TL;DR

CBE to sell USD 1.5 bn in exceptional auction today; black market rate up despite moves. (What We’re Tracking)

PM pushes for VAT law implementation. (Speed Round)

Wheat subsidy reforms not all they’re cracked up to be, report shows. (Speed Round)

EGX changes share buyback regs + will allow companies listed in foreign currency to trade in EGP. (Speed Round)

Kuwait fund signs two loan agreements to Egypt, promises to up funding on development projects. (Speed Round)

EU approves EUR 200 mn grant for water projects. (Diplomacy + Foreign Trade)

OneSubsea awarded contracts from BP, DEA. (Energy)

Egyptian Iron and Steel asks government for gas price reduction. (Manufacturing)

Housing unit prices expected to rise 5-15%, says JLL Consulting. (Real Estate + Housing)

By the Numbers

WHAT WE’RE TRACKING TODAY

The CBE will flood the market with USD 1.5 bn in an exceptional auction today “to cover customer debts in foreign currency that were made in import operations,” according to a CBE statement (Arabic). Reuters has coverage in English. The CBE sold USD 198.3 mn yesterday at EGP 8.85 per USD 1, following Monday’s devaluation. This will bring the total amount the CBE injects to the market in the past 72 hours to approximately USD 1.9 bn. For reference, the CBE’s reserves registered USD 16.53 bn at the end of February.

…The EGX responded well to Monday’s moves, posting the biggest two-day gain since 2012 and bucking declines of Middle Eastern stock markets. Bloomberg says the devaluation diminishes at least one of the risks that has “left foreign investors wary of Egypt since the 2011 uprising.” FX bureaus are singing a different tune, saying they received text messages attributed to CBE Governor Tarek Amer saying his patience had “run out” and that if they are not selling USD at the official rates, “necessary action” will be taken against them. Some FX traders told Al Borsa they are considering putting their entire operations on hold.

Despite the devaluation, traders tell Reuters’ Arabic service that the parallel market rate has jumped to EGP 9.60 compared to EGP 9.20 on Monday due to increased demand for the USD. Beltone Financial’s Hany Genena said the jump is “normal” adding that these are simply “attempts to pressure the central bank governor to devalue the currency further.”

Across the pond: The U.S. Federal Reserve’s Federal Open Market Committee wraps its two-day meeting today. Look for a statement from the Fed at 8:00pm and for Fed Chair Janet Yellen to hold a press conference at 8:30pm CLT to discuss the decision on interest rates. While most economists don’t seem to expect change, global markets weren’t looking too great yesterday ahead of the announcement.

Trade and Industry Minister Tarek Kabil will inaugurate the Automech Formula 2016motor show at the Cairo International Convention & Exhibition Centre today according to AMAY.

Also today, Prime Minister Sherif Ismail will inaugurate the 49th Cairo International Trade Fair, AMAY reports.

Finally: The interminably long process through which the Americans choose their presidential candidates for this fall’s election continues. Hillary Clinton has “clobbered” Bernie Sanders in the key states of Ohio and Florida and Marco Rubio has dropped out of the race for the Republication nomination after losing his home state of Florida to Donald Trump (even as the latter stumbled in Ohio). With results still trickling-in as we were heading for dispatch this morning, Trump won or looked likely to win Florida, Illinois, North Carolina and Missouri, losing only Ohio. In the Democratic race, Clinton won or looked likely to win Florida, Illinois, North Carolina, and Ohio, with Bernie Sanders taking only Missouri.

WHAT WE’RE TRACKING THIS WEEK

The Central Bank of Egypt’s Monetary Policy Committee (MPC) meets tomorrow to consider interest rates. Beltone Financial’s Hany Genena expects interest rates to be boosted to their highest level in seven years, he tells Bloomberg. Genena expects the MPC to raise the overnight deposit rate to 10.25%.

Also tomorrow: SODIC will holding its FY2015 results call at 4:00pm CLT. Tap here for the invitation (pdf).

ON THE HORIZON

AmCham is holding its Women in Business: The Key to Economic Growth summit on 22 March. The conference will also announce the regional winners of the fourth AmCham MENA Council Women Awards. You can register for the summit here.

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SPEED ROUND

We need the value-added tax law passed, Prime Minister Sherif Ismail told President Abdel Fattah El Sisi in a meeting yesterday. Doing so will help contain the informal economy, Ismail said, according to Al Ahram. The PM told El Sisi that the government will focus on presenting its short-term solutions to the economic problems Egypt faces in parallel with executing the country’s 2030 vision when presenting its plan to parliament. Ittihadiya’s spokesperson said the pair discussed economic policy and the government’s planned address to parliament.

We welcome the “freer exchange rate policy,” the International Monetary Fund’s mission chief for Egypt Chris Jarvis told Al Shorouk. The new policy will increase the availability of FX, support competitiveness, encourage exports and tourism, and attract foreign investments. Jarvis reiterated that there are no negotiations between the Egyptian government and the IMF over a loan, but that the IMF stands willing to help, if needed.

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Wheat subsidy reforms have “gone wrong,” Eric Knecht writes in an investigative report for Reuters. The smart card system, touted as one that has so far saved the state nearly EGP 6 bn, has failed and “even made abuse of the system worse.” Knecht writes: “Eight sources in the wheat industry said the smart card system could be hacked, allowing some bakers to falsify receipts and request far more subsidised flour than they officially sold. Instead of reducing the amount of flour the state paid for, the critics said, the smart card system actually increased it. That triggered a wave of fraud higher up the supply.” He points a finger at SMART, the company producing the smart cards and the machines that read them, following allegations that some of its employees created “master” cards that override the system and sold them to bakers. The lengthy piece is richly reported and nicely illustrated with photography and an infographic on how to “outstmart the SMART card.”

Bloomberg also carried a report about wheat in Egypt and the health panic surrounding it. “I won’t buy any bread from state bakeries until the government makes clear they won’t allow cancer-causing wheat into the country,” an Egyptian mother told Bloomberg’s Salma El Wardany, who explains that her fears emanate from Egypt’s “arcane and contradictory” laws regarding the level of fungal contamination. El Wardany places the blame directly on the domestic media, accusing it of scaremongering and circulating “lurid conspiracy theories.”

Case and point: an Al Ahram Agriculture headline reading “Head of Agriculture Quarantine Slaughtered by the Knife of Cancer-Causing Wheat Mafia.” Former quarantine head Saad Moussa’s zero-tolerance policy on the ergot fungus caused him to get the boot earlier this month by what the piece describes as a “wheat mafia” exposing the public to a “miscarriage and cancer-causing” scourge. Former quarantine head Ali Suleiman told the paper that during his 2007-2012 stint he “did not allow the entry of any shipment containing a percentage of ergot” — a statement we find unlikely given that a 0.05% level of ergot in grain shipments is considered the international standard, according to the U.S. Department of Agriculture (pdf).

For context, veteran financial writer Patrick Werr suggests that one theory on the Egypt ergot debacle is that Egyptian law had long stipulated a zero-tolerance policy, but a new law was introduced to follow the more widely accepted 0.05% standard. In actuality, ergot “is essentially a problem only in chemotherapy and rarely has it occurred recently as a result of eating,” according to the UN’s Food and Agriculture Organization. Historically, however, ergot poisoning has been linked to symptoms experienced during the Salem witch trials and has been posited to be the likely cause of the last of the 10 plagues of Egypt — the smiting of first-borns.

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The EGX has amended its listing regulation to allow companies listed in foreign currencies to trade in EGP. The decision aims to reduce pressure on FX demand while not affecting trading volumes on companies trading in USD, bourse Chairman Mohamed Omran told Al Borsa. The second part of the decision addresses share buybacks. If a company is repurchasing shares at a price that is more than 10% higher than the average price in the 10 trading sessions previous to the board decision, or the average price in the previous three months, a fair value estimate by an independent financial advisor has to be submitted. The new regulations also restrict companies to only being able to buy shares traded domestically, excluding GDRs. The new regulations can be read in full here.

The Kuwait Fund for Arab Economic Development signed two agreements on Tuesday for a loan package to Egypt and financing for the development of the USD 1.7 bn South Helwan Power Plant, Al Masry Al Youm reports. The first agreement, signed with the International Cooperation Ministry, will see the Kuwait fund loan the government KWD 30 mn (USD 100 mn, with Al Borsa estimating USD 108 mn), which is the second tranche of a total KWD 60 mn (USD 199 mn) loan. The agreement, signed with the Electricity Ministry, will see the fund provide partial funding for the installation of new boilers and three 650 MW turbines to the 2 GW plant, according to an Electricity Ministry statement.

The Kuwait fund’s board of directors had apparently also promised to increase funding to Egyptian development projects to over the USD 300 mn in 2016, provided the government can ensure the timely completion of the projects, said GM of the Kuwait Fund Abdel Wahab Al Badr at the signing. He added that the fund is very eager to finance desalination plants and road network development in Sinai. As it stands, the fund has loaned Egypt around USD 2.6 bn, according to Al Borsa.

Egypt’s ITWorx has been awarded “Supplier Gold” status by United Technologies Corp (UTC), the group that owns Pratt & Whitney aircraft engines, Otis elevators and Carrier air conditioners. The designation, according to an ITWorx statement, is “a key component of sustained supplier performance.”

El Sewedy posted record earnings for FY2015, with net profit after minority interest soaring 209% y-o-y to EGP 1.245 bn while consolidated revenue rose 21% y-o-y to EGP 20.6 bn, according to its earnings release (pdf). Net profit after minority for 4Q2015 hit EGP 283 mn, up from EGP 93 mn last quarter, while consolidated revenue increased 20% q-o-q to EGP 5.1 bn. The company’s turnkey segment outperformed this year, with revenues surging 137% y-o-y in FY2015 to EGP 6,437 mn while the segment’s gross profit climbed 195% y-o-y in 9M2015 reaching EGP 1,178 mn.

Valeant, the new(ish) owners of Egypt’s Amoun, are really not having a good time of it, making one hope Amoun’s owners have been paid out. Shares in the Canadian company fell by half yesterday after it raised the prospect of defaulting on its USD 30 bn in debt. The Financial Times and the WSJ have coverage (though not of the Egypt angle).

THE MACRO PICTURE

The Bank of Japan (BOJ) kept its negative policy rates unchanged, but promised to add more stimulus if needed in its statement yesterday. BOJ governor Haruhiko Kuroda was forced to defend the decision, saying “Since we brought in minus rates, short and long-term bond yields have fallen and that has clearly fed through to falls in mortgage and lending rates,” according to the FT (paywall). While the JPY strengthened after the announcement, Asia stocks didn’t do quite so well, with the MSCI Asia-Pacific Index down 0.8%.

In fact, wasn’t a great day for most markets. Global stocks retreated and emerging-market assets dropped in the wake of the biggest two-day slide for commodity prices in a month, according to Bloomberg. Oil, industrial metals, and gold all fell yesterday in anticipation of the Fed’s press conference today.

“For Britain’s bosses, ‘Brexit’ is small beer compared to the concerns emanating from emerging markets,” writes Bloomberg columnist Lionel Laurent. UK companies are more exposed to emerging markets than Europe, with brands such as Burberry or Unilever heavily depending on them to expand. “A 2016 survey by PwC found that U.K. CEOs rank China as a greater source of growth than Germany over the next 12 months,” meaning that the success, or downfall, of the emerging market crisis is crucial for British profits. And the seesaw also tips the other way, with Middle East investors owning stakes in “Barclays, high-end hotels, Canary Wharf offices and supermarket chain Sainsbury’s,” while the Chinese have dipped their toes in a range of UK products.

EGYPT IN THE NEWS

Devaluation is on everyone’s mind going into this morning after the CBE devalued the EGP and in anticipation of another exceptional auction today. “The central bank is playing a psychological war,” senior economist at CI Capital Hany Farahat tells Bloomberg. “This is the type of strategy needed for the black market to disappear.” And since there has been no news of foreign currency inflows, the CBE is likely recycling money within the banking system. Authorities may be opening up banks banks to receive USD deposits, issuing CDs to collect more USD, and then using them to enhance FX reserves or selling the currency to lenders, said Omar El-Shenety, managing director at Cairo-based investment bank Multiples Group

Speaking of devaluation, the National’s Anthony McAuley hones in on a possible negative outcome: higher energy costs. “Whenever you see these moves [on the exchange rate] it makes imports more expensive, and on the gas side you already have seen payment difficulties,” said Trevor Sikorski head of global gas analysis at consultancy firm Energy Aspects. Egypt was forced to turn away a BP LNG tanker because of a shortage in USD, promising to dip into foreign currency loans from the World Bank, China, and others to regularise deliveries from its major suppliers, including ­Royal Dutch Shell.

The same newspaper, meanwhile, helpfully notes that it will take more than devaluation to help Egypt’s tourism industry.

WORTH READING

Azadeh Moaveni’s devastating op-ed for the New York Times, published last month, may strike a chord for many across the region, regardless of their nationality. “One of the first friends I made in Tehran was a young fellow Iranian-American named Siamak Namazi. We sparred a lot over politics… ‘Just look how far ahead of Egypt we are,’ I would say, to his irritation. ‘Stop comparing us to Egypt, that’s no measure for Iran,’ he would say. ‘We should be comparing ourselves to South Korea, or if anything, Turkey.’ He said this because like all those determined young Iranians, he aimed high. Like them, he believed in incremental change. Today, he sits in Evin prison on unknown charges.” (Read Once I Saw Light in Iran, Now It’s Mostly Shadows)

WORTH WATCHING

Daria explains her life goals. (Watch, running time: 17 seconds)

DIPLOMACY + FOREIGN TRADE

The EU has reportedly approved funding for water development projects in Egypt through a EUR 200 mn grant, Al Masry Al Youm reports. The grant will go toward financing desalination and sewage projects and was pledged at a water conference held in Cairo on Tuesday. As it stands, the EU is funding 12 water-related projects in Egypt worth EUR 340 mn, said Ayman Ramadan Ayad, the EU delegation’s Program Manager for Water & Utilities. It is still unclear if the grant will require European Parliament approval, in light of EU delegation head and Ambassador of the European Union to Egypt James Moran’s statements last week saying the EU will approve aid to Egypt in May.

Trade Minister Tarek Kabil signed a number of agreements with Belarus on Tuesday, Al Shorouk reports. The agreements include:

• An Egyptian-Belarusian industrial workgroup protocol;
• An MoU between the Egyptian International Trade Point and the National Center for Marketing and Price Study in Belarus;
• An agreement between Belarusian company OJSC MTW and Egyptian El Maharees and Engineering Co. to assemble tractors in Egypt.

Relatedly, the Giza Chamber of Commerce on Monday signed an agreement with the Vitebsk branch of Belarusian Chamber of Commerce to boost economic and trade cooperation and tackle obstacles facing investors in both countries, AMAY reports. The agreement was signed at the third Egyptian-Belarusian Conference in Cairo on Monday.

ENERGY

OneSubsea awarded contracts from BP, DEA
OneSubsea, a Cameron and Schlumberger company, has been awarded a contract from BP and DEA to “supply subsea production systems for West Nile Delta Giza/Fayoum and Raven fields, situated offshore Egypt,” World Oil reported. “The scope of supply for the long-distance gas fields includes large bore subsea trees, manifold systems incorporating high-integrity pressure protection systems … for high-pressure Raven field, connection systems, and controls systems, along with project engineering, management and testing.” (Read)

Gas turbines for Siemens Beni Suef plant arrive on Saturday
The first gas turbines for the Siemens Beni Suef power plant will arrive at the Adabiya port on Saturday, sources told Al Borsa. Under the agreement, Siemens is tasked with importing and installing the turbines, outsourcing to El Sewedy subsidiary Power System Projects. The turbines will be installed within three months of arriving at the project’s site. (Read in Arabic)

Electricity Ministry to deploy 10 mobile generators in Upper Egypt to stave off power cuts
The Electricity Ministry will begin deploying 10 mobile power generators producing 200 MW in Upper Egypt in May in an effort to stave off power cuts in the area this summer, Al Borsa reports. These units will be operating in Luxor, Siwa, Beni Suef, the Nile Delta area, Assiut, and Qena, according to a source from the ministry. (Read in Arabic)

INFRASTRUCTURE

Transport Ministry inks EGP 397 mn agreement to boost efficiency of First Metro line
The National Authority for Tunnels inked an EGP 397 mn agreement with the Colas Rail-Alstom consortium to increase the efficiency of the First Metro line, in addition to building a parallel rail between the Marg and New Marg stations. The project follows the Transport Ministry’s findings of heavy congestion on the platforms of both stations, said Transport Minister Saad El Geyoushi. The project duration is 24 months. including a two-month trial operation period, he added. (Read in Arabic)

MANUFACTURING

Egyptian Iron and Steel asks government for gas price reduction
State-owned Egyptian Iron and Steel is requesting a reduction in the price of natural gas to USD 3 1 mmBTU from USD 4.5 per, said Chairman Mohamed Saad Naguida. Despite recent amendments to the gas pricing scheme, the company receives minimal benefit due to being unable to reduce its production cost by EGP 300 per tonne, adds Naguida. (Read in Arabic)

Aluminum factories request equal gas pricing scheme
The Chamber of Engineering Industries at the Federation of Egyptian Industries is requesting a gas pricing scheme similar to iron factories, said the chamber’s deputy head Mohamed El Mohandis. The actual price reduction being requested is USD 4 per 1 mn btu, down from USD 7 aluminum factories are currently charged due to being classified as energy-intensive, he added. (Read in Arabic)

HEALTH + EDUCATION

Suez University seeks funding for EGP 700 mn medical complex
Suez University is hoping to begin construction on a EGP 700 mn medical complex before the year is out and is seeking funding for the project, Al Borsa reports. 200 feddans of land for the facility was granted to the university by the Armed Forces, said university head Maher Misbah. (Read in Arabic)

Health Ministry begins distributing Qurevo hepatitis C treatment for free
The Health Ministry has begun distributing the Qurevo hepatitis C treatment to patients for free in eight medical centers across the country, according to a statement by the National Committee for the Control of Viral Hepatitis, Al Masry Al Youm reports. (Read in Arabic)

REAL ESTATE + HOUSING

Housing unit prices expected to rise 5-15%
The unavailability of land and surging prices are presenting a challenge to real estate developers, said JLL Consulting Manager Ayman Samy, noting that housing unit prices are expected to rise 5-15% as a result. Research conducted by the company on the Cairo real estate market shows that 30,000 housing units were planned for last year whereas only 7,500 were completed, reflecting a gap between supply and demand. (Read in Arabic)

NUCA accelerates issuing its share in Madinaty, Al Rehab
The New Urban Communities Authority is looking to accelerate issuing 2,000 housing units of the 4,000 it owns in Al Rehab and Madinaty, of which 35% are reserved for Egyptians abroad, who will be billed in USD. The move follows the CBE devaluing the EGP against the USD, which the Housing Ministry sees as an opportunity to increase USD inflow. (Read in Arabic)

Palm Hills Developments pre sales on first phase of Palm Valley bring in EGP 491 mn
Palm Hills Developments sold all 108 units under the first of four phases in its West Cairo Palm Valley project on Sunday, with a total contract value of EGP 491 mn. The project is spread over 236,376 sqm near the company’s flagship Palm Hills October, with deliveries expected in 2020, according to a company statement. (Read)

AUTOMOTIVE + TRANSPORTATION

Hamburg Port Authority interested in managing Egyptian ports – Transport Ministry advisor
Hamburg Port Authority Chairman Jens Meier will be visiting Egypt next month to discuss cooperation opportunities, says Transport Ministry advisor for international cooperation Mahmoud Allam. Meier is reportedly interested in managing and increasing efficiency levels at Egyptian ports, said Allam. The ministry is still in negotiations with the Maritime and Port Authority of Singapore over managing operations at the Alexandria port, adds Allam. (Read)

GB Auto-Aboul Fotouh consortium looking to manufacture 30,000 Chery cars in Egypt
GB Auto will be retailing the Envy and Tiggo car models under the trademark Chery, the company said during a meeting with representatives from Aboul Fotouh Automotive.  The company is looking to manufacture 30,000 cars in Chery’s first year in Egypt, said Aboul Fotouh Automotive CEO Hassan Aboul Fotouh, following the ratification of the car manufacturing strategy currently with the cabinet. GB Auto also announced new services including finance programs, service centers, and providing spare parts throughout the country. (Read in Arabic)

SPORTS

Huawei becomes official sponsor of Al Ahly
Huawei has signed a three-year sponsorship agreement with Al Ahly, Al Mal reports. Al Ahly will now join a number of international teams who are being sponsored by the company including Atletico Madrid, Paris Saint-Germain, AC Milan, and Arsenal.

ON YOUR WAY OUT

Slovenia’s national women’s tennis team withdrew from a tournament in Egypt due to security concerns, Reuters reported. “The Ministry of Foreign Affairs of Slovenia has advised Slovenian citizens against travelling to certain parts of Egypt, particularly to the wider areas of Cairo and Alexandria, where the Fed Cup will take place (from April 13 to 16) … The players themselves also expressed fear for their own security,” the Tennis Federation of Slovenia said. Teams from Bosnia, Finland, Lithuania, Denmark, Liechtenstein, and Austria are due to play in the tournament.

Egyptian engineering students are attempting to shake up the auto market, vowing to manufacture Egyptian cars with air conditioning units, we might add, costing only EGP 45,000(watch, run time 1:15). We wish them anything but the fate of the first Egyptian flying car.

CALENDAR

15-16 March 2016 (Tuesday-Wednesday): US Federal Reserve’s Federal Open Market Committee meets. Fed chair will hold press conference.

17 March (Thursday): Wamda’s Mix N’ Mentor Cairo 2016 – Marketplace Edition, The Greek Campus, Cairo. Register here.

21-22 March (Monday-Tuesday): The Africa CEO Forum, Sofitel Abidjan Hotel Ivoire, Abidjan, Ivory Coast.

23-24 March 2016 (Wednesday-Thursday): Microfinance Egypt, Nile Ritz-Carlton, Cairo.

29-31 March 2016 (Tuesday-Thursday): Future Rail and Metro Egypt, Cairo.

07-10 April 2016 (Thursday-Sunday): Cityscape Egypt Conference, Cairo International Convention Centre, Cairo

13-16 April 2016 (Wednesday-Saturday): Cafex, Cairo.

17 April 2016: German economic delegation visits Cairo.

25 April 2016 (Monday): Sinai Liberation Day (national holiday)

26-28 April (Tuesday-Thursday): Arabian Hotel Investment Conference, The Madinat Jumeirah, Dubai.

01 May (Sunday): Easter Holiday / Labour Day (national holiday)

02 May (Monday): Sham El Nessim (national holiday)

02-03 May (Monday-Tuesday): The Middle East Investment Summit 2016, Ritz-Carlton DIFC, Dubai.

10 May (Tuesday): Business News Foundation’s Third Annual Energy Conference: Energy and Sustainable Development, InterContinental Hotel Citystars Cairo. Register here.

06 October (Thursday): Armed Forces Day (national holiday)

27 November 2016 (Sunday): 2016 Cairo ICT Conference Group

04-06 December 2016 (Sunday-Tuesday): Solar-Tec Conference, Cairo International Convention Centre, Cairo