Central bank leaves EGP unchanged at auction

Cabinet will approve higher electricity prices for all users, not just high-volume consumers, sometime this week, said Electricity Minister Mohamed Shaker, contradicting statements made by the ministry’s own spokesperson on Sunday that only industrial customers and consumers in the highest household tier would see price hikes. Shaker said the ministry was facing a liquidity shortage because of power subsidies and also blamed the March devaluation and a change in the nation’s fuel mix, Al Borsa reports.

Speaker of the House Ali Abdel Aal began his state visit to Moscow yesterday, where he is conducting meetings until the end of his stay on Friday. Abdel Aal met with Russian lawmakers on Tuesday, where he said Egypt has carried out 75% of Russia-proposed recommendations on airport security, according to Russian lawmaker Sergei Gavrilov, Sputnik reported. Ismail Abu Elezz, CEO of the Egyptian Holding Company for Airports and Air Navigation, said three weeks ago that Egypt had met all of Russia’s enhanced security demands with regard to Egypt’s airports. Abu Elezz’s comments were made just a week after Russia’s transport minister said Russia had not been informed on Egypt’s progress on implementing the recommendations.

“As soon as elements of security are ensured, regular air service, I think, will be resumed within six months,” Sergei Gavrilov said on Tuesday, according to Russian state news agency TASS. RT released footage of Abdel Aal’s meeting with Russian lawmakers on Tuesday, where he said Egypt hopes “to strengthen and broaden cooperation” with Russia. (Watch in Arabic and Russian, running time: 1:21)

Also on the agenda during Abdel Aal’s visit this week: Egypt will offer Russia infrastructure investment opportunities around the New Suez Canal, according to Anvar Makhmutov, a member of the International Affairs committee in the lower house of the Russian parliament, Sputnik reported.

Solar Impulse 2, the solar-powered plane on the next-to-last leg around-the-world flight, flew over the Pyramids this morning on its way to touchdown at Cairo International Airport. After receiving permission from Egyptian air traffic control to descend to 1,800 feet and fly over the Pyramids about an hour beforehand, the live feed at 5:34am showed gorgeous footage taken from a helicopter of the plane easing past the Pyramids as the sun rose between them. Check and see later this morning if there is HD footage on the website.

Wheat fraud report due on Sunday: The House committee investigating allegations of fraud in this season’s wheat harvest is due to table its report on Sunday. We have more in Speed Round.

Meanwhile, the House committee investigating and tracking developments in the Regeni case has summoned government officials for a briefing on Monday. The move comes after Italy moved to cut- off the sale of spare parts for F-16 fighter jets. Representatives from the ministries of the interior and foreign affairs as well as the Egyptian General Intelligence Directorate and the Prosecutor General’s Office have been called to appear, AMAY reported on Tuesday. MPs have also suggested that a delegation of members of the House human rights, foreign affairs and defense and national security committees be sent to meet with Italian MPs to help find a diplomatic solution to the case.

The CBE kept the exchange rate unchanged at EGP 8.78 per USD 1 “confounding market expectations of an impending devaluation that had driven up stocks,” Reuters reported. The parallel market rate, on the other hand, has continued to soar, recording EGP 11.45 per USD 1, according to Al Masry Youm, EGP 11.50, according to Al Borsa, and Al Mal has it at EGP 11.42.

When will devaluation come? “Look for fiscal measures and IMF talks.” –EFG Hermes. The firm’s Simon Kitchen and Mohamed Abu Basha wrote in a research yesterday that they “still expect a devaluation to take place later this year or in early 2017,” saying the move would “”likely follow the introduction of VAT, further subsidy cuts, and a rise in tobacco prices, all of which are likely to be inflationary. We also expect that a shift towards a more flexible exchange rate is likely to involve support from the IMF,” citing remarks last week by CBE boss Tarek Amer that Egypt had the ability to borrow up to USD 10 bn from the IMF.
A coordinated approach: As we noted on Sunday, President Abdel Fattah El Sisi’s weekend sit-down with the prime minister, finance minister and CBE governor suggests the government is “pursuing a more coordinated approach to Egypt’s economic challenges,” Kitchen and Abu Basha wrote. “Inflation is already at a seven-year high following the March devaluation, and sequencing fiscal and monetary reforms to limit inflation impact is critical. The VAT is set to be introduced in 3Q16 — devaluation may have to wait until the inflation impact of the tax is clear.”

Meanwhile, the blowback from the rumored devaluation has hit the parallel market hard, as the EGP weakened to a record EGP 11.50 to the USD 1, good for a 30% gap with the official CBE bank rate of EGP 8.88. FX traders speaking to Al Borsa expect the EGP will continue to slide in the parallel market. The newspaper also note that the central bank has shuttered four exchanges right before last week’s Eid break.

The House Economics Committee is planning to call Amer to appear before it to answer on the “apparent confusion” and to outline a clear FX policy, a parliamentary source tells Al Borsa. He implied that the committee is of the opinion that Amer’s statement before the Eid break was a misstep and will stoke inflation.

Importers blame CBE Governor Tarek Amer for the EGP’s tailspin on the parallel market. Mohamed El Naggar, head of the Importers Division at the Federation of Egyptian Chambers of Commerce tells Al Borsa that he expects inflation to rise dramatically as a result of Amer’s hint last week that devaluation is in the cards.

Sack Hanafy, wheat fact-finding committee suggests: The House of Representatives’ fact-finding committee probing wheat collection will recommend sacking Supplies Minister Khaled Hanafy, the head of the committee told Al Mal. The final report will not be presented until the committee completes its visits to silos across the country and the committee has agreed not to issue any specific figures until the survey the completed. Hanafy is responsible for the “corrupt” system and for wasting public funds, the head of the committee says. While admitting there may have been “violations,” Hanafy denies the accusations, saying he believes the new wheat collection system has saved the country over EGP 6 bn annually and closed multiple avenues for corruption.

The news comes as Egypt closed its first wheat tender since April, buying 180 ktons of Russian and Ukrainian wheat for delivery 10-20 August delivery, Bloomberg and Reuters reported last night. Some 120 ktons will originate out of Russia, with 60 ktons from Ukraine; Louis Dreyfus was the big winner, picking up contracts for 120 ktons in total deliveries. The General Authority for Supply Commodities’ Ahmed Mansour is getting domestic ink on the story. The contracts are the first announced since Egypt decreed it would accept ergot limits as high as the UN FAO’s max of 0.05%, as we noted.

Abraaj’s Cleopatra Hospitals Group moves forward with EGP 360 mn capital increase promised during IPO process: Care Healthcare, the Abraaj-controlled vehicle that is the majority shareholder in the hospital group, is moving forward with a 40 mn share capital increase, with each share carrying a nominal value of EGP 9 split between EGP 0.5 par value and a premium of EGP 8.5. Care will fully subscribe to the capital increase with the proceeds from the June listing, Al Borsa notes. Care Healthcare is beneficially owned by Abraaj NAH Limited (72.5%) as well as the European Bank for Reconstruction and Development, Germany’s DEG, and France’s Proparco.

In other news from the healthcare industry, Saudi’s Andalusia for Medical Services, a subsidiary of Andalusia Group has submitted an EGP 140 mn bid to acquire 100% of Al Safwa Hospital, sources told Al Borsa. Al Safwa has given preliminary approval to the transaction, with a sale and purchase agreement expected “soon.” The hospital includes 60 beds, seven operating theatres, an intensive care unit, a cardiology department, as well as dialysis facilities and a gastrointestinal endoscopy unit.

The market has a new GDR: Domty’s general assembly approved converting up to 33% of the company’s shares into global depositary receipts, signing-off on a decision taken by the company’s board back in June, according to a statement on the EGX released yesterday.

The Egyptian Exchange’s brokerage league table for June 2016 is out, and EFG Hermes closed the month in the number one slot with a 19.3% market share of executions overall. CI Capital took the number two position with an 8.8% share, followed by Pioneers (4.0%), HC Brokerage (3.8%), and Beltone Securities Brokerage (3.8%). Where does that leave the nation’s brokers standing year-to-date?

1. EFG Hermes — 18.5%
2. CI Capital — 9.8%
3. Pioneers — 5.4%
4. Pharos — 4.4%
5. Sigma — 4.1%

You can slice and dice the rankings — by deals, by main market only, by main market excluding deals… — by downloading the 1H2016 rankings (pdf) or the June 2016 league table (also pdf).

Meanwhile, EFG Hermes says it is advising on 13 M&A transactions worth USD 1.5 bn as of the end of 1H16, said Mustafa Gad Co-Head of EFG Hermes’ Investment Banking Division in a very brief sit-down with Amwal Al Ghad.

The three existing mobile network operators will pay a consistent royalty to the state of 6% of their annual revenues within two-to-three years of obtaining their 4G licenses, according to a CIT Ministry source. By Al Mal’s count, the NTRA will generate c. EGP 1.8 bn for the state’s coffers based on combined annual revenues Vodafone Egypt, Orange Egypt and Etisalat Misr of c. EGP 30 bn. The three operators currently pay a royalty ranging from 5-6% annually. There is still no confirmation on the royalty Telecom Egypt would pay as the fourth player to arrive at the party. Orange, Vodafone, Etisalat and Telecom Egypt will also have to pay EGP 360 mn annually to offer fixed-line services under the 4G framework agreement, which will allow the regulator to net EGP 2 bn per year from the framework. The source added that the NTRA has no intention of extending the deadline to bid for 4G licenses after the first week of August.

Meanwhile, Orange Egypt is appealing a ruling by the Administrative Court that allows the NTRA to negotiate on behalf of Telecom Egypt with mobile operators to use its infrastructure. The ruling, which was apparently issued by the court on 21 June but is only now making the rounds in the media, affirms the NTRA’s role in approving pricing in contracts between companies operating in the telecommunications sphere as well as oversight of independent negotiations between telecom players, Al Masry Al Youm reports. Orange says NTRA is intervening in a commercial matter and should not be party to negotiations between companies, according to Al Borsa. We noted yesterday that the fixed-line monopoly had asked the regulator to negotiate on its behalf with the three current mobile network operators on both what TE charges the operators to use its infrastructure as well as the fees Telecom Egypt will pay to piggyback on mobile operators’ towers when TE obtains a 4G license.

Feed-in tariff disputes will be resolved through domestic arbitration proceedings and the government will not yield to investors’ demands for international processes, Electricity Minister Mohamed Shaker said. Shaker also told Al Borsa that investors have known “since day one” that all payments would be made in EGP and qualified companies would have to create Egyptian companies under current laws. “We will not consider changing anything before October.” The second phase of the feed-in tariff projects will be launched on 27 October, Shaker said, noting that the “weaknesses” of the first phase will be addressed. He refused to make public the pricing scheme for the second phase.

“Once we deliver on the economic reforms we promised, we expect to see some serious interest from investors,” head of public debt at the Finance Ministry Samy Khallaf told Bloomberg’s Ahmed Namatalla, noting that “We have to come to the market with a fresh story.” A package of reforms including the introduction of the value-added tax and public sector payroll cuts is expected to pass at the House of Representatives after being endorsed by officials “at the highest level.” Egypt intends to tap international markets for USD 3-5 bn in FY2016/17, with the first tranche expected between September and March, he added.

The House of Representatives is discussing additional amendments to the inheritance law that would see the formation of judicial body “specifically tasked with actually restituting inheritances to their rightful heirs,” Walaa Hussein writes for Al-Monitor. The new draft comes just six months after the government amended the law to “punish anyone who deliberately denies an inheritance to those entitled to it.” A 2010 survey of 200 women in Egypt found that 59% of them did not receive any inheritance. “Social traditions and habits force women to accept any sum of money, even if not equivalent to the value of their share of the inheritance, for fear of being hated by their own family,” said secretary of the House Committee on Media, Culture and Antiquities Ghada Sakr.

Hadayek El Qobba by-election after MP’s death. Sayed Farrag, a pro-Sisi member of the House of Representatives from East Cairo district of Hadayek El-Qobba, died on Tuesday “after suffering from health problems,” Ahram Online reports. A by-election will be held within 60 days to fill the Masr Balady member’s seat. This will be the fourth by-election to be held to fill a vacancy in the current parliament.

This morning’s narrative: The latest Amnesty International report on so-called “forced disappearances” in connection with Egypt’s ongoing anti-terrorism campaign is driving the narrative on Egypt in the international press this morning. Coverage from BBC is pretty typical of how the story is playing. The Beeb’s lede: “Egypt’s security services have forcibly disappeared and tortured hundreds of people in the past year in an effort to wipe out dissent, a rights group says. Students, political activists and protesters — some as young as 14 — have vanished without a trace, according to a new report by Amnesty International.”

Meanwhile:

Wapo on Egypt’s peace initiative: The Washington Post’s “Washington Wire” blog carries a piece by the Woodrow Wilson Center’s Aaron David Miller on the Egyptian initiative to bring Israel and Palestine back to the bargaining table. It’s a useful (more skeptical) counterpoint to the views out of Tel Aviv we’ve covered in the past couple of days.

The Washington Post has also picked up on Al Masry Al Youm’s apology for an editorial cartoon that made light of [redacted] harassment.

Cop sentenced in beating death: Wire reports from AFP and Reuters are earning fairly wide (if perfunctory) coverage on the sentencing of a police officer to a seven-year prison term in the beating death of a man who had been in custody in Luxor last November. The original death prompted riots at the time. (Five low-ranking members of the police service were sentenced to three-year terms in the same case, while one officer and four conscripts were acquitted, Ahram Online reports.)

“Turkey’s normalization with Egypt not so easy,” declares Hürriyet Daily News out of Turkey. The takeaway is that we’re not the only ones who see the meddling of ‘foreign fingers’: “The coup that ousted Morsi came at a moment when Erdoğan and his government were facing massive protests in weeks-long rallies in mid-2013, known as the Gezi protests. For Erdoğan, there was no difference between the two processes, apart from the fact that ‘foreign powers’ succeeded in their coup attempts in Egypt but failed in Turkey.”

This? Again? From Reuters: “Egypt Orders Muslim Preachers to Deliver Identical Weekly Sermons”

“Egypt is a strong advocate of African interests [and] one of the top four contributors to the African Union’s budget,” Egypt’s Ambassador to Kenya Mahmoud Talaat writes for Kenyan newspaper The Star. Talaat lists historical information on how Egypt has always been an unwavering supporter of African causes and promotes the Egyptian Agency of Partnership for Development (EAPD), which is involved in transport, communication, health, and agriculture projects amongst others and also organises capacity-building programmes for African officials and civil servants. Egypt is “a proud African nation, a fact enshrined in its constitution, and as part and parcel of its people’s association in creed, history, geography and culture,” Talaat noted.

The Middle East edition of Entrepreneur Magazine shows Egyptian startups some love by covering the recent fundraising successes of Instabug and Drofie. “If there ever was any uncertainty around the acceptance of Egypt as a growing entrepreneurship hub, a few recent developments are likely to put it to rest,” Sindhu Hariharan writes. Hariharan covers Instabug’s successful raising of USD 1.7 mn in a round led by Silicon Valley’s Accel Partners and other angel investors and Drofie’s winning of a place in the Switzerland-based Kickstart Accelerator and raising CHF 25k.

Yeah, yeah, whatever: “Brexit brings delight to emerging markets,” reports the Financial Times (paywall). Can you say, “Flash in the pan,” boys and girls?

Living in a post-factual age: Katharine Viner’s c.5,700 word essay published in the Guardian yesterday seeks to capture the current predicament of the modern age: High-quality information is more widely available than ever, but many people are hopelessly, desperately stupid in sharing and perpetuating falsehoods without first attempting to validate the information. While that’s always been the case, the advent of the internet and social media has helped to turn this relatively old problem into an exponential burst of myth posing as fact, with nasty and often damaging consequences.

Viner is on to something when she weaves together how cynical politicians on both sides of the Atlantic are using social media to amplify untruths, as well as relying on the gullibility, laziness, and confirmation biases of their constituencies to perpetuate their own ignorance. One of the largest donors behind the Leave campaign admitted to the Guardian: “It was taking an American-style media approach. What they said early on was ‘Facts don’t work,’ and that’s it. The remain campaign featured fact, fact, fact, fact, fact. It just doesn’t work. You have got to connect with people emotionally. It’s the Trump success.”

This was most recently highlighted, (and perhaps served as the inspiration for Viner’s article) ironically enough, by a comment left on a Financial Times article days after Brexit, and which many of our readers may have previously read on social media as it went viral, reading in part: “We now live in a post-factual democracy. When the facts [of Brexit] met the myths they were as useless as bullets bouncing off the bodies of aliens in a HG Wells novel. When Michael Gove said, ‘The British people are sick of experts,’ he was right. But can anybody tell me the last time a prevailing culture of anti-intellectualism has led to anything other than bigotry?” Since the publication of the comment, the Financial Times commissioned the author of the comment to expand on his thoughts in an article.

Viner couples this with parallel negative developments in journalism around the world — the slashing of newsroom workforces and the resulting deleterious effect on fact-checking and hard journalism. (Read How technology disrupted the truth)

Australian company spent two years faking viral videos: Jumping off from today’s reading by Katharine Viner on how media chasing clicks has degraded its own ability and desire to verify the accuracy of their reporting, Australian-based Woolshed Co. released on Thursday: “A two-year social experiment exploring the phenomenon of ‘viral’ videos and shareable content.” Readers will likely recognize a number of viral videos and the coverage they received in the mainstream media, such as the snowboarder unaware she was being chased by a bear. (Watch The Viral Experiment, running time: 3:31)

AU Summit agenda to focus on “state of the continent,” free trade. –Foreign Ministry. The main issues on the agenda at the 27th African Union Summit include the Peace and Security Council report on the state of the African continent, as well as closed one on one sessions on continental integration and a Continental Free Trade Area, the Ministry of Foreign Affairs reported. The topics also include the adoption of the recommendations of the retreat of heads of state and government on financing the AU, and the election of a Chairperson and a Deputy Chairperson for the African Commission.

Egypt will be joining the base erosion and profit shifting (BEPS) initiative that was launched by member states of the OECD in an effort to stop multinationals from avoiding income tax, Deputy Finance Minister Amr Al Monayer said, following meetings in Japan discussing the initiative. He said that Egypt will be the first Arab country to join this initiative, Al Mal reported. Over 100 countries are reportedly giving their support to BEPS.

And while we’re on the OECD, Suez Canal Economic Zone chief Ahmed Darwish met with the OECD’s MENA Governance Programme Coordinator Carlos Conde to discuss the OECD advising the authority and providing it with technical assistance on developing the SCZone, Al Shorouk reports.

The state’s arrears to Royal Dutch Shell and BG have increased to USD 1.1 bn, up from USD 1 bn in April, according to a source close to the talks that are apparently going on between Shell and the government. The bill has risen on the back of the government failing to pay USD 50 mn on gas from the 686 mcf/d Burullus and Rosetta concessions, the source tells Al Borsa. Furthermore, the government failed to make good on a USD 400 mn it promised to pay Shell and BG by June. BG halted developments on its Phase 9B project after failing to reach a satisfying agreement with the Oil Ministry on its receivables. BG accounts for over 30% of money owed to IOCs.

Eni joint-venture Petrobel hosted a session to discuss the environmental and societal impact of the Zohr field development, according to a statement from the Oil Ministry, Al Shorouk reported. The session discussed the necessary technical requirements and means to implement international safety standards.

The Egyptian Electric Utility & Consumer Protection Regulatory Agency (EgyptERA) announced the launch of a twinning project with the Greece’s Regulatory Authority for Energy, and the Italian Regulatory Authority for Electricity, Gas, and Water to provide technical support to Egypt’s energy sector, Al Masry Al Youm reported. The project duration is 23 months with a budget of EUR 1.225 mn and is underpinned by three pillars, said Electricity Minister Mohamed Shaker. First, establishing methods to transform the electricity sector to a free market model with the government playing the role of regulator. Second, a revision of administration and legislation concerning licensing and dispute settlement. Finally, a framework for monitoring and evaluating company performance within the sector.

The Environment Ministry gave preliminary approval on three alternative fuel and waste-to-energy projects, Al Borsa reports. These include two biogas facilities in Kafr El Sheikh and Damietta, and a refuse-derived fuel plant in Alexandria, according to Yahia Abdullah, head of the central administration of municipal waste at the ministry, on Monday. The projects still need cabinet approval. Alternative and waste-to-energy sources have been a cornerstone of the ministry’s policy.

The retail price of imported cigarettes has gone up by EGP 3-7 per pack on speculation that the government will increase the mandated selling price, Al Shorouk reported. Local cigarette prices have also reportedly increased by around EGP 1 per pack. A source said retailers are stocking up on cigarettes and refusing to sell them now in anticipation of the price hike.

Saudi’s Aujan Group Holding has frozen its expansion plan in Egypt over greenback shortages, sources tell Al Mal. The plan included a new factory in 6 October to domestically produce Rani, a branded soft drink. Aujan Industries had announced in 2014 its intent to invest USD 100 mn into the factory as a launching point to enter the African market. Aujan will continue to operate in Egypt by importing from its factory in Saudi Arabia and producing Rani domestically at a Coca-Cola production line in Six October owned by Aujan Coca-Cola.

The number of Chinese tourists visiting Egypt in 1Q16 increased 32% year-on-year, said Nasser Abdel Aal, former advisor on tourism policy at the Egyptian embassy in China, Shorouk reports. He added that number of Chinese tourists visiting Egypt has been rising by leaps and bounds, growing 85% year-on-year in FY2015, and he expects the increase to be even larger in by FY2016. Abdel Aal, however, provides no figures or data to back his claims. If true, these numbers would contrast greatly with tourism numbers on the whole as CAPMAS announced that the total number of tourists dropped by 51.7% year-on-year in May to 431.8k tourists, down from 894.6k tourists last year, Al Ahram reports.

The Social Fund for Development (SFD) is negotiating with the National Bank of Egypt (NBE) for an EGP 300 mn loan to fund small and medium-sized enterprise (SME) projects throughout the country, head of the SME division Saad Mohyeldeen told Amwal Al Ghad. The SFD had recently signed three agreements with NBE for a total of EGP 480 mn, and a separate EGP 100 mn loan we had reported earlier to finance micro-enterprises.

President Abdel Fattah El Sisi issued a decree on Sunday extending the state of emergency in North Sinai for a period of three months from 29 July, Shorouk reported on Tuesday. The decree will take effect after the approval of the House of Representatives, and would impose a curfew from 7 pm to 6 am, except for Al Arish, where the curfew would run until 5 am.

Picking up where we left-off yesterday, the Antiquities Ministry will double the cost of admission for new night-time visits to the Egyptian Museum, an official said. Ticket prices between 6pm and 9pm will be EGP 20 for citizens and EGP 140 for foreign visitors, according to Al Borsa. The museum will open on Thursday and Saturday evenings from 6-9pm during the trial period. Nighttime hours could begin as early as next month.