East Med gas players vow to establish regional market, choose Cairo as HQ for new organization

Picking up where we left off yesterday: Concerns over the Chinese economy dominate headlines in the global business press. The country reported a 4.4% drop in exports in December — the lowest drop in two years according to the FT — a result largely attributed to the trade war with the US. A 7.6% drop in imports has got everyone freaking out over a slowdown in China’s growth. The results did a number on Asian markets, as the MSCI’s broadest index of Asia-Pacific ex-Japan shares fell 1%, its lowest single day drop in two weeks, according to Reuters. The FTSE sagged 0.9% yesterday, but Asian shares were cautiously up heading into dispatch time this morning.

The impact of China’s slowdown is spreading, the FT’s editorial board warns, noting that Apple (US), Samsung (Korea) and Jaguar Land Rover (UK) are all feeling the pinch of a slowing Chinese economy. “The warnings are a sign of the deepening economic distress in the world’s second-largest economy,” the salmon-colored paper warns, “and this will have a far bigger external impact in the coming year than it did in 2018.” And there’s plenty more (corporate) pain to come: Nike, Starbucks, chipmaker Texas Instruments and owners of major global consumer brands could all be next to add fuel to the fire as US earnings season begins this week, the Wall Street Journal adds.

Should we expect the Fed to ride to the rescue? No, says UBS: The US Federal Reserve will raise interest rates twice this year, UBS Global Wealth Management predicts, according to Bloomberg. A top UBS pundit says a strong US economy may give the Fed an incentive to continue to raise borrowing costs. The Swiss financial services firm joins JPMorgan Chase and Bank of America in predicting more tightening. The Fed raised rates four times in 2018, with a 25 basis point bump in December bringing its benchmark rate to 2.5%.

So should emerging markets be cringing right about now? Not necessarily, says a top money manager at Fidelity. With Fed boss Jay Powell having hinted that the Fed could take a more cautious approach to rate hikes this year, Fidelity’s Paul Greer told Bloomberg that, “The USD has now peaked, Fed policy has turned and China is responding to slower growth momentum with monetary and fiscal stimulus. All of these factors, coupled with cheap valuations and a recovering oil price, should be supportive for EM risk-asset performance.”

In miscellany this morning:

• We have competition from KSA for the capital of investors who like privatization offerings. The kingdom thinks it can haul in some USD 11 bn by 2020 through the sale of stakes in “utilities, soccer clubs, flour mills and medical facilities.” And the Aramco stake sale? Don’t expect that before 2021. (Bloomberg)
• UK Prime Minister Theresa May is at risk of a “humiliating Brexit defeat” in a key vote scheduled for today. If she loses the vote on her Brexit agreement with the EU, all bets are off as to what the future of the UK’s relationship with Europe looks like. (Financial Times)
• Turkey isn’t quaking in its boots over The Donald’s threat to “devastate” it economically. “You cannot get anywhere by threatening Turkey economically,” Foreign Minister Nevlut Cavusoglu said yesterday. (BBC)
• Ivanka Trump isn’t going to be a candidate to run the World Bank, but will help lead the search for the institution’s next president after Jim Yong Kim stepped down two years ahead of schedule to join a private equity firm. (Wall Street Journal)

About [redacted] time: Game of Thrones is coming back this April: While it might feel as though these cold winter days will never end, we now know that the real winter is coming on 14 April — the date HBO has finally announced for the premiere of the eighth and final season of Game of Thrones. Watch the latest teaser on Vox.

** PSA #1- Plan now to escape for more than a full week in late April. By our count, you can take a week (plus one day) off in late April if you sacrifice two vacation days. Sinai Liberation day, Easter, Sham El Nessim and Labor Day make it possible to book off 25 April through 4 May if you’re willing to bridge 30 April and 2 May.

Bonus: That means you’re back to work with one day of coffee before Ramadan begins on 6 May (TBC). All of this and more is in our Calendar section, now updated with major holidays through year’s end. Check it out at the bottom of today’s issue here in this email or on our website.

** PSA #2- Be prepared for the second sand storm of the week starting as early as this morning and possibly extending into tomorrow. Our favorite weather app suggests we’re looking at brisk 30-50 km/h winds today and tomorrow with occasional gusts of more than 65 km/h. Expect temperatures that feel like 14°C today and about 6°C overnight.

The first East Med Gas Forum that kicked off in Cairo yesterday (the full details of which we have in Speed Round, below) was in the limelight on the airwaves last night.

The inclusion of the Israeli energy minister in the forum was apparently the subject of criticism, but Al Hayah Al Youm’s Khaled Abu Bakr wasn’t having any of it. He slammed these reports, saying the forum is a positive step for Egypt particularly as it looks to become a regional energy hub (watch, runtime: 03:23). Hona Al Asema also dedicated a segment to the forum, which included seven countries and is expected to reconvene in April (watch, runtime: 03:51).

Education Minister Tarek Shawki tried to improve public opinion on Egypt’s first open book exam for Thanaweya Amma students, telling El Hekaya’s Amr Adib that the approach will help students gain key skills amid a less stressful learning environment. He also noted that students will soon be equipped with tablets, which will help ensure efficiency and transparency in the examination process (watch, runtime: 07:23).

Madbouly unhappy with progress on new capital industrial zone? Cabinet spokesman Nader Saad downplayed Prime Minister Moustafa Madbouly’s apparent dissatisfaction with progress on the Rubiki Industrial Zone at the new administrative capital, which he visited yesterday. Local reports suggested Madbouly threatened to dismiss those in charge of the project if they fail to deliver by the 30 March deadline (watch, runtime: 06:01).

Al Azhar Grand Imam, higher education minister intervene in Hug-Gate: Higher Education Minister Khaled Abdel Ghaffar told Amr Adib that he is personally intervening to reverse Al Azhar University’s decision to expel a female student from its Mansoura branch after a video of her hugging her fiancé went viral (watch, runtime: 06:26). Adib also praised Al Azhar Grand Imam Sheikh Ahmed El Tayeb for his own intervention to soften the punishment (watch, runtime: 02: 01).

Exhibition fees at the Cairo International Book Fair have more than doubled to c. EGP 6k / sqm, Egyptian Publishers Association Head Saaid Abdo told Hona Al Asema’s Lama Gebril (watch, runtime: 01:59). This year’s fair will include 750 Egyptian publishers, he added.

EFG Hermes-Citi consortium to run ACCH stake sale: A consortium formed by EFG Hermes and Citi has reportedly won the mandate to run the sale of an additional stake of Alexandria Container and Cargo Handling as part of the state privatization program, a government official told Reuters. The winning consortium, which already landed the mandate for the share sale of Eastern Tobacco, reportedly beat rival bids from a team composed of CI Capital, Credit Agricole and Emirates NBD and another formed by Beltone Financial and Goldman Sachs, according to Al Mal. Pharos Holding, meanwhile, had partnered with Arqaam Capital to go after the mandate. EFG Hermes declined to comment on the news yesterday.

CI Capital-RenCap consortium wins mandate on Abu Qir: The source also told Reuters that a CI Capital-led consortium with emerging markets-focused investment bank Renaissance Capital had won the mandate for the share sale of a 30% stake in Abu Qir Fertilizers.

In other news from the program to sell-off state assets, Heliopolis Housing’s board of directors has given the green light to the sale of the company’s 20% stake in greenlights sale of its stake in Al Nasr Real Estate Development, according to a bourse filing (pdf). The buyer is Zahraa Maadi Investment. Heliopolis Housing and Development was initially slated to be among the first companies to sell shares as part of the program.

Where do things stand now with the program? There is still no indication of when the government plans to jump start the privatization program. Public Enterprise Minister Hisham Tawfik said last month that a revised timeline for the first phase of the program has yet to be determined and will depend on the performance of both the EGX and of emerging markets generally in the coming period.

Finance Ministry denies Samurai bonds are happening this week: The Finance Ministry has yet to make a decision on the timing, value, or currency for Egypt’s first Asian bond issuance, the ministry said in a statement. The decision will depend on the interest generated at the ongoing Asia roadshow as well as the recommendations of the advisers on the issuance. The statement comes in response to a Reuters story out on Sunday that claimed that Egypt will issue USD 2 bn worth of JPY-denominated bonds in the coming week. The report cited two unnamed government sources. Finance Minister Mohamed Maait had said on Sunday during a conference that his ministry had received Cabinet clearance to issue up to USD 7 bn of FX-denominated bonds in 1Q2019.

From the Asia roadshow: Vice Minister of Finance Ahmed Kouchouk, and Assistant Minister for Capital Market Operations Khaled Abdel Rahman have kicked off the Asia-focused roadshow, which Maait said earlier this week he will be joining. Next stops will be GCC countries in early February and then Hong Kong and Taiwan by the end of the month. Maait and his team previously met with some 50 Asian investors and officials during on an earlier nondeal roadshow, according to the statement.

East Med gas players vow to establish regional market, choose Cairo as HQ for new organization: East Mediterranean gas producers will establish a regional gas market following an agreement in Cairo yesterday at what’s being billed as the first meeting of the East Med Gas Forum, according to an Oil Ministry statement (pdf). The forum agreed to “create a regional gas market that serves the interests of its members by ensuring supply and demand, optimizing resource development, rationalizing the cost of infrastructure, offering competitive prices and improving trade relations,” Reuters reports.

Who’s on board? The meeting was attended by representatives from seven countries including Israel, Cyprus, Greece, Italy, Jordan, Palestine and Egypt.

It’s not clear precisely what “regional gas market” means: Prior to the meeting, an anonymous source at the ministry said that countries would discuss ways to increase Egypt’s role as the region’s primary LNG exporter. However, the ministry’s statement does not elaborate on how yesterday’s agreement fits with the country’s gas hub ambitions. We’re also remain none the wiser on the shape the regional market could take or what steps the organization will take to get there.

Cairo will be the headquarters of the new organization: Member countries agreed that Cairo would serve as the incipient organization’s headquarters, the ministry statement said. “The oil ministers of Cyprus, Greece, Israel, Italy, Jordan, Palestine and Egypt discussed the establishment of the East Med Gas Forum and Cairo was chosen as the base of the forum,” the statement read. The forum’s founding members — Egypt, Greece and Cyprus — originally proposed Egypt as the host country during a summit in Crete this past October.

Egypt will start importing LNG from Israel in a few months’ time as part of a USD 15 bn agreement the two countries signed last year,Israeli Energy Minister Yuval Steinitz said in Cairo yesterday, Reuters reports. Steinitz give a figure for the initial volume, but said the figure would double by November when the eastern Mediterranean’s Leviathan field is operating at full capacity. Egypt will use half of the exports to meet local demand, while the other half will be liquefied for re-export. Israel’s LNG exports will reach 7 bn cubic meters per year over 10 years, he added.

Israel, of course, has its own regional export plan: Our neighbors to the east are selling gas to Egypt — bit are also mulling a subsea pipeline running from its fields directly to Europe. Although nothing has yet been confirmed, Israel, Greece and Cyprus are expected to put pen to paper early this year on a pact that could allow the pipeline to move forward. Steinitz’s appearance in Cairo reflects the growing importance of natural gas to the aspirations of governments in the region,” Bloomberg noted.

Red Sea exploration tender coming “in weeks”: On a related note, Oil Minister Tarek El Molla told Al Hayat on Sunday night (watch, runtime: 56:14) that Egypt will open a tender for exploration along the Red Sea in the coming weeks. The tender was originally expected in December, but was subsequently pushed to 1Q2019.

FinMin looks at alternative ways to disburse delayed export subsidies: The Finance Ministry is looking at different ways to pay out the delayed export subsidies owed to a number of exporters, Finance Minister Mohamed Maait said, according to Al Mal. Options under consideration at the ministry include exempting exporters from paying taxes equivalent to the amount due to them or putting in place a clearer, easier mechanism for the export subsidies fund to disburse them. Maait’s statement comes as exporters have ratcheted up the pressure to get the government to pay out the overdue subsidies. Food Export Council member Karim Abou Ghaly told us back in November that as many as 400 food importers alone are suffering, saying the sector has claim to about EGP 3 bn of the EGP 12 bn he believes the state owes exporters.

INVESTMENT WATCH- LG to invest USD 15 mn: LG Electronics Egypt will invest as much as USD 15 mn to expand its operations in Egypt, the company’s Egypt boss, Don Kwak said, according to a statement from the Investment Ministry. The statement doesn’t specify where the capital is being committed, but LG Egypt Vice President Alaa Omar noted that the company is targeting expanding its microwave assembly facilities. Kwak noted that the company is now exporting 75% of its production, with export revenues reaching USD 200 mn. Now is the right time to invest in the country on the back of improvements in infrastructure and the investment climate, he said at a meeting with minister Sahar Nasr on Monday. He added that the company has USD 240 mn currently invested in Egypt.

Gov’t spending on subsidies looks set to exceed budget targets: Subsidies for staple items are expected to exceed the FY2018-19 budget by about EGP 2.4 bn, a source from the Supply Ministry told Al Mal. The government spent an additional EGP 900 mn in 1H2018-19 on commodity subsidies, the source said, noting that the government expects the increase in the second half of the fiscal year to grow by EGP 1.5 bn.

LEGISLATION WATCH- House gives in-principle nod to retail stores bill: The House of Representatives approved yesterday the Retail Stores Bill, Al Mal reports. The bill, if enacted, would impose new licensing requirements and regulations on the nation’s retail industry. The House introduced several amendments to the bill and shipped it over to the Council of State (Maglis El Dawla) for review before putting the legislation up for a final vote.

Egypt’s SWF bylaws expected by month-end: The bylaws and regulations of our forthcoming EGP 200 bn sovereign wealth fund will be done and public by the end of this month, Planning Minister Hala El Said said, according to Youm7. The bylaws are now with the Council of State (Maglis El Dawla) for final review. Reports had previously suggested that procedures to set up the fund would begin within a month of finishing the bylaws and naming a chief executive. El Said confirmed that the latter will happen by early February. The selection committee has so far interviewed 12 shortlisted candidates.

And the Omanis are patiently waiting for all this to happen: A delegation from the Oman Investment Fund, the sultanate's SWF, will be in town in the coming days to discuss establishing a joint Egyptian-Omani fund, El Said said separately, according to Al Masry Al Youm. The fund, for which the planned capital will be announced during the visit, is expected to kick off once Egypt’s SWF is up and running. The Omani side is eyeing the tourism and manufacturing sectors.

MOVES- Mosaad Al Kasaby set to become new Sidpec chairman: The Egyptian Petrochemicals Holding Company has named Mosaad Al Kasaby (bio) as its representative at Sidi Kerir Petrochemicals and nominated him to become the chairman of the company, according to a filing to the EGX (pdf) on Monday.

MOVES- Global market research outfit Ipsos has appointed Yasser Omar (LinkedIn) as its managing director for Egypt, TradeArabia reported. Omar began his 30-year career as a researcher at Nielsen and spent close to 18 years in PepsiCo International’s consumer insights and strategy departments.

Our friends at AmCham will be hosting ICT Minister Amr Talaat for its monthly luncheon on Sunday, 20 January. You can register for the event here.

French President Emmanuel Macron will be in town in the coming weeks, France’s ambassador in Cairo, Stéphane Romatet said last week, according to Al Ahram. We had previously reported that security cooperation (including the situation in Libya) as well as economic ties will feature high on the agenda.

The Social Solidarity Ministry should be presenting a draft of the new Social Welfare Act to the House of Representatives sometime soon, according to previous statements by Minister Ghada Wali last week, according to Al Mal.

Egypt, Sudan begin trial runs on electricity grid connection project in two weeks: Egypt and Sudan will begin trial runs for the first phase of a USD 60-70 mn electricity interconnection project in a week at a capacity of 100 MW, local news reported.

A government committee mandated with defining Egypt’s informal economy is set to meet for the first time this month. The committee’s work comes in light of the Madbouly government’s bid to convince the World Bank and the IMF to agree to include the informal economy in calculations of Egypt’s GDP.

It’s another reasonably quiet morning for Egypt in the international press, with the expulsion of a female university student shown hugging her fiancé in a video now making the rounds. France 24, The Times of Israel and the ever-measured Daily Mail have all picked up the story. Reports that the expulsion has now been rescinded are getting less pickup.

Meanwhile:

China has opened its second global Belt and Road Cooperation Research Center in Cairo, highlighting the country’s importance to the China-led initiative, reports China’s ECNS.

Five Egyptians made the Forbes 2019 list of African bn’aires: The usual suspects, Nassef (USD 6.3 bn) and Naguib Sawiris (USD 2.9 bn) were on there, along with the three Mansour brothers: Mohamed (USD 2.3 bn), Yasseen (USD 1.5 bn) and Youssef (USD 1.2 bn).

Also making headlines:

• Preparations began on Sunday for the 2019 African Cup of Nations, notes Africa News.
• Egypt’s renewed state of emergency makes no difference with freedoms already repressed,says TRT World.
• Terrorists detonated a roadside bomb on Monday that killed one member of the police service and wounded four others, unnamed security officials said, according to the AP.
• US Secretary of State Mike Pompeo’s Cairo speech continues to get attention, now from Bloomberg and Reuters.
• Egypt deported a German citizen who allegedly wanted to join the Daeshbags, the Washington Post reports.

A meeting between President Abdel Fattah El Sisi and UN High Commissioner for Refugees Filippo Grandi dominated the front pages of the country’s three main state-owned dailies (Al Ahram | Al Akhbar | Al Gomhuria) this morning. El Sisi said stability and development are key to resolve the refugee crisis and that Egypt has not received international aid to support refugees living here, Al Ahram reported. The president reaffirmed Egypt’s commitment to providing decent living conditions to refugees, something Grandi said the UNHCR appreciates, Al Akhbar said.

Can Bitcoin ever become a practical currency? It may not seem quite as shiny as it did a year ago, but not everyone believes Bitcoin has entirely lost its luster. In this Bloomberg podcast (listen, runtime: 30:52), Bitcoin Advisory Founder Pierre Rochard allows his unbridled enthusiasm for the decentralized cryptocurrency to drive the discussion, but somehow manages at the same time to bring a much-needed dose of realism to the question of how recent breakthroughs in technology could finally bring Bitcoin into the mainstream.

Lightning software is key: Crucially, he breaks down how the Lightning software he has been working on could make possible the process of using Bitcoin to conduct even simple transactions — like buying a coffee. We learn that in fact Bitcoin Founder Satoshi Nakamoto had wanted to embed the technology that would allow payments to be run without the often-cumbersome global broadcasting system, where every transaction adds a new layer of data to a blockchain ledger that everyone has to verify. Both Lightning and complementary Neutrino software can now help to bypass many of these implementation problems, creating a more efficient system and offering the user more options in terms of Bitcoin storage, trading and practical transactions.

Foreign Minister Sameh Shoukry is in New York to meet United Nations officials at the handover the presidency of G77 + China to Palestine at the United Nations, according to a Foreign Minister statement.

Egypt’s renewable energy sector is set to grow in the coming years on the back of “dramatic” cost reductions, Paddy Padmanathan, president and CEO of ACWA Power, told Bloomberg TV (runtime: 4:20). “I expect significant growth in the UAE, Egypt is another big market, and Morocco will continue to grow,” he said.

Egypt has begun increasing its natural gas exports to Jordan to 100 mcf/d with plans to reach 250 mcf/d during summer months after both countries amended their gas export agreement yesterday, local press reported. Under the agreement, Egypt will provide 10% of Jordan’s gas needs for electricity generation.

The state-owned Egyptian Holding Company for Silos & Storage will launch a tender in February for local and international companies to build 60 silos in 12 governorates with a total storage capacity of 300,000 tonnes, the company’s chairman Sherif Bassily told Al Mal. The total costs for building the silos is estimated at USD 90 mn.

The House of Representatives has given a preliminary nod to a bill that would establish an authority to regulate domestic and international land transport and freight, Al Ahram reported. The authority would be responsible for improving and creating a statistical database for public transport systems.

HSBC Egypt was voted the top provider of trade finance services, according to Euromoney’s Trade Finance Survey 2019 results. Businesses across the Middle East also elected the bank as the regional leader in trade finance, which include banks acting as intermediaries between exporters and importers of various goods.

Egyptian pavilion comes to British design event Top Drawer: An all-Egyptian pavilion “bringing together eleven of Egypt’s biggest talents in interiors, furniture, fashion and accessories” was unveiled at British design-led retail event Top Drawer, which officially opens today, according to a statement (pdf). Featured designers and brands include INCA & Co, Hoda Lasheen Interior Designs, KELOS, and CHAIROS.

Mohamed Salah is reportedly getting a museum in Cairo to honor his achievements in Egypt and Liverpool, Sports Minister Ashraf Sobhy said, according to the UK’s Daily Express. "The surprise that I was preparing for Salah is the construction of a museum bearing his name at the Gezira Youth Centre in Cairo,” Sobhy said. Lionel Messi and Diego Maradona, among others, also have museums in their respective countries that are open to the public to view their relics and buy souvenirs.

Which came first: Kylie Jenner or the egg? A picture of a normal brown egg accumulated almost 30 mn likes on Instagram, far surpassing Kylie Jenner’s previous record of 18 mn likes for a photo she posted with her newborn baby. What better mundanity to bruise the ego of social media’s most popular socialite. We certainly hope this was a deliberate campaign — but if not, bless the anarchy of the internet and the boredom of the itty, bitty, millennials.