AM — Some foreign companies have suspended car exports to Egypt

Good morning, friends. We’re past hump day, but there’s lots of work in sight before we can declare victory and slide into the weekend.

SIGN OF THE TIMES #1- The EGP has eased almost 2% against the greenback over the past two days. The USD was changing hands at EGP 18.55 yesterday, down from EGP 18.30 on Sunday.

SIGN OF THE TIMES #2- CIB has launched two new high-interest certificates of deposit: A three-year certificate at a 13.5% rate, and a four-year 14.0% certificate. The minimum deposit is EGP 100k.

WHAT’S HAPPENING TODAY-

It’s Day #3 at Davos: The third day of the World Economic Forum (WEF) in Davos will see more discussions on the current geopolitical uncertainty, the future of globalization, poverty reduction and climate change.

Representing Egypt: International Cooperation Minister Rania Al Mashat will join two panel discussions on how globalization can survive the current global crises (13:00 CLT) and efforts to cure infectious diseases (17:30 CLT). Former social solidarity minister and current executive director of the US Office on Drugs and Crime Ghada Waly will discuss internet safety in a session in the afternoon (13:15 CLT).

Defense Minister Mohamed Zaki is in the Democratic Republic of Congo (DRC) today to hold talks on strengthening military ties, the Armed Forces said in a statement yesterday.

LISTEN TO OUR PODCAST ON WHAT AI CAN MEAN FOR YOUR BUSINESS. Last month, we explored how the government has made artificial intelligence a national priority. We spoke with the former ICT Ministry’s advisor for AI Sally Radwan about the government’s national AI strategy and how it is being implemented (Part 1 | Part 2).

In another of our podcast roundtables, we sat down with the companies building AI systems in Egypt to get a bird’s eye view on what’s happening in the sector: Who’s adopting it, how they’re going about it, and what challenges they’re facing.

You can catch the episode on our website here (listen, runtime: 44:01), or tune in via Apple Podcasts | Anghami | Google Podcasts | Spotify). Or you can read edited excerpts of our conversation here.

MARKET WATCH-

Saudi Arabia has no intention of pumping more oil and bringing down prices: That was the main message delivered by the kingdom’s Foreign Minister Prince Faisal bin Farhan, who told the World Economic Forum (WEF) yesterday that it had done “what it can” to calm volatility in the oil markets, Bloomberg reports. “As far as we are aware there is no shortfall of oil,” he said. “It’s much more complex than just bringing barrels to the market … Our assessment is that actually oil supply right now is relatively in balance.”

The US, UK and other countries have pleaded with Riyadh in recent weeks to up its supply and bring down prices, which have remained above USD 100 a barrel since late February when Russia invaded Ukraine.

When will stocks bottom out? Not before the Federal Reserve eases its tightening cycle, Goldman Sachs says in a note cited by Bloomberg. The Fed isn’t likely to loosen its grip and switch to monetary easing until the US economy enters a recession, the bank adds. “Monetary policy has historically stopped tightening about three months before equities bottom, and shifted to easing about two months afterwards,” Goldman Sachs strategist Vicky Chang wrote. The value of equities has been slipping since the Fed halted its stimulus and began tightening monetary policy in a bid to curb inflation, raising interest rates by an aggressive 50 basis points earlier this month. Major US indices have either entered a bear market (like the Nasdaq) or are teetering on the brink of one.

MORNING MUST READ-

Is the US mediating an agreement between Egypt, the KSA and Israel that could pave the war for normalization of Saudi-Israeli relations? That’s according to Axios, which cites five US and Israeli officials with knowledge of the matter. According to the report, the Biden administration is working with the countries to finalize the transfer of Tiran and Sanafir islands from Egypt to Saudi Arabia, a move that it believes could open the door to warming ties between Riyadh and Tel Aviv. The US hopes to finalize the agreement ahead of the US president’s upcoming trip to Israel ⁠— and possibly Saudi ⁠— in June, sources say.

REMEMBER- Egypt agreed to hand over control of the two Red Sea islands to Riyadh back in 2017, but a final agreement has remained elusive in the years since as the two countries wait on Israel’s sign-off. Tel Aviv has a say in what happens with the islands under the terms of the 1979 peace treaty, in which Egypt pledged to guarantee Israeli ships access to the Tiran Straits.

THE BIG STORY ABROAD- Yet another mass shooting is dominating the front pages in the US this morning. Nineteen children and two adults were murdered yesterday when an 18-year-old gunman opened fire in a Texas elementary school. (AP | Reuters | NYT | Washington Post | WSJ)

CIRCLE YOUR CALENDAR-

The Madbouly government will hold public consultations on its privatization plans over three months, according to a cabinet statement out yesterday. “We as a government are ready to hear all opinions and approaches because our objective is the interest of the country and the advancement of the economy,” PM Moustafa Madbouly said at a Cabinet meeting.

We got our first look at its policy document last week: The government intends to fully withdraw from as many as 79 industries over the next three years as part of plans to restructure the economy in favor of the private sector, according to a draft copy of its state ownership policy document obtained by the local press last week. The final version of the document is expected to be published before the end of this month.

The Fin Expo Egypt is kicking off tomorrow and will run until Thursday at the Intercontinental Citystars. The expo will feature over 25 companies exhibiting their fintech products and services with 3k visitors expected.

El Gouna International Squash Open 2022 will kick off on Friday and run until the following Friday, 3 June. The competition will feature some of Egypt’s top seeds including world #1 Nouran Gohar and world #2 Ali Farag (who just earned the PSA squash championship cup). The prize pool for each of the men’s and women’s competitions is USD 180k.

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 continue our coverage of the USAID Alternative Finance conference with one of the liveliest and engaging panel discussions we’ve seen in a while. This time, the focus was squarely on Egypt’s PPP framework, with the various stakeholders defining their roles in the framework and what they would like to see the other party do more of.

Need a new car? Good luck. Some foreign car manufacturers have suspended sales to Egypt after a change to how imports are paid for has left local dealers unable to purchase vehicles, industry sources say, confirming reports first published by Al Borsa and Al Mal on Monday.

The new supply constraints will only add to existing shortages in the market caused by the scarcity of microchips and shipping snarls — and comes as dealers grapple with rising inflation. The shortage of inventory in the market became much worse after new rules were handed down in March requiring importers to use letters of credit (L/Cs) to purchase goods, instead of documentary collection, a quicker, more accessible, and less capital-intensive way of facilitating trade. The change in policy sparked criticism at the time from trade and industry associations.

International car manufacturers are now rerouting shipments away from Egypt because local importers and distributors haven’t been able to make transfers, Abed El Kader Talaat, a board member at the Automotive Information Council (AMIC), the industry group, told us. “No letters of credit were opened, no transfers were made, and therefore suppliers have made the decision to not produce for Egypt and instead divert to other markets,” he said.

Which brands have pulled out? We’ve so far counted 13 that no longer appear to be delivering to Egypt, including some of Europe’s biggest brands — Citroen, Volkswagen, Audi, Fiat and Peugeot among them — as well as Jeep and Asian companies including Geely.

The situation provides no certainty for overseas suppliers: “Foreign companies now don’t know the future of their exports to Egypt, and seeing as there is demand in other countries that can’t be met due to the global crisis, they started redirecting some of the cars bound for the Egyptian market to other countries,” Abou Ghaly Motors’ commercial director, Tamer Kotb, told Enterprise. Abou Ghaly’s portfolio of brands includes Mercedes, Jeep, Alfa Romeo and Subaru, among others, as well as a stable of mobility solutions.

Few new cars have entered the market since March, Kotb said. Talaat told us that there are around 29k vehicles waiting to be released from port, which could help to ease the supply squeeze should the import issues be resolved.

“We have lost credibility with foreign car manufacturers, because we have cars that Egyptian distributors ordered, that have been produced and we can’t take them,” said Karim Naggar, chairman of Egyptian Automotive and Trading and Kayan, which imports and distributes brands including Volkswagen, Audi and Seat. “We are unable to give them an outlook on how long this will go on because nobody is telling us when we can expect to see changes.”

There’s no quick fix: Foreign car manufacturers won’t look to export to Egypt until the current backlog is cleared, Talaat said. It takes around three months from when an importer puts in an order for the cars to arrive here, he said. If import difficulties are cleared up, there will be a significant lag as manufacturers return to the Egyptian market, he added.

Another year of standstill? In the best case scenario, the market will start to stabilize in mid-2023, Kotb told us.

Distributors also have to compensate consumers for recent price hikes + supply issues: Customers who made a down payment on a vehicle prior to 12 April, but who have not received their car, are entitled to receive a refund from the dealer plus 18% interest, the Consumer Protection Agency said this week. Those who had paid for the car in full before this date will be protected against any recent price hikes, it said. Distributors are waiting for clarity on how the refund system will work and are angling to minimize how much interest they’re required to pay on, for example, downpayments made before Banque Misr and NBE hiked rates to 18% earlier this spring.

We could hear more about consumer refunds today: Kotb told us that he expects the decision to be published in the Official Gazette today.

One thing is clear: Whenever supply returns, prices are going up — but it’s anyone’s guess by how much. Between the wide gap between supply and demand, local car prices are set to rise between 15-20%, and that’s on top of the 2-5% hike in the global market due to the rise in raw materials prices on the back of war in Ukraine, Kotb added. Talaat is less optimistic, forecasting a 35-45% price hike, taking into account the devaluation earlier this spring of the EGP and ongoing market turmoil. “Cars are going to continue to be much more expensive than they currently are — it’s all about supply and demand,” Naggar said.

In the meantime, the CPA is saying dealers can raise prices only 5%, a figure that won’t move the needle for distributors — and that’s largely academic, anyway. You can’t price up that which you do not have in hand to sell.

Egypt hopes to finalize a fresh assistance program with the IMF “within two months,” Prime Minister Moustafa Madbouly told lawmakers yesterday in an address focusing on the government’s response to what he said was the worst global crisis since the Second World War, according to cabinet statements (here and here). Madbouly did not provide details on the program during the meeting, but said it would aim to “sustain [the state’s] economic reform programs … and affirm that Egypt is moving in a disciplined manner.”

BACKGROUND- We’ve been in talks with the Fund for several months on a new assistance program to help us mitigate the fiscal strain and balance of payments pressure caused by spillover effects from the war in Ukraine. Madbouly said earlier this month that it could take months before an agreement is sealed, while CBE governor Tarek Amer said we would only receive limited funding due to it already exceeding its quota. Finance Minister Mohamed Maait said earlier this week that talks were going “very well.”

We’re getting an additional USD 3 bn from ITFC to help us through the commodities crunch: The International Islamic Trade Finance Corporation (ITFC) has raised the ceiling for its financing agreement with Egypt to USD 6 bn from USD 3 bn, Supply Minister Ali El Moselhy told Al Hekaya’s Amr Adib on Monday (watch, runtime: 3:08). The extra funds will help us pay for imported wheat and oil, El Moselhy said, without clarifying the exact breakdown or when it was disbursed.

The original agreement goes back more than four years: Egypt signed a USD 3 bn agreement with the ITFC in January 2018 to fund the purchase of basic goods and commodities, such as petroleum, wheat, and other subsidized food staples. Since then, Egypt has taken out more loans from the corporation, including USD 1.5 bn earlier this year and USD 2.3 bn late last year, both to fund commodity imports.

Ballooning commodity prices are hitting our budget: The government is having to find an extra EGP 15 bn this fiscal year to cover the extra costs of imported wheat, which has soared in price following Russia’s invasion of Ukraine. This had knock-on effects on the budget, with the government having to add another EGP 6 bn to its 2021-2022 budget allocation to fund debt repayments. Current wheat prices are also far above the price the government has used to calculate its expenditure in the coming fiscal year: the draft budget released this month forecasts prices to average USD 350 per ton during the year, 20% below the current market price. This has caused some MPs to raise doubts about the ministry’s forecast.

The news got ink in the foreign press: Bloomberg | Reuters.

IMF BOSS TO INDIA: PLEASE DON’T BAN EXPORTS

IMF chief Kristalina Georgieva has urged India to reconsider its wheat export ban in an interview with India’s NDTV on the sidelines of the World Economic Forum (WEF) at Davos (watch, runtime: 8:01). The restrictions could have a major impact on countries most vulnerable to the wheat crisis, including Egypt and Lebanon, “where what we see is not only risk of hunger but risk of social unrest and impact on global stability.”

REMEMBER- Egypt is already in talks with India for exemption from the ban, which was introduced in response to surging domestic prices in India and a heatwave that threatened to impact the harvest. Supply Minister Ali El Moselhy said earlier this month that an agreement to buy 500k tons of Indian wheat will not be impacted by the ban, but clarified later that the purchase has been agreed but not signed.

Four miners have landed licenses to explore for gold in the Eastern Desert in the Madbouly government’s latest tender, Dostor reported yesterday. They reportedly include Ankh Resources, Sawiris-backed Akh Gold, Canadian miner Lotus Gold, and Marine Logistic.

Lotus and Akh are familiar faces: Naguib Sawiris-backed Akh Gold signed contracts for nine exploration concessions worth USD 4.1 mn in last year’s tender of exploration rights, while Canada’s Lotus snagged a USD 9 mn agreement for 11 blocks.

…but Ankh Resources is a newcomer: Established last year in the UK, Ankh Resources won its first gold exploration license for one block — known as Dara — in the northeastern desert, Ankh Resources Managing Director Mostafa Talaat told Enterprise. The miner has committed a seven-figure USD investment to the block, the company’s chairman, Hossam Allam, added. Ankh is ready to exploration as soon as the block is handed to them — likely in three or four months’ time, Talaat said.

Ankh looks to be gearing up to invest more aggressively: “We’ll definitely be pushing more investments in the Egyptian market,” Talaat said, adding that they hope to expand beyond Egypt at some point. The miner is primarily eyeing the Red Sea-adjacent Arabian-Nubian Shield, which is one of the “last major under-explored frontiers for the global mining industry,” Allam said.

This is the government’s second gold tender in as many years: Four mining companies signed 10 new gold exploration contracts with the Oil Ministry in February. Later in July, the government signed four gold exploration contracts with Canadian miner B2Gold and Australian gold miner and Sukkari operator Centamin. Back in 2020, the Oil Ministry said it would launch new gold exploration tenders every four months.

The “mud tax” could be suspended for another year: The House Planning and Budget Committee has approved a draft bill from the government to extend the suspension of the 14% tax on agricultural land (known as “mud tax”) for an additional year to July 2023, Hapi Journal reported.

Why the extension? The decision aims to “alleviate tax burdens on those working in the agricultural sector and to encourage them to boost agricultural production,” Rep. Yasser Omar, the deputy head of the committee, said. The suspension was set to expire in July 2022.

Background: The House approved in 2020 a two-year suspension of the 14% tax, extending an existing three-year suspension approved in 2017 under efforts by the state to support farmers through the covid-19 crisis.

ALSO YESTERDAY- The House gave its final approval to a draft law organizing Hajj trips and setting up an online Hajj portal, Ahram Gate reports. Would-be pilgrims will be able to use the portal to apply for travel visas to Saudi Arabia to undertake the pilgrimage. Travelers’ data will be available on the portal, with each person assigned a code number to be stamped on their passport.

DAY THREE- Lagos doesn’t cease to amaze us — and frankly, it feels like we’ve been here for three weeks, not just two and a half days. The energy of the local entrepreneurship scene has kept our adrenaline pumping, along with the little bits and pieces of chaos that remind us of home. Day three was more of a cultural day, although we did meet a few startups and an angel investor.

Quick update on the trip participants: We’ve been joined by Cairo Angels Syndicate Fund (CASF) portfolio company FlexPay from Kenya. Founders Richard Machomba and Johnson Gituma flew in to explore Lagos’ ecosystem with us. They are pictured above, along with CASF CEO Aly Shalakany, Nawah Scientific CEO and founder Omar Shoukry, co-founder of fintech player Lnddo Adham Azzam (who just launched new fintech startup Balad), and co-founder and CEO of Nigerian fintech Credpal Fehintolu Olaogun.

The highlight of our day was meeting Biola Alabi (LinkedIn), cofounder and GP of Atika Ventures. Also serving as the deputy chair of the Lagos Angel Network, she is the senior advisor and executive producer of Biola Alabi Media and Entertainment. Before going into angel investment, Alabi was a media pioneer who, among other things, brought Sesame Street to African markets via local productions. She spoke about what makes the Nigerian scene so attractive and legislation on startups now waiting to pass the National Assembly and Senate. We’ll have plenty for you on what she and other investors told us once we’re back in Omm El Donia.

Our other stops today included Impact Hub Lagos, the national museum, and a Khan El-Khalili lookalike. Impact Hub Lagos is the local chapter of the global collective of startup communities, which connects entrepreneurs to large organizations, cultural, and public institutions.

Fintech and culture: We also sat down with local BNPL fintech CredPal and digital bank Carbon to talk about their insights into the local fintech scene, hit a museum to learn more about Nigeria’s colonial history, and made a brief stop at a Hussein-like local market for some retail therapy.

There is no better way to describe Nigeria’s spirit than emphasize that they do not produce sad music. Nigerian music is very upbeat, taking the form of what the West likes to call afrobeats. Among the most popular Nigerian songs currently are Emiliana by CKay and Kwaku The Traveler by Black Sherif. But locals are most enamored with late Nigerian artist Fela Kuti, who was a “philosopher, prophet, and musician,” our good friend Tomi Davies, investor and collaborator-in-chief of TVC Labs, told us. Fela is considered the pioneer of afrobeat and has a shrine dedicated to him which also serves as a host location of the annual Felabration music festival.

What about the food? It is, in a word, spicy. Some of us consciously opt for a classic burger at some meals because Nigerian food is crazy spicy. For the first time in our lives, we appreciate the concept of palate cleansers, which can either be some fried plantain (the brothers of bananas) or yams in different shapes and forms. On a different note: pineapples here are at a different level of deliciousness.

The staple Nigerian drink is called a chapman. The non-alcoholic drink consists of Fanta, Sprite, cucumber, lemon, grenadine and angostura bitters, which is a kind of tonic water. Some of us have had it at least twice in the past two days.

Also: People in Lagos generally do not smoke. We’re used to the sight of cigarettes everywhere in Cairo. But in Nigeria, a mere 10% or so of the population is enslaved to tobacco, according to a study. And it is very noticeable in the streets of Lagos: No cigarette butts on the floor, no smell of smoke.

Illegal construction was back in the conversation on the airwaves last night after the House of Representatives discussed amending the law on reconciling building violations. Legal changes have been discussed this month in a bid to get the government’s ambition to tackle informal settlements back on track.

Why the amendments? Some governorates have been implementing the law differently than others, Rep. Amr Darwish, head of the House Local Development Committee, told Salet El Tahrir’s Azza Mostafa (watch, runtime: 11:34 ), who stressed that a unified set of rules had to be applied nationwide. He said that the government is currently drafting amendments on reconciliation, adding that they would set a “red line to ensure no new violations'' are made.

Reconciliation has stalled: Property owners have submitted some 2.8 mn reconciliation requests since the law came into effect in 2020, but not everyone has paid the settlement fee.

And the government has only responded to a handful of requests: Of the 2.8 mn requests, only 50k-60k have been responded to, Rep. Ahmed El Segni, head of the House Local Administration Committee, told Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 7:06). Some of those who have paid the fees have complained about not receiving a response from the government. The amendments would include new rules to ensure that authorities make a decision on every request submitted.

Also talking reconciliation last night: Local Development Ministry spokesperson Khaled Qassem, who phoned in to Yahduth Fi Masr (watch, runtime: 7:45).

The global economic crisis and its impact on Egypt is in focus in the foreign press this morning: Egypt’s balance of payments is vulnerable to the “double shock” of monetary tightening and the rise in global prices, and faces tighter capital controls if it does not agree a new financing package with the IMF, FX Empire writes. Meanwhile, Reuters reports that JPMorgan has classified Egypt as being highly vulnerable to fiscal and debt shocks over the longer-term, and Voice of America is the latest foreign outlet to examine how rising food prices are impacting Egypt.

Archiving the fading sounds of Cairo: Two Egyptians set out to record the sounds of the city as new infrastructure transforms the soundscape. (Washington Post)

Al Ahly Sabbour Developments could take a sukuk issuance to market, Al Borsa quotes Managing Director Ahmed Sabbour as saying. Industry sources tell us the plans are still at an early stage, and company officials did not reply to requests for comment when we reached out. The developer is also in talks with the National Bank of Egypt for an EGP 850 mn facility to finance its Keeva project in Sixth of October

It’s been another quiet year for sukuk so far: Palm Hills Developments in March took its maiden EGP 3.25 bn sukuk issuance to market in our first corporate sukuk sale of the year. The sale came after a very quiet 2021 for sharia-compliant debt issuances, which by our count witnessed a single EGP 2.5 bn sale from Contact Financial Holding (formerly Sarwa Capital).

Will we see any more issuances in 1H? Wadi Degla Developments’s EGP 2 bn sukuk sale and Amer Group’s EGP 1.1 bn offering — both quarterbacked by Contact — had been slated to take place during the first half of the year, Contact Financial’s CFO Ayman Elsawy told us in January.

Other things we’re keeping an eye on this morning:

• France’s Thales has completed the new Tanta train station and two other stops along the railway linking Asyut and Nag Hammadi. (Statement)
• Yemen confirmed that Egypt has approved direct flights between Cairo and Sanaa under a UN-brokered truce that last month brought fighting between the Saudi-led coalition and Houthi rebels. (Twitter)
• Local delivery app Gooo has closed a pre-seed funding round from angel investors, Al Borsa reported. The company, which says it wants to raise USD 5 mn in unspecified future rounds, did not disclose how much it raised.

Prime Minister Moustafa Madbouly met with the president of the Arab-Brazilian Chamber of Commerce to discuss boosting economic and trade relations, according to a cabinet statement. The PM also received an invite to take part in the Arab-Brazilian Economic Forum in Sao Paulo in July. A delegation of Brazilian companies recently visited Egypt to discuss upping imports of Egyptian fertilizer.

Turkish President Recep Tayyip Erdogan is threatening to launch a new military incursion into Northern Syria, where it has invaded several times in recent years to attack Kurdish militia. (AP)

Iran is ready to find a “middle ground” compromise to revive its nuclear accord with the US, according to Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani. (Statement)