S&P leaves Egypt rating, outlook on hold despite covid-19. Plus: Oil prices go negative in the US

Good morning, ladies and gents, and welcome back from what we hope was a relaxing long weekend. Now, let’s get re-oriented for the start of this truncated workweek:

It’s four days until Ramadan, which starts on Friday, 24 April — Dar Al Ifta, as we reported last week, will not be holding its traditional moon sighting to determine the start of the holy month, and has instead announced the date based on calculations.

We should hear tomorrow on whether the curfew will be extended or shortened during Ramadan. More on that front in Last Night’s Talk Shows, below.

The Sisi administration will decide by Thursday whether to extend or modify measures put in place to slow and prevent the transmission of the virus that causes covid-19.

It’s budget day in the House, with Finance Minister Mohamed Maait and Planning Minister Hala El Said set to present the draft FY2020-2021 state budget to lawmakers today for review and approval, the local press reported. You can get a refresher on the key figures here and here.

Trading resumes on the EGX this morning after the long weekend. The benchmark EGX30 index fell 1.8% on Thursday in heavy trading that saw EGP 860 mn worth of shares changing hands on the exchange, about 36% above the trailing 90-day average.

We have something of a heat wave coming in today, with the mercury heading for 33°C and staying in the 31-34°C range through the weekend. Look for the possibility of blowing sand on Friday.

It was largely quiet on the news front over the long weekend — until yesterday evening. That’s when this happened:

STORY OF THE DAY: US oil is now trading at below zero — meaning traders will have to pay sellers to offload their barrels — in what the Wall Street Journal says is “a chaotic demonstration of the dwindling capacity to store all the crude that the world’s stalled economy could otherwise be using.” WTI May futures are now at USD -37.63 / bbl, plunging 306% from USD 18.27 on Friday. Brent crude also dipped, albeit far less aggressively, to USD 25.57 / bbl (-9%). It’s the first time in history that oil has been in negative territory, Reuters notes.

So … wait. Producers are actually paying buyers to take their oil? In a word, yes. At least in parts of the United States. Demand has fallen thanks to covid, but producers need not keep pumping oil out of the ground lest they have to close their field — that’s expensive to do. The only thing that’s more expensive: Paying to restart production. In the race to stay in operations longest, producers are now competing for storage space. Bloomberg has a good rundown here and the NYT has an excellent piece worth reading.

How long is this gonna last? The negative prices are for deliveries next month, but futures due in June are at USD 20.43 / bbl, bringing the spread between two consecutive months to an unprecedented USD 60.76, according to Reuters.

And if you’re looking at a November contract, the price is around 25x that of May contracts, indicating that the market is pricing in an end to the covid-19 pandemic and a rebound in oil demand later this year, the WSJ says. The Financial Times and New York Times also have the story.

COULD IT GET ANY MESSIER OUT THERE?

The Donald to ban immigration: US President Donald Trump has said in a Tweet that he will impose via executive order a temporary ban on immigration to the US, capping a weekend in which he called for protesters to “liberate” states from lockdowns. The call saw protest break out from coast to coast, the New York Times reports.

North Korea’s leader seriously ill? A CNN report heading into dispatch time suggests that North Korean leader Kim Jong Un is in “grave danger” after surgery. Anyone else have whiplash?

COVID-19 IN EGYPT-

Egypt now has 3,333 confirmed cases of covid-19 after the Health Ministry reported 189 new infections yesterday, the nation’s largest one-day total so far. The ministry also said that another 11 people had died from the virus, taking the death toll to 250. We now have a total of 1,086 patients that have tested negative for the virus after being confirmed positive; 821 them have fully recovered.

Egypt’s covid-19 infection and death rates are still within the bounds of government projections, Presidential Health Affairs Advisor Mohamed Awad Tag Eldin said over the weekend (watch, runtime: 7:39). He noted that the vast majority of cases are mild and only 8% — most of whom have underlying conditions — experience severe symptoms (watch, runtime: 54:58).

Notary offices at GAFI (and only GAFI) are up and running again as of Thursday, Youm7 reported last week. Prime Minister Moustafa Madbouly agreed to exempt GAFI’s notary services from the suspension of all citizen-facing government services (other than health and security).

EgyptAir and Air Cairo are operating more repatriation flights for Egyptians abroad over the next several days, according to Al Arabiya, which has the full schedule for both airlines’ flights.

More than 200 Egyptians came home from Canada on a flight from Toronto on Friday, the Foreign Ministry said in a statement.

A shipment of personal protective equipment from China should be arriving today, China’s ambassador to Cairo Liao Liqiang said at a presser, according to the local press. Beijing is coordinating with Cairo to send another batch of medical supplies, including covid-19 test kits.

So, Mommy, what did you do during the Great Lockdown? The people at the Ministry of Communications and IT (MCIT) and the folks at the nation’s network operators and ISPs are the unsung heroes of this covid story, if you ask us. According to figures released by the National Telecommunications Regulatory Authority over the weekend comparing use in the second week of April the to second week of March this year:

• Home internet use is up 87% and mobile internet use is up 18%;
• Voice calls are up 12%;
• We’re spending more than double the time browsing the web — up 131% last week compared to the same week in March;

The fastest-growing content providers and categories: TikTok (use up 194%), games (+96%), Netflix (+69%), YouTube (+41%).

Traffic on El Face is up 151%, while use of Instagram is up 59% and WhatsApp traffic has risen 34%.

Oh, and get this: Prime time for the internet in Egypt now runs 12 noon to 3am — that’s 15 hours compared to the normal seven. You can read all about it here.

Egypt is looking to nearly double its commodity storage capacity in preparation for a tighter global market after reports last week that some traditional suppliers were imposing export controls amid covid-induced uncertainty. The EGP 21 bn program will expand the country’s strategic commodity reserve stores to 8-9 months from 4-6 months and involve building new warehouses for strategic commodities in seven governorates, Supply Minister Ali El Moselhy said on Saturday. The state is in talks with foreign builders for contracts.

The news comes as state grain buyer GASC ramps up wheat imports, buying 360k tonnes of French and Russian wheat as part of the 800k tonnes the government plans to import this season, Al Mal reports.

Romania, meanwhile, is backing away from a move that would have seen it export only to EU member states, according to Interior Minister Ion Marcel Vela, Reuters reports. Romania is a key supplier to Egypt and said last week it would impose an export ban to secure its domestic needs through the pandemic.

Stocks of rice are now sufficient to cover demand through November 2021 and will increase when the local harvest begins in September 2020, head of the Federation of Egyptian Industries’ rice division Ragab Shehata said, according to Al Masry Al Youm.

Banks get temporary relief from concentration risk regs: Banks will be given a one-year break from new regulations designed to limit concentration risk in the industry, MENA reports, citing a Central Bank of Egypt source.

Second term written and oral university exams have been canceled and will be replaced with either research papers or online exams, according to the Supreme Council of Universities.

Al Ahly FC is holding talks with its players over possible wage cuts and may come to a decision during a board meeting this week, Director Khaled Mortagy told BBC Sport Africa. Football clubs have been hit financially since the season was put on hold in mid-March, with Arab Contractors and Pyramids FC already having announced wage cuts.

DONATIONS-

Among those in the private sector opening the chequebooks to support the nation’s battle against covid-19:

• Ceramica Cleopatra has donated EGP 78 mn, including EGP 25 mn to the Tahya Misr Fund and around EGP 28 mn to develop healthcare facilities in Suez. (Cabinet)
• Talaat Moustafa Group has donated EGP 62 mn. The amount will be divided into EGP 25 mn given to the Tahya Misr Fund, EGP 25 mn to the Decent Life Initiative, EGP 8 mn to the Health Ministry, and the rest to fund the purchase of 10 ventilators in cooperation with AmCham. (Cabinet)
• Mansour Group has donated EGP 50 mn to the Health Ministry to buy medical supplies and ventilators. (Cabinet)
• Acwa Power donated EGP 5.5 mn to fund the purchase of ventilators. (Cabinet)
• Ibnsina Pharma took on half the cost of a EGP 8 mn supply of medicine for isolation hospitals ordered by the Unified Procurement Authority. (Cabinet)
• The Arab African Bank has allocated EGP 6 mn to contribute to buying medical kits and protective clothing for hospitals, including EGP 3.2 mn worth of equipment that has been distributed to hospitals in Minya. (Al Mal)
• Credit Agricole signed a cooperation protocol with Ahl Masr Development to provide medical supplies and respirators for hospitals in Qena, Minya, Zagazig, Al-Sadr, Abbasia, and Imbaba. (Al Mal)

ON THE GLOBAL FRONT-

Spring Meetings wrap with an iffy EM debt relief plan: The G20’s calls during last week’s IMF / World Bank Spring Meetings to suspend debt repayment for emerging markets isn’t going down so well with private creditors, the Financial Times says. The idea is good on paper, but creating a “uniform” arrangement leaves too much room for the move to be feasible, the investors say.

Each country needs its own tailored program, rather than pushing for a “top-down” solution, Allianz economic advisor Mohamed El Erian argues. He also advocates for the programs to be voluntary “so you get good buy-in and also people continue to have aligned incentives.”

With veto power in hand, the US stopped an SDR issuance: The Trump administration, which effectively has veto power at the IMF, shot down a proposal for a new issuance of Special Drawing Rights (SDRs) — the IMF’s artificial currency made of unequal parts USD, EUR, RMB, JPY, and GBP. US Treasury Secretary Steven Mnuchin suggested that an expanded SDR issuance would not be helpful for the countries that actually need it, since they are allocated based on shareholding proportions, meaning G20 countries would actually get the majority of the SDRs, according to Foreign Policy.

The World Bank’s “pandemic bonds” are finally paying out USD 132.5 mn to poor nations hard hit by the covid-19 outbreak, with a designated committee set to meet in the coming days to determine eligibility and distribution, the Financial Times reports. The bonds, which were issued three years ago, met all the criteria needed to trigger payment on Friday.

Earnings season ramps up in the US this week: We’ll get the first figures from the hard-hit airline industry when Delta Airlines and American Airlines report their first-quarter results while tech giants Intel, Netflix and Xerox will all post their figures mid-week. Check out the full earnings calendar here.

The tone was set by US investment banks last week which all saw profits fall during the opening quarter of the year (see: here and here).

If you think 1Q is bad, wait for 2Q when we have the full effect of the April shutdown weighin on figures.

And we may not have seen the worst in the equity markets, according to Citi: Markets are not factoring in a potential second wave of covid-19 or accounting for the current one to take up to 18 months to fully cycle across the world before a vaccine is available, Citi Private Bank warned on CNBC yesterday. The bank’s chief investment officer forecasts earnings to fall 40% in the second quarter and that they will not return to their 1Q2020 levels for another nine quarters.

The talking heads’ main focus last night was the fate of the nighttime curfew during Ramadan, which the Madbouly Cabinet should be announcing this week.

Are we getting a longer or shorter curfew? Al Kahera Alaan’s Lamees El Hadidi wondered out loud whether the government will decide to bring the curfew back to its original 7pm-6am schedule, or push the start of the curfew to as late as 10pm or even midnight to accommodate iftar. Maghrib is at 6:28pm CLT on the first day of Ramadan (watch, runtime: 2:23).

Anything you’ve heard so far about Ramadan curfew hours is nothing more than rumors, the prime minister’s media advisor Hany Younis told El Hekaya’s Amr Adib. Younis poured cold water on Adib’s suggestion that Cabinet has decided to start the daily curfew at 4pm, stressing that the decision will be made on Wednesday (watch, runtime: 4:24).

The talk show power couple also took note of US oil futures dropping to negative territory, which Lamees noted is not the best indicator for the global economy (watch, runtime: 3:23). Adib, meanwhile, had a chat with former Oil Minister Osama Kamal to explain the supply glut that led to the price drop (watch, runtime: 10:04). We have the story in What We’re Tracking Today, above.

Clinical trials for covid-19 treatment: Lamees called up Zewail City research director Ayman El Shibiny (watch, runtime: 6:56) and Eva Pharma CEO Riad Armanious (watch, runtime: 8:24) to discuss research and clinical trials currently underway on potential covid-19 treatments. El Shibiny focused largely on explaining the research being done on convalescent plasma therapy, but stressed that the trials remain inconclusive. Armanious, meanwhile, talked about research on other proposed treatments, such as malaria meds.

S&P maintains Egypt’s B credit rating with stable outlook despite covid-19 crisis: S&P Global Ratings has maintained Egypt’s B credit rating and its outlook at stable despite forecasting a “sharp decline” in economic activity due to the covid-19 pandemic. “The stable outlook reflects our expectation that the fall in Egypt’s GDP will be temporary, and the rise in external and fiscal imbalances will remain contained,” the ratings agency wrote in a note released Friday.

Egypt’s strong foreign reserves will enable it to withstand external shocks caused by the pandemic, S&P said. It forecasts reserves to fall to USD 37 bn by the end of 2020 from the USD 45.5 bn peak reached in February, which would be sufficient to cover 5-6 months of current account payments. Reserves fell by USD 5.4 bn in March to USD 40.1 bn.

Expect a “substantial decline” in current account receipts: Egypt’s sources of foreign currency will be hit hard during the final quarter of the current fiscal year and the first half of FY2020-2021 as tourism, remittances, portfolio flows, merchandise exports and Suez Canal receipts all come under pressure, S&P said.

Lockdown, energy shock to hurt growth: Real GDP growth will slow to 2.8% in the current fiscal year before falling to just 0.1% in FY2020-2021 due to falling natural gas and oil prices and the tourism shutdown. S&P forecasts a “small recovery” in the second half of the coming fiscal year as domestic consumption and investment pick back up.

Emergency measures to reverse recent fiscal progress over the next year or two: The government’s emergency stimulus measures will put more pressure on public finances leading government debt levels to increase to 89% of GDP during FY2020-2021. The fiscal deficit will widen to 8.3% of GDP by the end of the current fiscal yea⁸r and 8.5% by the end of FY2020-2021, from 8% in the previous fiscal year.

Time to ask the IMF for help? S&P expects Egypt to either request a standby credit facility from the IMF or apply for emergency funds from its rapid credit facility. This would bolster its foreign reserves and help fund the government’s fiscal stimulus measures, the agency said.

The downside scenario: A negative rating action could come if the covid-19 crisis puts severe or “prolonged” pressure on FX reserves and Egypt’s ability to service debt. “Rating pressure could also emerge if Egypt's plan to gradually reduce the government debt-to-GDP ratio is derailed by fiscal slippages, higher borrowing costs, or more pronounced currency depreciation than expected,” S&P said.

The upside scenario: Alternatively, Egypt’s rating could be upgraded if growth figures exceed the agency’s expectations, if the country improves its current account position to reduce its financing needs, or if the reform program leads to a reduction of government debt.

Gov’t lists sectors eligible for covid-19 corporate income tax relief: The Madbouly Cabinet specified on Thursday industries eligible for the income tax relief program ordered by President Abdel Fattah El Sisi earlier this month, confirming what a senior government official told us last week, according to a statement. Under the package, companies in sectors including aviation and tourism (including hotels, restaurants, and cafes) will be able to pay income tax in three installments ending 30 June.

Other eligible companies include those operating in:

• Journalism and media;
• Telecommunications and and IT (except landline and mobile network operators);
• Sports;
• Public transport providers;
• Car retailers;
• Healthcare providers;
• Contractors; and
• Manufacturers (excluding those who make food, medical products, and cleaning supplies).

How the instalment program will work: The first of the three installments — which is due before the end of this month — should cover 20% of the total amount of taxes owed. The remaining two installments will cover the remaining 80%, with 30% due in May and 50% on or before 30 June.

The House Planning and Budgeting Committee approved the relief program, as well as a three-month real estate tax holiday for companies operating in the industrial and tourism sectors on Saturday, according to Mubasher.

CABINET WATCH- Cabinet approves income tax breaks: The Madbouly cabinet greenlit in its weekly meeting on Thursday proposed amendments to the Income Tax Act that would, if approved by the House of Representatives, exempt employees making less than EGP 22k a year from paying income tax. Besides raising the tax exemption, the amendments would introduce new income tax brackets, raising the number of bands to seven from five, and lower rates for several existing bands. We had a full rundown last month on the proposed changes, which were proposed by the Finance Ministry.

The House Planning and Budgeting Committee wants to push the threshold up to EGP 9k from the EGP 7k proposed by the ministry, according to the local press. Finance Minister Mohamed Maait should decide today on whether or not the move is feasible, allowing the committee to move to a final vote today before referring the amendments to the general assembly, Committee Chairman Hussein Eissa told Al Mal. The new threshold and brackets are set to come into effect at the start of the fiscal year in July.

Ministers also decided on Thursday to:

• Allocate EGP 10 bn from the EGP 100 bn covid-19 stimulus package to purchase non-financial assets as a boost to government spending;
• Approve a draft law to set up a fund to support tourism headed by the tourism and antiquities minister; and
• Ratify an agreement between Egypt and Belarus to facilitate trade as part of 12 MoUs signed during Belarusian President Alexander Lukashenko’s two-day visit to Cairo in February.

REGULATION WATCH- FRA rules you can’t be both CEO and chairman of an EGX-listed company: The Financial Regulatory Authority (FRA) has issued a decision requiring EGX-listed companies to separate the positions of CEO and chairman in a bid to improve governance, according to a statement. Companies are required to comply with the new rules within one year from their publication (20 April) or their first board elections.

Who’s affected by the change? As it currently stands, there are 115 listed companies that have already separated the two positions, meaning 125 companies still need to comply with the new regs.

House committee approves changes to presidential emergency powers: The House Legislative Affairs Committee has approved 18 amendments to the Emergency Law that would give the presidency increased powers to direct the government’s response to covid-19, Youm7 reports. The approval for the changes — which cover everything from school suspensions and tax deadlines to exports and scientific research — comes after Parliament voted last week to extend the state of emergency for three months. The changes still require general assembly approval.

What’s new? The president would get new powers to suspend the operations of public and private sector organizations, order school and university closures, and mobilize public and private medical organizations to treat infections. He would also have the ability to ban exports of certain goods, change the prices of goods and services and place restrictions on the sale and possession of goods. Tax changes — such as extending the deadline for submitting tax returns and allowing taxpayers to pay in installments — would be placed in the hands of the presidency, as would the quarantine protocols for new entrants to the country, the allocation of financial relief, and focus and funding of health research.

Bottom line: The bill would effectively give the office of the president the authority to do what Egypt has done so far to contain covid-19.

REGULATION WATCH- Fast-track VAT drawbacks are now officially a thing: The Official Gazette published earlier this month a decree (pdf) by Finance Minister Mohamed Maait to allow companies to claim 65% of their VAT drawbacks before an assessment on the tax return is made. Companies seeking drawbacks will need to submit bank guarantees covering 65% of the rebate, along with proof (i.e. purchase invoices, customs release forms) that they have paid the refundable amount. The Finance Ministry decided late last year to amend the VAT Tax Act executive regulations to speed up refunds following complaints from companies that the process was too long and too bureaucratic.

Who qualifies for a VAT drawback? The 2016 VAT Tax Act allows full or partial rebates including VAT paid on exports during any stage in selling a service or product abroad, on machinery and equipment used to produce an end product or service already subject to VAT, or VAT remitted due to an accounting or other error.

Remittances from Egyptians abroad for January and February rose by a third y-o-y to USD 5.2 bn, up from USD 3.9 bn in the same period last year, according to official data (pdf).

LEGISLATION WATCH- President Abel Fattah El Sisi has ratified amendments to the Retirement, Insurance and Pensions Act for the armed forces, setting 15% as annual rate for deductibles, according to the local press. The amendments were approved by the House of Representatives in March.

EARNINGS WATCH- CIRA posts strong profit, revenue growth in 1H2019-2020: Private sector education outfit CIRA has posted net profits of EGP 223.7 mn for the first half of 2019-2020, up 34% from the same period in 2019, according to the company’s earnings statement (pdf). Bottom line growth was driven by a 57% increase in revenues which rose to EGP 666.5 mn from EGP 424.1 mn a year ago. Enrolment at the company’s flagship Badr University increased by 33% to 10,450k students during the period while its K-12 segment saw a 10% rise to 26,815 students.

Looking ahead: “Despite the trying circumstances which have cast a shadow on education systems across the globe, CIRA continues to lay the groundwork that will consolidate and further develop the company’s position as Egypt’s premier provider of quality, accessible education,” CEO Mohamed El Kalla said. “We are confident that CIRA, its educators and its students will emerge from these times stronger than before, and our teams fully prepared to realize the company’s strategic objectives.”

Obour Land profits up 28% in 1Q: Cheesemaker Obour Land net profits increased by 28% in 1Q2020 to EGP 68.1 mn from EGP 53 mn in the same period last year, according to the company’s quarterly earnings statement (pdf). Revenues rose marginally to EGP 582.8 mn, up 1% from 1Q2019.

The second season of Making It drops this Thursday: We’re happy to announce that this Thursday we’re kicking off the second season of Making It — our weekly podcast where we sit down with the CEOs and founders of leading businesses in Egypt and discuss the highlights of their businesses, the challenges they have had to overcome, and what it takes to grow a great business.

Tap or click here to listen to our trailer (runtime: 05:24) for a sneak peek on what you can expect to hear.

Our guests this season run businesses in microfinance, desserts (just in time for Ramadan), fintech, and education, among others.

Putting together another season of Making It in the time of covid-19 was not easy. But we made lemonade: We’ve had to record some of the season’s episodes outside the studio (so you’ll have to forgive us if you hear any dogs barking in the background) and even recorded a few episodes dedicated to the crisis.

Pandemic posters through the ages: The Atlantic invites you to take a stroll through the PSAs for disease outbreaks in modern pre-social media times, which relied on a now dying medium – the poster.

Ramadan in the time of covid-19 is the leading theme of the foreign press’ coverage of Egypt this morning. Ramadan mosalsalat are still being filmed, with people working in the industry telling CNN that they can’t stop production due to financial pressures. But the Ramadan vibes aren’t quite the same because of the pandemic, Reuters and the New York Times say in separate pieces.

Also getting attention from the foreign press:

• A mime has taken to the streets of Cairo to spread covid-19 awareness to children who might not be able to get it online, according to Reuters.
• The pyramids were emblazoned with a “Stay Home” message on World Heritage Day, AFP highlights in a video (watch, runtime: 00:52).

Egypt, Italy sign EGP 40 mn pact to increase applied tech schools program: International Cooperation Minister Rania Al Mashat and Education Minister Tarek Shawky signed a EGP 40.8 mn agreement with Italy to expand its applied technology schools program as part of the Italian-Egyptian Debt for Development Swap program, according to a Cabinet statement.

ITIDA gears up to disburse export subsidies to IT firms: The CIT Ministry’s Information Technology Industry Development Agency (ITIDA) began on Thursday the initial steps for disbursing more than EGP 5 mn in dues to 25 SMEs and micro-enterprises eligible for the export support program, according to Al Mal. The companies mark the first group of 110 eligible recipients of the support program set to receive funds and are expected to receive dues once ITIDA and an external auditor give the go-ahead.

A consortium of Saipem and Petrojet has been awarded a contract by the Egyptian Ethylene and Derivatives Co. (Ethydco) to build Egypt’s first polybutadiene plant, Saipem said in a statement. The project is estimated to cost USD 150 mn and will output 36k tonnes per year of synthetic rubber plant.

Elsewedy Power, a subsidiary of Elsewedy Electric, has signed an AED 124.5 mn agreement with the Dubai Electricity and Water Authority to supply, install, and test cables extending over 22.5 km, according to an EGX disclosure (pdf). The project will be delivered on a turnkey basis within 17 months.

Trade Minister Nevin Gamea has imposed five-year anti-dumping duties on imports of sulfonated naphthalene formaldehyde (SNF) from Russia and China, according to a cabinet statement. A ministry investigation launched last April found that Russian imports of SNF are being sold at 24.9% below market value and Chinese imports falling somewhere between 13.6% and 22.6% below market value.

The Tourism and Antiquities Ministry launched on Saturday a virtual tour of the Sacred Animal Necropolis in Saqqara, including the tomb of Wahti and the cachette of sacred birds and animals.