What the IMF may want

Happy first day of August. For most of you, there’s a month left in summer. If you’re a CAC parent, you’ve got until 16 August (new students) or 17 August (returning parents). That’s two (or five) weekends until the school bell rings. Make them count.

Kabil, Fayed to face House committee today: Trade and Industry Minister Tarek Kabil and Agriculture Minister Essam Fayed are due to appear today before the House of Representatives committee investigating alleged fraud in this season’s wheat harvest. The committee grilled Supply Minister Khaled Hanafy yesterday. We have more the widening investigation in today’s Spotlight, right after Speed Round, below.

The Egyptian Exchange will rebalance the EGX30 index today, removing Juhayna, Oriental Weavers, Crédit Agricole Egypt, South Valley Cement and United Arab Shipping and adding Egyptian Iron and Steel, Cairo Oils and Soap, Domty, Arabian Cement and Egypt Kuwait Holding, according to a statement from the exchange.

Hearings on the value-added tax continue at the House of Representatives Planning and Budget Committee on Tuesday, 2 August, Al Borsa reports. Representatives of the business community are due to attend.

Will the purchasing managers’ index slide for a tenth straight month on Wednesday? It’s PMI day on Wednesday for Egypt, Saudi Arabia and the United Arab Emirates. Business conditions in Egypt as suggested by the purchasing managers’ index slid for the ninth straight month in the June edition of the Emirates NBD / Markit PMI for Egypt. The release should be out and posted here at 6:15 CLT.

The House Economic Committee will hold a special meeting this week on the FX crisis, with an eye to issuing recommendations to the government on how to tackle it, Al Masry Al Youm reports.

Figure out exactly when you need to watch the ​Rio Olympics to see whether Egypt (or your fallback country) makes it to the podium. The games officially get underway on Friday, 5 August and wrap up on Sunday, 21 August. Check out thefull schedule for Egyptian athletes at the Olympics(Arabic, pdf). H/t Salah K.

Mobile network operators have until Sunday, 7 August to submit applications for 4G licences.

The IMF is urging Egypt to adopt a more flexible exchange rate policy as part of talks for a USD 12 bn assistance package, according to government sources close to the negotiations. The request came up during a meeting of the Coordination Council yesterday chaired by Prime Minister Sherif Ismail. A cabinet spokesman said the meeting discussed in part strategies to make FX available for imports in the short term, but provided no detail on what these strategies were or how receptive the government would be to floating currency..

(If you’re new to the term, the Coordination Council is the body through which cabinet and the central bank coordinate fiscal and monetary policy. Members include Allianz advisor turned public intellectual Mohamed El-Erian, CBE Governor Farouk El-Okdah, presidential economic advisor Abla Abdellatif, the ministers of finance, investment, and trade and industry, as well as the governor of the CBE and members of his senior staff.)

Other key points during the IMF talks have so-far included the need to set a clear timetable for implementation of reforms and the grace period for the repayment of the first tranche of the facility. Sources note the IMF will (naturally enough) make disbursement of the second and third tranches of the package conditional on the progress Egypt makes with the reform agenda. Talks also focused on Egypt’s foreign obligations and arrears, and reports also suggest the IMF believes Egypt could make better use of international debt markets to finance the budget deficit, noting that Egypt’s foreign debt remains at very manageable levels.

As we noted yesterday, Egypt is already looking for international institutions to arrange a USD 2-3 bn Eurobond in September or October and has plans for a second USD 3 bn bond issuance before the year is out.

Floating state-owned enterprises was also on the agenda, and Investment Minister Dalia Khorshid confirmed during a meeting with President Abdel Fattah El Sisi that the petroleum and banking sectors will be the first up for IPO, Al Masry Al Youm reports. A committee made up of the ministers of investment, finance and the deputy head of the Central Bank of Egypt is drawing up a list of companies to be listed. Notably absent from the committee was the Public Enterprise Minister, who is charged with restructuring state-owned companies, but had been against the IPOs. Khorshid had also updated the president on the investment council she is setting up, which would be charged with setting the government’s investment priorities. We’ll be looking for more news on that front in the days ahead.

A teaspoon of honey makes the medicine go down: In view of traditional public skepticism of the IMF, the Finance Ministry is working overtime to emphasize that the USD 12 bn package is not about “conditions” but international endorsement of a home-grown reform agenda. That was the theme of Finance Minister Amr El Garhy’s hour-long interview on MBC Masr’s “Yahduth fi Masr” last night.

“The IMF loan is to help realize the reforms Egypt has had in place years ago,” said El Garhy. El Garhy’s did a good job explaining the loan and addressing concerns that the IMF is some sort of foreign bogeyman. He added that the government has already begun talks with the House about the IMF loan, which will require ratification by parliament if a base agreement is reached.

The interview covered the spectrum of key economic issues, including the FX crisis. El Garhy tied the country’s foreign exchange policy with plans to grow exports and, at the same time, curb imports. The minister said he is optimistic Egypt will bounce back from the FX crisis and dispelled the notion that the reform agenda (including the value-added tax) would cut into Egypt’s middle class. El Garhy also defended the government’s push for national projects, denying they helped shrink FX reserves and saying they have helped build the foundation for future growth.

El Garhy’s interview was part of a series of public statements issued by the ministry on Sunday on the IMF talks, including one urging the media to stop calling discussion points between the IMF and the ministry “conditions.” The ministry also denied yesterday that the IMF had set firing civil servants as a condition for the loan.

Watch Garhy’s full interview on MBC Masr’s Shahed portal (runtime: 53:17)

IMF hasn’t demanded review of tax system, but capital gains may be up for discussion in the future: Deputy Finance Minister Amr El Monayer said yesterday the IMF had not called for an overhaul of the tax system, telling Al Shorouk in an interview that the government’s tax policies align with the IMF’s views. The IMF team has not commented on the suspended capital gains tax, he added, saying the government was planning to review the tax at a later stage. The Mahlab government backed out of enforcing the 10% tax on gains made on the EGX in May 2015, suspending the measure for two years after retail investors dug-in their heels. As we noted then, the IMF had criticized Egypt’s decision to delay collection of the tax, saying it would place the burden of public finances on “people who are less able to afford it.”

Telecom Egypt’s board has tentatively approved buying a 4G license ahead of the 7 August deadline to submit bids, according to a regulatory filing on Sunday. A study of the 4G license plan will be presented to the investment committee, the statement read. “Telecom Egypt will provide the service within a year of obtaining the licence due to its need for experts to run mobile services, prepare networks and work on agreements,” an unnamed company official told Reuters. The CIT Ministry announced last week that it had no plans to license a fifth mobile network operator if the three existing operators and Telecom Egypt acquire integrated telecom and 4G licenses. Banking sources said Telecom Egypt was in talks for an EGP 5 bn loan to acquire the license, while the NTRA said last week it was looking to charge the company an additional 1% fee for the license.

Horse trading with other MNOs continues: As for other MNOs, the NTRA had apparently put its foot down during its talks with them on the 4G license framework after many operators protested the pricing of the licenses, stating that it will not accept any “challenges to its authority”. However, it wasn’t above extending an olive branch on other points and approved allowing the companies rights to expand the infrastructure for their fixed line connections independently of TE, Al Borsa reports. The operators had suggested that NTRA allow them to use the infrastructure of their own internet service providers to run fixed landline connections and hold the right to build new telecom infrastructure independent from TE, said an NTRA source.

Arqaam Capital has received the nod for its investment banking licence from the Egyptian Financial Supervisory Authority (EFSA) and plans to launch its investment bank Arqaam Capital Holding in 2017, Radi el-Helw, managing director of the firm’s brokerage division tells Al Borsa on Sunday. Arqaam will also be seeking an asset management licence to complete its suite of investment banking services offered by the new entity. The move comes following Arqaam’s acquisition of Akanar Partners earlier this year, which now serves as the former’s investment banking division.

Is domestic arbitration really this important? A 2.2 GW combined-cycle power plant by Saudi’s ACWA Power and a 2.6 GW capacity coal power plant to be built by Al-Nowais are the latest projects to founder on the Electricity Ministry’s insistence on domestic arbitration as part of the final agreement, Daily News Egypt reported on Sunday. Negotiations on all other aspects of the projects have otherwise been completed.

Someone did _NOT_ get the bloody memo: The Agriculture Ministry has formed a committee to investigate whether ergot fungus in imported wheat poses a risk to domestic crops, according to a statement from the ministry on Sunday, Bloomberg reported. Despite claiming that Egypt has not imported “a single grain of wheat contaminated with ergot,” the same statement affirms that until the committee’s work is complete, Egypt will continue to abide by international standards with regard to ergot, which allow for trace contamination of 0.05%. It took an order from the prime minister (literally) to force the bureaucrats to accept UN Food and Agriculture Organization limits of 0.05% — subsequent to which said Agriculture Ministry functionaries said in mid-July that ergot “poses no threat to Egypt’s wheat crop.”

Arafa Holding is set to divest its minority stake in Italian fashion house Forall Group, owner of the global Pal Zileri brand, Al Mal reported on Sunday. Arafa had formed a joint venture in 2006 with the Italian firm to manufacture and distribute luxury garments under the brand name Querini, and had since acquired a 35% stake in Forall Group.

Alexandria Minerals Oil Company recorded net profit of EGP 435 mn during FY2015-16, according to an EGX statement, up from EGP 340 mn one year earlier, Mubasher writes.

Abu Qir Fertilizers reported a 12.95% y-o-y rise in net profit after tax for FY2015-16, closing the period with a bottom line of EGP 1.02 bn. Revenues rose 11.04% y-o-y to EGP 3.93 bn, according to a regulatory filing.

Credit Agricole Egypt reported a 31.8% rise in 1H2016 consolidated net profit, closing the period with EGP 630 mn on its bottom line on revenues of EGP 1.47 bn (up 11.2%), according to a regulatory filing.

Palm Hills approves reverse stock split on depositary receipts: One PHD global depositary receipt now represents 20 ordinary shares instead of the previous five, the board said in a regulatory filing. The reverse stock split for PHD’s GDR program was first announced on 20 July. Reuters picked up the story here.

Court hands sentences to two journalists for “spreading false news”: Journalist Ahmed Amer was sentenced to one year in prison and Al-Ahram Arabic editor-in-chief Hisham Younis fined EGP 10k for allegedly “spreading false news,” according to Ahram Online. The charges were pressed by former Justice Minister Ahmed El-Zend following the publication of an investigative report accusing him of corruption. Zend was sacked after making “blasphemous” comments earlier this year and has filed cases against former Central Auditing Organisation head Hesham Genena and television presenter Wael Ebrashy.

Planning Minister questioned by House investigative committee: Planning Minister Ashraf Al Araby appeared yesterday before the House committee investigating allegations of fraud in this season’s wheat harvest. The minister was summoned to answer questions about allegations that counterfeit smart cards in the bread program were costing the state bns, according to committee member Yasser Omar. Employees of companies developing the smart cards have allegedly been implicated in the counterfeits, Omar alleged in a call-in to Al Hayat TV (runtime: 4:48).

Eric Knecht first broke the allegations of corruption in the smart card program in an epic investigative piece for Reuters this past March. Supply Minister Khaled Hanafy has long maintained that the smart cards system had saved the state mns.

Hanafi was also questioned by the committee on Sunday. Hanafy denied his ministry had done anything wrong, saying it was his staff who had initiated corruption investigations. Speaking of allegations of fraud in the accounting for this season’s harvest, he suggested that “missing wheat” (wheat that either leaked from the system or was never harvested in the first place) amounted to just 4-4.5% of the harvest. He also blamed the House for shooting down the subsidy system he had initiated back in November, which would have paid farmers the average global price for their crop and a direct EGP 1,300 subsidy per feddan.

In an extended interview with Al Shorouk, Hanafy stated that only private sector silos were implicated in the wheat fraud. He did not reject a popular media talking point of the presence of the “wheat mafia” of businessmen who are gaming the system, but did not outright name anyone. He tacitly accused the committee of grandstanding in front of the media and blowing the issue out of proportion.

Kabil, Fayed face questioning today: The committee plans to call Trade and Industry Minister Tarek Kabil and Agriculture Minister Essam Fayed today. Kabil is being questioned as it was Industry Ministry’s General Organization For Export & Import Control which was meant to tabulate and monitor the wheat collected, while the Fayed is being called for his ministry’s central role in the collection process.

Better luck next time? Cabinet is now set to buy 2 mn tonnes of rice as the new harvest hits the market, Al Borsa reports.

FDI cratering, growth forecast in the dumps, strategic position in a difficult neighborhood, IMF bailout rumors… sound familiar? FDI is in the dumpster, falling from USD 4.45 bn in 2012 to USD 121.5 mn today. There’s the prospect of a sovereign default (or an IMF bailout) as the state struggles with ballooning interest payments. Disputes with foreign investors. Politicians at loggerheads. GDP growth plunging from 17.5% to 0.8%. It’s not Egypt, it’s Mongolia. Read “Mongolia gropes for path out of economic hangover” in the Financial Times’ BeyondBrics blog.

While you’re on the FT, check out this piece on what happens when a country talks about slashing incentives for foreign direct investors. We’re cheerleaders for (sensible) investment incentives every bit as much as we’re hoping for an IMF facility, but Japan’s reaction to the Philippines’ proposal to cut tax incentives for foreign investors is kind of sobering.

BP plans to invest in three new projects this year — in India, the Gulf of Mexico and Trinidad — despite reporting a 45% drop in profits in 2Q2016 that lead the company to slash its 2016 investment budget to below USD 17 bn, Reuters quotes chief Bob Dudley as saying. Analysts were “surprised by higher corporate charges, including … a lower contribution from BP’s stake in Russian oil producer Rosneft.” The projects follow the expansion of BP’s offshore gas project in Atoll in Egypt and the Tangguh liquefied natural gas plant in Indonesia.

Driving the agenda this morning for the mainstream international press is the Associated Press’ pickup on a court of appeals upholding the one-year sentence handed in March to Islamic researcher and former talk show host Islam Beheiry. The business press, meanwhile, remains squarely focused on the IMF bailout talks, with coverage this morning riding primarily on the back of Reuters coverage.

As IMF talks enter their third day this morning, senior economist for global markets and treasury at Emirates NBD Jean-Paul Pigat writes in the National that not only is the news good for Egypt, but it’s good for the wider region. The agreement highlights the fund’s “growing influence” in the MENA, making Egypt the fifth active program in place here if talks go through. “The fund’s lending acts as a policy anchor, committing authorities to pursuing strategies that are ultimately aimed at restoring stability in the short term, and improving competitiveness over the longer term.” The fund “is now critical to ensure the region is eventually able to wean itself off foreign aid and multilateral assistance, and attract the private sector investment necessary to boost growth potential in the years ahead.”

Hello Mr. Philby: It’s been awhile since we’ve featured an engaging spy story, and few are as engrossing as that of M.I.6 double agent Kim Philby, as told by the New Yorker’s Malcolm Gladwell, drawing on a number of books and other historical records. Philby’s eventual return to the Soviet Union, whose homecoming was heralded by a headline in an official Soviet newspaper that read “HELLO MR. PHILBY,” would set off what Gladwell describes as “feverish mole-hunting,” not only by the British intelligence services, but the C.I.A. as well.

Two of the more prominent individuals who led the charge were M.I.5’s counterintelligence officer Peter Wright, and C.I.A. officer (and Philby’s lunchmate) James Angleton. “The news about Philby convinced Angleton that the C.I.A. must be riven with moles as well, and he set off on a frenzied search for traitors which consumed the American intelligence community for the next decade.” (Read Trust no one)

Former Ukrainian president Viktor Yushchenko, before and after his dioxin poisoning, which many suspect was an act committed by the Kremlin, though Russia maintains its innocence. Likely slipped into his food and intended to kill him, Yushchenko survived but was left permanently disfigured. Paul Manafort, Donald Trump’s campaign manager, served as advisor to Yushchenko’s Kremlin-backed rival in the election. (View image via the AP)

Donald Trump has a very hard time explaining what and why his campaign changed in the Republican party platform with regard to Ukraine, as well as what’s going on in Ukraine in general. The policy change on Ukraine was the Trump campaign’s only stipulation on the party platform. (Watch, running time: 1 minute)

A delegation from the Saudi Fund for Development met late last week with International Cooperation Minister Sahar Nasr to discuss procedures for closing on the USD 500 mn first tranche of the USD 1.5 bn Sinai Peninsula development program, according to a statement from the ministry. In a separate meeting, Nasr met with a delegation from the World Bank to discuss funding the 1.5 mn feddan project. No timeframe was given on the implementation for either project.

Nasr also signed a USD 119 mn loan agreement with the Kuwait Fund for Development to finance the first phase of the East Port Said water desalination plant, Amwal Al Ghad reported. The funding comes as part of the Kuwait Fund’s three-year USD 900 mn Sinai Peninsula development strategy. The plant has an estimated total cost of USD 211 mn, and an expected daily capacity of 150k cubic metres.

Egypt abstained from a UN Security Council vote to send a UN police force to Burundi because it feared the resolution would cause conflict between the council and authorities in the country, the Foreign Ministry clarified in a statement released on Sunday. The resolution, which authorised the deployment of a 228-strong UN police contingent to the capital to quell over a year of violence, passed anyway with 11 votes in favour.

Ganoub El Wadi Petroleum Holding Company (Ganope) is set to issue a global tender for 10 E&P projects between the Gulf of Suez and the Western Desert, Petroleum Minister Tarek El Molla said yesterday, according to Al-Shorouk. The tender is Egypt’s second this year, following an EGPC bid round as part of the government’s plan to encourage the growth of the petroleum sector. The plan includes tendering 30 oil and gas exploration blocks per year, signing 15-20 agreements over the coming period and boosting investments in the sector to USD 14 bn per year.

Waste-to-energy firm BioEnergy is set to build a refuse-derived fuel (RDF) plant in the governorate of Al Sharqia, with the plant likely to start production by the end of 2017, Managing Director Mahmoud Galal said, Al Borsa reported on Sunday. The plant will produce c. 30k tons of alternative fuel per month.

The Egyptian Council of State (Maglis El Dowla) is what’s holding up signing the final contracts for the Daba’a nuclear power plant, as Electricity Minister Mohamed Shaker is awaiting its sign-off before setting a date for the signing ceremony, Al Mal reports. The Egyptian and Russian teams have to an understanding over the issues which have held up the signing of the contracts, he reportedly told President El Sisi, without specifying what those were.

The National Investment Bank (NIB) has agreed to waive EGP 8.2 bn of a total EGP 25 bn in accumulated debt from Egyptian National Railways (ENR), head of the railway authority Medhat Shousha told Al Shorouk. ENR is in negotiations with NIB to drop even more of the debt, he added. ENR has also signed an EGP 1.4 bn loan agreement with NIB to finance part of its EGP 5.7 bn investment plan, said Shousha.

State-owned Food Industries Holding Company issued an international tender to buy up to 50k tonnes of crude soybean oil and 15k tonnes of crude sunflower oil, according to Reuters. The deadline for the tender is 2 August with the oils set to arrive between 1-20 September.

Evergrow for Specialty Fertilizers has launched two new production lines at its industrial complex in Sadat City as part of its EGP 2.3 bn expansion plan, CEO Mohamed El Kheshen told Al Shorouk. The new expansions will raise the company’s annual sales to EGP 1.89 bn while providing 1,000 new job opportunities, he added.

Prime Minister Sherif Ismail has ordered 700k tonnes of raw sugar imported this year to shore up supplies, Al Borsa reported on Sunday. Earlier this year, the government had moved to exempt raw sugar imports from import duties until year’s end and imposed an EGP 900 per-tonne levy on sugar exports in a bid to keep prices in check, which is a move that has saturated the market, according to Prime Holding.

The Industrial Development Authority (IDA) is set to issue 350 feddans of infrastructure-ready land for SME projects in Port Said, IDA head Ismail Gaber told Al Shorouk. Registration for the 100-feddan first phase opens on 1 August, he added. The projects are set to be in the food, engineering, textile and weaving and chemical sectors. The remaining land plots will be used for an integrated industrial complex for smaller investors. Only 25% of the land’s price will be paid upfront, said Gaber, while the rest is slated for installments over five years with a two-year grace period.

Commercial real estate services provider JLL has completed financial and market studies on the Zayed Edge project, sources tell Al Shorouk. The Zayed Edge company will contract a consultant to design a master plan based on the JLL studies, the source added. Zayed Edge is 60% owned by the New Urban Communities Authority.

The Six October Investors Association is conducting studies on allocating 3.5k feddans to industrial developers in cooperation with the cabinet and the Giza governorate, the head of the association Mohamed Khamis told Amwal Al Ghad. The association is also set to receive 150 feddans from the Housing Ministry to build 12.5k homes at a total cost of EGP 2 bn. The association is also studying establishing a new company to handle development and infrastructure, he added. The Housing Ministry had withdrawn the land plot from the association in 2009 due to a dispute.

Hurghada-Sharm El-Sheikh ferry La Pespes is plying the sea again after a three-year hiatus, Al Shorouk reported, completing the Hurghada-Sharm route in under three hours. The vessel operates every Sunday and Thursday, leaving at 8 AM from Hurghada and coming back from Sharm El Sheikh at 6 PM, Red Sea Ports Authority spokesperson Malak Youssef said. China’s Xinhua news agency has also picked up the story.

Seven banks are nearing a final agreement to provide Orascom Hotels and Development with an EGP 1 bn credit facility to reschedule short-term debt, sources told Al Mal. The banks include CIB, Banque Misr, Ahli United Bank, HSBC, NBE, National Bank of Abu Dhabi, and Al Ahli Bank of Kuwait (formerly Piraeus Bank) the source added. The credit facility will be offered in two stages, with the first tranche valued at EGP 439 mn, and the second at USD 61 mn. The funding will be provided within three months of signing.

The Arab Investment Bank (AIBK) is studying providing EGP 430 mn in financing to SME clients, head of the SME sector at the bank Adel Taha told Al Borsa. AIBK is looking to boost the SME portfolio to EGP 2 bn by the end of 2016 and has received CBE approval to open 17 small branches in Cairo and other governorates, he added. The bank’s total SME portfolio is valued at EGP 1.6 bn, or 30% of its total loan portfolio, said Taha.

International Food Industry (IFI), owned of the Cook Door fast-food brand, has signed an agreement with Saudi’s Nawaf to open 75 branches in KSA and, possibly, other GCC countries over the next five years, IFI’s managing director Emad Al Saeed said, Al Mal reported on Sunday.

Advertising agency Synergy White is in talks with broadcaster Al Hayat channels for a five-year advertising concession after Al Hayat axed its contract with Promomedia, Al Borsa reported on Sunday. An agreement could see Synergy paying the channel’s EGP 260 mn debt, with the agency being given the right to restructure Al Hayat.

An appellate court on Sunday upheld a one-year prison sentence on Islam El Behery, an Islamic researcher and host of the now defunct television program With Islam, Ahram Online reported. Behery was convicted on charges of contempt of religion for suggesting that Muslims should only be bound to the text of the Quran. Al Azhar had demanded the cancellation of the program.

Resting Bernie face: US Senator Bernie Sanders appeared on Face the Nation with John Dickerson, where he was asked to respond to commentary by some, including Donald Trump, on the expression on Sanders’ face during the Democratic National Convention. Many of us here can relate to his answer. (Watch, running time: 45 seconds)

Jumping out of a plane at 25k feet without a parachute. Really. (Watch, running time: 3:08)