PM — Will a US-China bipolar world order emerge?

Happy Monday, friends. It’s hard to believe it’s only Monday, but here we are — and it’s still a relatively busy news week.

THE BIG STORY TODAY

Brmaja Innovation raises planned IPO stake: Saudi tech firm Brmaja’s Egypt-based subsidiary Brmaja Innovation is now looking to list 35% of its shares on the EGX within the next few months, up from a planned 20% previously, investment director Ahmed Said confirmed to Enterprise.

^^We’ll have more on this and other stories in tomorrow’s edition of EnterpriseAM.

PSA- Your daily commutes could get a bit pricier as Uber Egypt raises its rates: The ride hailing app announced it is revising upwards its pricing structure “in light of the new record-high fuel prices drivers are facing,” according to an email sent out to its users. In Cairo, the base fare for UberX rides is now EGP 8.50, rising EGP 0.50, while the minimum fare per trip now stands at EGP 14, up from EGP 13 previously. In Alexandria, the base fare is rising by EGP 0.30 to EGP 8.30, while the minimum fare now stands at EGP 12, from EGP 11 previously.

THE BIG STORY ABROAD

No more Happy Meals in Russia? McDonald’s has “initiated the process” to sell its business in Russia, after operating in the market for three decades, over Russia’s ongoing invasion of Ukraine. The fast food chain — which is often viewed as a symbol of American cultural imperialism — cited “the humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment” as reasons for making its continued operation in Russia “no longer tenable,” according to a statement. McDonald’s “expects to record a charge … of approximately USD 1.2-1.4 bn to write off its net investment in the market and recognize significant foreign currency translation losses.” The story is on the front pages of the Wall Street Journal, Reuters, Bloomberg, and others.

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

• A fresh IMF program could be sealed in a few months: The government expects to reach an agreement with the IMF on a fresh support package “within months,” Prime Minister Moustafa Madbouly said at a presser yesterday.
• The gov’t is trying to make life easier for tech startups: New rules will sweep aside obstacles for would-be tech entrepreneurs, government officials said yesterday, as part of the Madbouly government’s drive to attract private capital and drive growth of the domestic tech industry. The changes will make it easier for people to set up tech companies and offer a handful of tax exemptions and preferential customs treatment to some companies.
• Egypt to receive 500k tons of Indian wheat despite export ban: Egypt has agreed to buy 500k tons of wheat from India, Supply Minister Ali El Moselhy said, adding that an export ban introduced by New Delhi last week in response to surging local prices and a severe heat wave will not impact the shipment.

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???? CIRCLE YOUR CALENDAR-

Budget season is in full swing at the House: The House of Representatives will begin holding committee-level discussions of the draft FY 2022-23 budget and economic and social development plan this week, Ahram Online’s Gamal Essam El-Din reports. If approved, the budget will be signed into law by the president. Head here for a refresher on the draft budget’s key figures.

SOUND SMART- Our latest Enterprise Explains column has everything you need to know about how an Excel sheet turns into a budget, and then the law of the land.

Need to get your head around the new e-receipt system? Lynx Strategic Business Advisors are following up their recent webinar on e-invoicing with a session introducing the Finance Ministry’s new e-receipt system, which is set to officially roll out on 1 July. The webinar will feature FinMin tax development advisor Yasser Taymour, as well as reps from Talabat, Jumia, Yoco, and the World Bank. It takes place on 18 May at 12:00-1:30pm CLT. Register here.

Venture capital 101: The Egyptian Private Equity Association (EPEA) is hosting a paid crash course in all things venture capital at the Zamalek Marriott on 21-23 May. Led by Avanz Capital Egypt MD Hany Assaad, the three-day course will cover everything you need to know about Planet VC, from fund structures and portfolio-building to due diligence and valuations.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

LATER THIS WEEK-

It’s interest rate week here at home: The Central Bank of Egypt will likely raise interest rates when it meets this Thursday, according to a near consensus of analysts and economists we surveyed last week. Six of the seven respondents see the Monetary Policy Committee going ahead with a rate hike to combat inflation and stem portfolio outflows, with five forecasting rates to rise by up to 200 bps.

☀️ TOMORROW’S WEATHER- Expect a daytime high of 34°C and a nighttime low of 18°C tomorrow in the capital city, our favorite weather app tells us.

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WE’RE LOOKING FOR SMART, TALENTED PEOPLE to help us build some very cool new things. Today, we run two daily publications, five weekly industry verticals, and a monthly newsletter designed to make our readers feel just a bit smarter.

We have tons more in the pipeline — come help us build new publications. We offer the chance to work in a fast-paced newsroom on a broad range of topics and in a variety of formats. Our goal is simple: To create value for our growing community of 200k readers by telling stories that matter.

We’re looking for editors who want to run publications and teams, editors to help reporters craft stories and talented reporters. Egyptian and foreign nationals alike are welcome to apply. So are job-switchers: If you’re an equities analyst tired of the rat race, we’re a great place to come work.

Apply directly to jobs@enterprisemea.com and mention Patrick in your subject line.

Or hit this link for more information. It’s worth it — trust us.
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The Milky Way black hole pictured for the very first time: An international team of astronomers managed to give us a first glimpse of the supermassive black hole that lives at the center of our galaxy, captured by the Event Horizon Telescope (EHT), the New York Times reported. The photo’s significance lies in the fact that observing a black hole is basically impossible, since no light can escape it. Known as Sagittarius A* (Sgr A* ), the image was unveiled by the EHT Collaboration last week. For scale, the object is a staggering 4 mn times the mass of the Sun, an EHT team member said during the press conference revealing the image.

Female founders continue to face a fundraising glass ceiling: For every USD 1 women receive in investments in the African startup scene, their male counterparts get USD 25, according to the World Bank. From 2013 through 2021, all-female startup teams only received 3% of the USD 1.7 bn of investments flowing into the continent’s startup scene, compared to the 76% of investments secured by startups with all-male founding teams.

It’s not much better in the Occident: Startups with female-only founders secured only 2.3% of venture capital funding in the US last year, while startups with a mixed-gender founder team earned 14.7% of total VC funding in 2021. Over in Europe, all-male founding teams again secured the lion’s share of VC funding, accounting for 85.3% of the investment pie, compared to 1.1% going towards female-only founding teams and 13.6% for mixed-gender founder teams.

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???? ON THE TUBE TONIGHT-

(all times CLT)

A Gothic romantic drama for Tom Hiddleston fans: The Essex Serpent is set in the Victorian period but it feels like a modern-day drama. Based on a 2016 novel by Sarah Perry, the Apple TV+ six-episode mini series is a tense and heartfelt exploration of science, skepticism, faith, and grief, and how much they can all mess with you. It centers on a widow (played by the formidable Claire Danes) who is freshly freed from an abusive relationship and moves from London to Essex with plans to uncover a mysterious, mythical beast that the locals believe is haunting them. In the new town, she befriends the village priest (played by Tom Hiddleston) and despite their divergent beliefs, they begin to fall in love.

⚽ Only one English Premier League game today: At 9pm, Newcastle will face Arsenal, who are looking to reclaim their place in the top four at the expense of their north London rival Tottenham.

And two games in Italy’s Serie A: Juventus v Lazio at 8:45pm — a game that does not matter much to the Old Lady who will finish the season in fourth place regardless of the outcome, while Lazio look to increase their points difference with Roma, who is chasing it in sixth place. Fiorentina will face Sampdoria earlier at 6:30pm.

On the home front, Ghazl El-Mahalla vs Eastern Company kicks off at 6:30pm, while Smouha faces Al-Masry at 9pm.

???? OUT AND ABOUT-

(all times CLT)

Music lovers, head to AUC Tahrir’s Ewart Hall at 7pm today for a celebration of International Jazz Day featuring Egypt's Jazz All-Stars. The event will mark a belated celebration of International Jazz Day, which was officially designated as 30 April by UNESCO, for its artistic power to promote freedom of expression, peace, dialogue, diversity, and respect for human rights.This year’s festivity brings prominent musicians of the Egyptian Jazz scene and will be dedicated to supporting the renovation of Nassibian studio theater, which was destroyed in a tragic fire last year.

???? UNDER THE LAMPLIGHT-

Bitter Orange Tree is a beautifully-written exploration of social status, wealth, desire, and female agency. The story offers a glimpse into the life of a young Omani woman living as a university student in Britain, who reflects on the formative relationships in her life and, most notably, her relationship with her grandmother. The book poetically dives into a historical narrative of Bint Amir’s challenged circumstances growing up, her struggles, her life, and her triumphs. Despite being a very concise read, the author Jokha Al Harthi manages to create exceptionally written characters.

Fun fact: Al Harthi was the first Omani woman to have a novel translated into English. Her novel Celestial Bodies was awarded the 2019 Man Booker International Prize and became an international bestseller.

EARNINGS WATCH-

Raya Holding’s net income rose 49.7% y-o-y to EGP 53.59 mn in 1Q2022, according to the company’s quarterly financials (pdf). This came on the back of revenues rising to EGP 4.48 bn, compared with EGP 4.03 bn in the same period last year.

Al Baraka Bank reported EGP 369.38 mn in net income in 1Q2022, up from EGP 269.32 in the same period last year, according to its quarterly financials (pdf). The bank generated EGP 1.87 bn in net interest income during the quarter, up 3.6% y-o-y.

MARKET ROUNDUP-

The EGX30 fell 0.7% at today’s close on turnover of EGP 817.87 mn (6.4% below the 90-day average). Local investors were net buyers. The index is down 12.5% YTD.

In the green: EFG Hermes (+3.3%), MM Group (+3.1%) and Sidi Kerir Petrochemicals (+1.1%).

In the red: TMG Holding (-4.7%), Orascom Construction (-4.6%) and Orascom Development Egypt (-4.4%).

What’s next for the global world order? Bipolarity may be in the offing — with the two poles being the US and China, suggests President of the Peterson Institute for International Economics Adam Posen in a discussion with Goldman Sachs. Posen suggests that the dual force of the covid-19 pandemic and the ongoing Russia-Ukraine war will “hasten the corrosion” of globalization “as the world becomes increasingly bifurcated into two economic blocs aligned around the US and China.”

What do the twin shocks of covid + war have to do with it? The drawbacks of a world that is deeply integrated on the economic side became particularly evident with the onset of the pandemic, which supplied global supply chains and resulted in delays and shortages, and therefore spiking commodity prices, Posen notes. These effects were exacerbated by the political costs of integration as Russia’s invasion in Ukraine led Western countries to impose a series of sanctions and trade bans to apply pressure on Moscow — but ultimately cut off the supply of critical goods such as oil and gas, wheat, and metals. “Both crises have called into question a multi-decade process that has led to the freer flow of goods, services, people, and ideas around the world. In doing so, they’ve raised the prospect that globalization could reverse in the coming years, potentially leading to greater global fragmentation.”

So is the “golden age,” so to speak, of globalization really behind us? The jury is out. While Posen suggests that globalization is rapidly eroding, other pundits describe the forward trends in less aggressive terms. Goldman Sachs senior global economist Daan Struyven and Goldman Sachs head of global investment research and chief economist Jan Hatzius postulate that we’ve been seeing an era of “slowbalization,” wherein cross-border flows have slowed, and that we’re moving towards “newbalization,” which will see the nature and dynamics of globalization shifting, without a net difference in its pace. Others, such as Harvard Kennedy School of Government Professor Dani Rodrik, suggest that we will see a slowdown — but from a hyperglobalized starting point. “My guess is that we will try to find a happy medium that avoids some of the excesses of hyperglobalization and the dangers of autarky,” Rodrik says.

The hypothesis that we’re entering an era of deglobalization — or decoupling — isn’t necessarily new. Allianz economic advisor Mohamed El Erian is among those who flagged this as a possible scenario moving forward back in the early days of covid-19 in 2020, suggesting that continued globalization would be difficult because of the pandemic, which yielded a geopolitical shock and simultaneously affected corporate behavior. Supply chains are going to continue becoming localized as businesses move away from relying on “just-in-time” models that previously saw them depending greatly on distant markets for much of their inputs and operations, El Erian suggested at the time.

But there is general consensus that “significant reshoring” of critical supply chains isn’t something we’re going to see in the short term. Many companies are opting for oversupplied inventories when they can get their hands on the goods and commodities they need, considering the “punitively high” costs and other shortcomings of reshoring certain supply chains, such as semiconductors. Although the shortage of semiconductors has wreaked havoc for businesses across the world and in Egypt alike, and some major global corporations are investing heavily in domesticating their semiconductor production, it’s a massively capital-intensive venture and requires technology that is not necessarily developed in every market.

How would this new(ish) global order affect the business world?

#1- Global investments: While countries may be forced to be generally aligned with one pole, it would not necessarily mean that engagement with the other pole would be altogether impossible. And businesses would probably be able to continue working in and selling to markets in opposite poles — although they “may need separate lines of production, standards, and networks” for different markets, Posen said. This would translate into a short-term “investment boom” as they pour money into building capacity that would make its operations and markets more independent, which would initially support economic growth, but would eventually “reduce economies of scale and drive down the real economic returns of such investments,” he suggests.

#2- Inflation: Remember that commodities supercycle that was prophesied last year? It could actually materialize soon, this time driven by “great power competition and rising political pressure,” say Goldman Sachs’ commodities researchers and strategists. Deglobalization and a shift towards localized supply chains would fuel price increases by making it pricier to produce physical goods, as “countries trade greater inflationary pressures for security of supply,” they say.

#3- The USD’s status as a global currency: Again, there are diverging views on whether the greenback will hold onto its position as the globally dominant currency, which has been a point of contention for years, and for different reasons (see here and here). As it currently stands, the USD comprises some 59% of global reserves, while the CNY accounts for a very small percentage — but the USD has been “losing ground” over the past few years, and the CNY has been gathering steam. That trajectory could continue to hold up, argues Goldman Sachs co-head of global FX, rates, and EM Strategy Zach Pandl, saying that “US foreign policy choices may discourage heavy reliance on the USD in some cases.” Countries may take the scenario with Russia as a warning that their reserves being USD-heavy could come back to bite in times of crisis, if their relationship with Washington is not on solid ground, Pandl says. At the same time, China has been moving to “modernize and open up its financial system,” leading to an influx of fixed income portfolio investments and stiffer competition to the USD. A possible future trend in the world of finance is a shift towards more non-sovereign assets, such as gold, rather than trying to make the right choice of which currency (CNY vs USD vs EUR) to pile into, suggests Posen.

You can read through the full Top of Mind report here (pdf) or catch the podcast version of Exchanges at Goldman Sachs here (runtime: 27:53).