The IMF downgrades its outlook on global growth — again

The World Economic Forum gets underway in Davos this morning and runs through Friday. The theme: “Globalization 4.0: Shaping global architecture in the age of the fourth industrial revolution.” Yeah, yeah, we know. But still… Links you may want to consider: the agenda | live broadcast of select sessions | the WEF’s blog.

Why you should care: Mock it as we may for being winter camp for the chattering class, the gathering helps set the mood for the year on the global economy. And it takes on new importance in a year like this, when the question about both the global economy and financial markets boils down to the same thing: Is 2019 going to be “okay” or a “disaster”?

Finance Minister Mohamed Maait boarded a plane yesterday to Davos, according to a ministry statement. Maait, who is on a perpetual roadshow to drum up interest in Egyptian debt, will push the nation’s reform story and talk about new “sovereign financing models.”

Just in time for Davos, the IMF has revised downward its forecast for global growth for the second time in three months in an update to its World Economic Outlook. It blamed weakening demand in Europe and negative sentiment in the financial markets. The fund now projects global economic growth will top out at 3.5% in 2019, the slowest rate in three years.

It’s the same story for emerging markets: The latest outlook forecasts EM growth of 4.5% over the next 12 months, falling slightly below the 4.7% and 4.6% GDP estimates for 2017 and 2018, respectively. It notes that conditions have “tightened modestly” since October on the back of increasing tariffs, rising US interest rates and volatility in the oil markets.

MENA+ will grow just 2.4% in 2019: The forecast for MENA countries, Afghanistan and Pakistan has followed suit, with the IMF now projecting 2.4% growth in 2019, down from the previous forecast of 2.7%. By contrast, every forecast we’ve seen forecasts Egypt to grow north of 5% this year.

Buckle up: Speaking ahead of the Davos summit, IMF Managing Director Christine Lagarde warned of “significantly higher risks” in the months ahead as trade tensions and worries in the financial markets weigh on the global economy. “The risk of a sharper decline in global growth has certainly has increased,” she said, stopping short of recession-talk. Watch her statement here (watch, runtime: 3:03).

The IMF’s downbeat note hit US and EU shares yesterday, Bloomberg said. The news “merely cemented an already downbeat mood,” the newspaper notes. Asian and US futures suggest lower opens for global markets today. Together with the news that Chinese growth had slipped, the IMF’s warning has sent investors piling into the USD and other safe-haven currencies.

The IMF’s warning is front-page news in the global business press this morning: CNBC | FT | WSJ | Bloomberg | Reuters.

The mood on global economic growth in one image:

And in non-Davos miscellany this morning:

• Financial inclusion is creating investment opportunities in emerging markets, the head of emerging markets strategy at Jupiter writes in an op-ed for the UK’s Investment Week. Improved infrastructure, communications and technology are also creating opportunities in EM, he says.
• Brent crude is heading toward USD 65-70 / bbl, BNP Paribas’ head of commodity markets strategy told Bloomberg (watch, runtime: 2:51).
• Hundreds gathered in Sudan’s Omdurman yesterday to express anger over the latest deaths in earlier clashes with security forces. Protesters are reacting to a deep economic crisis, Reuters reports.
• Qatar has thrown Lebanon a lifeline by pledging to buy USD 500 mn worth of Lebanese sovereign debt, Bloomberg reports. “It’s a show of support but it won’t be enough to address the challenges the country faces,’’ said Mohieddine Kronfol from Franklin Templeton Investments.

You’re going to have to be selective about which pals you send your favorite meme this morning: As of today, you can’t forward a WhatsApp message to more than five people, down from a previous limit of 20 people. The move is part of WhatsApp’s bid to clamp down on use of the platform to spread “misinformation and rumors,” Reuters reports.

The Cairo International Book Fair, WhatsApp, and garlic were among the topics keeping the talking heads busy last night.

President Abdel Fattah El Sisi will inaugurate today the Cairo International Book Fair, which will run for 13 days, General Authority for Books Haitham El Hag boss told Al Hayah Al Youm’s Lobna Assal (watch, runtime: 07:13). The fair will be open to the public starting Thursday (from 10 am to 8 pm), with entrance fees set at EGP 3.

This year’s edition will be the first in Egypt’s history to meet international standards, Culture Minister Enas Abdel Dayem told El Hekaya’s Amr Adib. The Armed Forces will be providing low-cost transportation from the book fair’s previous home in Nasr City to its new location in New Cairo, Adib noted (watch, runtime: 07:53).

Davos also came up on the airwaves, with Rep. Passant Fahmy saying on Al Hayah Al Youm that it is essential for Egypt to participate in the economic forum to present its recent economic achievements (watch, runtime: 03:04).

Security forces continued yesterday removing illegally-built property in Giza for the fourth day, governorate spokesman Alaa Badran said on Al Hayah Al Youm. Four illegal buildings were torn down yesterday amid protests from residents (watch, runtime: 06:55).

The Higher Education Ministry has ordered that EGP 10 be collected from every student for a fund to honor victims of terrorist attacks and their families, host Khaled Abu Bakr highlighted on Al Hayah Al Youm (watch, runtime: 02:31).

A Cabinet report has denied rumors that the government will be taking out some EGP 35 bn from public funds to build the new capital’s government district (watch, runtime: 01:55).

WhatsApp’s decision to allow its users to forward messages to a maximum of five people to avoid the spread of rumors also earned some airtime on Hona Al Asema (watch, runtime: 10:08) and El Hekaya (watch, runtime: 01:39).

Rejoice, for you may now eat all the domestic garlic you crave (just as long as you brush your teeth afterwards for the sake of everyone around you) because Agriculture Ministry Spokesman Hamed Abdel Dayem has denied rumors that the locally grown stuff contains toxic lead (watch, runtime: 02:31). If we hadn’t banned koshary from our offices, we would order a feed of the smelly stuff to celebrate the news.

S&P expects Egyptian banks to lead the wider MENA region in loan growth this year despite sky-high interest rates. The ratings agency says Egyptian lenders will lead the Middle East, North Africa and Turkey (MENAT) region in 2019 with growth as high as 17% (admittedly from a low base). That far outstrips the regional average of 7-8%, which is dragged down in part because Turkey is projected to deliver 0% loan growth, S&P said in its MENAT Overcast 2019 Outlook report. Egypt also looks set to deliver the highest return on government debt, with investors benefiting from higher bond yields, the report notes.

Overall, it’s not looking good for regional banks: The regional picture is even worse when you factor in inflation, the ratings agency writes. “We consider these figures, if adjusted for inflation, as insufficient to cope with the region's economic development needs in the Middle East, North Africa, and Turkey.” Furthermore, “weak asset quality will continue to weigh on our view of the credit quality of banks in the region, particularly those in Turkey,” the report says. It sees the return on assets for the MENAT region averaging an anemic 1.2%.

Additional downside risks: Political instability and over-reliance on “volatile wholesale external funding,” S&P notes.

EXCLUSIVE- FinMin could impose stamp tax of up to 20% on social media ads: The Finance Ministry appears set to impose a stamp tax on social media and internet search ads and has completed drafting legislation to that effect, a senior ministry source told Enterprise. Companies running ads on social media companies, including Facebook and Twitter, along with Google, would be obliged to pay a stamp tax of 20% of revenues from the ad, treating social media buys exactly the same as print ad purchases. Individuals placing an ad on these sites would pay a 15% stamp tax. Companies would also have to pay value-added tax, but there has been resistance from the tech crowd to collecting the 14% VAT. The new taxes would be imposed through amendments to the VAT Act, the Stamp Tax Act, and the E-commerce Act. These amendments will require the sign off of the House of Representatives.

What does this mean for the average Joe? Well, if you are a company, expect the price of your Google and social media ads to rise to 20%, and 15% if you are all by your lonesome. The source explained that the ministry fully expects the companies to pass the costs of the tax to the consumer.

Hurdles to implementation: Among the challenges of taxing social media ads is how to (a) track all the ads bought by Egyptian companies and (b) monitor their pricing. The government has previously tried to open talks with the “FAANG” gang about taxing adverts, but has been given the cold shoulder. Egypt is now signing tax information sharing agreement with other countries that could, in part, help it keep better tabs on the origin of ads and their prices, our source said. As we noted recently, Finance Minister Mohamed Maait attended an OECD meeting in Tokyo on information sharing.

Before you complain that this is a blunt tax grab (which it is), ask yourself why an ad buy with a multinational giant should not be subject to stamp tax, but a domestic ad would be. Scrap the stamp tax on all advertising or treat everyone equally, we say. In the meantime, countries the world over are angling to have web-based businesses pay their share of taxes — Egypt is no different.

REGULATION WATCH- EGX tweaks criteria for inclusion in the benchmark EGX30.The main change in the mechanism is in evaluating shares by trading volumes on a monthly basis, rather than on a bi-annual basis, the bourse said in a statement. A stock will be included in the EGX30 based on the number of months it is among the top 30 shares by volume traded during a six-month evaluation period (new stocks will be evaluated from when they start trading till the end of the evaluation period).The number of days required for the stock to remain trading for inclusion was raised to 78 instead of 60 during the evaluation period. Take a look at the new rules here (pdf).

Orascom Construction adds USD 825 mn to its backlog in 4Q2018: Our friends at Orascom Construction added USD 825 mn to their backlog in 4Q2018 through new awards, the company said in a statement. 60% of the new awards were in Egypt and Africa, while the rest were in the US. This addition brings the total of value of new awards in 2018 up significantly to USD 2.3 bn. The value of the company’s total backlog at the end of 2018 now stands at an estimated USD 4.2 bn, the statement said.

Elsewedy Electric plans to get into desalination: Elsewedy Electricity has plans to begin developing desalination plants in Egypt, CEO Ahmed Elsewedy reportedly said, according to local sources. The company has already lined up investments to get into the sector, and is looking to get in on one or two projects, he noted. The story did not note any further details on the specifics of the project. The company had said in its latest earnings release (pdf) that it is seeking to expand having secured turnkey backlog for the next two and half years. The firm’s backlog as of September 2018 was EGP 35.6 bn.

M&A WATCH- CBE greenlights Bank Audi due diligence on NBG: The central bank given Bank Audi the go-ahead to do due diligence on the potential acquisition of the National Bank of Greece’s (NBG) assets in Egypt, CBE Deputy Governor Gamal Negm told Masrawy. A source from Bank Audi said to other lenders are kicking NBG’s tires, but did not name the competitors. NBG, which has 17 branches in Egypt, was given the greenlight last summer to shop its subsidiary here and exit the Egyptian market.

Suez Canal revenues rose to USD 5.7 bn in 2018, up from USD 5.3 bn the previous year, according to Reuters calculations based on government data.

MOVES- Prime minister to chair SME Development Authority: Prime Minister Moustafa Madbouly named himself as the chairman of the SME Development Authority for four years as part of a newly constituted board, the cabinet said in a statement. The new board includes the ministers of finance, investment and planning among others.

On a related note: Madbouly issued a decree that allows SME financing associations and NGOs with a loan portfolio of more than EGP 50 mn to open accounts at any number of banks without a limit, Al Mal reports. Existing law states that these associations can open accounts at a maximum of five banks, according to the newspaper.

Sign of the times? As many as 50k state employees could be reassigned to offices in the new administrative capital next year, the Planning Ministry said yesterday.

FinMin to select adviser on eurobond issuance on Thursday: The Finance Ministry will select this Thursday the investment banks that will advise on its upcoming USD 4-7 bn eurobond issuance, set to take place sometime in 1Q2019, local news reports.

Egypt will be hosting the Banking Technology North Africa Week conference on 28-29 January at the Nile Ritz Carlton in Cairo, Ahram Online reports. The conference wants to showcase “innovative and cost-effective digital banking services,” to expand access to banking services and to retain existing customers.

The EU-Arab League summit will be held in Sharm El-Sheikh on February 24-25. Migration will be topping the agenda, as EU leaders look to agree on a pact with Mediterranean countries to tackle illegal migration into southern Europe. However, some EU diplomats are not so hot on this summit, AP reports.

Leading the conversation on Egypt this morning: Our track record on LGBTQ rights. As we suggested yesterday, the jail sentence handed to talk show host Mohamed El Gheity for hosting a homo[redacted] man on air is getting wide play in the international press. The BBC, the Independent, and the Associated Press have all taken note of the one-year sentence handed down this weekend. Expect the story to have legs for a few days yet.

Neo-colonialism at its best: Some museums in the UK are benefiting from peddling Ancient Egypt artifacts taken during the Victorian era — the practice could be key to keeping alive cultural institutions in former industrial towns the north of England, according to a feel-good piece from The Guardian. The left-leaning paper fails to call it like it is: neo-colonialism. You’re welcome, UK. How about sending us some tourists on direct flights to Sharm in return?

Other headlines worth a read include:

• Cooperation between Egypt and China is set to increase as development in the China-Egypt Suez Economic and Trade Cooperation Zone 120 km to the east of Cairo ploughs on, according to China Economic Net.
• Police arrested 24 people who tried to prevent the demolition by the authorities of illegal buildings near the Giza pyramids, the Associated Press reports.
• A directive to paint Egypt’s red-brick buildings to reduce “visual deformity” is getting attention from the Guardian’s Ruth Michaelson.

President Abdel Fattah El Sisi’s inauguration of the Cairo International Book Fair is at the forefront of state-owned Al Ahram this morning. Ittihadiya Spokesman Bassam Rady said the president’s participation in the fair reflects the state’s keenness to spread culture and awareness, the newspaper noted. Al Akhbar, meanwhile, took note of the state budget’s performance during 1H2018-19, which Finance Minister Mohamed Maait presented to El Sisi earlier this week. Al Gomhuria had not updated its online front page by the time of dispatch.

Let behavioral economics help you kick that monkey in your pocket: Digital detoxes are all the rage. But like their controversial non-tech counterparts, they’ve gained a reputation for being unattainable and perhaps even undesirable for anyone with a busy life. We can’t afford to spend all day meditating in the desert and drinking kale juice, after all. So Tim Harford’s long read in the FT is refreshingly clear-sighted in its aims: “to deploy everything I knew about economic theory and behavioral science, along with a few hard-won practical discoveries, to rebuild my relationship with the digital world from scratch.” He breaks down why our relationship with our smartphones is often so problematic and how we can reconfigure it without doing anything as extreme as going cold turkey.

It helps when understanding the roots of our phone addiction: The “endowment effect,” a term coined by Richard Thaler, posits that we place more value in things we own because we own them (we like our apps and social media); relinquishing them is hard). But the principles of opportunity cost dictate that everything we do is an implicit choice not to do something else (so those hours devoted to Twitter are not just empty time, but constitute a decision not to do something we might actually enjoy more).

…and why a notification is like a high: A hard-won discovery in behavioral psychology, as made by BF Skinner, teaches us that the “intermittent reinforcement” of sometimes getting a reward (and sometimes not) is actually a greater motivator than knowing for certain that your reward is coming —hence the compulsion to repeatedly check Facebook in the hope of having some fresh likes and the little dopamine kick they offer.

Back to basics: Harford recommends weaning off digital habits by substituting some of them with other activities and observing the concrete difference this makes in his health, mood and personal relationships.

What are leveraged loans and why do they have financial policy makers worried? Among the trends that followed the 2008 financial crisis was the high level of interest from investors in buying leveraged loans — loans to poorly-rated, high-risk companies. This was in part because of the reduction in bond yields, but also because the interest rates on leveraged loans fluctuate along with other short-term interest rates, instead of being fixed like bonds.

Go for leveraged loans at your own risk: At over USD 1 tn, the loan market is now higher than high-yield bond market. But though they offer undeniable benefits, including greater flexibility for companies and the potential of huge returns for investors, the flip side is that many traditional investor protections have been abandoned, meaning that if these companies fail, the potential systemic economic risk is high.

This FT video breaks down why the IMF, the Fed and the Bank for International Settlements are amongst a cohort of policymakers sounding the warning bell on leveraged loans (watch, runtime 2:39).

Is Egypt slipping back onto the GCC’s radar for sub-standard produce? Kuwait’s Public Authority for Food and Nutrition will extend its heightened alert status on agricultural imports from Egypt for another three months, after it found high levels of pesticides from Egyptian imports, the authority said in a tweet on Sunday. This would mean that imports of Egyptian goods will be under added scrutiny and will be subject to lab testing and identifying Egyptian companies that are sending the goods. This comes a few days after Saudi Arabia’s Environment, Water and Agriculture Ministry imposed a temporary import ban on Egyptian onions “after it was proven that Egyptian onions exceeded the global residue limits of pesticides.” Egypt had made strides over the past few years to reverse a host of bans by regional and other countries over the quality of produce.

Israel’s unveiling of a new international airport in Eilat on Monday may give a boost to Egypt’s tourist sector, Reuters reports. The newly-opened USD 500 mn Ramon Airport is designed to attract winter tourism from Europe to the Red Sea, notably to Taba, Eilat, and the Jordanian town of Aqaba as well as a “wartime back-up,” the newswire says. The new facility is close to Jordan’s King Hussein International Airport in Aqaba, which has ruffled the Jordanian government’s feathers, according to SkyNews.

Egypt, China sign USD 72 mn grant for Misr Sat 2 satellite assembly: Egypt signed yesterday a USD 72 mn grant agreement with China to finance the purchase of equipment and training of staff needed for Egypt’s assembly of data satellite Misr Sat 2, according to a Cabinet statement.

Egypt will spend USD 9 bn over the next four years to upgrade six oil refineries, Oil Minister Tarek El Molla has said, according to Reuters. The project aims to increase the country’s production to 41 mn tonnes per year, up from 25 mn tonnes currently. We had noted last year that Assiut Oil Refining Company (ASORC) signed a USD 100 mn loan agreement with the China Development Bank (CBD) to help fund refinery upgrades as part of a strategy to upgrade refineries nationwide. The minister did not name the refineries or make clear whether the figure includes the USD 4.3 bn Egyptian Refining Company, which government officials have in the past positioned as a refinery upgrade project for the adjacent Cairo Oil Refining Company, which is providing feedstock for ERC.

The planned USD 8.5 bn petroleum refining complex in New Alamein is expected to produce some 3.4 mn tonnes of refined crude per year, according to an Oil Ministry statement. State-owned Egyptian Petrochemical Holding Company completed its studies on the complex, which is set to come online in 2024, last December. Egypt will also stop importing refined oil products as we reach self-sufficiency in three years’ time, Oil Minister Tarek El Molla said, according to Al Masry Al Youm.

The Damietta Port Authority is considering giving incentives to cargo ships to increase the port’s international competitiveness, local press reported. No details were provided on what the incentives entail.

The General Authority for Supply Commodities (GASC) will begin using at-sight letters of credit (LCs) for upcoming wheat tenders, assuring payments to suppliers as soon as they submit the necessary documents, according to Reuters. The state grain buyer had been relying on 180-day “usance letters of credit” for all previous purchases. Usance, or deferred, LCs — as opposed to at-sight LCs — add an extra layer of a 180-day period from the shipping date. The new payment terms are expected to lead to between USD 5-6 in savings per tonne.

The New Cairo City Authority has launched trial operations of a new transportation network made up of 20 air-conditioned public buses at a combined cost of EGP 25 mn, chairman of the authority’s board of trustees Mohamed Saad El Din said, according to Al Bawaba. The buses will operate on five lines connecting all of New Cairo.

The first phase of Metro Line 4, which includes four stations, will be officially inaugurated on 25 January, a Transport Ministry source tells Al Mal. Work on the first phase of Line 4 began in 2015. The government will also announce new ticket prices for Line 3 on Friday, the source said. Line 3 currently includes nine stations, but is planned to eventually include 13. Earlier this week, local news reported that the National Authority for Tunnels had called off its tender for construction works on phase one of Metro Line 4 due to expensive offers.

Agricultural commodity trader and manufacturer Cairo 3A is in talks with the National Banque of Egypt, Banque Misr, CIB, and the Arab African International Bank for a loan of up to EGP 3.4 bn to finance expansion plans, sources tell Al Mal. Cairo 3A is already in talks to acquire Pyramid Poultry.

Carbon Holdings has signed an MoU with logistics provider Agility that will see the latter manage logistics for Carbon’s industrial facilities in Egypt, including the USD 10.9 bn Tahrir Petrochemicals Company, according to an emailed statement (pdf). Under the agreement, “Agility will work with Carbon Holdings … to transport plastic byproducts within Egypt and to customers abroad. Agility will also handle the distribution of chemical compounds, including low-density ammonium nitrate inside Egypt and the onward distribution to container ports of Carbon Holdings’ Egypt Hydrocarbon Corporation business.”

Global law firm Shearman & Sterling were legal advisers to EFG Hermes on the successful first close of its Egypt Education Fund, with the second close expected to be completed in 2019, the Global Legal Chronicle tells us. The DIFC-based fund, which forms part of a USD 300 mn joint venture platform established in partnership with Dubai’s GEMS Education, seeks to raise up to USD 150 mn in capital commitments for investment in K-12 schools in Egypt.

Egyptian air and naval troops have traveled to Bahrain to conduct a joint-military exercise dubbed Hamad-3, according to the State Information Service, citing MENA.

Egypt were beaten 32-28 in their match-up with Norway at the handball World Championships, crushing their hopes to qualify for the World Championship semi-final for the first time since 2001, Ahram Online reports.

Our friends at Pharos Holding received last week International Finance Magazine’s “Best Equity Research Company” award for 2018 at a gala held in Dubai. The firm was named last month the award’s winner, which “recognizes the research capabilities of Pharos and their continued commitment to excellence and contribution to the industry,” according to an emailed statement.

Egypt working on granting rights to private companies to run nature reserves: Environment Minister Yasmine Fouad is pushing for the expedition of a long-stalled draft legislation to grant administration rights to private companies to run nature reserves under the ministry’s supervision, Al Monitor reports. The legislation had stirred controversy amid concerns it would violate a 1983 law that prohibits the privatization of nature reserves. A well-informed ministry source assured Al Monitor, however, that the legislation would not allow the state to sell nature reserves, but instead give private firms the right to run and protect them. Under the legislation, companies granted rights would suffer heavy penalties for damages to the reserves, which make up 17% of Omm El Donia.