Cabinet shuffle: Madbouly to drum up investment, Mashat goes to Int’l Cooperation

The long-awaited cabinet shuffle materialized yesterday, bringing six new faces to the cabinet table and a handful of surprises, including Prime Minister Moustafa Madbouly being tapped to drum up investment in all of its flavors. We have chapter and verse in this morning’s Speed Round, below.

We also have a very busy news morning on the M&A and investment fronts, suggesting the end-of-year news slowdown isn’t yet upon us.

The Central Bank of Egypt’s Monetary Policy Committee meets on Thursday for the final time this year. Seven of 10 economists we surveyed expect the CBE to hold off on delivering a fifth rate cut for the year, with most saying the central bank will adopt a wait-and-see approach as it gauges impact of the previous cuts before pushing ahead with more.

Meanwhile, the central bank has effectively raised the ceiling on consumer credit limits. A decision released yesterday (pdf) will allow individual borrowers to carry monthly payments for unsecured borrowing equivalent to up to 50% of their after-tax income, up from 35% previously. The new limit will apply to both personal borrowing and credit cards. Automotive companies say the move could act as a stimulus for the lagging market, Hapi Journal reports.

PSA- Roll up your windows and be careful on the road: The national weather service is warning of “turbulent weather,” including a potential sand storm, rolling across the country this week. You can expect daytime highs today of 20°C and an overnight low of 11°C. Our favourite weather app is warning that the sand storm could hit tomorrow.

*** It’s Blackboard day: Our every Monday look at the business of education in Egypt, from pre-K through the highest reaches of higher ed, focuses this week on Egypt’s edtech startups and how they can help tackle its education system’s problems, if only they had the funding.

Meet your new government: Ending weeks of speculation about the scope of a widely expected cabinet shuffle, Prime Minister Moustafa Madbouly formed yesterday a new government after seeking the assent of the House of Representatives. The shakeup sees a handful of new faces in cabinet and a number of portfolios restructured, making it the largest cabinet shuffle since Madbouly formed his first cabinet back in June of 2018. The cabinet was sworn in after receiving approval from the House. President Abdel Fattah El Sisi met with the new ministers and deputy ministers following their swearing-in to stress the importance of building upon their predecessors’ work and maintain open channels of communication between each ministry, according to an Ittihadiya statement.

We have roundups below on:

• Who’s in and who’s out;
• What the international and domestic press are saying about the shuffle;
• Bios on new cabinet ministers;
• A look at the policy priorities the ministers are inheriting.

WHO’S IN AND WHO’S OUT

What’s not changing: The key ministries of finance, petroleum, defense, foreign affairs and interior. The full list of new ministers and deputy ministers is here (pdf) courtesy of Ittihadiya, while the full list of all cabinet members (new and existing) is available on cabinet’s website (Arabic only as of dispatch time).

So, what are the changes? Six new faces now sit around the cabinet table and four already-serving ministers have new or expanded portfolios.

• The PM is now in charge of drumming up investment: The most important change (from the perspective of the business community) is that Madbouly will take on the role of investment minister, taking responsibility for GAFI. He will also be responsible for the administrative development portfolio, which has been separated from the Planning Ministry.
• International cooperation is now its own ministry, having been cleaved off the former ministry of investment and international cooperation.
• We once again have an Information Ministry, after the portfolio was briefly mothballed back in 2011 and again in 2014. This comes as the war against “fake news” has become a priority for the House.
• The Tourism Ministry has been lumped in with the Antiquities Ministry in a single portfolio that will be headed by incumbent Antiquities Minister Khaled El Anani.
• Hala El Said’s Planning Ministry has been rebranded as the Planning and Economic Development Ministry.
• Omar Marwan has been reassigned from the Parliamentary Affairs Ministry to the Justice Ministry.

Key ministries get new bosses: The shakeup has only impacted three ministries from the cabinet economic group:

• Sahar Nasr exits as investment minister, with Madbouly taking over the portfolio.
• Cabinet newcomer Nevine Gamea takes over trade and industry from Amr Nassar;
• Rania Al Mashat leaves behind tourism to take on Sahar Nasr’s former duties as international cooperation minister.

Still in office: Finance Minister Mohamed Maait will continue to head up the Finance Ministry, while Ali El Moselhy will keep supply. Mohamed Shaker stays on to run the Electricity Ministry, while Tarek El Molla will still head petroleum and natural resources. Hisham Tawfik continues as Minister for Public Enterprises. Housing, ICT and transportation will see no change at the top, while national security portfolios, including the ministries of foreign affairs, interior, and defense, will also remain under their current ministers. The ministries of health, education, higher education, and the environment will also see no changes at the top.

REACTION

International reaction: The resurrection of the Information Ministry was of particular interest to the foreign press, with Reuters pointing out that Egypt had already set up three media regulatory bodies “with the power to fine or suspend publications and broadcasters.” Reuters and the National also note that some of the changes in government were a result of El Sisi wanting to speed up progress on key goals, including development and attracting investment. Xinhua and Al Khaleej Today also covered the shuffle. Bloomberg’s story on its terminal yesterday emphasized that the investment ministry had been scrapped.

What the talking heads are saying: The main talking point on the airwaves last night was what the elimination of the Investment Ministry means for the government. Putting the prime minister in charge of investment highlights the importance the state is placing on attracting fresh capital after a period of low FDI, Al Kahera Alaan’s Lamees El Hadidi says. But it’s an open question, El Hadidi suggested, whether Madbouly has the time in his day that he needs to move the needle in a key portfolio (watch, runtime: 22:32). El Hekaya’s Amr Adib seems to think it’s a great move, and singled out investment as the previous government’s largest shortcoming, saying that the lack of centralization of all things investment created a web of bureaucracy that made life difficult for investment.

Separately, Adib pointed out the challenges ahead of newly formed (or resurrected) positions: For the Information Ministry, the host said the biggest challenge lies in figuring out how to reconfigure the country’s three media regulatory bodies to avoid overlapping jurisdictions with the ministry, while Anani’s new role as both antiquities and tourism minister will prove to be a challenging balancing act (watch, runtime: 17:55).

BIOGRAPHIES

And now, without further ado, we present the new faces of the Madbouly Cabinet:

Nevine Gamea, Trade and Industry Minister: Gamea replaces Amr Nassar at the helm of the Trade and Industry Ministry. The longtime civil servant was most recently the head of the SMEs Development Authority — a post she held since 2017 — where her primary mission was to help make subsidized funding available to small and mid-sized businesses. Prior to heading up the authority, she led the Social Fund for Development. In cabinet, Gamea will face the ongoing challenge of making land available to industry while working on long-term issues including export promotion, export subsidies, and utility costs. Her priorities as minister will be expanding local industry to cut down on imports and help narrow the country’s trade deficit, while encouraging an increase in export volumes, Gamea told the House of Representatives yesterday after being sworn in, according to the local press. Part of her strategy includes bringing distressed factories back online, as well as ramping up the construction of industrial complexes. Maybe, just maybe, her appearance in cabinet will result in our having a strategy for the automotive industry. You can check out her full bio on Al Mal.

Nivine Kabbag, Social Solidarity Minister: This was an in-house promotion, as Kabbag had served as the long-time deputy to Ghada Wali, who leaves her five-year stint as Social Solidarity Minister to head up the United Nations Office on Drugs and Crime (UNODC). Kabbag had been an advisor to the minister prior to her appointment as deputy social solidarity minister back in 2018, where she helped shape and manage the Takaful and Karama cash subsidies program. Ongoing items on her agenda as minister include pushing through the new Cash Subsidies Act, which would command the government to review subsidy rolls once every three years in an effort to keep track of ineligible beneficiaries. You can check out her full bio on Ahram Gate.

El Sayed El Quseir, Agriculture Minister: El Quseir joins the ministry following a 39-year career in the public-sector banking system, most recently as the head of the Principal Bank for Development and Agricultural Credit — a post he’s held since 2016. He had previously served as head of the Industrial Development and Workers Bank of Egypt following his appointment in 2011. Al Quseir, who replaces Ezzedin Abu Setit, has pledged that under his tenure, the ministry would do more than “just release press statements,” without naming any specific policies, according to Al Mal. You can check out his full bio on Ahram Gate.

Osama Heikal, Information Minister: Heikal comes back to take over the newly reconstituted Information Ministry, a post he held from July to December 2011, after it was briefly dismantled. Prior to his appointment as minister, the long-time editor-in-chief of the Al Wafd daily newspaper chaired the House Culture, Media and Antiquities Committee. Heikal resigned from Parliament yesterday to assume his new cabinet position. You can check out his full bio here.

Mohamed Anba, Civil Aviation Minister: Prior to his appointment as minister, EgyptAir veteran and civil aviation inspector Mohamed Anba headed EgyptAir’s training academy from 2013-2017. Anba, who replaces Younes El Masry, also served as a board member of EgyptAir, following a stint as the company’s director of safety. You can read his full bio here.

Alaa Fouad, Legislative Affairs Minister: Prior to his appointment as minister, Fouad had headed the National Elections Authority since 2017, where he had organized national elections for both the House of Representatives and president of Egypt. He takes over a rebranded ministry at a time when local and district elections are under discussion in the House over the Local Administration Act. His appointment also comes as Egypt looks to hold elections for an upper legislative body, as per the constitutional amendments of 2018. You can catch his full bio here.

Does a new structure to the government signal a policy shift? Other than some rebranding and shuffling of portfolios, the biggest change is President Abdel Fattah El Sisi’s decision to give the prime minister additional responsibility for drumming up FDI, suggesting the issue is taking on new importance at the highest level. Madbouly explained the shift as being necessary to “untangle the interlocking jurisdictions” when it comes to investment policy and administrative reform, in a statement yesterday. He added that the move was done in the hopes to push progress on that front.

Look for: Both statements from individual ministries on their priorities going forward as well as a single statement from cabinet (likely following its next meeting) on key national priorities in areas including economic reform, national security and investment in health and education.

POLICY CONTINUITY?

In the meantime, it seems likely we can expect policy stability. Economic programs and agenda items that have been a priority for the Sisi administration will continue to guide policy for cabinet. These include:

• Taxation policy stability: Since 2018, the Finance Ministry has emphasized that tax policy in Egypt will remain fundamentally stable even as the ministry looks to cut red tape in a wide-ranging rewrite of the tax code. Changes are expected to everything from the Income Tax Act to the VAT and the capital gains tax — even newly imposed taxes such as “it’s not a tax, it’s a tithe” to support the Universal Healthcare Act might be subject to amendment. Not to mention changes to how social security and the state pension system are funded — we’ve heard rumblings of changes there, too.
• The state privatization program: The program to sell shares of already-listed state-owned companies and to IPO new ones has been in limbo since Eastern Tobacco sold a 4.5% stake back In March. With the IPO of Aramco now passed, look for the program to kick back to life as early as January 2020 with a roadshow for the IPO of Banque du Caire — global market conditions permitting.
• Raising foreign direct investment: One of the disappointments of the economic reform program had been the fact that non-oil foreign direct investment (FDI) has never reached the USD 10 bn target that was set back in 2016. While private equity and VC investors have found Egypt appealing and M&A activity was strong in 2019, we’ve yet to see significant investment from global strategic investors.
• Raising exports: The non-oil trade balance during FY2018-19 wasn’t hot. The deficit widened by 13.4% to USD 38 bn, driven both by a fall in exports and a rise in imports, which the CBE said was partly due to a pickup in economic activity. This runs contrary to the government’s mission to raise exports. The government’s flagship program for this, the Export Subsidy Fund, had largely faltered due to delays in paying out export subsidies. Other issues on this front that will probably need to be tackled, including policies for key industries (such as the automotive sector) and facilitating land and utility prices for industry.
• Financial inclusion: While the CBE has made significant headway on this with new regulations for the banking sector and the launch of its Meeza card, the flagship government program has been the SMEs Act, which only just received committee-level approval in the House of Representatives last week. The parallel economy is possibly as large as the formal economy. Fixing that needs a push to widen the tax base, not to squeeze more blood out of those already paying.

On the social front, the government had launched its universal healthcare program in the Canal cities, and a new education system that relies less on rote memorization. Both programs look set to continue.

M&A WATCH- EFG Hermes, GB Auto jointly acquire majority stake in Tokio Marine Egypt: A consortium of EFG Hermes and GB Auto’s non-banking financial services arms has acquired 75% of Japan’s Tokio Marine Holdings life insurance subsidiary Tokio Marine Egypt Family Takaful in an EGP 84.75 mn transaction, according to a statement. EFG Hermes Finance and GB Capital will each own 37.5% of the company. The agreement, which was finalized with Tokio Marine (Japan’s largest general insurer) yesterday, is still subject to regulatory approvals.

Potential in tapping an underserved market: Both GB Auto and EFG Hermes CEOs Raouf Ghabbour and Karim Awad were quoted in the statement as saying the life insurance market is “untapped” and “under-penetrated” and has significant potential going forward. “EFG Hermes Finance and GB Auto bring to the table unique capabilities in the NBFI market, capitalizing on their market strength and extensive experience both individually and as partners in the mortgage finance space,” reads the statement.

M&A WATCH- EBRD closes acquisition of 20% stake in Infinity Solar: The European Bank for Reconstruction and Development (EBRD) has reportedly acquired a 20% stake in Infinity Solar worth USD 60 mn, a source close to the matter told Al Mal. The EBRD announced the investment last October. It will add to infinity’s renewable energy plants, which include one solar plant in 6 October’s Green Belt, four in phases one and two of Aswan’s Benban park, and another one in Aswan.

PRIVATIZATION WATCH- No stake sales by state companies in January? There will be no “offerings” of state-owned companies on the EGX in January, Finance Minister Mohamed Maait said yesterday, according to Al Mal. We read this as saying there will be no stake sales by already-listed state-owned companies including Alexandria Container and Cargo Handling (ACCH) and Abu Qir Fertilizers, which are reportedly next in line to offer shares — not that the IPO program has been shelved. Central Bank of Egypt Governor Tarek Amer and Banque du Caire chief Tarek Fayed have made it clear that BdC plans to IPO in 1Q2020 (market conditions permitting), with Fayed having guided the market on a January roadshow — a timeline that would have made an offering in January highly unlikely anyway.

Who’s heading to market: In addition to ACCH, Abu Qir and Banque du Caire, Heliopolis Housing and Development is set to offer a 22-25% stake for sale in a transaction that will see it offer one shareholder a 10% stake with management rights. E-payments platform e-Finance is also reportedly looking at an IPO in the first quarter of 2020.

IPO WATCH- Fine Hygienic Holding has a long-term plan to debut on the EGX by 2023, CEO James Michael Lafferty tells Al Masry Al Youm. Lafferty provided no further details, speaking only about recently-disclosed expansion plans that will see Fine invest USD 35 mn in Egypt next year to increase production. Fine is majority-owned by Jordan’s Nuqul family.

DEBT WATCH- EFG Hermes planning EGP 1 bn sukuk issuance for TMG? EFG Hermes will reportedly be leading a sukuk issuance worth over EGP 1 bn for Talaat Moustafa Group (TMG) as soon as it acquires a license that it has requested from the Financial Regulatory Authority (FRA), Al Mal reports, quoting sources it says are in the know. If its license request is cleared, EFG will become the second to set up a sukuk arm specialized in issuing sharia-compliant bonds. Consumer and structured-finance player Sarwa Capital was granted Egypt’s first sukuk license earlier this year.

INVESTMENT WATCH- Mansour Group to set up food and beverage JV with TBS: Mansour Group is in talks with TBS to form a EGP 150 mn JV that will set up a baked goods factory to supply TBS’ 25 retail outlets, sources close to the matter told Al Mal. The factory will be the first in a series of projects the JV will engage in as a food and beverage company. There was no mention of the expected cost of the first planned facility. In 2017, private equity firm Intro Group was reported to have bought a 50% stake in the company which owns TBS and the Four Fat Ladies chain. Sources who spoke to Al Mal back then said TBS was valued at north of EGP 50 mn when the transaction took place.

INVESTMENT WATCH- Intercontinental Hotels Group to add new properties in Egypt: UK-based Intercontinental Hotels Group (IHG) — which owns the Crowne Plaza, Intercontinental, and Holiday Inn brands — is planning to add new hotels in Sharm El Sheikh, Hurghada, and the new administrative capital, IHG’s vice president for the Middle East and Africa Matthew Tripolone told the National. No further details were provided on the projects’ timeline or scale. “We’re seeing heightened growth in Egypt, particularly in the Red Sea resorts, the market has stabilised quite significantly … admittedly off a low base,” Tripolone said. The New York and London-listed hospitality group, which operates 91 hotels across MEA and is planning to open 48 more in the next three-five years, is also set on making a debut in Tunisia sometime soon.

INVESTMENT WATCH- Italian businesses will double their investments in Egypt to EUR 3.2 bn next year, President of the Italian Confederation for Economic Development (CISE) Giuseppe Romano told the local press on the sidelines of the Italian-Egyptian economic forum yesterday. Romano said that the banking, agriculture, manufacturing, and logistics industries will be driving Italian business in Egypt in 2020.

In related news, the Supply Ministry signed nine MoUs with CISE to cooperate on internal trade and setting up logistic zones, according to a Cabinet statement.

Egypt will receive its first shipment of Israeli gas in mid-January, a senior industry source said, according to Reuters. The Israeli government gave its final approval of gas exports to Egypt on Friday after a court lifted a temporary injunction it had imposed on the Leviathan field due to environmental concerns. The approval ensured that the shipments to Egypt are on course to arrive in 2020 under the landmark agreement signed last year by Alaa Arafa’s Dolphinus with Texas-based Noble Energy and Israel’s Delek Drilling.

We will eventually be receiving close to 7 bn cubic meters (bcm) a year: The purchase agreement was initially for USD 15 bn-worth of gas from the Tamar and Leviathan fields, and were scheduled to be delivered over 10 years. Last October, the quantity was amended upward to USD 19.5 bn-worth of gas that will flow through to 2034. The first three years will see a total of 2.1 bcm sold annually, before gradually growing to 6.7 bcm.

LEGISLATION WATCH- Local Administration Act stalled — again: House Speaker Ali Abdel Aal postponed yesterday discussions of the Local Administration Act after the majority bloc in the House rejected the draft as it stood, according to Al Masry Al Youm. Yesterday’s plenary session saw a heated debate over the long-stalled bill, with the Support Egypt coalition (parliament’s majority bloc) and Mostakbal Watan Party, among others, refusing to discuss the bill in its current form, although it remains unclear what the sticking points are. Meanwhile, independent MPs tried to push the bill, which they say is a constitutional right, to see the light of day.

Background: The act aims to decentralize local councils and organize district elections, since government-appointed officials have been running local affairs since a court dissolved municipal councils in 2011. President Abdel Fattah El Sisi had suggested back in September that local elections could have happened by the end of 2019, saying that he expected the House to vote on the act in October.

LEGISLATION WATCH- House is pushing ahead with Family Planning Act: The House Complaints and Proposals Committee has approved a draft bill that aims to curb population growth in Egypt by offering benefits and incentives to parents with no more than two children. The bill was introduced by Rep. Kamal Amer, according to Masrawy. Amer said that the 14-article act will use carrots instead of sticks for families with up to two children. These will include education and subsidy incentives, he said, without elaborating further. The bill first cropped up a year ago, though a similar act was also proposed a few months prior.

Egypt has one of the fastest-growing populations in the world, as we’ve previously noted. Although successful government family planning campaigns in the 1990s slowed the population growth rate from 3.5% in the 1970s to 1.7% in the mid-2000s, it was back to 2.11% in 2011 and still hovering around the 2% mark in 2016. Egypt’s population is seen exceeding 130 mn by 2030, posing a challenge to the state’s sustainable development goals, said Planning Minister Hala El Said in September. Last year, the government launched the five-year, USD 19 mn “Two is Enough” campaign to raise awareness of the economic costs of having more than two children. However, some argue that it fails to address the economic and cultural motivations in Egypt for having large families.

Hazem Moussa was our guest this week on Making It, our podcast on how to create a great business here in Egypt. The co-founder and CEO of Sarwa Capital spoke with us on growing a consumer finance startup and life post-IPO.

** Listen to this week’s episode (runtime 32:21) on our website | Apple Podcast | Google Podcast.

Just a quick note: We’re going on a small break for the holidays but we’ll be back on January 9th.

Till then, want to catch up on season one? Previous guests on our show about how to build a great business right here in Egypt have included:

• Fatma Ghali, Managing Director of Azza Fahmy
• Karim Awad, group CEO of EFG Hermes
• Karim El Sahy and Abeer El Sisi from high-profile AI startup Elves
• Jalal Abugazaleh, founder of Gourmet Egypt

Former Armed Forces Chief of Staff Sami Anan has been released from detention after almost two years, according to AP. Anan’s lawyer said he was released for “health reasons.” Anan had been sentenced to a nine-year jail term by a military court after having been arrested while reportedly contemplating a run in last year’s presidential elections. Reuters also has the story.

What Brits should expect when visiting Sharm: As British tourists return to Sharm El Sheikh, the Sunday Times’ chief travel writer Chris Haslam highlights the changes he could see after visiting the resort city for a week, where he was greeted with complimentary tea, flowers, taxi rides, and even a stuffed camel.

Libya’s GNA responds to Egypt’s denunciation of Turkey agreements: The Libyan UN mission has sent a letter to the Security Council responding to Egypt’s criticism of two military cooperation and border demarcation MoUs signed last month between the GNA and Turkey, saying they are not in violation of the Shkirat peace agreement as Egypt has claimed, reports the Libya Observer. The GNA says that Egypt is the one violating international law by its support of the GNA’s rival general, Khalifa Haftar. The Libyan government activated the military pact earlier this week, prompting Egypt to renew its denunciation.

Meanwhile, Foreign Minister Sameh Shoukry is drumming up more support from Europe on the Libya issue, speaking yesterday to his Italian counterpart Luigi Di Maio over the phone and with Greece’s Foreign Minister Nikos Dendias in Cairo, according to a ministry statement.

Egypt, Ethiopia, and Sudan agreed to hold another round of talks on the Grand Ethiopian Renaissance Dam (GERD) in Addis Ababa on 9 and 10 January 2020 after wrapping up the latest round of negotiations in Khartoum yesterday, according to an Irrigation Ministry statement. The statement indicates the three countries have yet to reach an agreement on the timeline for filling the dam’s reservoirs and drought mitigation policies — the two biggest sticking points — but Sudan’s irrigation minister said they have “come closer to aligning their views,” according to Reuters. The Addis Ababa meeting appears to be a last-ditch effort to find some sort of middle ground before the three parties head to Washington, DC for the final round of talks on 13 January, at the end of which they have committed to reaching an agreement on the guidelines for filling and operating the dam.