Monday, 28 June 2021

EnterprisePM — Sovereign Sukuk Act gets final House nod, paving the way for a potential USD 2 bn issuance.

TL;DR

WHAT WE’RE TRACKING TONIGHT

It’s a light read today, ladies and gentlemen. And honestly, with this inferno and a short work week, we can all stand to enjoy a lighter day.

On that note, the central bank has confirmed that Thursday, 1 July will be a banking holiday in observance of 30 June. The Madbouly cabinet had already decreed Thursday a national holiday for the public and private sector.

THE BIG STORY TODAY- The House has (finally) signed off on the Sovereign Sukuk Act: The dearth of business news stories was compensated by an active House of Representatives, which today gave the final sign off on the long-awaited Sovereign Sukuk Act. This paves the way for the government to come out with its maiden sukuk issuance, which could be as high as USD 2 bn, according to previous statements by Finance Minister Mohamed Maait.

This wasn’t the only bill that got a sign off from the House: A bill to give new authority over international arbitration to the Supreme Constitutional Court was also approved today. We cover the votes chapter and verse in the Speed Round below.

** CATCH UP QUICK on the top stories from today’s EnterpriseAM:

  • RenCap being a Debbie Downer: Only 10 EGX-listed companies have the market cap and liquidity to be really attractive to foreign investors, Amr Helal, Renaissance Capital’s North Africa CEO, said at Portfolio Egypt 2021 conference yesterday.
  • Oil producers riding the wave: The spike we’ve seen in oil prices might be playing to oil producers’ advantage in the bond market, as even our own Arqaam Capital is favoring Bahraini bonds over Egypt’s.
  • Infrastructure diplomacy gets a shot in the arm, after President Abdel Fattah El Sisi’s historic summit in Baghdad yesterday.

THE BIG STORY ABROAD- The US carried out airstrikes on Iran-backed militia in Iraq and Syria yesterday, stoking tensions between the US and Iran a week after hardliner Ebrahim Raisi was elected as Iran’s president and nuclear agreement talks continue. At least five Iraqi militiamen were killed, said The Syrian Observatory for Human Rights. The US said that the strikes came in response to drone attacks by the militias — Kata’ib Hizbollah and Kata’ib Sayyid al-Shuhada — against US personnel and facilities in Iraq, according to a Pentagon statement. This is the second strike against Iranian backed militias during the Biden administration, after the US retaliated in response to a strike that killed an American contractor in February.

The news is getting attention far and wide: Bloomberg | Axios | Reuters | The Financial Times | CBS News | NBC News | The Guardian | The Associated Press | Deutsche Welle

FOR TOMORROW-

International Cooperation Minister Rania Al Mashat is heading a discussion called Policy Reform in the Making: Stakeholder Engagement through Economic Diplomacy that is being organized by The London School of Economics (LSE) tomorrow from 3pm-4:15pm. The event comes on the heels of the launch of the Minister’s new book Stakeholder Engagement through Economic Diplomacy and will discuss the multi-stakeholder approach to economic development. Other speakers include Carmen Reinhart, the vice president and chief economist of the World Bank Group, Minouche Shafik, Director of the LSE, and Erik Berglof, chief economist of the Asian Infrastructure and Development Bank and the LSE. You can register for the event through this link.

We had a conversation with Al Mashat about her new book and its motivations and intended impact last week that you can check out here. Meanwhile, the book is available to read online through the LSE.

🗓 CIRCLE YOUR CALENDAR-

It’s the third day of the Big 5 Construct Egypt at the Cairo International Convention Center.

The Cairo International Book Fair will open its doors at the Egypt International Exhibition Center on Wednesday, 30 June. The two-week event will run through to 15 July.

The Clean Energy Business Council (CEBC) MENA are holding a webinar titled Energy Efficiency in the MENA region: Status and Outlook on 6 July at 3:30pm.

The British Egyptian Business Association (BEBA) is organizing a virtual education week from 5-6 July with three seminars planned. The first, taking place at 10am on 5 July, will discuss skills-based learning while the future of investment in education will be the topic on the table at 12:30pm the same day. On 6 July, a talk on the digitalization of education in Egypt will be held at 12pm.

🚙 FOR YOUR COMMUTE-

Saudi Aramco is looking to lead a future market for blue hydrogen, an alternative form of the zero-carbon fuel made using natural gas, according to a Bloomberg report quoting Aramco CTO Ahmad Al Khowaiter. Worldwide demand for the so-called fuel — which is made through a process that captures its own carbon emissions and is often processed into ammonia for easier transportation — is still in its infancy, and we’ll need to wait until the late 2020s, the business information service says. When Aramco eventually scales up, it could spend some USD 1 bn on carbon capturing for every 1 mn tonnes of blue ammonia produced.

Meanwhile, the neverending debate on the covid-19 virus’ origins may never reach a satisfying conclusion, with the Biden administration saying that the ongoing 90-day probe into the origins of the virus “may not produce a definitive explanation,” reports the Wall Street Journal. Instead, the review — which should be on President Biden’s desk in 45 days — might turn up clues that will aid future investigations. Further adding to the unlikeliness that the probe will finally solve the global controversy, China is refusing to allow further access to data and scientists from the Wuhan lab, leading investigators to instead look through vast stores of intercepted foreign electronic communications to find leads.

But that isn’t going to stop the 24-hour news cycle from overplaying it, with the latest he-said, she-said coming from Bloomberg. The newswire is out with a story on how Australian virologist, Danielle Anderson — the only foreign scientist to have ever worked in the Wuhan Institute of Virology — is casting doubt on the theory that the covid-19 virus escaped from a lab in Wuhan.

📺 ON THE TUBE TONIGHT-

It’s another awesome adaptation from the King of Horror: Stephen King-penned Lisey’s Story is a miniseries adaptation of one of the author’s best novels by the same name. Lisey (played by Julianne Moore) begins to experience an increasingly terrifying series of events centered on the memory of her late husband who was a famous and wildly successful novelist. The story is brought off the ground when an unhinged and stalkerish fan comes after Lisey to release her husband’s unpublished works. As she goes through them herself, she realizes that he wrote about an alternate reality that comes alive.

The latest in Euro 2020: Croatia is going up against Spain at 6pm, while France will compete against Switzerland at 9pm. The victors of both of today’s matches will end up playing each other in the quarter finals on 2 July in Saint Petersburg.

Who's going to the quarter finals so far? Yesterday’s matches saw the Czech Republic beat the Netherlands 2-0, clearing the way for them to play against Denmark on 3 July for the quarter finals. Meanwhile, fan-favorite Portugal was taken out of the running after losing to Belgium yesterday in a 1-0 match. Belgium will proceed to go up against Italy on 2 July in Munich, also for the quarter finals.

🎤 OUT AND ABOUT-

Ubuntu Gallery has launched their annual summer exhibition, Ubuntu Revisited, that will run until 7 August.

Being more sustainable in choosing what you wear and how you purchase is the topic up for discussion in an RDNA Salon talk tomorrow at 6:30pm at Maadi’s KMT House.

💡 UNDER THE LAMPLIGHT-

A guide to navigate the twists and turns of a family business: We’ve talked to a lot of our readers over the years and many of you are budding entrepreneurs, owners of family businesses, or investors who seek successful businesses. Harvard Business Review released the Family Business Handbook: How to Build and Sustain a Successful, Enduring Enterprise to help mitigate the challenges that come when you share DNA and the executive suite. Family business experts Josh Baron and Rob Lachenauer offer ways to communicate effectively, manage conflict, and build the right governance structures.

Want to hear more about the experiences of local family businesses? Check out these episodes of Making It:

  • Surviving the end of a trend: going beyond cupcakes with NOLA (listen, runtime: 38:51).
  • One ring to rule them all: How the Azza Fahmy brand became a precious heirloom that was nourished into a global luxury powerhouse (listen, runtime: 29:27).
  • Mr and Mrs Claus: The couple behind the killer concierge app Elves (listen, runtime: 29:13).

☀️ TOMORROW’S WEATHER- The inferno continues: Expect daytime highs of 41°C and nighttime lows of 24°C in the capital city tomorrow, according to our favorite weather app.

SPEED ROUND: LEGISLATION WATCH

One giant leap for our sovereign sukuk sale…

The long-awaited Sovereign Sukuk Act will soon be the law of the land, after the House of Representatives gave it a final vote in a plenary session today, Youm7 reports. The act — which puts in place the legal framework under which the government will issue sharia-compliant debt on international and local markets — now needs to be ratified and its executive regulations published. This is expected to happen within three months at most.

A refresher on the framework: It will allow the government to sell ijara, mudaraba, istisnaa, murabaha, and wakala sukuk in local and international debt markets, according to a copy of the draft law seen by Enterprise in December. It will also set a term limit of 30 years on all sovereign sukuk and establish the Sovereign Sukuk Company, a joint stock company to execute and manage sales. The act’s executive regulations will cover setting up a regulatory oversight committee, clarifying how disputes between the government and sukuk holders should be handled, and will form an association to protect the rights of investors.

When will we see a sovereign sukuk issuance, and what’s the expected size? The sign off paves the way for the government to come out with its maiden sukuk issuance, but the timing and size has yet to be confirmed. Finance Minister Mohamed Maait said earlier this month that the government’s inaugural sukuk sale could be to the tune of USD 2 bn and hit the market at the start of the state’s fiscal year in July. Maait, however, was careful to point out that while the ministry is aiming to quickly pull the trigger on a USD 2 bn issuance, the exact size and timing is yet to be finalized.

ALSO FROM THE HOUSE- SCC given powers over Int’l arbitration: Amendments giving the Supreme Constitutional Court (SCC) authority over international arbitration rulings were handed a final vote by MPs during today’s plenary session. The changes give the court power to override international court and arbitration rulings that it believes affect national and economic security, as well as give the prime minister the right to request the SCC consider whether a given verdict by an international court or arbitration body breaches the Egyptian constitution. We had more on the changes in this morning’s EnterpriseAM.

Other legislation approved today include:

  • A law to set up an emergency medical response fund. The fund will replace the current system of disparate family health centers around the country providing financial support during major emergencies.
  • A law to set up a public charity fund for projects to benefit science, culture, healthcare, rural infrastructure and slums development, and street children.

SPEED ROUND: PUBLIC ENTERPRISES

A last-ditch effort to save Egyptian Iron and Steel?

Ukraine’s Vazhmash is serious about saving Egyptian Iron and Steel: Ukraine-based industrial player Vazhmash has fielded a “serious” offer to step in and revive defunct state-owned Egyptian Iron and Steel, Khaled El Feky — a board member at Egyptian Iron and Steel parent company the Metallurgical Industries Holding Company (MIHC) — told us, confirming statements attributed to Public Enterprises Minister Hisham Tawfik by Al Mal this morning. The offer is due to be reviewed today, and might be discussed by Egyptian Iron and Steel’s board of directors as early as tomorrow, El Feky said. Egyptian Iron and Steel, which is currently undergoing liquidation, said last week it received a bid from a Ukrainian company looking to revamp its facilities under a revenue sharing partnership instead of pushing ahead with a liquidation plan.

With Vazhmash’s offer on the table, there’s hope the company could make a comeback. The perennial lossmaker officially halted operations in late May and appointed accountant and former liquidation advisor for MIHC Mostafa Hassan to oversee a liquidation process that is expected to take up to two years. It spinned off its mining operations in tandem with selling its steel plant in Helwan, and will need to look into ways to sell off 6 mn sqm of land assets to be able to pay off its EGP 9 bn in outstanding debts if it decides to go ahead with liquidation.

IN OTHER PUBLIC ENTERPRISES NEWS-

OC to build seven new factories for state-run textiles companies in EGP 2.6 bn plan: Orascom Construction (OC) was tapped to build seven new factories for state-owned Misr For Spinning and Weaving and Damietta Spinning and Weaving at a cost of EPG 2.6 bn under a contract signed with the Public Enterprises Ministry’s Cotton and Textile Industries Holding Company, the ministry said in a statement today. The new facilities come as part of the government’s bid to streamline state-owned spinning and weaving companies by merging companies, selling assets, and purchasing new machinery and equipment. The EGP 21 bn plan could see the yearly output of state ginning factories more than doubled to 4 mn qintars and spinning mills and textile plants more than quadrupled to 188k and 199k cubic meters.

GO WITH THE FLOW

Go with the flow on 28 June

The EGX30 fell 0.3% at today’s close on turnover of EGP 1.41 bn (11.4% above the 90-day average). Regional investors were net buyers. The index is down 5.3% YTD.

In the green: GB Auto (+3.5%), Credit Agricole Egypt (+3.1%) and Abou Kir Fertilizers (+2.5%).

In the red: Ezz Steel (-6.0%), Orascom Investment Holding (-5.4%) and Orascom Financial Holding (-3.2%).

THE MACRO PICTURE

EMs have every right to worry about capital outflows

Are foreign reserves enough to protect EMs from capital outflows? Not really, argues Reserve Bank of India’s former governor Duvvuri Subbarao in an op-ed for the Financial Times. For years, India has been building up its USD stock — and many have started to take for granted that, since the vaults are stacked with hard currency, capital volatility is just a minor nuisance. But FX reserves have been increasingly proving to be far from perfect, Subbarao says. They can protect from volatility in capital outflows, but often fail to address key sources of pressure, he adds.

FX reserves or not, pressure on capital outflows is an ever present reality: The Indian central bank has been eager to prevent a sudden appreciation of the INR and the way to do so is to consistently stock up on USD. The result is a flood of local currency liquidity that would either be let loose or swallowed up. Bond selling (which means letting the liquidity roam around) directs foreign investors to the stock market because they’d expect to make higher returns as interest rates remain low. Bond buying, on the other hand, directs those investors to carry trades and bond markets as it hikes interest rates.

Someone (or some area of the economy) has to foot the bill, says Subbarao. This means that, no matter how much reserves an EM might have, there’s always the need for central banks to stay vigilant to prevent erratic outflows.

The biggest source of anxiety at the moment is the US Federal Reserve, which — spooked by the spectre of rising inflation — signalled in its most recent meeting that it could hike interest rates twice in 2023, which is ahead of its earlier forecast and a move that would reverse extended pandemic-era monetary support.

Why the Fed’s actions are a reason for EMs to hold their breath: Fed tapering leads to a spike in US treasury yields, which makes EM assets less appealing and could mean bns of USD potentially seeking an exit. This has already been talked about more times than we could count in recent months, with the hype having reached its peak earlier this year. At the time, expectations of skyrocketing post-covid inflation prompted many to panic that the Fed will sooner or later lift its monetary support to cool down prices, leading to sudden surge in treasury yields and bringing back memories of the so-called EMs “taper tantrum” of 2013.

But why haven’t we been seeing this reflected in markets? This time around, signs are actually suggesting that we’re moving toward what could be rather thought of as “taper tranquility.” Investors seem calm even after the Fed’s announcement earlier this month that it’s comfortable unwinding stimulus, says the Wall Street Journal’s Jon Hilsenrath and Sam Goldfarb. There are two potential reasons at play, one good and one bad. The first is that US policymakers may have simply gotten better at preparing us for a policy pivot, and the second, more “problematic” explanation is that the Fed could end up being forced to move aggressively, meaning we’re “in for a rude awakening,” Hilsenrath and Goldfarb say.

Sounds familiar? At the onset of the pandemic, the Central Bank of Egypt’s stock of foreign reserves fell almost USD 10 bn from a peak of USD 45.5 bn as foreign capital fled the country, the vital tourism industry shut up shop, and the central bank stepped up purchases of strategic commodities and met debt repayments. Despite a recovery since then to FX reserves north of USD 40 bn in May, the threat of foreign portfolio outflows is ever-present.

LITERATURE

Visit the bookstore to predict the next war

How scientists are using literature to pinpoint the world’s next conflicts: Around two years ago, professor of comparative literature Jürgen Wertheimer and his small team of literary scholars approached the German military with a strange project proposal. Wertheimer argued that by looking at books and other writings being published he and his team could identify civil wars and humanitarian disasters ahead of time, writes The Guardian. The proposal managed to get the backing of the army, and was named Project Cassandra, inspired by the Trojan priestess of Greek myth that had a gift of foresight.

The idea is that novels can act as a kind of literary seismograph, Wertheimer argues, giving warning signals and indicators of social trends and moods brimming at the surface. He attributes that to writers who have a “sensory talent” that helps them visualise a world that reflects the emotional interiors of individual lives. And if you take the idea that “history repeats itself” then looking at books published during peak periods of conflict can result in identifying patterns relating to past crises that could help allow for a certain degree of “prediction” of future unrest, writes History in Politics.

Basically, it looks at fiction as society’s ‘pulse,’ which could give us a clue into possible real world outcomes.

What is Project Cassandra? The project aims to highlight early on the shifts in societal contexts to allow for the prognosis of a conflict escalation. They look at whether a book receives awards or is banned from the country or whether some topics are being thrown in the limelight or left out of writing, with the aim of spotting possible propaganda pushes from regimes, crackdowns on certain subjects, or a shift in public sentiment. The project was discontinued last year as government budgets were redirected towards dealing with the covid-19 pandemic. However, the idea has taken shape and form and could be reworked to investigate other topics in the future, believes Wertheimer.

The methodology: Turning literary criticism into data points was one of the requirements put forth by the German defense ministry to provide the project with more funding as they aimed to create “emotional maps” of crisis regions, especially MEA. The researchers developed a scoring system for each book that looked at nine indicators: thematic reach, censorship of the text, censorship of the author, media response, scandals around the text, scandals around the author, literary awards for the author, literary awards for the text, and narrative strategy. Each indicator was given a score between -1 and +3 and the higher the total score at the end, the more dangerous the text. By looking at many books from different regions, they were able to jot down a figure for how likely an area could break out in conflict.

Project Cassandra managed to forecast 2019’s civil protests in Algeria, two years before they started. Some of the books used to highlight Algeria as a region of interest included Body Writing by Mustapha Benfodil, a fictional tale about astrophysicist killed in a mysterious car accident on the day of the presidential election (which was given a score of 20) and La Faille by Mohamed-Chérif Lachichi (scored 22) that portrayed violence in Algerian prisons.

The idea behind the project isn’t too out there… Some books have managed to predict future trends before: The most famous of which has to be George Orwell’s masterpiece 1984 that indicated a future of corruption, government control, and surveillance, according to The Atlantic. Other lesser known books were “eerily” on the nose on a variety of predictions and The Times has a whole list that will make you question everything. For example, John Brunner’s 1968 book Stand on Zanzibar imagined the formation of the EU, the rise in global terrorism, increasing acceptance of gay marriage, and the decriminalization of marijuana. Even more mind boggling is the name he gives the future US President… Mr Obomi.

CALENDAR

26-29 June (Saturday-Tuesday): The Big 5 Construct Egypt, Cairo International Convention Center, Cairo, Egypt. The Big 5 Egypt Impact Awards will also be taking place at the event on 27 June.

29 June (Tuesday): The London School of Economics (LSE) discussion “Policy Reform in the Making: Stakeholder Engagement through Economic Diplomacy” from 3pm-4:15pm. You can register through this link.

30 June (Wednesday): The IMF will complete a second review of targets set under the USD 5.2 bn standby loan approved in June 2020 (proposed date).

30 June (Wednesday): 30 June Revolution Day.

30 June- 15 July: The Cairo International Book Fair, Egypt International Exhibition Center.

July + August: Thanaweya Amma exams take place.

1 July: (Thursday): National holiday in observance of 30 June Revolution.

1 July (Thursday): Large taxpayers that have not yet signed on to the e-invoicing platform will suffer a host of penalties, including removal from large taxpayer classification, losing access to government services and business, and losing subsidies.

1 July (Thursday): Deadline for 17 EGX-listed companies to file their 1Q2021 earnings.

1-10 July (Thursday-Saturday): The government’s fuel pricing committee will meet to announce 3Q prices.

4 July (Sunday): Ismailia Economic Court to hold hearing on Ever Given compensation case.

Mid-July: Legislative session expected to end.

19 July (Monday): Arafat Day (national holiday).

21 July (Wednesday): Clean Energy Business Council’s webinar Women entrepreneurs in clean energy (3pm)

20-23 July (Tuesday-Friday): Eid Al Adha (national holiday).

23 July (Friday): Revolution Day (national holiday).

23 July-11 August (Friday-Wednesday): Tokyo 2020 Olympics.

2-4 August (Monday-Wednesday): Egypt is hosting the Africa Food Manufacturing exhibition at the Egypt International Exhibition Center.

5 August (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

9 August (Monday): Islamic New Year.

12 August (Thursday): National holiday in observance of the Islamic New Year.

12-15 September (Sunday-Wednesday): Sahara Expo: the 33rd International Agricultural Exhibition for Africa and the Middle East.

15 September (Wednesday): The CFO Leadership & Strategy Summit is taking place in Egypt.

16 September (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

30 September-2 October (Thursday-Saturday): Egypt Projects 2021 expo, Egypt International Exhibition Center, Cairo, Egypt.

30 September-8 October (Thursday-Friday): The Cairo International Fair, Cairo International Conference Center, Cairo, Egypt.

1 October (Friday): Businesses importing goods at seaports will need to file shipping documents and cargo data digitally to the Advance Cargo Information (ACI) system.

1 October (Friday): Expo 2020 Dubai opens.

6 October (Wednesday): Armed Forces Day.

7 October (Thursday): National holiday in observance of Armed Forces Day.

12-14 October (Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria, Egypt.

18 October (Monday): Prophet’s Birthday.

21 October (Thursday): National holiday in observance of the Prophet’s Birthday.

24-28 October (Sunday-Thursday) Cairo Water Week, Cairo, Egypt.

27-28 October (Wednesday-Thursday) Intelligent Cities Exhibition & Conference, Royal Maxim Palace Kempinski, Cairo, Egypt.

28 October (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

30 October – 4 November (Saturday-Thursday): The first edition of Race The Legends, Egypt.

1-3 November (Monday-Wednesday): Egypt Energy exhibition on power and renewable energy, Egypt International Exhibition Center, Cairo, Egypt.

November: Egypt will host another round of talks to reach a potential Egyptian-Eurasian trade agreement, which can significantly contribute to increasing the volume of Egyptian exports to the Russia-led bloc that includes Armenia, Belarus, Kazakhstan and Kyrgyzstan.

1-12 November (Monday-Friday): 2021 United Nations Climate Change Conference (COP26), Glasgow, United Kingdom.

29 November-2 December (Monday-Thursday): Egypt Defense Expo.

12-14 December (Sunday-Tuesday): Food Africa Cairo trade exhibition, Egypt International Exhibition Center, Cairo, Egypt.

13-17 December: United Nations Convention against Corruption, Sharm El Sheikh, Egypt.

16 December (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

14-16 February 2022 (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, New Cairo, Egypt.

1H2022: The World Economic Forum annual meeting, location TBD.

May 2022: Investment in Logistics Conference, Cairo, Egypt.

27 June-3 July 2022 (Monday-Sunday): World University Squash Championships, New Giza.

**Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish below between the actual holiday and its observance.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2021 Enterprise Ventures LLC.

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