Consumer Protection Agency going after Orange, Vodafone over 4G ads

It’s purchasing managers’ index day — cue the gnashing of teeth. The Emirates NBD Egypt PMI by Markit is due out this morning by 6:15am CLT — or about 10 minutes after we typically tap “send” on Enterprise. It will be posted here when released. The last iteration found the gauge at its lowest level since July 2013. The Saudi and UAE polls are also due out at 6:15am CLT today.

The draft Financial Leasing and Factoring Act leaked shortly before our dispatch time this morning, and we’ve not yet had time to digest it in full. Al Borsa has broken the story and presents what it says is the final version of the bill that is heading to the House of Representatives for debate. You can check out their coverage here or download the draft law here (in pdf). We’ll have more coverage in tomorrow’s edition.

A fuel price hike is not imminent, the Cabinet Information and Decision Support Center said yesterday. The statement came as media coverage of the continued rollout of fuel smart cards prompted rumors that a price hike was imminent.

Strong reserves report expected: The central bank is expected to tell us by Thursday how much reserves were in its coffers at the end of 2016, and we speculate it will be a pleasant surprise.

Important to remember: The CBE will have to make a payment to its Paris Club creditors in January.

Look for news on the eurobonds in the coming 2-3 weeks. We expect the Finance Ministry to announce Egypt’s planned USD 2.5-3 bn eurobond issuance sometime in the coming two to three weeks.

Oh, and for those of you waiting to watch the défilé on the red carpet: We’re moving into awards season. The Golden Globe awards are Sunday, 8 January. The Academy Award nominations are coming up on Tuesday, 24 January. The Grammys take place on 12 February and the Academy Awards are 26 February.

Star Wars, Episode VIII is set for release on 15 December. That’s a Friday. Just sayin’.

Qalaa Holdings Chairman Ahmed Heikal was optimistic about the future in an appearance last night with Lamees El Hadidy on CBC’s Hona Al Assema. In a lengthy discussion, the two discussed the economy and expectations of 2017. Heikal believes many factors support growth in Egypt — the shift to a more flexible currency regime, the gradual phase-out of subsidies (which will be positive for both the budget and the trade deficit, he says), the effect of the EGP devaluation on tourist inflows, new oil and gas discoveries, and the gradual pickup in export activities, to name but a few.

Reforms painful, but necessary: No matter how “painful” they may seem for citizens, he said, the Ismail government’s reform program is long overdue and essential to sustainable growth and development. “The result of the [reform] measures we adopted recently is that in two years’ time, we will have a more diversified economy that’s in much better shape than it is now,” he said.

Should have started a decade ago: Heikal said the reforms should have started a decade ago, when the first signs of the current economic crisis were first detected. The energy crisis, for example, began in 2005 “and we didn’t do what needed to be done then” (watch, runtime 34:57). The businessman told El Hadidy that the government has taken great strides in energy, explaining that a reduced energy imports bill would alleviate significant pressure on the state budget. Looking ahead, he said, a lot of support should be directed towards bolstering domestic manufacturers. “We can’t continue to rely on imports for everything. That’s just not sustainable,” he said. “We have to grow and manufacture locally.” He also stressed the importance of exports and the availability of foreign currency liquidity in the country (watch, runtime 20:59).

Pharma producers and government at odds again: Cabinet spokesman Ashraf Sultan told Lamees during a call-in that the announcement of new pharma prices should take place in 10 days, “but the Health Ministry is still in negotiations with local manufacturers” (watch, runtime 2:11). Pharma producers have been clashing with the government over what defines a “chronic illness,” after the health ministry said it would only be raising the prices of meds that remedy non-chronic diseases (more on that in the Speed Round). Osama Rostom, the Deputy Head of the Federation of Egyptian Industries (FEI)’s pharma division, said “the health ministry should give us a clear definition.” Rostom added that Health Minister Ahmed Rady expects the new prices to go into effect by 1 February (watch, runtime 10:42).

Over on ONTV’s Kol Youm, Amr Adib was concerned whether pharma producers would be able to continue producing meds for chronic diseases if they are unable to increase their prices and loudly suggested that the government should cover the difference between the production cost and selling price of these medications. “Otherwise there will be a shortage in the market because the manufacturers won’t be able to sustain the losses,” he said (watch, runtime 1:18).

Yahduth fi Masr’s Sherif Amer also followed up on the meds squabble, but broke new ground only in a chat he had with GAFI chief Mohamed Khodeir about the draft Investment Act. “The new law conforms with the recent economic reform program and the Egypt 2030 Strategy,” he said. Khodeir said the law will help cut red tape by allowing online applications for permits and licenses. “The new law will allow GAFI to issue any approvals itself if [another government] entity doesn’t complete the task within 60 days of [a company’s] application,” he said.

No mention of new law at NGOs meeting with President: Amer also covered President Abdel Fattah El Sisi’s meeting with representatives of various NGOs, which apparently did not broach the subject of the new law that was approved last month. Chairman of the ‎Badrawi Foundation for Education and Development Hossam Badrawi, who attended the meeting, told Amer that the gathering focused on how NGOs can assist the community and help people meet their current needs, particularly with regards to food and meds.

Also on last night’s talk shows:

• A member of the House of Representatives’ legislative committee, Ahmed Helmy El Sherif, told El Hadidy during a phone call that the house might wait for the Administrative Court to issue its final verdict on the transfer of the islands of Tiran and Sanafir to Saudi Arabia before MPs discuss the treaty themselves (watch, runtime 3:39). The court decision is expected on 16 January.
• El Hadidy aired a report on diaper prices rising 110% over the last three months (watch, runtime 1:23);
• Adib broadcast a short piece on the opening of the Porto Sharm resort town in Sharm El Sheikh (watch, runtime 2:41).

In frontier market push, EFG Hermes taps Exotix Africa co-founder Khalpey to lead EFG Hermes Frontier. EFG Hermes appointed Ali Khalpey to head EFG Hermes Frontier. Khalpey co-founded Exotix Africa LLP and has experience with Blackrock, Investec, and Renaissance Capital. His appointment comes as EFG looks to accelerate its drive into frontier markets and “will be supported by both new hires as well as our existing lines of business and back-office functions as we look to create new shareholder value across a wider geographic footprint,” said EFG Hermes Group CEO Karim Awad. Co-Head of securities brokerage Mohamed Ebeid added that, “With the acquisition of an on-the- ground presence in Pakistan now in its final stages, our aim in 2017 is to accelerate the rollout of the platform.” Khalpey says expanding into frontier markets will be modelled “on the very successful strategy the firm used to grow its presence in the Gulf Cooperation Council countries … will use local professionals with local knowledge to build on-the- ground presences that will serve our global institutional client base with the insights and robust governance frameworks they have come to expect of EFG Hermes.”

The Consumer Protection Authority is asking prosecutors to investigate Orange Egypt and Vodafone Egypt over what it claims is “misleading” advertising of 4G services, Al Mal reports. The CPA alleges both companies have published promotions claiming to provide the “fastest 4G services in Egypt” despite neither having officially launched 4G service, said CPA chief Atef Yacoub. Vodafone Egypt disagrees, with one official telling Al Mal that the company has already begun trial 4G services on the network’s 3G spectrum in certain areas. Yacoub tells Ahram Online that with the 4G rollout still in its infancy, “companies cannot claim in their advertisements that they provide a better or higher quality service. ‘This is misleading the consumer and that is against the law.’”

Perhaps the CPA could start with the Chinese fat-burning machines and the psychic hotlines that populate satellite channels (and actively aim to fleece the poor) rather than worrying about whether rich folk are being ripped off by 4G speed claims?

How do you define a chronic illness? Pharma producers are facing another disagreement with the Health Ministry over which medications will be allowed to rise in price, Al Masry Al Youm reported. As part of the agreement that resolved the impasse, the Ministry stipulated that it will only increase the prices of medications that treat non-chronic illnesses but did not specify what they were. When the companies sought clarification, they were told to consider any illness that takes requires a course of treatment longer than 15 days to be chronic. A source says pharma producers view this definition as “catastrophic” as it would practically freeze the prices of all medications except for those treating common colds, saying the government’s definition renders medications for cases of hay fever, for example, listed as those treating a chronic disease. The producers are expecting the government to define clearly the list of treatments it will allow their prices to increase. The cabinet’s Information and Decision Support Center has already issued a statement guaranteeing the public that prices of treatments of chronic diseases will not be increased, but that statement also did not specify the medications.

Meanwhile, the Egyptian Pharmaceutical Trading Company issued a decision to reduce the number of each medicine pharmacies are allowed to sell, setting the limit at 50 units per product, according to Al Mal. The move is an attempt to address the low supply of locally produced meds, and does not apply to imported products, the company’s spokesman said.

In other news from the pharma industry, Ahram Online is reporting that members of the Pharmacists’ Syndicate plan to strike in mid-January in protest of “what they described as ‘the random pricing policy’ for medicines.” The story notes that “urgent general assembly of the Pharmacists Syndicate” (they’re always urgent, aren’t they?) voted “for a partial closure of pharmacies from 9am until 3pm for two weeks starting from 15 January.”

The “magic wand” that was the float of the EGP will not make the parallel market disappear entirely at an instant, CBE Governor Tarek Amer told Al Ahram’s economic paper. The banks are in control of the currency market now, he says, and the impact of the parallel market is minimal and tapering out. Amer expects the market to self-adjust in a short period of time. He explained that the continued drop in the FX rate is “normal” as Egypt’s foreign currency revenue sources continue to struggle, but stressed the flotation was the correct course of action, and will help rebuild the country’s reserves.

There will be significant outflows in 2017 as Egypt has to make a number payments throughout the year starting with USD 700 mn as part of the Paris Club debt in January, a USD 1 bn loan repayment to Turkey, as well as making payments to reduce dues owed to international oil companies throughout the year.

Government borrowing will rise about 6.4% in the third quarter of the current state fiscal year to EGP 229 bn, according to Al-Borsa, which notes the Finance Ministry will be shifting toward short term instruments to finance the deficit — a logical move, says CI Capital analyst Hany Farahat, in view of current interest rates. Farahat is also quoted as saying he sees interest rates declining over the course of the year, closing 2017 at pre-float levels. The Borsa story is here and the Finance Ministry’s timetable for bond and t-bill issuances in 3Q2016-17 is here (pdf).

The Suez Canal Economic Zone will feature a designated “Pharma City” targeting domestic and global manufacturers, Suez Canal Economic Zone chief Ahmed Darwish said yesterday as he announced the signing of a letter of intent to create an industry-specific hub he expects will attract EUR 4 bn in investments over five years, primarily from UK, US and Spanish companies. Darwish reiterated yesterday that the SCZone will also include clusters for the automotive industry (including component makers), electronics and apparel, Al Borsa reports.

The EGX cancelled all trades in Qalaa Holdings (QH) shares made yesterday prior to the company’s shares being suspended pending its explanation of why it believed its share price has surged of late, Al Borsa reports. Qalaa shares have been among the day’s top gainers in recent trading sessions with exceptionally high volumes. In a disclosure to the bourse, QH denied there being any news yet to be announced that could have contributed to the share price rally. “The company is committed to reporting any events that transpire and we are keen on maintaining our transparency with bourse administration,” the letter read.

2016 was the worst year for portfolio flows to emerging markets since the global financial crisis trough of 2008, according to figures released yesterday by the Institute of International Finance (pdf). A “dismal” reading in December “cuts total net non-resident EM portfolio inflows for 2016 to just USD 28 bn — the weakest year since 2008 and 90% below the 2010-14 average,” the IIF says, noting that a “perfect storm” of factors led to the performance. No one factor stood out, it said, although it admits that “rising US yields—partly as a result of the reflationary ‘Trump trade’ but also attributable to a more hawkish Fed—have been the main contributor to the weakness.”

But set aside China and the picture isn’t as grim: “At USD 185 bn, EM [ex-China] net capital inflows through November were 60% above the same period of 2015,” with Turkey (USD 37 bn), India (USD 33 bn) and Mexico (USD 30 bn) being the primary beneficiaries of flows in 11M2016. The catch: Africa and the Middle East recorded net inflows in only three months since June 2015, according to IIF data. You can check out the note yourself here in pdf.

Donald Trump (who had an awfully good day yesterday between the Ford jobs announcement and his criticism of Republican lawmakers) is creating “major uncertainty” and the world is going into a period of “geopolitical recession.” Thank you, Bloomberg, for the not-so-rosy look at why 2017 may be a lot worse than many had feared.

On the notion of a “geopolitical recession,” Bloomberg was springboarding off a report from Eurasia Group on its Top Risks of 2017. It’s worth reading, even though Risk 5: Technology and the Middle East has all the depth of a sheet of onion paper and the analytical insight of a freshly-woken toddler.

It’s another wonderfully quiet news day for Egypt in the international press:

• Angus Blair, head of the Signet Institute and chief operating officer at Pharos, speaks with Bloomberg on “Will the EGP hold steady in 2017?” (watch, run time: 2:27)
• Stratfor suggests that Egypt and Ethiopia will “find common ground despite the ongoing construction of the divisive Grand Ethiopian Renaissance Dam” even as distrust continues and competition for resources shows no sign of ending.
• Agence France Presse has a look at how the nation’s antiquities are faring amid falling tourism receipts. The Daily Mail has picked up the story, of course, and runs with its usual breathless headline: “Pyramids at risk: Egypt is struggling to maintain its rich archaeological heritage following a huge drop in tourism revenue.”
• Al-Monitor takes a rather meandering look at the emergence of terror outfit Hasm that fails to live up to the promise of its headline.

Calls by business for presidential intervention are a policy failure, former deputy Prime Minister Ziad Bahaa El Din suggest in his weekly Al Shorouk column. He does not believe the government was prepared to respond to the economic and social ramifications of the EGP float, although he sees it as having been the right (if overdue) move. Bahaa El Din points specifically to the Federation of Egyptian Chambers of Commerce plea to the President to intervene to find a solution for their open position “crisis” which had then required them to repay, in EGP terms, double what they budgeted for prior to the float. He sees this as a sign of failure. Countries progress when they are able to manage the conflicts between the different social and business segments in a balanced and democratic manner. Bahaa El Din says this is currently unattainable with a weak parliament and the absence of effective local governments, credible opposition, and the restrictions on freedom of expression. This is why people and businesses alike skip the regular channels to complain to the president directly.

The series of events surrounding the Tiran and Sanafir case — from the initial announcement last April to the contradictory court rulings on the matter — highlight a split in the country’s judiciary and a government that takes actions without a vision or consideration for the repercussions, Mahmoud Khalil says in a column penned for El Watan.

If you tend to fret about how fleeting time is, you might not want to upset yourself with this video: Scientific studies have established the ages at which certain behaviors and characteristics reach their all-time high, a video on Business Insider shows. Although we’re guessing that most of our readers have passed the milestones when strength (25 years) and the ability to learn a new language (before puberty) are scientifically at their all-time high, we hope there are a few milestones you can still look forward to, such as the positivity of one’s self-image (past the age of 75 for both genders).

Eastern Libya’s military leader Khalifa Haftar has no plans to talk with Fayez Seraj, who heads the internationally recognised government in Tripoli, a source told Reuters. Haftar, who has close ties to Egypt and the UAE, was reportedly going to discuss the possibility of forming a government of national union with Seraj, but now says the situation required combat rather than politics. "Once the extremists are defeated we can go back to talking about democracy and elections,” Haftar was quoted.

Receivables due from EGPC to IOCs have dropped to USD 3.5 bn in 2016’s end, down from USD 3.6 bn at the end of September, Oil Minister Tarek El Molla said. The government bought USD 5.4 bn worth of crude and natural gas from IOCs last year and paid USD 5.5 bn, El Molla clarified, according to Al Shorouk. He said the Ministry is gearing up to make another round of payments to IOCs in order to encourage them to increase investments in Egypt.

Domty will begin operations at its new yellow cheese and cheese sandwich production lines this month, head of investor relations Ahmed El Homsany told Al Mal. The EGP 240 mn expansion plan will be made possible by a set of machinery that is scheduled to arrive this month, he added. The cheese sandwich products will roll out to market by February, while the yellow cheese will be launched in June.

Cheesemaker Obour Land reported overnight a 25% rise in unaudited FY2016 revenues to EGP 1.45 bn, according to an emailed statement (pdf). The company did not provide a net income figure, but said gross profit had risen 92% year-on-year to EGP 342 mn.

The Edfu and Kom Ombo sugar plants will restart production today after the cabinet approved increasing the price paid for sugarcane inputs to EGP 620 per tonne from EGP 450, Al Shorouk reported. The two factories had put operations on hold for seven days as farmers refused to deliver sugarcane, calling for increasing prices. The increase in fuel prices raised the cost of production for farmers, the paper adds.

Strategic wheat reserves are enough last for five months, Supply Minister Mohamed Ali El Sheikh told Al Shorouk. Additionally, the ministry has contracted another one mn tonne of wheat that will arrive within weeks, he said in meeting with a delegation from the US Wheat Association led by Regional VP for European, MENA, and Eastern Africa regions, Ian Flagg. El Sheikh and Flagg two agreed to boost trade in wheat and soybeans and resume trade with GASC under strict standards and conditions following the reported cases of Hepatitis B infections from Egyptian strawberries.

Fertilizer producers are now exporting 60% of their monthly output, according to Al Borsa, after they suspended dealings with the agriculture ministry last month. The ministry used to purchase around 55% of locally-produced fertilizers but companies had decided to freeze shipments to the ministry until the cabinet agrees to raise regulated fertilizer prices by EGP 500 per tonne to reflect the impact of recent increases in natural gas prices (in LCY terms) following the float of the EGP.

The Egyptian Arab Land Bank is arranging an EGP 500 mn syndicated loan to finance a cancer vaccine factory built by Pharco Pharma and the ministries of health and military production, bank VP Adnan El Sharkawy told Amwal Al Ghad. The estimated total cost of the production line is EGP 1 bn, he added. The bank will provide EGP 100 mn of the loan, with the remaining EGP 400 mn to be distributed between two other unnamed banks. Cancer vaccines belong to a class of substances known as biological response modifiers and can be categorized broadly as preventive or treatment vaccines.

Madinet Nasr for Housing & Development (MNHD) issued guidance (pdf) noting that its contracted sales for 2016 stood at EGP 3.8 bn, exceeding the budgeted figure of EGP 2.0 bn and coming 4.3x higher than 2015’s figure. The record sales were achieved primarily through the company’s flagship project Taj City, in which sales grew to EGP 2.1 bn in 2016 from 294 mn in 2015 and the launch of SARAI, which saw EGP 1.0 bn in sales during the year.

Hotel occupancy rates in Hurghada didn’t break the 35% barrier over the New Year’s Eve vacation weekend due to the continued Russian and UK flight bans on Egypt, Red Sea Investors Association member Mohamed Samir Abdel Fattah told Amwal Al Ghad. He says 50 of 275 hotels have shut down in the governorate due to poor business.

The first locally assembled smartphone is currently being produced by Sico Misr, with domestic content at about 58% of the device, Youm7 reports. The device should hit the market in the second half of this year. The company’s CEO says the phone will retail from EGP 200 to EGP 2,000, while 4G-compatible products will have a starting price of EGP 1,200.

Asset management outfit Rasmala announced it acquired a 68% of Orchard Apartments, an owner, operator and developer of boutique corporate serviced apartments in the UK. The exact value of the transaction has not been disclosed.

McKinsey & Co will begin conducting detailed studies on the SCZone on 9 January, and will complete the studies within four months, SCZone Chairman Ahmed Darwish told Al Mal. The SCZone has completed preparing the master plan and project charter, he added. The studies, conducted by McKinsey & Co aim to increase the competitiveness of the SCZone against similar trade zones in the region.

President Abdelfattah El Sisi has officially signed off on a legislation that establishes a new Media Syndicate on Tuesday, Youm7 reports.

Egypt signed an agreement with Kuwait to bolster judicial and legal relations, Kuwait’s state wire Kuna reported. Kuwait’s Justice Minister Faleh Al-Azb is set to meet with several legal officials, including Justice Minister Mohamed Hossam Abdel Rahim and discuss the handling of criminal cases, detention, and measures to extradite criminals.

Members of the Egyptian Federation of Investors Associations will meet Prime Minister Sherif Ismail on Sunday to continue talks on solutions for the repayment of USD-denominated debts after the EGP float, Al Borsa reported. Finance Minister Amr El Garhy and CBE Governor Tarek Amr are also set to attend. Amer had met with Federation of Egyptian Industries Chief Mohamed El Sewedy last week to discuss a tentative action plan that would allow companies to repay their outstanding dues in instalments over a fixed period of time and negotiate fixed exchange rates with banks.

A cabinet-level committee tasked with improving Egypt’s ranking on the World Economic Forum Global Competitiveness index held its first meeting led by Investment Minister Dalia Khorshid, Ahram Gate reported. Egypt ranked 115 out of 138 in the 2016/17 index. The committee includes representatives from the ministries of transportation, housing, justice, finance, electricity, and planning, as well as the Cairo Governor, EFSA and GAFI.

2016 was an exciting year for the startup ‘ecosystem,’ Wamda says. The UAE is still the central hub of regional investment activity, with investment there 10x more than the closest ranking countries but, generally, “the entrepreneurship ecosystem began showing early signs of maturity.” Wamda says private equity firms have begun making investments in “regional tech companies” and “capital availability is increasing with the launch of 11 new venture funds that raised more than double the amount of deployable capital than last year’s funds.” The biggest investments regionally were the USD 350 mn Careem received and the USD 275 mn in Souq.com. There were 15 disclosed agreements in Egypt with a total investment of USD 13.2 mn, putting it in third place regionally in terms of transaction volume behind UAE and Jordan.

Koshari is not a nutritious diet, unfortunately: Egypt has a food problem that is driving the segments of the country’s population poor, undernourished, and simultaneously obese, Maddison Sawle writes in Mada Masr. The problem is reflected in high rates of type 2 diabetes and cardiovascular diseases, Sawle writes, “an inevitable consequence of a food and health system that is broken.” She notes fundamental shifts in Egyptians’ eating habits “associated with changes in working patterns and the high cost of food, especially fruit, compounded by a subsidy program that only subsidizes carbohydrate-heavy food — with the working poor being the least able to cope… Poverty removes access to expensive and relatively better food, especially essential green vegetables and herbs.”

Thinner phones? How about better battery life. Reports the Financial Times: “Thinner smartphones or more space for larger batteries are on the way this year, thanks to a big reduction in the size of the latest mobile processors that power them. Qualcomm … said on Tuesday that the new version of its flagship processor — the Snapdragon 835 — would take up about 35 per cent less space than last year’s model and consume roughly 25 per cent less power.” Oddly enough, the best analysis belongs to the FT, while even outlets as normally on-point as the Verge have settled for puking back Qualcomm’s press release.