Central bank will leave interest rates on hold this week -Enterprise poll

It is shaping up to be a busy day here in the nation’s capital, ladies and gents.

The Central Bank of Egypt will auction USD 1 bn worth of one-year USD-denominated T-bills today. The auction comes about one month after the CBE sold USD 854 mn in USD-denominated bills at an average yield of 3.797%.

MSCI Egypt indexes are up for review today: MSCI will release the results of its annual index review today after US markets close. Expect CIB (75.2% weight), Eastern Tobacco (13.1%) and El Sewedy Electric (11.7%) to stay on the MSCI Egypt Standard Index, Beltone Financial said in a research note out overnight. Qalaa Holdings could be added to the MSCI Egypt Small Cap Index with about a 10.3% weight, Beltone added, while JUFO could exit the small-cap index after failing to meet liquidity criteria in the fourth quarter of last year.

Renaissance Capital has a group of international institutional investors in town this morning. Investors will meet with leading publicly traded companies, do site visits and see government officials through Wednesday.

East Med speakers meet: The parliamentary speakers of Egypt, Greece and Cyprus are meeting today in Nicosia, Ahram Online reports.

Expect a flood of oil and gas news over the next couple of days as the Egypt Petroleum Show gets underway this morning at the Egyptian International Exhibition Center. Our friends at Carbon Holdings are sponsoring the exhibition, which will include a keynote address from CEO Basil El Baz, the company said in a statement (pdf). Carbon’s Karim Helal and Karim Hefzy will be leading roundtable discussions during the gathering.

The first StartEgypt Forumgets underway this morning and runs through early evening at the Greek Campus in Downtown Cairo. The startup-focused gathering is presented by Flat6Labs, the British Embassy and the International Finance Corporation.

Factoid of the morning: 5% and 9%. The percentage of US hedge funds that are owned by women and by minorities, respectively, per the Wall Street Journal in a look at Impactive Capital, a new hedge fund founded by a woman and a partner of Hispanic descent. The two are launching with USD 250 mn in AUM already committed. Their focus? ESG investing and “their [own] professed disdain for short-termism.”

We haven’t joined the tinfoil hat brigade, we assure you. And our fascination just may have to do with having been a kid when E.T. The Extra-Terrestrial was released. But this opinion piece in Toronto’s Globe and Mail by US astrophysicist Adam Frank is the perfect starting point if you’re curious about where we stand on that whole “search for extraterrestrial life” thing.

In miscellany worth knowing about this morning:

• Algeria’s Abdelaziz Bouteflika wants another term in office. The 81-year-old president plans to run in April’s elections, Algeria’s El Watan reports. Bouteflika has been in office since 1999, but has rarely been seen in public since suffering a stroke in 2013, Reuters notes.
• The United States government could shut down again at the end of this week. Bipartisan talks on a border-security funding agreement have failed. The New York Times and the Wall Street Journal have more.
• US fund managers are bracing for a slowdown in consumer spending, Reuters warns, giving the cold shoulder to shares with “lofty valuations.”

Amazon’s Jeff Bezos is still the talk of the town: The WSJ looks at how the world’s richest entrepreneur went from “private family man to tabloid sensation.”

This year’s Grammys were underway at dispatch time, but several artists skipped the show altogether. Childish Gambino (aka Donald Glover) won Song of the Year for “This is America,” making the politically-charged song the first rap song to win the accolade. Lady Gaga and Bradley Cooper also won Best Pop Duo/Group Performance, Greta Van Fleet won Best Rock Album, and Brandi Carlile won Best Americana Album. You can check out CNN’s live blog for more updates as they come through.

And in other entertainment-related miscellany:

An Italian-Egyptian has won Italy’s national music contest with his rendition of Soldi, leaving the country’s anti-immigrant interior minister a little bit grumpy. Alessandro Mahmoud, 26, has an Egyptian dad and an Italian mom. You can listen to him here.

Egyptian series on Netflix: The Egyptian series Tayea, Ekhtefa and Khalsana Beshyaka have made it to Netflix. Egypt Today has the rundown.

The talking heads decided to be economical last night and aired a joint interview with Foreign Minister Sameh Shoukry on Egypt’s assumption of the African Union chairmanship. Shoukry’s interview in Addis Ababa aired on Masaa DMC, Hona Al Asema, ONTV, and Al Hayah Al Youm.

The minister touched on everything from the “historic” support Egypt has given and the future it sees for the continent (watch, runtime: 01:22) to that awkward time back in 2013 when a “misunderstanding” saw the AU suspend Egypt’s membership (watch, runtime: 02:04). Shoukry also discussed the impasse over the Grand Ethiopian Renaissance Dam, which he said is a technical issue that should not be politicized (watch, runtime: 03:00).

El Hekaya’s Amr Adib, meanwhile, channeled 2003 Amr Diab in trying to decide whether or not we should celebrate our chairmanship. He alternated between hailing yesterday as a historic moment (watch, runtime: 04:09) and calling for our focus to shift toward what Egypt can provide Africa during the chairmanship (watch, runtime: 06:14).

Expect the CBE to leave interest rates on hold this Thursday after inflation rises slightly in January: Egypt’s annual headline urban inflation rate increased slightly to 12.7% in January compared to 12% the previous month, according to a central bank statement (pdf) out yesterday. Monthly inflation also rose to 0.4% from 0% in December. Annual core inflation, which excludes volatile items such as food and fuel, stood at 8.6% in January, up from 8.3% in December.

Rising vegetable prices were to blame: CAPMAS figures show that prices of food and beverages rose 6.8% y-o-y in January, driven by a surge in the cost of vegetables. Shuaa Securities said in a research note that weather patterns will continue to cause volatility in the price of vegetables in the short term, impacting headline inflation rates. Still, investment bank sees little chance of major upward inflationary pressure in the months to come.

Enterprise poll of economists sees CBE holding interest rates on Thursday: The Central Bank of Egypt will leave its key interest rates on hold when its Monetary Policy Committee meets on Thursday, nine out of 11 economists analysts surveyed told Enterprise. Rate waters with whom we spoke said they expect the central bank to leave its overnight deposit and lending rates at 16.75% and 17.75%, respectively, at the February 14 meeting.

There’s no consensus about when rates might come down, but some predicted the easing cycle could begin as early as March. Pharos Holding head of research Radwa El Swaify expects the CBE to leave rates on hold on Thursday, but said a 100 bps cut at the March meeting is possible should inflation remain within the bank’s target range and portfolio inflows remain strong. Renaissance Capital Chief Global Economist Charles Robertson is of the same view, saying that while rates will likely remain unchanged, a “small” cut is not entirely out of the question.

Inflationary pressure from subsidy cuts could delay cut until 2H2019: Mohamed Abu Basha, head of macroeconomic analysis at EFG Hermes, the easing cycle would likely begin after the next round of subsidy cuts set for mid-2019. “An immediate reaction from the CBE to inflation readings or external factors is not recommended. It should wait until it’s sure about the stability of emerging markets, global oil prices as well the Fed’s next move,” he added. HC Securities, meanwhile, said in a research note that it sees these renewed inflationary pressure postponing the monetary easing cycle until 2020, when it expects to see a total rate cut of 500 bps.

EGP stability and keeping debt as attractive to portfolio investors will weigh heavily on policymakers’ minds: Multiples Group’s Omar El-Shenety says rates could start coming down only in 3Q2019, ensuring portfolio inflows are strong enough to keep the EGP stable in the meantime. “The CBE is keeping its eye on the stability of the exchange rate, which requires keeping local debt attractive to portfolio investors in the midst of emerging market turmoil,” El-Shenety said.

So, why do two economists expect a rate cut on Thursday? Hany Farahat, senior economist at CI Capital, expects the CBE to cut rates by 25-100 bps in this week’s MPC meeting. “Recent dynamics support a rate-cut, including the fall in inflation, reversal in foreign outflows, IMF loan disbursement, recent USD:EGP appreciation, and progress with upcoming eurobond issuance, which are factors also supporting a lower premium on the EGP,” Farahat said. “A cut at this point could even encourage higher inflows into treasuries, as fixed income investors are incentivized to lock-in high yields before further drops in policy rates this year,” he added. Shuaa Securities senior economist Esraa Ahmed also expects a 100 bps rate cut on Thursday, noting that inflation is within the CBE’s range and also pointing to the US Federal Reserve’s decision to slow down the pace of monetary policy tightening. Falling global oil prices will also be a factor in the MPC’s thinking, she said.

FinMin sees growth accelerating, forecasts weaker average EGP exchange rate this fiscal year, will budget for oil at USD 67 / bbl for next year: The Finance Ministry revised its expected average USD:EGP exchange rate for the current (2018-19) fiscal year ending in June to EGP 18 to the greenback against an earlier forecast of EGP 17.25, the ministry said in its mid-year review of the FY2018-19 budget (pdf). It also said it expects average yields on Egyptian treasury bills and bonds this fiscal year to come in at 18.6% against a forecast of 14.7%.

Some relief on the oil price front: The Finance Ministry now says that it expects the average price of a barrel of oil to come in at USD 74 in the current fiscal year and is forecasting USD 67 / bbl for 2019-2020.

How this all feeds into the budget: Every USD 1 / bbl increase above the expected oil price will cost the government EGP 2.3 bn. Meanwhile, the government will see costs rise EGP 3 bn for every EGP 1 the pound weakens against the greenback, the ministry said.

Economic growth seen accelerating: The FinMin raised its target for GDP growth to 6.2% in 2019-20 from 6.0% previously and is leaving its target for the current fiscal year unchanged at 5.8%.

The Finance Ministry sees the budget deficit falling consistently in the years to come:

• 8.4% in 2018-19
• 7.1% in 2019-20
• 5.8% in 2020-21
• 4.0% in 2021-22

What about debt, unemployment? The Finance Ministry is targeting an unemployment rate of 7-8% in the medium term and sees debt at about 83.1% of GDP by June 2021.

Spending on health, education, subsidies is up: In the first half of the 2018-19 fiscal year, the state saw its total expenditure on education rise by 20.5%. It spent 27.2% more on healthcare and saw its bill for fuel subsidies rise just under 14% to EGP 30.2 bn.

Government expects to announce list of companies for privatization program within two weeks: The government is preparing a list of four companies that will sell shares via IPO in phase two of the state’s privatization program, Public Enterprises Minister Hisham Tawfik told Hapi. Tawfik said the first phase of the program, which focuses on stake sales by already-listed companies, will start soon. Eastern Tobacco will pilot the program with the sale of a 4.5% stake, while AMOC is off the sale list after its profitability deteriorated. Sources had earlier told us that the program might kick start as early as March.

Background: Phase one of the program was delayed last year as the Emerging Markets Zombie Apocalypse bit the EGX. A number of companies in the program announced conditions before proceeding, including Eastern Tobacco, whose stake sale hinges on the share price rising to EGP 18.70, and AMOC, which is looking to return to profitability before selling shares.

Government postpones decision on cutting gas prices for factories: The cabinet is postponing a decision to cut natural gas prices to factories, government sources told Amwal Al Ghad. The request to cut gas prices came from the Industry Ministry, which said that the decision would provide incentives to manufacturers while boosting the competitiveness of Egyptian exports. Industry has been pushing for years for lower gas prices following major gas discoveries that have since helped the country become self-sufficient. The rest of us wonder why the government would ever agree to effectively bring back subsidies this far along in a reform program focused, in no small part, on cutting subsidies.

Government to decide on next month on payment of overdue export subsidies: The government will decide next month when and how much it will disburse as it looks to make good on overdue export subsidy payments, Finance Minister Mohamed Maait told Hapi. The payments will be scheduled over a “proportionally long time” and a new program is in the works might now, Maait said. The government has hinted that the new incentive program might be a non-cash one and exporters are already dreaming up their wish lists.

FinMin denies it has plans to repeal real estate tax exemption for private homes: The Finance Ministry issued a statement yesterday denying our report that it is mulling scrapping an exemption on real estate taxes for private homes worth less than EGP 2 mn under a new Real Estate Tax Act currently in the works. According to the statement, the ministry will finish soon drafting its proposed amendments to the existing Real Estate Tax Act and will hold public consultations before shipping the act to Cabinet and the House of Representatives for sign-off.

What would the proposed amendments entail? The proposed amendments are largely aimed at reducing discrepancies in the tax rates imposed on similarly-valued properties, in addition to alleviating some of the tax burden on factories, according to the statement. The amendments would, if passed, overhaul the government’s appraisal system to increase its efficiency. A government source had told us back in December that the ministry was looking to introduce a digital system through which real estate would be appraised, and had enlisted Ain Shams University to appraise the value of real estate in the country based on location and prepare an electronic database of prices.

The government is looking at earmarking up to 50% of its annual haul from the real estate tax for the benefit of informal settlements, the statement says.

M&A WATCH- Veon files for approval of EGP 11 bn GTH takeover bid: Veon Holdings, the majority shareholder in EGX-listed Global Telecom Holding (GTH), has filed for regulatory approval to make a tender offer for the 42.3% of the company that it does not already own, the Financial Regulatory Authority said in a notice to the EGX (pdf). The bid, at EGP 5.30 a share, is still under review by the FRA, the statement said. If completed, it would be worth c. EGP 10.6 bn. Veon disclosed to the EGX last week its intends to make an offer for 100% of GTH, saying it intended to submit an offer to the FRA within 60 days. Amsterdam-based company Veon first announced the take-private bid last month.

LEGISLATION WATCH- House moves up vote on general committee report on proposed constitutional amendments: The House of Representatives is due to vote on Wednesday on a report prepared by its general committee, which is comprised of the House speaker and heads of committees, on proposed amendments to the constitution, according to Ahram Online. The plenary session vote was originally scheduled for next Sunday, 17 February. “If approved in principle, the 26-page report on the amendments will be referred to the constitutional and legislative affairs committee to be discussed in detail in hearing sessions,” the newspaper writes. The committee must approve the amendments before they are put to a final vote within parliament.

Background: The amendments would extend the presidential term to six years instead of the current four and include a transitional clause that could allow President Abdel Fattah El Sisi to run for two additional terms after his current term ends in 2022, among a host of other changes.

Some politicians are all for the amendments: A group of Egyptian political parties voiced their support yesterday for the proposed amendments, citing the “exceptional circumstances” in which the 2014 constitution came out. In separate statements, the parties (Hizb Al Geel, the Free Egyptians and Hezb Al Moatamar Al Masry) expressed said it is in the national interest to “update” the constitution, according to Al Masry Al Youm.

Amr Moussa urges caution: Former Arab League Secretary-General Amr Moussa, who headed the committee of 50 that drafted the 2014 constitution, appeared to urge caution on Saturday as the House takes up the amendments, warning that “the state of anticipation and confusion … over the vagueness surrounding the constitutional amendments … could develop into negativity that would affect the entire country.” Moussa called for public consultations on the amendments. His “carefully worded” comments were a reflection of how “vibrant opposition to the changes has so far been restricted mostly to Facebook posts, tweets and a small number of newspaper articles worded with diligent caution,” Hamza Hendawi writes.

Shaker proposes exporting electricity to Syria: Egypt could start selling electricity to Syria in the coming years via an extension to Damascus of its current link to Amman, Jordan, ministry sources told Al Mal. That would require fresh investment to at least quadruple the existing capacity of the grid linking the two countries.

Background: Shaker’s statement comes as Egypt makes electricity part of its bid to become a regional energy hub. Trial operations on the Egypt-Sudan electricity interconnection project will begin in March, while the USD 4 bn EuroAfrica project to connect Egypt, Cyprus and Greece is scheduled for completion by the end of 2021. A USD 1.6 bn interconnection project between Egypt and Saudi Arabia will be operational by 2022. Egypt has also previously signaled its willingness to help rebuild Syria.

The IMF will present tomorrow a report titled Financial Inclusion of Small and Medium-Sized Enterprises in the Middle East and Central Asia at a seminar taking place at the American University in Cairo’s Tahrir campus, according to a statement.

The central bank’s Monetary Policy Committee will meet to decide on interest rates on Thursday.

Suez Canal Authority boss Mohab Mamish will be in Moscow on February 17 to move forward an agreement on a USD 7 bn Russian Industrial Zone, Al Mal reports.

A Russian delegation will visit Sharm El Sheikh and Hurghada airports in the second half of February to run a final security sweep ahead of a decision on whether to allow the resumption of direct flights, AMAY reports.

Antitrust ruling: The Cairo Economic Court is due to deliver a decision on an appeal by pharma distributors of an antitrust fine on 19 February.

FinMin to present debt control strategy to El Sisi in March: The Finance Ministry will present the final, reviewed version of its comprehensive public debt control strategy to President Abdel Fattah El Sisi in March, Finance Minister Mohamed Maait said.

Execs from 50 Japanese companies will be in Cairo in March to discuss potential investment opportunities, Youm7 reports.

How many years of our lives do we lose because of air pollution? An interactive chart in the Washington Post, produced by data from researchers at the University of Chicago’s Energy Policy Institute, breaks down by country how many extra years of life could be ours if the deadliest types of pollution were not part of the air we breathe.

So how bad is it in Egypt? Not as bad as a whole lot of others. Living in Egypt38 mn (or 43% of the population) of us lose more than one year of our lives to air pollution and 89.1 mn lose more than half of a year. That isn’t great, but it’s a far cry from some of the most adversely affected countries, including India, where 18.2 mn people (or 1% of the population) lose more than 11 years, or China, where 30.4 mn people (2% of the global populace) lose more than 7.5 years. These findings are apparently not unique to this study: The Yale Center for Environmental Law and Policy’s 2018 Environmental Performance Index ranked Egypt as number 66 out of 180 countries, meaning our air quality is pretty good compared to global standards.

President Abdel Fattah El Sisi’s assumption of the African Union chairmanship is leading the conversation on Egypt in the foreign press. The story, including El Sisi’s address at the AU summit in Addis Ababa, has been picked up by the Associated Press and Haaretz, among others.

Also getting coverage in the foreign press today:

• The family of Hazem Hamouda, an Australian-Egyptian who has been held without charge in Tora prison for over a year, are increasingly concerned about his health, the Australian Associated Press reports.

Egypt’s chairmanship of the African Union, which officially began yesterday, is once again at the top of the three main state-owned dailies’ front pages this morning, with Al Ahram and Al Gomhuria focusing on the solutions Egypt plans on offering during its tenure. Al Akhbar, meanwhile, emphasizes Egypt’s immersion in the continent and our close ties with other African countries.

Could car-sharing technology prove one disruption too many for the auto industry? Car-sharing in Moscow, the world’s second most congested city, has skyrocketed in the last year, with the number of car-sharing vehicles in the city tripling to 16,500 by the end of 2018, and that number predicted to grow by 5,000 every year for the foreseeable future. As Bloomberg tells us, this looks set to not only change the way Muscovites move around their city, but will serve as an example — a dangerous one in the eyes of the auto industry — of how a local tech player turned traditional car ownership on its head.

With car-sharing services flooding the market with vehicles that range from the basic to the upmarket, at highly competitive prices, many local consumers are starting to see little sense in holding onto their own cars, which incur many unnecessary expenses. With car-sharing perhaps a first step to offering a fully-automated robo-taxi service, it seems very possible that car ownership will simply become obsolete, and soon.

Egypt, Sudan, Ethiopia GERD talks resume: President Abdel Fattah El Sisi discussed yesterday the latest developments in the Grand Renaissance Ethiopian Dam (GERD) with Sudanese President Omar Al-Bashir and Ethiopian Prime Minister Abiy Ahmed on the sidelines of the African Union (AU) presidential summit in Addis Ababa, according to an Ittihadiya statement. The statement offers little information on the outcome of the talks besides platitudes on the three countries’ commitment to arriving at a “joint vision” for the dam’s construction. Several unresolved issues are still pending, since talks held last September failed to reach a breakthrough.

El Sisi also held bilateral talks with Congolese President Felix Tshisekedion the sidelines of the AU summit, and with UN Secretary General António Guterres upon arriving in the Ethiopian capital on Saturday to assume Egypt’s 2019 presidency of the union. The president also invited the global private sector to invest in Africaduring a speech addressing African heads of state at the summit. You can read the full transcript of the address here or watch it here (runtime: 23:51).

The African Development Bank (AfDB) provided Egypt with USD 506 mn in funding in 2018, Country Manager for Egypt Malinne Blomberg said. The bank will also prepare a new five-year partnership strategy for its investments in Egypt as of 2020, Blomberg said, without providing any details on the amount of funding the bank plans on providing during this time period.

KarmSolar has signed a USD 90 mn agreement with Cairo3A Poultry to connect its facility to the national grid and supply all of its electricity from solar power, the company said in a statement (pdf). KarmSolar is planning to build a USD 90 mn, 100 MW solar plant in the Bahariya Oasis to provide power to Cairo3A. KarmSolar is currently looking to raise EGP 500 mn to finance the construction of new solar plants, and contracted Attijari Finances last September to assist with the fundraising process.

The Oil Ministry aims to build a USD 2.3 bn hydrogen cracking and gasoline producing complex in Suez, Minister Tarek El Molla told the domestic press. Four projects have already been implemented with USD 309 mn in investments, El Molla said, adding that the ministry is also looking to develop six refineries with USD 9 bn in investments over the coming four years. The ministry has also begun preparing a plan to increase foreign investment in oil and gas exploration,El Molla said, without providing details on the strategy. The ministry had announced previously it is targeting USD 10 bn in fresh investments in the oil and gas sector during the current fiscal year. El Molla noted that global investment in the sector has seen a decline in response to fluctuating brent crude prices.

The three consortiums competing for the tender to build and operate the USD 100 mn 6 October dry port will submit their offers in May, the Finance Ministry announced (pdf). The winning consortium will enter into a public-private partnership (PPP) with the General Authority for Ports and Dry Land to build and operate the project. Under the terms of the agreement, full ownership will be transferred to the state after 30 years. The project is comprised of cargo zones, customs clearance offices and multipurpose storage facilities linked to key seaports. The qualifying consortia were first announced by the government in June last year.

State grain purchaser GASC has purchased 68k tonnes of white ricein its second international rice tender of the year, according to a statement picked up by Masrawy. The rice samples have already successfully passed tests required for rice imports. It is expected that the quantity will be delivered in two batches over the next several months, with the full amount delivered by the end of April.

Fawry has launched Fawry FMCG, a new e-payment platform for consumer goods companies, reports Al Mal.The service was developed in partnership with PI Technologies and intends to create a digital non-cash community for merchants and companies.

Satirist and video blogger Shady Abu Zeid has been granted conditional release by a Cairo criminal court after spending nine months in pre-trial detention, his lawyer announced on Sunday. Abu Zeid was arrested in May 2018 on charges of spreading false news and joining an illegal group.

Egyptian and Kuwaiti armed forces completed several days of drills in Kuwait on Sunday, according to Egypt Today. "Sabah-1" was a naval drill while "Yarmouk-4" involved practicing exercises related to defense and attack.

Halan CEO, Swvl co-founders named in “high impact entrepreneurs” network: Endeavor Egypt has selected tuk-tuk and motorbike ride-hailing app Halan CEO Mounir Nakhla and co-founders of mass transit app Swvl, Ahmed Sabbah, Mahmoud Nouh, and Mostafa Khalil, to join its network of high impact entrepreneurs, according to a statement (pdf). “Both Halan and SWVL provide Egyptians with a reliable, affordable means of transportation, bridging the gap between unreliable and inconvenient public transport and expensive ride services.”

Google celebrated yesterday what would have been Egyptian cinema icon Mary Mounib’s 114th birthday with a Google Doodle. Lebanese-born Mounib is most notably remembered for her comic roles.