EGP hits yet another record low heading into today’s FX auction

House hearings on the value-added tax: Members of the business community are reportedly invited to a debate today in the House of Representatives on the proposed VAT.

Interest rates are up for review this week in Egypt, US: The U.S. Federal Reserve’s Federal Open Markets Committee will meet today and tomorrow. The CBE’s Monetary Policy Committee will follow on Thursday.

British delegation in Cairo, Sharm this week to discuss security and economic issues: A five-member British parliamentary delegation arrived in Cairo yesterday and will stay until departing for Sharm El Sheikh on Friday before returning home on Saturday, Ahram Online’s Gamal Essam El Din reported. The All-Party Parliamentary Group on Egypt delegation is led by Sir Gerald Howarth (Twitter | constituency website), a member of parliament for Aldershot.

The US Democratic National Convention (DNC) began yesterday and will run until Thursday. As for how the first day went, let’s just say it was a little chaotic. The New York Times perhaps sums it best with their headline: ‘Democrats’ pursuit of unity falters on first day of convention,’ where Bernie Sanders supporters not only booed Representative Debbie Wasserman Schultz (who resigned over a leak of thousands of emails from DNC officials) — Sanders supporters also ended up booing Sanders himself when he urged them to elect Hillary Clinton to stop Trump.

As for the email leak itself, cybersecurity firm CrowdStrike’s initial assessment over a month ago that Russian intelligence agencies were likely behind the breach and the subsequent dissemination of the documents by Wikileaks — perfectly timed to undermine Clinton’s campaign — has gained traction, especially following the publication of Patrick Tucker’s piece for Defense One on Sunday, which we featured as our reading yesterday. An unnamed US official involved in the investigation told Reuters on Monday that the probe into the breach has so far “indicated beyond a reasonable doubt that it originated in Russia.” A DNC staffer researching Trump campaign manager Paul Manafort’s ties to Putin allies in Ukraine is also reportedly having her email account compromised on a daily basis, which her email provider says it suspects is being caused by “state-sponsored actors.”

But Trump won’t win, right? FiveThirtyEight’s Nate Silver, who almost a year ago famously put Trump’s chances of winning the nomination at 2%, says that if the election were held today, Donald Trump would win by a 7 point margin. However, the site’s polls plus forecast model gives Clinton almost a 20-point lead.

The House of Representatives has finally approved the Civil Service Act and has referred the legislation to the Council of State (Maglis El Dawla), Al Shorouk reports. The passage, many months in the making, was the Ismail government’s first significant clash with the House and saw many of the bill’s key provisions scrapped or significantly de-fanged. The first draft of the act met with loud opposition from state bureaucrats when it was announced in mid-2015, at junctures sparking street protests. That political pressure drove the House to reject the bill in its first run back in January, marking the first and most significant opposition the House has taken to a key pillar of the government’s reform agenda.

Meanwhile, the House Planning and Budget Committee has invited representatives of 54 companies and industry associations to attend a hearing today to voice their opinions on the that other crucial reform pillar, the value-added tax (VAT), Al Borsa reports. The (big) business community’s primary objection to the measure so far centers on the EGP 500K mandatory minimum to register for the tax, and some believe the baseline tax rate of 14% is too high. This rate may be changed following the hearing as the house debates the measure, said Rep. Hisham Abdel Wahed, a member of the committee.

The House also approved yesterday a 10% increase to military pensions retroactive to 1 July 2016; the minimum monthly pension hike will amount to EGP 125, Al Shorouk reported.

EGP hits new historic low ahead of today’s FX auction: The EGP weakened yesterday to yet another historic low, with greenbacks changing hands for EGP 13.10 to the USD 1, FX traders told Reuters, representing a 42% variance from the official rate. Al Borsa put the parallel market rate at EGP 12.90 yesterday, but we were told by a source that regularly transacts that the rate was comfortably above EGP 13. The market is hoarding USD in the expectation that further devaluation of the official rate is imminent, a trader told Al Borsa. The expectation comes ahead of a CBE auction today of USD 120 mn to clear imports of “essential goods.” The CBE did not request a list of specific goods from banks which require clearing this time around, banking sources tell AMAY. This takes us back to a time (back in March) when we were freaking out about Fitch Ratings’ forecasts of exchange rate weakness to over EGP 9 to USD 1.

Trade and Industry Minister Tarek Kabil is apparently trying to get the Finance Ministry to ease up on how it treats FX at tax time, saying the currently allowed 7% variance from the official central bank exchange rate may not be tenable in the current circumstances, Al Mal reports. Kabil said that he is holding talks with Finance Minister Amr El Garhy over the issue.

House scrambles to find any minister to whom it can to talk about FX policy: The House industry committees cancelled an emergency meeting yesterday to discuss the EGP’s slide after Oil Minister Tarek El Molla, who the committee tried to rope into the discussion on FX (but who had agreed to appear to discuss mineral resources) didn’t show up, parliamentary sources tell Al Borsa. There was no word at dispatch time this morning ’whether the House economics committee had its emergency meeting.

The Wall Street Journal takes stock of Egypt’s Gordian knot of foreign currency shortage and increasing inflation in ‘Bets on Egypt currency devaluation rise’ (paywall). “A weaker currency will improve Egypt’s longer-term prospects but is also likely to result in higher prices, which the country can ill-afford. Since March’s devaluation, inflation has jumped to nearly 14% in annual terms in June,” writes Nikhil Lohade and Dahlia Kholaif. The authors also note that Nigeria dropped its currency peg just last month, though this may be perhaps an unfair comparison considering the value of their oil exports in 2015 was at USD 41.8 bn, even after taking into consideration prolonged depressed oil prices. EFG Hermes’ Mohamed Abu Basha, CI Capital’s Hany Farahat and Capital Economics’ Jason Tuvey all make appearances discussing liquidity shields, the inflationary impact of the VAT and the expectation that the EGP fall beyond EGP 10 next year.

The FX shortage and the devaluation of the EGP are behind the fall in Egyptian imports from the European Union, not the exporter registry imposed by the Trade and Industry Ministry, Federation of Egyptian Industries Chairman Mohamed El Sewedy told Al Mal in response to claims by EU Ambassador to Egypt James Moran that the registry was “damaging.” The export registry is meant to protect the Egyptian market from the import of subpar products, is in line with World Trade Organization regulations, and is not dissimilar from measures implemented by the EU itself, said El Sewedy.

Meanwhile, importers also woke up to the news that they will be charged in USD by shipping companies Hamburg Süd, SCA Logistics, and the Mediterranean Shipping Company, who are following in the footsteps of CMA CGM, the world’s third-largest shipping line. The heads of the importers and international logistics divisions of the Federation of Chambers of Commerce tell Al Borsa that the move might be illegal, as former Prime Minister Ibrahim Mahlab had issued a decree during his tenure barring payment for any services at Egypt’s ports in FCY. They note that Alexandria Container & Cargo Handling had attempted the same move, but had been forced by Cabinet to reverse its position.

A small measure of relief? Egypt is set to receive USD 1 bn from Saudi Arabia “within days,” International Cooperation Minister Sahar Nasr told Youm7. The figure includes the USD 500 mn second tranche of the USD 2.5 bn grant agreed on during King Salman’s visit to Egypt and a USD 500 mn portion of the USD 1.5 bn loan from the Saudi Fund for Development to develop Sinai, according to the paper. Bloomberg quotes Nasr as saying the first tranche of the loan would be received “soon” and that a Saudi delegation is expected to land in Egypt next week, stopping short of giving any further details.

Your next electricity bill will reflect the price hike approved earlier this month. The recently announced rise in electricity prices will come into effect with your bill for electricity used in July, the head of an electricity distribution company told Al Borsa, saying that they expect to receive formal letters from the ministry on Wednesday to implement the new pricing scheme. Consumers across the income and consumption spectrum will face rising prices, Electricity Minister Mohamed Shaker had said earlier this month. New prices across different tiers will range from EGP 0.10 for 0-50 kWh for the lowest consumption tier, to 0.81 for consumption over 1000 kWh for the highest tier.

Supply Minister Khaled Hanafy confirmed that the ministry has rejected Blumberg Grain’s proposal for phase two of a grain storage and logistics project that would have seen the development of 300 shounas at a cost of USD 120 mn. While he did not give a reason for the rejection, Mahmoud Abdel Aziz, head of the Supply Ministry’s General Company for Silos and Storage, said earlier this week that project would have been too costly. As for phase one not being operational, Abdel Aziz tells Al Borsa that the control systems for have not been hooked up yet but did not comment on power supplies to the shounas, which Blumberg had been saying for the past week was the actual cause. The issue had been a source strain between the Supply Ministry and the company, as the shounas — designed to eliminate wastage and prevent “leakage” from the storage system — were supposed to be operational by the wheat harvest collection season. Al Borsa reported yesterday that the company wants the Armed Forces to take charge of the program instead of the Supply Ministry.

As for the scandal centered on this season’s harvest, Egypt may have collected as little as 3.6 mn tonnes of wheat, not 4.8 mn tonnes as reported previously by Hanafy, said Yasser Omar, member of the House of Representatives committee investigating the issue. The committee discovered another EGP 173 mn in “missing” wheat at a shouna on the Cairo-Alexandria Desert Road. This would bring the total wheat missing from the nine shounas inspected by the committee to EGP 407 mn, with another EGP 631 mn tallied by other government bodies investigating discrepancies between the state count and quantities actually in storage. Omar tells Al Shorouk that the committee’s report will back Blumberg’s request to have the Engineering Authority manage the program.

Cairo’s real estate market had a mixed second quarter on the back of currency instability and devaluation risks, according to JLL’s Cairo Real Estate Market Overview Q2 2016 (pdf) published last week. While demand for off-plan sales was driven by investors viewing real estate as a safe haven, the FX shortage pushed the office property sector to now accept EGP instead of USD rent contracts — and the retail sector is feeling the crunch as well. One bright spot is hotels, with the depreciating EGP said to benefit the sector in the medium to long term as tourists peg Egypt as a budget destination. Interestingly, average sales prices for apartments and villas were stable in USD and EGP in both New Cairo and Six October in the second quarter due to “the decreased affordability of units in these areas.” Year on year, only apartments in East Cairo saw sales price increases in USD despite the devaluation while villa sales prices in USD decreased at a slower rate in Six October than in New Cairo.

Arqaam Capital Egypt has between five and eight transactions in the pipeline for execution before year’s end in the Egyptian and Gulf markets, Arqaam Capital Egypt chief Sherif El-Helw told Amwal Al Ghad. The company is currently advising on 15 transactions north worth north of USD 1 bn, including M&As. Arqaam completed two transactions worth a combined EGP 1 bn in 1Q16 in the food and technology sectors, the story says.

The Investment Ministry is in talks with prospective domestic and international advisors to float stakes in state-owned banks and oil companies on stock markets at home and abroad, Al Borsa reports. As we had noted yesterday, the Investment Ministry has retained NI Capital as advisor on the plan, which will extend over five years and focus on successful companies, said NI Capital CEO Ashraf Ghazali. The government had previously announced it was studying selling stakes in Arab African International Bank, United Bank of Egypt, Banque Misr, and the MIDOR refinery.

Mitsubishi Heavy Industries has opened a subsidiary in Egypt. MHI Technologies (or MHI Egypt) opened its offices in New Cairo on 21 June as a gateway to further African expansion, according to a company statement issued yesterday. “The subsidiary was created for new business development and to work flexibly in alliance with Egyptian companies to quickly and accurately meet the needs of the rapidly growing demand of Egypt’s infrastructure and industrial base,” according to the statement. MHI was last reported to be interested in working on the upgrade of the Helwan steel industry complex, according to reports from June.

Orange Egypt losses narrow in first half: Mobile network operator Orange Egypt reported unaudited consolidated results for 1H2016, with net losses narrowing to EGP 33.4 mn from EGP 91.1 mn a year earlier, according to an EGX statement. Consolidated revenues rose c. 2.2% y-o-y to EGP 5.8 bn in the first half.

Misr Chemical Industries recorded a 20% y-o-y drop in net profits in FY15-16 to EGP 28.8 mn, according to an EGX statement.

Global lender HSBC is reportedly in talks to tell its Lebanese unit to Lebanon’s Blom Bank. Writes Bloomberg: “No binding agreement has been reached and there is no certainty it will be, HSBC said in an e-mailed statement on Monday. In a separate statement, Blom Bank confirmed it has held talks with HSBC.” HSBC is pulling back from global markets with the goal of cutting 25,000 jobs and reducing annual costs by USD 5 bn.

The Middle East saw a steady rise in inbound and outbound cross-regional M&A activity in 1H2016, according to Baker & McKenzie’s quarterly Cross-Border M&A Index (pdf, Middle East section on page 9). The Middle East’s position on the index soared to 141 from 437 in the second quarter, with the UAE topping the list as the most active in the region in both outbound and inbound investment. The volume and value of inbound agreements in the region rose to 10 worth USD 1.4 bn in 2Q2016 from six worth USD 349 mn in 1Q2016. The energy and utilities sector nabbed the lion’s share with three agreements valued at USD 1.7 bn. Outbound M&A in 2Q2016 rose to USD 4.26 bn from USD 985 mn in 1Q2016, with activity focused on opportunities in technology and consumer-drive industries. “Overall, anticipated GDP growth in the Middle East through to 2020, coupled with regional demographics, point to a gradual growth story in cross-border M&A,” according to the report.

The biggest story on Egypt in the foreign press at the moment are reports that President Abdel Fattah El Sisi did not attend the Arab League Summit due to fears of an assassination attempt, a report denied by the president’s spokesperson Alaa Youssef to Daily News Egypt on Monday. According to unnamed sources speaking to AMAY and Youm7 on Monday, “A number of terrorist organizations” were allegedly behind an “elaborate” attempt to kill the president during his planned visit, adding that this wouldn’t be the first time extremist groups have plotted to assassinate the president. Youssef denied the news, telling Daily News Egypt on Monday that it simply was “not true.” El Sisi sent Prime Minister Sherif Ismail to the summit, which will kick off in Mauritania today, in his place.

Sputnik has picked up the story without the denial, while the Times of Israel and Scotland’s The National both say that Youssef initially declined to comment on the story. At time of dispatch, the Jerusalem Post appeared to be the only foreign publication carrying the spokesperson’s denial of the story.

‘A troubling turn for US relations in the Muslim world’: Jackson Diehl, the Washington Post Deputy Editorial Page Editor, published an op-ed on Sunday commenting on what he views as the parallels between President Abdel Fattah El Sisi and Turkish President Recep Tayyip Erdogan, including their strained relations with US President Barack Obama. “As Obama prepares to leave office, Turkey and Egypt are emerging as twin models for a 21st-century Muslim authoritarianism, one Islamist and one secular. Their regimes are far more repressive than they were in 2009 and far less open to liberal ideas. But their most distinguishing feature, compared with a decade ago, is their anti-Americanism… They not only embrace wild anti-American conspiracy theories, but articulate them in public. They seed the media they control with propaganda that makes Vladimir Putin’s anti-US diatribes look tame.”

What’s holding back the private sector in MENA? The European Bank of Reconstruction and Development, the European Investment Bank and the World Bank launched yesterday from Cairo their joint report ‘What’s holding back the private sector in MENA?’ The report is based on their MENA Enterprise Survey, conducted from 2013 to 2014, covering 6,083 firms in the manufacturing and services sector in eight countries: Egypt, Tunisia, Jordan, Lebanon, Morocco, West Bank and Gaza, Yemen and Djibouti. The report highlights four main areas of concern, as identified by the CEOs of the firms surveyed: political instability, corruption, unreliable electrical supply and inadequate access to finance. The report also includes broad policy recommendations to help address some of these concerns, and its chapters cover productivity and the business environment; access to finance; jobs and skills in the formal private sector and competitiveness in the MENA region.

Download the full 146-page report here (pdf), skip ahead to the seven-page executive summary here, and read the two-page section devoted to Egypt here.

A letter from Tom Hanks, dated 22 June, congratulating Egyptian director Mohamed Diab on his film Clash [Eshtebak], a movie he says will help to “enlighten many.” The film is set to open in Egyptian cinemas on Wednesday. Diab had previously been accused by domestic media as being disloyal to Egypt for creating the film. (View image)

Check out New York Time Magazine’s new virtual reality film Pilgrimage shot in Mecca and Medina by photographer Luca Locatelli. The film promises an “inside look” into the cities not only as holy sites, but with a focus on how they evolved into 21st century construction boomlets. You’ll have to download the NYT VR app on your iPhone or Android device to get access; it is available without charge. You can see some of Locatelli’s photographs in Mecca in the 8 June NYT Magazine piece Mecca Goes Mega.

The House’s planning and budget committee approved a customs cooperation agreement with Saudi Arabia, Al Mal reported. The agreement defines the necessary documents for incoming or outgoing goods for both countries. Customs authorities will sharing information and will cooperate on joint investigations.

The International Cooperation Ministry signed a USD 40 mn soft loan agreement with the OPEC Fund for International Development to finance SME projects through the Social Fund for Development (SFD), Al Mal reported. The SFD is aiming to finance 1,000 small projects to create around 6,800 jobs, International Cooperation Minister Sahar Nasr said.

The Egyptian Ethylene & Derivatives Company (Ethydco) has begun a trial run ahead of its official launch, Oil Minister Tarek El Molla told Al Masry Al Youm. The USD 1.9 bn project is meant to curb imports of products that require petrochemicals for production inputs, he added. Ethydco has successfully tested the 460k-tonnes annual capacity ethylene factory, as well as the 400k tonnes capacity polyethylene factory.

The Egyptian Natural Gas Company (GASCO) is studying investing USD 500 mn in the second phase of the project to increase the production of the ethane-propane mix from the Western Desert Gas Complex, Al Shorouk reported. The company is also studying a project to transport natural gas from the Raven field in the North Alexandria Concession to the gas complex at a rate of 450 mcf/d and a total cost of USD 105 mn, the Oil Ministry said in a statement.

General Electric upgraded two 9FA gas turbines at the Nubaria power plant in Beheira, reportedly the first upgrade of its kind in the MENA region, according to a company statement picked up by Zawya. The upgrade boosts the output of the plant by 6.7% and lowered its fuel consumption by 3% as peak summer demand rears its head. It is also “expected to improve the GE 9FA’s availability by 3.7%, allowing the unit to operate continuously for four years without any shutdowns. Additionally, the lifecycle of the newly installed parts has doubled from six years previously to 12 years,” according to the statement.

The Oil Ministry is negotiating with foreign state-owned oil companies to renew two-year LNG supply agreements they signed with Egypt, a governmental source told Al Borsa. These include Russia’s Rosneft and Gazprom, Algeria’s Sonatrach, China’s PetroChina, as well as an unnamed Omani company. As we noted earlier this week, Trafigura, Royal Dutch Shell, Rosneft and PetroChina were awarded tenders to supply EGAD with a total of 11 LNG shipments between June and August.

State-owned Holding Company for Construction and Development will import EGP 2 bn in new machinery and equipment for its subsidiaries over the coming two years through financial leasing companies, Chairman Mahmoud Hegazy told Amwal Al Ghad. 90% of the equipment will target road works and drilling applications, said Hegazy.

Aton Resources (formerly Alexander Nubia) announced it has resumed work on its 3,500 meter drilling program at its wholly-owned Hamama gold-rich deposit in the Eastern Desert after breaking for Eid, according to a statement from the company on Monday. “We are continuing our exploration program in Egypt, to finish off our drilling program on the Hamama oxide and primary sulphides as part of our program to generate our initial resource estimate at Hamama West… We also intend during August and early September to do extensive geophysical work, covering an area of between 6 sq km and 8 sq km, covering all of the Hamama project area,” Mark Campbell, Aton President and Chief Executive Officer was quoted as saying in the statement.

The government has allegedly agreed to settle a USD 1.2 bn dispute with fertilizer and petrochemical manufacturer Bawabet Al Kuwait Holding, a subsidiary of Egyptian Kuwait Holdings, after three years of negotiations, Al Ahram reported, describing the case as “one of the biggest settlement cases between the government and investors.” The company gave up a USD 1.2 bn compensation claim it initiated in 2011 and waived the arbitration suit at the Washington D.C.-based International Centre for Settlement of Investment Disputes, the newspaper says, not specifying what EKH might have received in return. The dispute is rooted in the government unilaterally backing out of a 15-year contract to supply the company with gas at a price of USD 3/mbtu. The settlement terms have not been made clear in the local press, which only reported that GASCO will guarantee Alexandria Fertilizers Company, a subsidiary of Bawabah Al Kuwait, “continuous and uninterrupted supplies” of 15.2 bcf of gas per year but not the price.

Trade and Industry Minister Tarek Kabil inaugurated three new factories in Six October with a combined investment value of EGP 300 mn, in addition to an EGP 91 mn small industries complex in the CPC (Construction Products Holding Company) industrial zone, Amwal Al Ghad reported. The projects include an EGP 160 mn aluminum extrusion factory, an EGP 130 mn mould factory and an EGP 12 mn medical supply plant. The small industries complex includes seven factories in the fields of engineering industries, chemicals, printing, plastic, packaging and electronic appliances.

Private developer M2 Development announced they will build a 100-feddan resort project in the North Coast at an investment cost of around EGP 1.5 bn in partnership with a state-owned company that owns the land, CEO Mostafa Aboul Fotouh told Amwal Al Ghad. Negotiations are currently underway over equity distribution between the two companies, with M2 handling development and marketing, he added, with construction set to begin next year. This form of partnership between state companies who own land but don’t possess the resources to develop them and private sector companies who have the expertise and funding will boom in the coming period, said Abou El Fotouh. M2 Development, previously known as Misr Al Mahrousa, was founded in 1998 and is a subsidiary of Intro Group. The company built the Darna, Ashgar Darna, and M2 Gardens projects in Maadi and New Cairo respectively.

Egyptians ranked second among non-GCC Arab investors in Dubai’s real estate market, investing AED 1.37 bn in 710 transactions in 1H16 out of a total of AED 7 bn for non-GCC investors in the AED 57 bn market, according to a report by the Dubai Land Department. Jordanians ranked first with AED 1.5 bn investments with 765 transactions, with Lebanese buyers coming third with investments worth over AED 1 bn (423 transactions). GCC investors contributed to the market with AED 22 bn.

The NTRA wants to charge Telecom Egypt (TE) an additional 1% fee in the latest draft of the 4G license to be directed toward scientific research and the Universal Service Fund, reports Al Borsa. Other MNOs have been charged the same fee since the fund was established. The license also involves a 6% fee under the revenue-sharing scheme announced earlier this month. TE will pay the NTRA a declining fee for every new mobile network client until TE acquires 3 mn clients, after which the fee drops substantially.

The Suez Canal Authority slashed 40% off transit fees for oil tankers coming from the Gulf of Mexico, the Caribbean and Latin America’s north coast ports, heading to Arabian Gulf. The six-month discount, which could be renewed, will take effect on 24 July, Al Ahram reported. This is the fourth such discount this year, after last week’s 45% to 65% discount on transit fees for the US East Coast / South Asia / Southeast Asia route.

Egypt’s USD 2 bn purchase of 46 MiG-29 Fulcrum fighters from the Russian Aircraft Corporation may not be set in stone, reports Moscow Times. which raised the point there have been no definitive statements or confirmation from Russian defense industry officials on the matter. Egypt is only a “strong candidate” based on “speculation.” Moscow Times names Iran as a possible customer for the sale. We had noted last month that the potential sale to Egypt would be funded by Saudi Arabia.

Mohamed El Erian is worried that the global economy could go from calm to chaos in record time, writing for the Financial Times that “Calm markets raise big risks for complacent investors” who don’t realize the magnitude of the risks the global economy faces right now, particularly as a result of non-economic shocks. Read him against Reuters’ “How much worse could 2016 get?”

JK Rowling’s stage sequel Harry Potter and the Cursed Child is getting great reviews, with the New York Times noting it “opened in a blaze of outrageous enchantment” on Monday night in London. The Guardian gives it four stars out of five, writing, “It’s convoluted, but the latest expansion of the Potter universe is thrillingly staged, with time travel and age-old quests given a dash of post-Freudian guilt.” The production is apparently sold out through May.