AM — Madbouly’s big privatization presser today + non-oil exports up 50% last year

Good morning, friends. We have a big issue for you this morning — and it’s just the prelude to what we think could be an even bigger day ahead.

Two stories everyone will want to keep an eye on, regardless of the industry in which you work:

#1- FROM THE DEPT. OF GOOD NEWS- Get ready for Madbouly’s big privatization presser today: Prime Minister Moustafa Madbouly is today expected to unveil the list of 20+ state-owned companies in which the government plans to offer stakes to strategic investors and / or on the EGX this year. Look out for a press conference after the weekly cabinet meeting.

EGX chief Rami Dokany is feeling positive about the plans: “I think the [state offering program] will play a big role in making things happen,” El Dokany told the National.

“This is a cashflow situation…once the cash flow has been resolved, we’re going to see more interest and more inflows happening… Any policy is only as good as its execution plan … but I think the government is quite serious about it.”

We have plenty of questions, but the big three to watch out for:

• How many of the companies are marked for IPO, how many are listed companies in which the state will sell down positions, and how many for sale to strategic investors?
• How many of the names are “new” and of those, how “high quality” are they?
• Is the state willing to sell 51% or more of an attractive company to a strategic investor, which by definition will want management control and the ability to consolidate the results of whatever they’re buying?

Our take: Selldowns of state positions in already-listed companies as well as direct stake sales to strategics can happen anytime. But don’t expect IPOs before May / June at the absolute earliest — September is a more likely timeframe.

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#2- FROM THE DEPT. OF LET’S SEE… After 13 years, people might be about to start using Bing: Microsoft will today unveil new versions of its search engine Bing and Edge web browser integrated with OpenAI's powerful ChatGPT artificial intelligence software. It has scheduled a press event starting 8pm CLT / 1pm EST. The changes will reportedly see the company introduce a more advanced version of ChatGPT into its search ecosystem.

Everyone is talking about this in the business press: Having tried out the tech, WSJ is firmly on board the Microsoft hype train: “Search will never be the same,” gushes a front-page headline. The Financial Times, Bloomberg and CNBC all have front-page stories on the unveil.

The big question: Can we use this in Egypt? OpenAI is yet to make ChatGPT available to Egyptian users (and though you can make an account with a VPN, you’ll need a mobile number in a supported country to complete your registration). We’re hoping to get an indication today on whether this will change when the technology is embedded into Microsoft’s native browser and when it will roll out to other countries.

MEANWHILE- Google is also seeding its first GPT rival / AI search helper to the market, but has yet to announce plans to make it available to more than a small handful of beta testers. You can read more about its Bard in a blog post here.

DATA POINTS-

#1- Non-oil exports rose more than 50% in 2022. That’s according to figures released yesterday by the cabinet, which put the total value of non-oil exports at USD 35.6 bn last year. That’s up 51% from USD 23.5 bn in 2021.

Driving growth: Chemicals and building materials, followed by textiles, engineering products (think: all of the stuff Samsung and friends assemble here) and agricultural products, according to the statement.

#2- The value of Egypt’s automotive imports plunged by nearly 70% y-o-y in November 2022 to USD 97.5 mn, down from USD 324.3 mn a year earlier, according to Capmas data picked up by Youm7.

REMEMBER– Car sales nosedived in 2022 on the back of global supply constraints and Egyptian import restrictions (thank you, FX crunch). Industry data out last week showed that total vehicle sales fell more than a third during the year. Sales are expected to pick up later this year after the central bank revoked import restrictions brought in last spring to conserve hard currency.

Latest round of Libya talks continue in Cairo: Two days of UN-sponsored talks with the 5+5 Libyan Joint Military Commission — which brings together representatives from Libya’s two rival governments — kicked off in Cairo yesterday, according to state news agency MENA. This round of talks will address the removal of mercenaries and foreign forces from the country.

THIS WEEK-

Inflation: The CBE and Capmas are expected to publish inflation data for January on Thursday.

The damage? The median projection in a Reuters poll of analysts is 23.75%, up 21.3% in December. This would be the highest rate since November 2018. Five analysts expect core inflation, which strips out volatile items such as food, to rise to 26.6% in January from 24.4% a month earlier, the highest since October 2018.

NEXT WEEK-

President Abdel Fattah El Sisi will be in Dubai next week to attend the World Government Summit, which runs 13-15 February. Twenty heads of state will be in town for the Davos-like gathering, which will see policymakers from around the world discuss global trends, according to Emirati state news agency WAM.

Petro-show next week: Oil and gas industry figures from Egypt and the region will congregate at the Egypt International Exhibition Center for the Egypt Petroleum Show (Egyps) starting next Monday. The three-day conference runs 13-15 February.

THE BIG STORIES ABROAD-

The latest on the earthquake in Turkey and Syria continues to dominate the global conversation: The death toll from the earthquake that hit southern Turkey on Monday is nearing 8k, making it one of the deadliest natural disasters of the 21st century. The figure is expected to rise further in the coming days as rescue workers continue to search for survivors amid freezing winter conditions. (AP | Reuters | NYT | Washington Post | Bloomberg | FT | WSJ)

Egypt sends aid: President El Sisi offered his condolences during phone calls with Turkish leader Recep Tayyip Erdogan and Syrian President Bashar Al Assad yesterday, according to Ittihadiya. Five planes of emergency military aid are en route to the area to assist in recovery efforts, the state-run MENA news agency reported.

Two Egyptians among the dead: Two Egyptians were among victims of the earthquake, the Foreign Ministry said yesterday. The ministry didn’t disclose their identities or any other details.

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Leading the conversation in the business press this morning:

US rates could rise higher than expected: The Federal Reserve might continue to go strong on interest rates on the back of strong US labor data, central bank chair Jerome Powell said yesterday. “The reality is if we continue to get strong labor market reports or higher inflation reports, it might be the case that we have to raise rates more” than is forecast, Powell said in statements to the Economic Club of Washington. He forecast a “significant” drop in inflation this year, yet warned that the Federal Reserve is seeing only “the very early stages of disinflation.” (FT | Bloomberg | WSJ | AP | Reuters | CNBC)

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COME TO OUR NEXT ENTERPRISE FORUM-

We’re excited to unveil our next C-level event: The Enterprise Exports & FDI Forum, where we will take a deep dive into two of the most critical topics affecting our community.

Exports and foreign direct investment (FDI) have never been more important to our economy — or our businesses — than in the wake of the float of the EGP. We think we have a once-in-a-lifetime chance to build an export-led economy that makes us a magnet for FDI and all the benefits that will come with it for our nation.

Want to join the conversation? Drop us a line on events@enterprisemea.com.

CIRCLE YOUR CALENDAR-

Hey, agri-tech startups: The European Bank for Reconstruction and Development (EBRD) has launched its AgVenture challenge, offering startups operating in the agri-tech sector the chance to snag up up to EUR 80k worth of advisory services and additional grants worth EUR 10k. Eligible startups have until 1 March to apply.

Who’s eligible? Startups that have been operating in the agri-tech sector for less than 5 years, have an annual turnover of less than EUR 1 mn, and who operate primarily in countries where EBRD has a presence.

Fuel price announcement when? We’re still waiting to hear what the government plans to do with fuel prices this quarter. Its fuel pricing committee was supposed to meet at the beginning of January to set prices for 1Q. The government has increased prices at the pump by 23-28% since April 2021, and decided on a rare fuel oil price hike last July.

Expect prices to rise: The government has committed to changing local fuel prices in line with movements in the global markets under the USD 3 bn loan agreement with the IMF.

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: Contractors are coming out in opposition to requirements that they join the government’s e-invoicing system, saying the sector has unique challenges that make it difficult to comply with the system’s requirements.

Arms wide open for the Qataris: Planning Minister Hala El Said again invited Qatari business leaders to step up their investments in Egypt during talks in Doha yesterday, according to the state-run Qatar News Agency. Members of the Qatari Businessmen Association (QBA) called for the creation of a fund that would see Qatari businesses partner with the Sovereign Fund of Egypt to channel investments into target sectors. The Madbouly government is currently evaluating a number of projects that will be presented to private investors in both countries, El Said said. The visit comes more than three months after a QBA delegation visited Egypt to assess investment opportunities.

We know some of the targets: Qatar’s Al Kuwari Group has reportedly bid to acquire the Ramses Hilton for USD 320 mn. Meanwhile, the Qatar Investment Authority (QIA) has been in talks since September 2022 to acquire a 20% stake in Vodafone Egypt from Telecom Egypt. The QIA’s Maha Capital is also angling for majority stakes in two state-owned container terminal operators: Port Said Containers & Cargo Holding Company (PSCCHC) and Damietta Container & Cargo Handling Company.

Qatar now reportedly has a rival for Vodafone Egypt: The QIA and Telecom Egypt are not seeing eye-to-eye over how much of VFE should be on the table, Asharq Business reported yesterday, citing two sources it says are familiar with the matter. The wealth fund is said to want to acquire TE’s entire 45% stake in the company, but the Madbouly government doesn’t want to cede more than 25%, the people reportedly said.

ADQ has entered the chat: That’s left room for Abu Dhabi wealth fund ADQ to start negotiations for the company, according to Asharq. A source told us back in September that ADQ was interested in the company, as is the Saudi wealth fund.

PSCCHC-DCHC talks are also moving slowly over how much is for sale: The Transport Ministry was reported last month to be reluctant to meet the QIA’s demands for majority ownership of the two container terminal operators. Sources reportedly told Al Mal that the government wants to keep control of the companies and expressed hope that the Qataris will agree to acquire minority stakes.

Progress has been slow: Government officials have been inviting Qatari business leaders to invest in Egyptian projects for months, but talks have dragged on without any agreements. The country’s sovereign wealth fund last year deposited USD 4 bn at the Central Bank of Egypt while it negotiates to acquire stakes in major companies. It was reported in November that the fund was still doing due diligence and finalizing agreements. The country pledged to provide USD 5 bn in central bank deposits and investment to support Egypt through the current economic crisis.

A Gulf tour: El Said is on a Gulf tour with SFE CEO Ayman Soliman to promote investment opportunities in Egypt, and have met with Omani and Bahraini officials this week, according to statements by the Planning Ministry.

Moody’s downgraded Egypt’s credit rating yesterday for the first time since 2013 due to “reduced external buffers and shock absorption capacity.” In its first rating action since last May, the agency said it was lowering its rating to B3 from B2 and changed its outlook to stable from negative.

Why now? FX reserves have declined since the agency cut its outlook to negative in May 2022 and the banking system’s net foreign liability position has increased, heightening vulnerability, the agency says, at a time of uncertainty for the global economy. Liquid reserves have fallen to USD 26.7 bn from USD 29.3 bn since April while net foreign liabilities are now at USD 20 bn, compared to USD 13 bn.

No quick fix: The agency notes that while the renewed privatization momentum injected by the recent IMF agreement will create more sustainable sources of capital inflows, the process of reducing the country’s external vulnerabilities are going to take time. “While the situation may stabilize, Moody's does not expect Egypt's liquidity and external positions to rebound quickly,” it said.

The rationale behind “stable”: Higher domestic borrowing costs, tight conditions in the international capital markets, and rising social spending will be balanced by the government’s strong domestic funding base and good track record of delivering primary budget surpluses. Delivering on the structural reforms in the IMF agreement and boosting exports and FDI is an upside risk in Moody’s forecast.

Exchange-rate switch will be good for the medium term, but: “Adhering to a fully flexible exchange rate will be credit positive for Egypt over the medium term” though this will be complicated by high inflation and rising domestic borrowing costs, the agency said. “This complexity raises questions about the central bank's and government's capacity to manage the full consequences of the transition.”

Watch these for an upgrade: Moody’s will consider upgrading its rating if structural reforms produce a shift towards a sustainable model of FX generation. Rising non-oil exports and strengthening FX reserves fuelled by non-debt creating inflows will be credit positive, as will improving fiscal indicators.

And for a downgrade: Egypt’s rating could be further downgraded if reform commitments fail to materialize or if there is a significant deterioration in the country’s debt/GDP or interest/revenue metrics.

S&P wasn’t quite as downbeat when it issued its latest rating last month: The agency affirmed the country’s B rating with a stable outlook, saying that fresh support from the IMF and the GCC will bolster Egypt’s ability to cover its funding needs.

And Fitch? The third of the big three rating agencies cut its outlook to negative in November due to rising external vulnerabilities and said that further strains could result in a downgrade.

BPE Partners’ B Investments has completed the sale of its entire 6.38% stake in TotalEnergies Egypt to TotalEnergies Marketing Afrique (TEMA) for USD 27.6 mn, the company said in an EGX disclosure (pdf). The transaction came alongside a separate BPE Partners-backed vehicle’s exit of its 9% stake to TEMA for USD 39 mn, handing TEMA the two shareholders’ combined 15.38% stake in TotalEnergies, a source close to the matter told Enterprise. The two transactions could bring in an additional USD 5.5 mn combined for the sellers if Abu Dhabi National Oil Company for Distribution (Adnoc) succeeds in closing its acquisition of a 50% stake in TotalEnergies Egypt.

Where does the Adnoc transaction stand? Adnoc’s distribution arm is set to finalize its 50% acquisition of TotalEnergies Egypt by the end of 1Q, we’re told.

REMEMBER- B Investments has big plans for the proceeds: The company intends to direct some of the proceeds of its exits from TotalEnergies Egypt and Giza Systems towards EGP 2 bn worth of investments in the healthcare and food sectors this year, including through a new health investment partnership with the Sovereign Fund of Egypt.

Another push for privatization in the sports industry: Government-drafted amendments to the 2017 Sports Act will allow the Egyptian FA and others to set up and list companies on the EGX for the first time in a bid to attract more private investment into the sector, Rep. Mahmoud Hussein, who chairs the House Youth and Sports Committee, said yesterday.

REMEMBER- The government is preparing to reboot its state privatization program which will see fresh IPOs on the EGX as it pushes with efforts to revitalize investments on the EGX which is seeing one of the strongest rallies in recent years on the back of the EGP devaluation.

What’s what: The amendments would pave the way for sports institutions to set up investment companies and list them on the bourse, according to Hussein, who estimated the value of private investment in the local sports sector at EGP 28 bn. “But we can do more through the new amendments and other measures to boost these investments to be a major contributor to the national economy," he said. Hussein’s statements came during a committee meeting held yesterday to discuss the amendments with industry stakeholders.

This reads like Egypt’s bid to set up a Qatar Sports Investment or a City Football Group: “Private investments in the sporting sector have become one of the most important profitable economic activities in the world in recent years … They have even become the backbone of some states as they come first in terms of contribution to the national economy,” Hussein said.

REMEMBER- The 2017 Sports Act loosened the state’s grip on private sports clubs, allowing them to have more authority over financial affairs and operate as an institutionalized company. This has encouraged some to think about the prospect of going public.

Ghazl El Mahalla has provided the blueprint for how not to IPO: Ghazl El Mahalla FC botched its attempt to become the first publicly-traded sports club in Egypt last year. The state-owned club opted to IPO during the most challenging market conditions since the covid-19 pandemic, and was left unable to find buyers for its meager EGP 135 mn share sale. Just 18% of the retail offering was covered after several extensions, forcing the club to abandon the sale.

Others have expressed an interest in going public: The chairman of Al Ahly said last year that the board is considering offering 49% of the company on the EGX.

PROPOSALS FOR LICENSE FEES AREN’T POPULAR-

The bill isn’t all private-sector friendly: The legislative amendments would require private sports clubs to pay a licensing fee equal to 5% of the value of their businesses, an expense that industry representatives complained would slow investment in the sector. Tamer Mohamed, an owner of a private sporting services company, complained that the ministry offers no services in return for such a high fee, while Saad Shalaby, the executive director of Al Ahly Sporting Club, pointed out that investing bns of EGP in new facilities would see companies pay hundreds of mns in fees to the ministry.

And the bureaucracy remains: “Bureaucratic obstacles are also to blame for restricting the flow of private investments into the sporting sector,” said Shalaby. “In order to set up Al-Ahly Football Company, we had to get nine licenses from nine state departments,” he said during the meeting.

Gameball raises USD 3.5 mn in seed funding: Homegrown customer loyalty platform Gameball has raised USD 3.5 mn in seed funding from global and regional investors, the company said in a press release yesterday. Global investor 500 Global, Africa-focused funds P1 Ventures and Launch Africa, and Middle East VCs Seedra Ventures, Arzan Venture Capital, Propeller and Core Vision all participated in the round alongside regional angel investors.

About Gameball: Founded in 2020 by Egyptian entrepreneurs Ahmed Khairy (LinkedIn), Ahmed El Assy (LinkedIn) and Omar Alfar (LinkedIn), Gameball operates a customer relationship management platform that uses customer data to help brands target shoppers through personalized loyalty schemes, messaging, and rewards. Since its founding, the company has worked with some 7k businesses and now handles transactions worth USD 260 mn each month, according to the statement.

Where the money’s going: Gameball plans to grow its upmarket business, make new hires, and launch on-the-ground operations in the KSA, Germany, and the UK.

Aman Financial Services is tapping the securitization market this month: Raya Holding’s non-banking financial services outfit, Aman Financial Services, will move forward with an EGP 400 mn securitized bond issuance after the Financial Regulatory Authority (FRA) gave it the greenlight, Raya Holdings Chief Investment Officer Ahmed Nour Eldin confirmed to Enterprise. Raya’s securitization arm, Aman Securitization, is issuing the bonds on Aman Financial’s behalf, he told us.

About the issuance: The issuance will include several tranches with tenures ranging from six months to five years and comes to finance the company’s expansion plans for the first half of the year.

A big year for Aman: Aman Holding is planning to make its EGX debut this year, after unfavorable market conditions last year forced it to delay its IPO.

Advisors: Aman tapped CI Capital to act as issuance arranger while CIB and the National Bank of Egypt are on board to manage the issuance. Dreny and Partners will act as legal advisor and UHY Egypt will act as auditor.

More securitization to come in 1Q: Among other firms planning issuances for this quarter are EFG Hermes’ ValU and Contact Financial Holding. Nearly EGP 1 bn worth of bonds have been sold so far in 2023, according to data tracked by Enterprise. Companies raised EGP 45.4 bn from securitized bond issuances in 2022, almost three times the EGP 15.8 bn sold the year prior.

The devastating earthquake in Turkey and Syria continued to dominate coverage on the airwaves last night. The nation’s talking heads focused much of their coverage of the disaster on events in Syria, with the widespread destruction seen in Turkey getting less attention. Kelma Akhira’s Lamees El Hadidi again dedicated the whole show to the disaster, noting the continuing rise of the death toll to 7.5k and a three-month state of emergency in hit cities (watch, runtime: 7:33). Much of last night’s Yahduth Fi Masr also focused on the earthquake (watch, runtime: 4:50), while Al Hayah Al Youm (watch, runtime: 4:37) and Masaa DMC (watch, runtime: 4:12) had the updates.

Egypt’s response: President El Sisi’s phone calls with the Syrian and Turkish leaders yesterday and the government’s decision to send aid also got a lot of attention. Ala Mas’ouleety’s Ahmed Moussa claimed Egypt was the first to offer condolences and aid to Syria, and was fuming over the lack of aid provided by Western nations, who he accused of worsening the situation by maintaining sanctions on Syria (watch, runtime: 3:14). Al Hayah Al Youm (watch, runtime: 2:31) and Masaa DMC (watch, runtime: 2:20) also took note.

Breakthrough in Sudan talks: A political consensus agreement signed between Sudanese political groups also got a mention on talk shows, with Al Hayah Al Youm’s Mostafa Sherdy saying that the agreement “reflected Egypt’s pivotal role” in helping bridge differences between the country’s opposing parties (watch, runtime: 16:48). The meetings give high hopes on the possibility of a dialogue between Sudanese political forces who were in Cairo and those who didn’t participate, Salah Halima, the deputy head of the Egyptian Council for African Affairs told Sherdy. Ala Mas’ouleety (watch, runtime: 7:04) and Masaa DMC also took note (watch, runtime: 3:02).

Media regulator threatens to shutter “abusive” sports media outlets: Sports channels that spread ‘hatred” and launch personal attacks could have their licenses revoked, the Supreme Council for Media Regulation (SCMR) said yesterday.

A warning to Mortada Mansour? The decision comes weeks after Al Ahly submitted a complaint to the regulator against the owner of rival team Zamalek, Mortada Mansour, accusing him of attempting to defame the club. The decision was noted on Ala Mas’ouleety (watch, runtime: 10:00), Al Hayah Al Youm (watch, runtime: 6:19) and Masaa DMC (watch, runtime: 8:44).

It’s another quiet morning for Egypt in the pages of the foreign press: Quartz has pronounced Egypt a regional tech hub following MNT-Halan’s newfound unicorn status and Reuters profiles nationally-ranked bodybuilder, Ali El Sharkawy, who spends his mornings collecting trash to fund his career as a professional athlete. Foreign Policy has an op-ed calling for the military to reduce its involvement in the economy. And the US is reportedly pushing Egypt and the UAE to pressure leaders in Sudan and Libya to cut ties with Russia’s Wagner Group, the private military outfit closely associated with the Kremlin, the Associated Press reports.

INVESTMENT-

Local firms could get a piece of a new USD 10 bn Abu Dhabi tech fund: Emirati AI firm G42 is setting up a USD 10 bn tech fund — dubbed 42X Fund — to invest in tech firms in Egypt, Saudi Arabia, Singapore, Indonesia, China, and Israel, people familiar with the matter told Bloomberg. The AI firm is also looking into partnering on investments with a number of unnamed hedge funds. G42 is backed by Abu Dhabi wealth fund Mubadala, and is chaired by UAE royal Sheikh Tahnoon Bin Zayed, who also heads ADQ, another wealth fund that targets investments in emerging markets.

FINTECH-

Fawry to boost Orange Egypt’s e-wallet services: EGX-listed e-payment giant Fawry inked an agreement on Monday with mobile network operator Orange Egypt to add more payment services to the Orange Cash e-wallet, the telecoms firm said (pdf) yesterday.

Paymob + Khazna partner up: Retailers on Paymob’s network will be able to offer services by financial super app Khazna through their integrated POS devices per a partnership agreement signed by the two companies, according to a press release.

INFRASTRUCTURE-

New logistics zone in the works near Libyan border: A coalition of three local firms will build, manage, and operate an integrated logistics zone in the city of Salloum under an MoU signed with the General Authority for Land and Dry Ports, the Transport Ministry said yesterday. The three firms — Misr Europe for Industrial Development, Middle East Development (Mirad), and Lenza Egypt — have developed a financing plan for the zone through the European Investment Bank, the ministry said, without giving further details. Local media had previously reported that China’s AVIC had received the authority’s approval to build an EGP 5 bn logistics zone in Salloum.

POLITICS-

More pre-trial detainees released: Authorities released 35 pre-trial detainees yesterday, Tarek El Awady, a member of the Presidential Pardon Committee, said.

Croatia could be interested in investing in the SCZone: Prime Minister Moustafa Madbouly discussed potential Croatian investments in the Suez Canal area with the country’s president, Zoran Milanovic, during talks in Cairo yesterday, according to a statement from the Croatian president’s office. The two also discussed strengthening cooperation on tourism and energy, the statement said. This came during the second day of Milanovic’s visit to Cairo, which also saw him discuss tourism and military ties with President Abdel Fattah El Sisi on Monday.