is set to create 3k jobs and export EUR 100 mn worth of auto parts annually when production begins in July next year.

El Sisi calls Orban following landslide election victory: President Abdel Fattah El Sisi yesterday called Hungarian Prime Minister Viktor Orban to say well done on securing a fourth consecutive term in office, the Egyptian presidency said yesterday. Ties between Hungary and Egypt have strengthened in recent years, amid work to boost trade cooperation and vocal praise from the Hungarian side for our efforts to slow illegal immigration to Europe.

Kuwaiti PM + government resign: Kuwaiti Prime Minister Sheikh Sabah Al Khaled Al Sabah and his government have resigned after 10 parliament members filed a motion to no longer cooperate with the country’s leadership, according to state-run news agency KUNA. The PM’s resignation comes a day before he would have faced the equivalent of a no-confidence vote in parliament triggered by the MPs’ request, Reuters reports. A new prime minister will likely now be appointed, a Kuwaiti political analyst told the newswire.