AM — Maait to release some backed-up goods from ports

Good morning, wonderful people, and happy Wednesday to you all. It’s yet another busy news day, but before you dive into today’s issue, can we ask you to please take our Fall Reader Survey?

Tell us how you’re feeling about your business and the wider economy and we’ll be back with the results just in time to give you a sense of what everyone else is thinking heading into budget season.

How has 2022 been for your business? And how do you feel about what’s left of the year? Are you investing? Do you plan to hire new staff (or make cuts to your existing staff) now or in 2023? What’s the USD / EGP rate you expect to use for your 2023 budget? Where do you see your industry as a whole heading?

Make your voice heard in our Fall Reader Survey. It won’t take more than a few minutes to complete.

WATCH THIS SPACE- You might finally be able to get your hands on L/Cs as of today: A number of banks have begun, as of yesterday, issuing letters of credit (L/Cs) for importers after a five-month-long drought, Bloomberg Asharq reported last night, citing five banking sources. The report came in tandem with the government’s announcement of a basket of measures designed to release goods that have been stuck in ports due to a slowdown in opening L/Cs imposed by the central bank to address a shortage of foreign currency. We have more on these measures in this morning’s Economy section, below.

A pleasant (non-)surprise: The government has been coordinating with the Central Bank of Egypt’s (CBE) new governor, Hassan Abdalla, for over a week now over measures to release goods from ports.

Among the banks offering L/Cs: AAIB, QNB Alahli, Banque Misr, and National Bank of Egypt — though Asharq notes that the latter two state-owned banks are only guaranteeing lower-cost imports.

Quick refresher: The CBE in March began requiring importers to use L/Cs to purchase non-essential goods, instead of the previous system of documentary collection — a move that has made it almost impossible for companies to import goods in a number of sectors. Over the past five months, importers have said they have been unable to access L/Cs from their banks.

The elephant in every room right now: The FX shortage. Measures to ease import restrictions are all music to industry players’ ears, but none of this answers the question of how the government plans to bring greenbacks back into the country when imports are eased — and USD begins to leave the country.

WHAT’S HAPPENING TODAY-

Egypt is attending G20 climate talks today: Environment Minister Yasmine Fouad is in Bali, Indonesia, for the G20 Climate and Environment Ministerial Meeting, the ministry said yesterday. Fouad is representing Egypt at the gathering on behalf of Foreign Minister and COP27 President Sameh Shoukry, who is in Gabon attending Africa Climate Week.

Speaking of which: Africa Climate Week enters its third day in the Gabonese capital.

Beltone Financial shareholders will elect new board members following Chimera Investments’ acquisition of a majority stake in the firm. The company confirmed that it is planning to go ahead with a capital increase but only once it has formed a new board. The Abu Dhabi-based investment company purchased Orascom Financial’s 56% stake in Beltone earlier this month and appointed former investment minister and Masar chairwoman Dalia Khorshid the following week.

PSA #1- Y’all know price fixing is against the law, right? The Egyptian Competition Authority (ECA) saw fit to remind people of the consequences of price fixing yesterday amid what it says are increasing reports of potentially manipulative price hikes.

What are the consequences, again? Fine amounting to 12% of the revenues generated from the products, or, in the case that revenues are difficult to identify, a fine of up to EGP 500 mn.

PSA #2- Today is the deadline to catch a 65% break off late payment fines for your taxes. The waiver applies to late payment fees for customs tariffs, income, real estate, and sales taxes, VAT, and stamp duties among others. The remaining 35% of your due payments will need to be paid before next March.

THE BIG STORY ABROAD-

Gorbachev dies, aged 91: Mikhail Gorbachev, the man responsible for dismantling the USSR and bringing an end to the Cold War, has died at age 91 from a “serious and protracted disease,” Russian news agencies cited hospital officials as saying. During his six years at the helm of the Communist Party, Gorbachev’s liberalizing attempts to rescue the ailing Soviet economy resulted in the break-up of the union, the end of the Iron Curtain in Eastern Europe, and the reunification of Germany. (Reuters | Bloomberg | WSJ | Washington Post | Financial Times | New York Times | CNN | The Guardian)

SIGN OF THE TIMES- Pakistan dodges default with IMF aid package: Pakistan and the IMF have agreed a USD 1.1 bn bailout package, saving the South Asian country from defaulting on its debts as inflationary pressures driven by soaring energy prices deplete its foreign reserves.

THE ROAD TO COP-

Mohieldin wants to see “localized” climate investment maps + carbon markets in Africa: Egypt’s climate czar, Mahmoud Mohieldin, took to the podium yesterday at Africa climate week in Gabon to spotlight some initiatives that could help move the climate agenda forward on the continent. These include: developing “localized” investment maps to help finance climate projects that can have an immediate impact on local communities, and setting up local carbon markets to help reduce greenhouse gas emissions. “New promising ideas need to be projectized, and existing projects must be replicated and scaled up,” he said.

CIRCLE YOUR CALENDAR-

It’s going to get easier for owners of overseas yachts to pitch up in Egypt: The Transport Ministry’s digital platform for foreign yachts will be up and running starting tomorrow, it said in a statement. The platform will act as a one-stop-shop for yacht owners to get the permits they need to come to Egypt and moor at marina’s across the country. We have the full rundown on the state’s efforts towards becoming a yacht tourism destination in our Hardhat here.

The Chemical and Fertilizers Export Council of the Trade and Industry Ministry is organizing a trade mission to Kenya between 4-8 October, the council said in a statement yesterday. Around 30 companies are set to take part in the mission, according to state news agency MENA.

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 have coffee with Etisalat Egypt CEO Hazem Metwally to go deep on how the company is transforming from telco to “tech-co.”

Goods that have been piling up at Egypt’s ports are expected to be released in the “coming days” as the government rolls out a basket of measures to clear shipments that have been held up at customs, the Finance Ministry statement. The measures promise a measure of much-anticipated relief for importers — including manufacturers and retailers — who have been struggling to get their hands on raw materials and finished products as the nation struggles with a shortage of foreign currency.

Fast-tracked customs clearance + fine exemptions are coming: Importers who have finalized all their customs procedures, except for processing the Form 4 customs document, will be able to receive their shipments from customs, Finance Minister Mohamed Maait said. Importers and investors facing delays in finalizing their customs procedures because of paperwork will also be exempt from custom fines, Maait said. He didn’t specify how long this exemption will remain in place, saying only in the statement that the measure is meant to alleviate cost burdens on importers that they would pass on in the final ticket price of their products.

Form 4? Once they pay all their customs fees and get a waybill, importers are required to file Form 4 with a bank to receive either a letter of credit (L/C) or to finalize the process of documentary collection. Form 4 includes data on the importer and imported goods, including its origin and time of importation. It should also include all expenses related to the shipment, including value in FX, customs value, and the financing source. Banks then issue an L/C based on Form 4.

Based on the new decision, importers will now be able to get a temporary statement from their bank that it is processing their Form 4 to clear their goods at customs. The Customs Authority will then coordinate with banks directly to receive the L/C at a later date.

What remains unclear: Where the FX to clear these goods from customs is going to come from. As we’ve noted before, resolving the FX crisis is top of the priority list of the new central bank governor, Hassan Abdalla, who has been meeting this week with senior figures in the banking industry and the cabinet as the state looks to ease the import crisis. But until Abdalla knows where a significant influx of greenbacks are coming from (a fresh IMF loan, a reversal of capital outflows, and / or new FDI commitments), unlikely will not be lifted entirely — expect the current measures to apply only to shipments presently stranded in customs.

As for other goods that are still being held up: Shipping agencies will now be allowed to store imported goods pending customs clearance at the country’s dry ports or warehouses outside customs ports. This would mean that importers avoid paying demurrage, which is charged by shipping agencies in USD for leaving containers at the port, Mohamed El Bahy, head of the Federation of Egyptian Industries (FEI)’s customs and tax committee, told Enterprise. The shipping agencies would only issue delivery orders upon guarantees provided by customs on their dues, according to the statement.

Importers are also getting more time to process their shipments before they’re deemed “abandoned”: Food shipments will now have four months and non-food products will have a six-month grace period before authorities deem them as “abandoned” goods. Since 2020, authorities have imposed a one-month time limit for food and non-food products to remain at customs before they are deemed abandoned. Abandoned goods are usually held by the state, and sold later at auctions.

When is all this happening? The Customs Authority will begin implementing most of the measures immediately, Maait said in a televised interview last night (watch, runtime: 1:13:34). The Central Bank of Egypt (CBE) has “promised” to start using “Form 4” to release shipments “within days,” he said.

Industry reax: A good first step. Industry players we spoke with believe these measures are a step in the right direction, though obviously not enough on their own to resolve the crisis. “This is a good step that means we’re back on track. Yet, this is still not enough. We want more from the CBE and finance, trade and industry ministries,” El Adly said. “Words need to be translated into action [on ground].” Likewise, Emad El Qenawy, head of the importers division at the Federation of Egyptian Chambers of Commerce (FEDCOC), told Masaa DMC (watch, runtime: 7:31) that the move will help to address shortages and stabilize prices, but that allowing documentary collection would be the best decision for the central bank to take.

In context: The new measures come amid a wave of speculation in the business community on how policymakers could streamline requirements to use L/Cs for some categories of imports. The restrictions have been in place since the spring as the nation has struggled with a shortage of foreign currency. The restrictions have made it more difficult to obtain raw materials, leading to a “paralysis” in manufacturing, Bahaa El Adly, the head of the FEI’s electrical appliances division, told Enterprise. Some factories have suspended operations altogether, others are seeing a near halt in production, while others have slashed production capacity.

Have you gotten your car yet? There are no more than 2.5k cars currently stuck in ports, FEDCOC member Ahmed Shiha told Ala Mas’ouleety (watch, runtime: 3:31). Automotive players had said last week that nearly all the cars marooned in ports were released — though this was said to be just enough for the deliveries to the people that have already ordered their vehicles. Some 29k cars were said to have been stuck in ports as of May.

EGP WATCH- Credit Suisse + Arqaam are the latest to comment on the fate of the EGP: FX flexibility is “definitely going to come” if Egypt is to solve its external imbalances, Zeina Rizk, executive director of fixed income asset management for Arqaam Capital, told Bloomberg TV yesterday (watch, runtime 5:09). The government will also likely face “more pressure on pressing forward with structural reform … improved governance,” she added, as Egyptian officials continue talks with the IMF for a fresh facility to help shore up the economy.

Credit Suisse’s head of MENA research, Fahd Iqbal, also stressed the importance of FX flexibility as a “sustainable” strategy for the currency in an interview with Bloomberg Asharq (watch, runtime: 3:40). “We expect the IMF to provide a comprehensive program that posits significant reforms and provides significant support,” Iqbal said, adding that one of the issues on which it could provide clarity is the currency. “The delay in talks with the IMF is a good sign that shows the fund is committed to and serious about supporting Egypt,” he added.

Everyone wants to talk about Egypt: Iqbal and Rizk are the latest in a chorus of analysts to appear on Bloomberg to voice their thoughts on Egypt over the past two weeks as the business newswire frames the country as “the symbol of the distress gripping poorer nations.” Bloomberg has also published a series of articles suggesting that Egypt is inching towards default — though there is by no means a consensus among experts about how dangerous this moment could prove.

Positivity from the minister, but no mention of the currency: This comes following Finance Minister Mohamed Maait’s Monday media blitz which he used to try and steer the conversation on the economy in a more positive direction. The minister shared optimistic fiscal forecasts for the coming year and announced budget and debt targets agreed with the IMF.

The consensus: Following the shock resignation of Tarek Amer as central bank governor, the consensus among everyone and their mothers is that the EGP is destined to fall against the greenback in the coming weeks and months. The question now is whether the central bank’s new governor, Hassan Abdalla, will proceed with a gradual float or go the “shock therapy” route with a sudden devaluation.

Movements this week might be answering that question: The EGP weakened against the greenback again yesterday, slipping another 0.1% to 19.28. After remaining flat for most of the month, the currency has now fallen 0.4% since 21 August when Abdalla was appointed, and is down 22.2% since the devaluation in March.

Auto sales halved in July from a year earlier as the market continued to struggle with import restrictions, inflation and a weaker currency. Passenger car sales dropped 50% y-o-y last month to 8.9k vehicles, according to figures provided by the Automotive Information Council (AMIC).

Bus and truck sales were also down: Some 1.3k buses and 2.6k trucks were sold in July — marking around a 30% y-o-y drop for both segments. Total vehicle sales dropped 46% y-o-y to 12.8k units.

ICYMI- The auto sector is in a jam: Passenger vehicle sales have since March been marking steep y-o-y declines, with car sales dipping by more than a third y-o-y in June. The market has been rocked by new rules requiring importers to get letters of credit (L/Cs) that effectively limited imports to a handful of essential goods, leaving new cars and car parts stranded at ports and pushing a number of global car manufacturers to suspend sales here. The devaluation of the EGP and inflation are also weighing on the sector.

Distributors are slowly releasing existing inventory to the market at higher prices to maximize margins amid supply constraints. And local assembly is struggling: Assembly lines are getting some allocation of FX to bring in kits (called “CKD” units in the industry) while already-build passenger cars remain effectively blocked from entering the country.

A light at the end of the tunnel? The government is rolling out measures to ease the logjam at ports, including a potential route for importers to bypass filing for L/Cs. Catch the full story in our Economy section, above.

REMEMBER- You’re entitled to a refund if your new car hasn’t materialized. The consumer watchdog in May ordered distributors to fully return down payments with 18% interest to anyone who had ordered vehicles before 12 April and wants a refund. Those who still want their vehicles have full price protection (that is, companies are forbidden from retrospectively hiking prices on cars ordered before 12 April due to inflation).

PLEASE, PLEASE ASSEMBLE THE NEW JEEP GRAND CHEROKEE IN EGYPT…

Stellantis is considering upping investments and expanding capacity at Arab American Vehicle Company (AAV) factories, cabinet said in a statement yesterday. This comes under an MoU signed between the auto giant — a merger between Fiat Chrysler and Peugeot — and the General Authority for Investment and Freezones (GAFI) yesterday. AAV is a JV between Stellantis and the military-affiliated Arab Organization for Industrialization.

Stellantis likes the auto localization strategy: The automaker reiterated its interest in taking advantage of the government’s incentives for the auto sector, having already expressed its interest in assembling electric vehicles in Egypt.

Maiden Panda bond sale coming this year? Egypt hopes to issue c.USD 500 mn of CNY-denominated bonds (panda bonds) in China before the end of the year, Vice Minister of Finance Ahmed Kouchouk told Al Arabiya TV (watch, runtime: 8:34). There’s no “hard number” on the size of the issuance, which will be determined by market conditions, Kouchouk said. We broke the news earlier this month that the Panda issuance could happen “soon.”

How much does Egypt need to borrow this year? The government expected to need USD 5-6 bn in financing through the current fiscal year when it drafted the budget back in March, Kouchouk told the broadcaster. Bloomberg Asharq financial analyst Mohamed Adel, meanwhile, said yesterday that we’ll need USD 9.6 bn to meet foreign debt repayments coming due between now and the end of the fiscal year in June (watch, runtime: 4:35).

Eni to go big on Egypt’s renewable energy sector? Eni could establish 10 GW of renewable energy projects in Egypt “in the forthcoming years,” the Italian energy giant said in a statement yesterday. The company’s CEO, Claudio Descalzi, “agreed on the opportunity to implement” the solar and wind projects during a meeting with President Abdel Fattah El Sisi yesterday, the statement said, without disclosing further details.

Eni’s footprint in Egypt’s renewables space remains small: The company is working on a feasibility study for establishing a green hydrogen plant and agreed to work on a small-scale carbon capture pilot project

Gas production and LNG exports were the key points of discussion, Eni said. Descalzi and El Sisi talked about “leveraging existing LNG plants” to boost exports to Europe and increasing gas production, it said.

The Italian oil major is already a key natural gas partner, producing around 60% of the country’s gas and positioning itself to increase its role as key exporter of Egyptian gas to Europe as the continent looks to replace Russian fossil fuels. Yesterday’s meeting comes four months after the two sides signed an agreement to increase Egypt’s gas exports to Europe, increase exploration efforts and raise production.

BACKGROUND- The Eni news comes as Europe looks to lock in more of its energy needs from MENA after pulling back from Russia. Members of the European Union and the UK are looking to buy more electricity from North Africa and more natural gas from Egypt and Israel in a bid to lessen their reliance on Moscow now and in the long run. Morocco is pushing hard for a piece of that pie with a 10.5 GW solar and wind energy facility it hopes to have online by 2030, we reported in this morning’s edition of Enterprise Climate.

SIGN OF THE TIMES- Diesel deliveries from the Middle East to Europe are at their highest in three years as the continent prepares to wean itself off of Russian energy under a ban that’s set to come into effect in February, Bloomberg reports.

Alex Medical is back in play: The Financial Regulatory Authority (FRA) has approved a mandatory tender offer (MTO) from the Tawasol Holdings-LimeVest consortium to purchase up to 74% of Alexandria Medical Services, bringing back to life a play for the healthcare provider that we’d heard nothing on since last summer. We reached out to bookrunner Prime Holding yesterday, but hadn’t heard back by the time of dispatch this morning.

Throwback: The Tawasol-LimeVest alliance’s last offer for Alex Medical came in June last year, amid a bidding war for the healthcare provider that at its peak saw eight companies and consortiums signal their interest before it fizzled out without a sale. Cleopatra Hospitals Group, the UAE’s Global One Healthcare, Nile Misr, Seha Capital, and the Tawasol Holdings-LimeVest consortium never publicly counted themselves out of the running.

The offer: The consortium offered to pay EGP 47.67 a share for the stake, valuing Alex Medical at EGP 742.4 mn, according to a statement (pdf) filed to the FRA on Monday. The consortium’s offer last year valued the company at the same amount (without adjusting for inflation), though the per-share price was higher — EGP 52 per share — because Alex Medical has since executed a capital increase, issuing 1.3 mn additional shares, the statement reads. Tawasol already owns 26% of Alex Medical, meaning the acquisition could give the consortium 100% ownership.

Who’s selling? Abu Dhabi Commercial Bank (ADCB) wants to sell its 51.5% stake in the company that it acquired from NMC Healthcare’s disgraced founder, BR Shetty. Another 9.8% is owned by an individual shareholder.

What’s next? With the mandatory tender offer approved by the regulator, shareholders now have 20 working days — until 27 September — to weigh in.

Advisors: Prime Holding are the brokers on the offer and Zaki Hashem and Partners are acting as legal advisors for Tawasol Holdings-LimeVest on the transaction.

HELIOPOLIS HOUSING PARENT UPS STAKE IN MAADI DEVELOPER-

Heliopolis Housing parent company Holding Company for Construction and Development (HCCD) purchased 14.4% of Zahraa El Maadi Investment from Maadi for Development and Construction in a EGP 343.9 mn transaction, according to bourse disclosures (here, pdf and here, pdf). HCCD now owns 22.7% of Zahraa El Maadi, after purchasing an 8.3% stake last week.

Little known company aims to push into Islamic microfinance in Egypt: The Egyptian Microfinance Company (Maksab) has become the first local player to get a license from the Financial Regulatory Authority (FRA) to provide sharia-compliant microfinance. The move comes as part of the regulator’s drive to increase financial inclusion by widening microfinance options to unbanked microbusinesses, the regulator’s new chief, Mohamed Farid, said in a statement (pdf) yesterday.

Maksab who? We weren’t able to find a digital footprint for the company, though it looks to be relatively newly formed and headed by Mohammed Hassan (LinkedIn), former head of Islamic banking at Bank Audi Egypt (now FABMisr after its merger with First Abu Dhabi Bank). We reached out to Hassan yesterday but haven’t heard back from him or his media team as of dispatch time.

More Islamic microfinancing options could be coming soon: Maksab’s license is for a type of Islamic financing known as “al wakala bil istithmar.” The regulator is also looking into issuing licenses for sharia-compliant murabaha and musharaka financing for non-banking microfinance institutions, it said.

Nineteen companies now have licenses to offer microfinance services, the FRA said. Some 3.8 mn people received EGP 33.3 bn in microfinancing during the first seven months of 2022, 60% of them women, according to its figures.

President Abdel Fattah El Sisi has appointed Adly Abdel Fattah Gad as the new head of the Administrative Prosecution Authority, succeeding Ezzat Abu Zeid Sallam, effective 1 September, Youm7 reports.

El Sisi also appointed Amr Adel Ali Hosny as the new head of the Administrative Control Authority, succeeding Hassan Abdel Shafy, who was appointed as a presidential advisor, according to two separate Ittihadiya statements (here and here). Hosny had previously served as the deputy chairman of the authority.

Dina Abdel Monem (LinkedIn) has been appointed chairwoman of military firm Shubra Engineering Industries Company, according to a ministry statement. Abdel Moneim most recently served as a deputy at the ministry.

We tuned into another episode of Maait TV last night: Finance Minister Mohamed Maait joined Ala Mas’ouleety (watch, runtime: 1:13:34) last night for a long, extensive interview to discuss the economy, the measures taken yesterday to release goods stuck in ports, and of course, fake news.

First thing’s first, more targets: The minister was keen to repeat fiscal targets for the current year, reminding show host Ahmed Moussa that the ministry expects tax revenues to rise 23% this fiscal year to EGP 1.5 tn.

More importantly: Imports. Maait described the emergency measures taken yesterday to help ease the crisis in Egypt’s ports, where goods have been trapped for the past five months due to import restrictions imposed by the central bank. We have more on all of this in the news well, above.

Questions remain on L/Cs + currency: When pushed by Moussa on whether there will be exemptions or changes to import rules, Maait declined to comment and said that any changes are the responsibility of the central bank and the Trade Ministry.

Moussa also asked Maait whether or not the IMF had demanded we float the EGP. Maait sidestepped the question, saying: “We are stakeholders in the fund and we have the right to negotiate any proposals attached to potential programs the Fund offers… especially during challenging or exceptional conditions,” he said.

FAKE NEWS WATCH- Maait doubled down on his critique of how the press is covering the economic crisis, claiming that the country is facing a “targeted wave” of negative reporting on the economy. “These reports incite concerns and panic that could harm the country, its people, its stability and its future,” he said.

There’s nothing dominating the conversation on Egypt in the foreign press morning: Reuters reports that jasmine farmers in Egypt are being hit by falling demand and supply chain disruptions and the New York Times covers the findings of a new study that seems to confirm the theory that the builders of the Pyramids transported the giant blocks along the Nile.

The latest from Iraq: Iran reopens its borders as Al Sadr urges calm: Iran resumed flights to Iraq yesterday, hours after it sealed its borders with Iraq following deadly clashes in the Iraqi capital, the state-run Islamic Republic News Agency (IRNA) reported. Supporters of Shia cleric Moqtada Al Sadr who stormed the presidential palace following his retirement on Monday began withdrawing from the streets upon his request yesterday after unrest left at least 15 people dead and 38 wounded, according to the Associated Press. Flights from the UAE will remain suspended today.