CBE leaves rates on hold as unemployment spikes and hotels cautiously begin to reopen

Welcome to the final week of Ramadan, friends — we hope you’re looking forward to the upcoming long weekend as much as we are. We expect the holiday to run Sunday-Tuesday, setting us all up for a five-day long weekend.

The Madbouly government is expected to announce by the end of the week its lockdown plans for Eid, Youm7 reports, citing unnamed sources. Among the options on the table: 1) A repeat of Sham El Nessim, which would see shopping malls closed for the duration and curbs on movement between at least some governorates and 2) a return to a more strict 7pm-6am curfew.

We also hope to get some clarity this week on when Cabinet expects to hit the “go” button on the Health Ministry’s three-stage plan to fully reopen the economy and ease measures in place to restrict the spread of the virus that causes covid-19.

And we get to ‘enjoy’ a heat wave while we wait for the weekend. Look for daytime highs of 42-43°C in the capital city, according to the national weather service (pdf), with a chance of scattered showers in Cairo, Sinai and the North Coast, Egyptian Meteorological Authority head Mahmoud Shahin told Ahram Gate. But it seems the mercury will fall just in time for the holiday: Look for a daytime high of 32°C on Saturday (the last day of Ramadan) and 31°C a week from today (the first day of Eid).

The House of Representatives looks like it’s starting its customary sprint toward summer recess, with a packed agenda this week. Among the highlights:

The Banking and Central Bank Act is up for discussion again today after getting preliminary approval earlier this month. It would establish an industry development fund (endowed by a 1% tithe on bank profits) as well as a separate bailout and deposit insurance fund, among other things.

Taxes are also on the agenda as the House Planning and Budgeting Committee takes up the Unified Tax Act, the stamp tax on EGX transactions and the tax on agricultural land, committee deputy chair Yasser Omar told Sada El Balad’s Ahmed Moussa last week (watch, runtime: 28:21). Finance industry lobby group ECMA is calling on MPs to walk back their decision last week to reduce the size of the stamp tax cut on EGX transactions in the legislation.

The Public Enterprises Act is also on the table discuss as MPs debate the reclassification of listed companies in which the government holds up to a 75% stake and a cap on board compensation. The bill applies only to government-owned companies and received committee-level approval last week.

The war on the coronavirus will be a feature of the week as MPs take up a bill that will, among other things, give the health minister the power to make it mandatory to wear face masks in public, Gamal Essam El Din reports for Ahram Online.

** So, when do we eat? Maghrib prayers are at 6:43pm and you’ll have until 3:20am to finish caffeinating. Fajr is coming one minute earlier every day through the end of the Holy Month.

COVID-19 IN EGYPT-

Egypt has now disclosed a total of 11,719 confirmed cases of covid-19 after the Health Ministry reported 491 new infections yesterday. The ministry also said that another 20 people had died from the virus, taking the death toll to 612. We now have a total of 3,526 confirmed cases that have since tested negative for the virus after being hospitalized or isolated, of whom 2,950 have fully recovered.

Ahead of the summer tourism season, a ray of hope as some hotels started reopening this past Friday under strict conditions including that they operate at no more than 25% capacity. That cap could rise to 50% next month.

Ten hotels in the Red Sea and South Sinai governorates have been given the green light to start receiving visitors following an inspection by the tourism and health ministries, according to a cabinet statement. So far, 172 hotels have submitted requests to reopen, and at least a handful have been told they fell short of the health requirements and will be reevaluated at a later date. Bloomberg also picked up the story with a short video (watch, runtime: 01:20).

It’s still unclear when Egyptian airspace might reopen to regular commercial flights, let alone when foreign tourism could resume, Tourism Minister Khaled El Anany said during a meeting with the South Sinai Investors’ Association. The resumption of the tourism trade will be a function of both the pandemic remaining under control and of hotels and other players playing ball with precautionary measures in place for the sector.

And one way or another, Egyptian airlines will get a helping hand from the state. National flag carrier EgyptAir is in line for an EGP 2 bn lifeline to see it through until the flight ban is lifted, the Finance Ministry said. The state will service the carrier’s debt until its operating capacity reaches 80% of levels achieved in 2019, the statement noted. Government sources said last month that a preferential interest rate of 8% will be attached to the bailout. Meanwhile, Civil Aviation Minister Mohamed Manar Enabah has formed a committee to look into requests for support from private airlines,

Airports nationwide have already started installing thermal cameras to screen the temperature travelers, Youm7 reports.

The news comes as Italy said it will reopen its borders with no restrictions from 3 June and allow international flights to restart at the same time. Prime Minister Giuseppe Conte admitted that his government was taking a “calculated risk” ahead of shops and restaurants opening tomorrow and leisure facilities next week. The BBC and FT have the story, while the salmon-coloured paper notes elsewhere that the global industry is anxiously waiting to see what happens this summer.

More repatriation flights: Egypt is arranging five flights on Wednesday and Thursday to bring back Egyptians stuck in Abu Dhabi, according to a cabinet statement. On Thursday, 315 Egyptians stranded in Kuwait were brought back on two flights, bringing the total number of repatriated citizens to 12k since April, according to Al Masry Al Youm.

Two passenger ferries will set sail on Tuesday and Wednesday to bring dozens home from Saudi Arabia, a source from Al Kahera Company For Ferries said, according to Al Mal.

DONATIONS-

China delivered another 30 tonnes of medical supplies to the Health Ministry yesterday, according to a ministry statement. This is the third shipment of supplies from China since the outbreak.

Bank Audi Egypt donated EGP 6.75 mn to the Tahya Misr Fund, according to Al Mal.

ON THE GLOBAL FRONT-

Global covid-19 cases passed the 4.5 mn mark at the weekend, according to the Johns Hopkins University’s corona tracker.

Slovenia has become the first European country to announce an end to its epidemic, the Independent reports.

GLOBAL MARKETS-

JPMorgan thinks the outlook for emerging market banks is “negative no matter how you cut it,” the investment bank’s chief emerging markets equity strategist Pedro Martins Junior told CNBC. Across EMs, JPMorgan’s underweight stance on banks comes as there are widespread expectations that we’re going to be seeing a wave of defaults as borrowers come under pressure from the global economic slowdown, and could eventually be “pressured” into dishing out loans to risky borrowers down the line that will compound their troubles. “Banks have ‘very limited’ space to expand their loan portfolios. And given that central banks have cut interest rates to very low levels, the room for banks to boost their margins on loans and other products ‘is also very narrow,’” Martins said.

Warren Buffett is selling the Bulge Bracket… Warren Buffett sold more than 80% of his holding in Goldman Sachs during the first quarter, 12 years after his USD 5 bn investment provided the investment bank a vital lifeline during the height of the financial crisis. A regulatory filing on Saturday showed that Berkshire Hathaway had reduced its stake to just 1.9 mn shares, down from 12 mn in the final quarter last year. The oracle of Omaha also cut slightly his holding in JPMorgan Chase.

…but Saudi’s sovereign wealth fund is on a US equities shopping spree: Saudi Arabia’s USD 300 bn Public Investment Fund (PIF) has poured USD bns to snap up stakes in Boeing, CitiGroup, Facebook, Disney, and Bank of America, according to Reuters. The fund’s total holdings of US-listed equities is now at USD 10 bn compared to USD 2 bn at the start of 2020. Bloomberg and the Financial Times also have the story. The PIF may want to borrow as much as USD 10 bn on margin to support the buying jag, Bloomberg reports separately.

GLOBAL MACRO-

The head of the World Trade Organization has resigned even though he had a year left on his contract, the New York Times reports. The resignation of Roberto Azevêdo, a Brazilian diplomat, caught policymakers by surprise.

The IMF appears to be gearing up for a downwards revision of its (already doom-and-gloom-ridden) global economic outlook as April data point to an even worse case scenario than previously set out, IMF Chief Economist Gita Gopinath said last week, according to Reuters. The institution pointed to “collapsing consumption,” among other data points, as key factors weighing down its outlook for the global economy. The IMF had already said last month it expects to see a 3% contraction this year.

Countries reopening could help reverse the ever-worsening outlook — but that remains contingent on sufficient testing, contact tracing, and “appropriate quarantining” for covid-19 cases, Gopinath said.

HSBC has already cut its own outlook and is now forecasting a 4.8% contraction in the global economy this year, down from a 3.3% contraction it expected in early April, the newswire reports. The downgrade comes as some countries have decided to tighten or extend their lockdown measures, and places where these measures have been lifted are still seeing muted consumer sentiment and difficult job prospects.

Talk of “another Cold War” ratcheted up another notch over the weekend as US President Donald Trump suggested he might cut ties with China, Reuters reports. Shortly after, the US blocked the export of US technology to Huawei. Bolstered by early signs it is successfully restarting its economy, China responded by saying it would put US companies on an “unreliable entity list” and yesterday said that it would strengthen monetary policy support for the economy. The tiff is front page news on both sides of the Atlantic: New York Times | Financial Times].

The US House of Representatives has narrowly passed a USD 3 tn covid-19 relief bill which will likely face a strong challenge from the Repulican-majority Senate and a potential White House veto, the Associated Press reports.

The US administration is looking to restore a portion of its WHO funding after President Donald Trump decided last month to pull funds from the organization over alleged “disinformation” on covid-19 that favored China, Fox News reports, citing a draft administration letter. The US has typically contributed USD 400 mn annually to the WHO but is now reportedly looking to match whatever figure China commits to the organization, which has in the past amounted to one tenth of the US’ contributions.

ON OUR PODCAST THIS WEEK- Meet the founder of the first “dragon” in Egypt. Sahar Salama’s TPay first made headlines in 2017 by making the first wholesale acquisition of a fintech company in Egypt when they acquired their primary competitors DCBEgypt. In 2018, they became the region’s first dragon, returning a multiple of the entire A15 fund to their investors, when A15 sold its 76% stake to Helios Investment.

Tap or click here to listen to the episode on our website | Apple Podcast | Google Podcast | Omny. We’re also available on Spotify, but only for non-MENA accounts. Subscribe to Making It on your podcatcher of choice here.

It was a blessedly quiet night on the airwaves last night: The only moment of interest came on Al Kahera Alaan when Lamees El Hadidi interviewed Sanofi regional manager Nibal Dahaba about the company’s progress in developing a covid-19 vaccine (watch, runtime: 6:22).

Dahaba said that while the company is making progress on a vaccine (as widely reported in the global press), It is unlikely that a vaccine will be available before the middle of next year. Although Dahaba expects the company to begin clinical trials in the coming weeks, she estimated that it might still be another 1-1.5 years before a vaccine is ready to be used.

CBE decides to keep a bullet in its chamber, leaving rates on hold at MPC meeting: The Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) left interest rates on hold for the second consecutive month when it met on Thursday, the central bank said in a statement (pdf). The bank had previously slashed rates by an unprecedented 300 bps in an emergency meeting on 16 March. Reuters and Bloomberg have the story.

Where rates stand: The MPC kept overnight deposit rates at 9.25%, the lending rate at 10.25%, and the main operation rate and discount rates at 9.75%

Inflation remains in check despite April uptick: While annual inflation accelerated to 5.9% in April from 5.1% in March, the central bank said that “keeping key policy rates unchanged remains consistent with achieving the inflation target of 9% (+/-3%) in 4Q2020 and price stability over the medium term.” April inflation picked up due to an unfavorable base effect, along with price increases in food items on the back of the covid-19 pandemic and of Ramadan, it said.

The CBE will do what is necessary to “support the recovery of economic activity,” it said, noting that the “broad improvement” in the economy in the first two months of 2020 and the “diversity of the economy provide some cushion given the resilience of some sectors.”

Analysts saw it coming: Ten out of 12 analysts told Enterprise ahead of the meeting that the committee would stay put. The MPC will next meet on 25 June 2020.

Unemployment rises to 9.2% in April as coronavirus lockdown bites: Egypt’s unemployment rate rose to 9.2% in April from 7.5% in the second quarter of 2019 as the government’s precautionary measures to limit the spread of the novel coronavirus hit the economy, Reuters reports, citing Capmas figures. Data released by the state statistical agency on Thursday showed that unemployment continued to fall before the onset of the pandemic, declining to 7.7% in the first quarter of the year from 8.1% a year earlier. Capmas stopped collecting data in the middle of March, when the Madbouly government ordered closed most nonessential government offices.

Expect the number of jobless to continue to rise in May as the lockdown measures extended into their second month. Where it goes from there is anyone's guess, but the EBRD’s Bassem Kamar told us last week that unemployment figures in Egypt should normalize to 2019 levels by the middle of next year.

Many countries are grappling with soaring unemployment figures as emergency measures taken in response to the pandemic wreak havoc on businesses. The US’ record-breaking 14.7% unemployment rate at April’s end has far surpassed the speed at which the economy has shed jobs at any other time in the country’s history, including the Great Depression.

Fresh funding from the IMF will help boost investor confidence in Egypt as portfolio outflows from emerging markets begin to reverse, Fitch Ratings said on Thursday. The government received last week a USD 2.8 bn rapid financing instrument (RFI) and is looking for as much as USD 5.5 bn under a separate stand-by arrangement (SBA) from the international lender.

This comes as Egypt’s risk indicators are “moderating” and yields on USD-denominated bonds begin to cool off. Yields on 10-year USD bonds dipped to 8-8.5% in early May from 12% in mid-March.

“Monetary and fiscal policy will play an important part in how Egypt weathers the crisis and in any agreement on an SBA with the IMF … An SBA is likely to bring renewed focus on exchange-rate flexibility, especially if foreign reserves remain under pressure. The EGP, which appreciated by 11% against the USD in 2019, has shown minimal volatility so far in 2020, despite the shock,” the ratings agency says. Fitch expressed its concern that the lack of volatility in the currency could limit renewed portfolio inflows.

Fitch expects Egypt’s gross foreign reserves to dip to USD 31 bn by the end of the year, which would be enough to cover 4.5 months of external payments. Net reserves fell in April for the second consecutive month to USD 37 bn as the Central Bank of Egypt (CBE) honored USD 1.6 bn-worth of external obligations — including a USD 1 bn eurobond that matured last month — and provided an undisclosed sum of FX to back the purchase of strategic goods. Nonetheless, the CBE’s gross foreign reserves “are still substantial.”

National Investment Bank shelves plans to privatize portfolio companies: The National Investment Bank (NIB) has postponed plans to market seven of its portfolio companies to investors due to the covid-19 crisis, Masrawy reports, quoting an unnamed source from the state-owned bank. The plan, first announced in November, would have seen the Sovereign Fund of Egypt market partial or entire stakes owned by NIB to local or foreign investors, including its stake in the Arab Investment Bank, the source said. Other companies in which the NIB holds stakes include state-owned Abu Qir Fertilizers, Sidi Kerir Petrochemicals, e-Finance, and Madinet Nasr Housing and Development. The move comes amid ongoing turbulence in global equity markets thanks to the covid-19 pandemic.

M&A WATCH- Suez Canal Bank sells Midor stake for USD 30.6 mn: The Suez Canal Bank has approved the sale of its 1.27% stake in the Middle East Oil Refinery (Midor) for USD 30.6 mn to the Egyptian General Petroleum Corporation, which owns 78% of the company, a bank statement said on Wednesday.

The sale comes less than two weeks after Suez Canal Bank agreed to lend EUR 3 mn to Midor’s electricity company, MidElec. MidElec signed a EUR 30 mn loan agreement with four banks to boost the capacity of its power plant which supplies the company’s oil refinery. The company will borrow EUR 12 mn from both the National Bank of Egypt and Credit Agricole, EUR 3 mn from the Suez Canal Bank, and EUR 3 mn from Faisal Islamic Bank.

TE Egypt to participate in huge subsea Africa, Middle East internet cable: Telecom Egypt (TE Egypt) is among a consortium of global telecoms firms partnering to lay a giant subsea cable between Europe, the Middle East and 16 countries in Africa, according to a joint press release (pdf). Known as ‘2Africa,’ the 37k-km will be one of the world’s largest subsea cable projects and will significantly expand broadband and mobile networks across Africa and the Middle East. The cable will deliver more than the total capacity of all subsea cables connected to Africa when it comes online in 2023-2024, the statement said. Participating companies include Facebook, Orange, Vodafone, China Mobile International, MTN GlobalConnect, STC, and WIOCC, and the cable will be constructed by Alcatel Submarine Networks.

TE Egypt will install a new cable linking Egypt and Saudi Arabia across the Red Sea: This will include new landing stations, a cable between Ras Ghareb and Suez, and next-gen fibre cables running parallel to the Suez Canal between Ras Ghareb and Port Said. “We are honored to be part of such a revolutionary project alongside renowned global and African partners,” said TE Egypt CEO Adem Hamed.

The story is getting attention in the foreign press: Bloomberg | Wall Street Journal | Forbes | BBC | TechCrunch | Daily Mail.

DEBT WATCH- Raya plans EGP 640 mn securitized bond sale, CIB to manage offering: Raya Holding is planning a new EGP 640 mn securitized bond issuance to finance its short-term debt and has reportedly hired CIB to manage the offering, Al Shorouk reports, quoting unnamed banking sources. This comes as part of a program to issue EGP 1 bn-worth of asset-backed securities this year. Raya completed a EGP 500 mn offering in October — managed by CIB, the National Bank of Egypt (NBE) and Attijarawafa Bank — but last month sources told the local press that the company was looking to reissue the bonds in light of the Central Bank of Egypt’s 300 bps interest rate cut in March.

CIB is also working on a EGP 10 bn issuance by NUCA: The New Urban Communities Authority’s (NUCA) single-tranche EGP 10 bn securitized bond offering is close to completion, sources told the newspaper. The consortium of banks working on the issuance includes CIB, NBE, QNB, and the European Bank for Reconstruction and Development. NUCA recently received the backing of the Finance Ministry to sell EGP 20 bn-worth of securitized bonds and borrow another EGP 20 bn from EBRD and the NBE over the coming period to finance work in new cities. The authority securitized EGP 10 bn of its receivables late last year (here and here) as part of the ongoing program.

DEBT WATCH- Planning Ministry approves USD 300 mn EBRD loan for Damietta port: The Planning Ministry has given Damietta Port Authority the green light to obtain a USD 300 mn loan from the European Bank for Reconstruction and Development (EBRD) to finance the construction of a second container terminal at the port, Al Shorouk reports, quoting an unnamed official. The EBRD agreed in principle last year to lend the authority up to EUR 400 mn to finance, but the covid-19 crisis delayed government approval, the official said.

Briefly noted:

• Morgan Stanley’s MENA small caps index added Ibnsina and CIRA while removing Ezz Steel and Pioneers.
• State-owned banks have sold EGP 136 bn worth of high-interest saving certificates in the seven weeks since their launch on 22 March.

EARNINGS WATCH- GB Auto posted net profits of EGP 138.4 mn in 1Q2020, soaring 430.6% y-o-y from EGP 26.1 mn during the same quarter last year, according to an earnings release (pdf). Revenues during the quarter inched up 0.8% to EGP 5.89 bn. The company’s auto and auto-related (A&AR) segment’s revenues dipped 4.1% y-o-y to EGP 4.7 bn, but reversed a bottom-line loss of EGP 93.1 mn during the same quarter last year. The segment’s revenues is “a marked improvement considering the low seasonality associated with the first quarter of the year as well as the challenging external environment caused by the covid-19 outbreak towards the end of the quarter.”

The government’s covid-19 lockdown measures — including shutting down traffic departments — began weighing on passenger car demand in mid-March “and further compounded existing regulatory constraints that were pressuring the three-wheeler division.” The pandemic has hindered the company’s “path toward a strong rebound” that began at the outset of 2020, CEO Raouf Ghabbour said.

Looking ahead: “We anticipate short-term repercussions on demand levels and business performance in the coming months,” Ghabbour said, noting the company has shelved its capex plans for the year. Demand is already picking up at the company’s showrooms

We’re facing a global food crisis, even though there’s enough food to go around: With an “unprecedented” breakdown in food supply chains and consumer demand, the world is now facing a food crisis that is driving up prices and putting vulnerable people at greater risk, the Wall Street Journal says.

The crisis comes as we face supply and demand problems simultaneously: On the supply side, a handful of countries are imposing protectionist measures — such as Russia and Romania limiting their wheat exports — in a bid to secure local consumption needs. Other countries are still trying to export their goods as normal, but are bogged down in logistical hurdles, including not being able to tend to their crops as a result of national lockdowns (which have also dried up some domestic markets) or their cargoes going bad while being held up at customs. On the demand side, people engaging in panic buying have left some markets with empty grocery store shelves, and others are struggling to finance their food needs amid job losses and slowdowns in business activity.

Egypt, for one, has rushed to secure its wheat needs by continuing imports during the annual harvest season, during which we typically hit “pause” on imports of the grain. The reticence of other producers to export has meant that state grain buyer GASC has only imported 240k tons of wheat since the local harvest began in mid-April. Its last tender attracted just five offers — the fewest in more than a year. But the upcoming harvest season in the Northern Hemisphere looks like it’s going to start at the best time to help Egypt secure its target wheat supplies.

NYT, WaPo bureau chiefs summoned over their coverage of Egypt: The State Information Service (SIS) summoned on Friday New York Times Cairo bureau chief Declan Walsh and Washington Times bureau chief Sudarsan Raghavan over their newspapers’ recent coverage of Egypt, according to a statement. Walsh and Raghavan are expected to meet with SIS head Diaa Rashwan today. The summoning comes after a piece Walsh penned on freedom of expression in Egypt was published on Thursday.

An Ismailia doctor was the subject of harassment and threats from local community members afraid of getting sick after her close proximity to covid-19 patients, the AFP reports. Healthcare professionals are facing rising hostilities from communities fearful of frontline defenders’ potential for transmission.

Ethiopia “does not have a legal obligation to seek the approval of Egypt” to begin filling the controversial Grand Ethiopian Renaissance Dam and has made “a remarkable and generous gesture in offering an agreement to Egypt,” the African country said in a 22-page letter to the UN Security Council, according to Ahram Online. This came after Ethiopia proposed an early agreement to move ahead with the first phase of filling the dam that was rejected by Egypt and Sudan for omitting key points of dispute over the timeline and long-term operation. The letter was also a response to an earlier Egyptian complaint to the UN. Ethiopia has repeatedly stated that it will begin filling the dam in July without committing to a formal agreement to resolve the dispute, and earlier this year walked away from US-backed talks.

Egypt was the world’s biggest frozen strawberry exporter in 2019, accounting for 20% of global exports with 140k tonnes exported, according to the local press. Germany imported 24% of Egypt’s total frozen strawberry exports, making it the world’s biggest market for the fruit. Frozen strawberry exports increased by 40% from 2015 to 2019, despite shipments of the fruit from Egypt being linked to an outbreak of hepatitis A in Virginia back in 2016 and the EU putting in place additional inspection requirements. Arab countries such as Saudi Arabia and UAE had also banned importing the fruit altogether over high levels of residual pesticides.

Orascom Construction has signed an agreement to build the first phase of ZED Sheikh Zayed with Ora Developers, who secured a EGP 1 bn loan Banque Misr for the project, according to a disclosure to the EGX (pdf). The first phase will see 600 homes completed by 2023. The entire project will consist of six phases containing 4.5k houses in total.

Officials are looking at ways to restructure EGP 250 bn in debt owed by the troubled Egyptian Railway Authority (ERA), Ittihadiya said in a statement. The authority currently owes EGP 100 bn to the central bank and EGP 150 bn in government loans. The ERA is projected to record nearly EGP 10 bn in operating losses this fiscal year alone and is expected to only make a third of the EGP 14.9 bn it needs to cover its operating costs.

The National Bank of Egypt (NBE) is leading negotiations with Qatar National Bank, CIB and the National Bank of Kuwait to form a consortium that will provide a USD 600 mn loan to the Red Sea Petroleum Refining Company, according to Al Mal.

Misr Italia for Urban Development has received a EGP 650 mn joint loan from the National Bank of Egypt (NBE), the Egyptian Gulf Bank and the Arab Investment Bank (AIB) to finance the construction of Cairo Business Park in New Cairo, according to Al Shorouk. The project will see the construction of a business center that will include 42 administrative, commercial and service buildings along with a 144-room four-star hotel.

The Supreme Media Council outlined yesterday nine new conditions foreign media organizations will have to meet before receiving licenses to operate in Egypt, according to a statement carried by Masrawy. These include setting up a representation office, hiring a local legal advisor, and refraining from content which “promotes violence, hatred, contempt of religions, [redacted], or violates intellectual property rights.”

This could be the best image of Jupiter astronomers have ever taken: Researchers recently used the Gemini North telescope in Hawaii and a technique referred to as “lucky imaging” to develop a collection of ultra-high resolution images of Jupiter that reveal interesting things about the planet. The lucky imaging technique involves capturing a large number of images and filtering out only the sharpest.