Wednesday, 26 November 2014

IMF issues Egypt Article IV statement • MENA M&A report out • Sisi’s Italy visit delivers investment • Egypt drops on World Energy Council Trilemma Index • Mobinil may reject landline license • GB Auto denies it sought Peugeot agency • Cyprus gas in news

WHAT WE’RE TRACKING TODAY

President Abdelfattah El-Sisi is in Paris today. Expect a flurry of business announcements alongside the usual political ones after the windfall that accompanied his trip to Italy. (See multiple stories in today’s edition.)

Today is the first day of the MEED Invest in Egypt conference. (Really, we promise.) We expect some decent newsflow.

We have a busy 72 hours of news coming up. In addition to El-Sisi in Paris and the MEED gathering, we have:

  • The National Independent Committee for Fact Finding on 30 June holding a press conference today to discuss its final report
  • There are conflicting reports this morning on whether Egypt will allow the re-opening of the Rafah crossing
  • The Central Bank of Egypt’s monetary policy committee meeting tomorrow
  • OPEC meeting tomorrow in Vienna (not 28 Nov; thanks, Youssef T. for the correction yesterday)
  • Friday is the alleged Salafi / Ikhwani day of protest (Whatsapp groups: Spare us, okay? Unless you state otherwise, we’re going to go about our usual business and just presume everyone else thinks it isn’t a good idea to go to the club / take the kids to football practice / go eat somewhere in Zamalek / etc.)

Winter is officially here. The Meteorological Authority says today will be cold in Cairo and the Delta heading up to the Mediterranean coast with, yes, a chance of showers.

LAST NIGHT’S TALK SHOWS

A quick note: We’re taking the night off talk shows this evening. As a consequence, our usual round-up will not appear tomorrow, but will be back on Sunday. Wednesday night talk shows are usually mediocre at best, anyway, with second-string players holding down the anchor desks as the stars start their customary three-day weekends. Besides, our talk show maven will be in vacation and, well, Enterprise Morning Meeting is still in beta, so…

“We are in the 21st Century and we still have buildings that collapse because of faulty construction and structural violations,” said Amr Adeeb, speaking of yesterday’s collapse of an eight-story apartment building in Matarreya that killed at least 17 people. The tragedy was Adeeb’s intro to a long tirade about everything that he sees wrong with the country, from the garbage in the streets to the public school system.

In a rare departure from coverage of domestic issues, Adeeb devoted a significant portion of his program last night to talk about the riots in Ferguson. He zoomed in on photos of a national guardsman dressed in camouflage pinning a protester to the ground to prove the point, as he said, that “they are no better than we are.”

“Even in the US, the army has to become involved when things get out of hand. I don’t see any Americans chanting, ‘Down with military rule,’” said Adeeb.  “We aren’t the only ones who destroy police cars and burn buildings, but the difference is that they apply the rule of law, they know how to regain control of their streets. Their police force fired 150 bullets last night — and yet no one was killed.”

Lamees El Hadidy hosted three-time squash world champion Ramy Ashour, who recently defended his title against fellow Egyptian Mohamed Elshorbagy in Qatar.

Mohamed Sherdy highlighted the Ministry of Interior’s preparations leading up to the 28 November protests and expressed his confidence that our police force is more than capable of maintaining order.

Sherdy also conducted a phone interview with a health ministry spokesman about the victims in the Matarreya building collapse. He asked him address rumors alleging that the collapse was due to an explosion rather than negligence. The spokesman clarified that there was in fact a second collapsed building yesterday due to an explosion, also in Matarreya.

Youssef El Housseiny was pleased to announce that controversial preacherMahmoud Shaaban has been arrested for inciting violence. El Houssienyappears to have the inside track as Shaaban is the second person to be arrested after being singled out by the talk show host. Last week El Houssieny expressed his displeasure with the fact that Brotherhood leader Mohamed Ali Beshr was a free man. Beshr was arrested days later.

WORTH THINKING ABOUT: Healthcare and health insurance reform

Rami Galal, an investigative reporter for Egyptian newspaper Rose Al-Youssef, writes a thoughtful piece for Al-Monitor on the current debate surrounding the new draft social insurance law. Dr. Ihab Al-Tahir, the secretary-general of the Physicians’ Syndicate and a member of the “Doctors Without Rights” movement, is quoted in the article as saying: “The draft insurance law is flawed, as it does not cover ambulance or emergency services, which had been assigned to other institutions of the state without specifying which ones. The draft law also does not cover medical services for burns or injuries resulting from natural disasters … to place government hospitals that have not been funded for years in competition with well-equipped hospitals is unjust. This confirms the intention to privatize the health sector.”

The Egyptian Initiative for Personal Rights (EIPR) notes that attempts to reform health insurance in Egypt began in the 1990s and included a number of draft laws, each of which were viewed as not comprehensive. (Read in Al-Monitor and read EIPR’s assessment of 2009 draft law whose comments are still largely relevant to the current draft law under discussion)

WORTH READING

EY releases M&A MENA report: The report’s key findings are that deal activity for the region are up 17% while the deal value has dropped by 47%, with more than half of the report’s respondents expecting their firms to pursue an acquisition over the next 12 months. The Capital Confidence Barometer finds that consumption-based sectors such as consumer products (as witnessed in Egypt) and real estate are driving acquisition activity. The report also notes that credit availability has up to 70% from 53% over the last 6 months. The MENA region contributes less than 5% to global M&A deal flow, with outbound deals almost half the value of all its deal activity. (Read the overview / press release here and download the report as a pdf here)

QUICK READ

The Africa Report has a brief primer on the current state of the microfinance industry in Egypt and its potential for growth, touching on the legal landscape and current players, from startup Yomken to Qalaa Holdings’ Tanmeyah. (Read)

SPOTLIGHT: El-Sisi in Italy

Egypt and Italy issued a joint communique following the meeting between President El-Sisi and Italian Prime Minister Matteo Renzi in Rome yesterday. A summarized version of the key takeaways follow:

  • Both states affirm their commitment to building stronger business ties[evidenced by the project announcements noted in our Energy and Basic Materials sections below].
  • Italy will attend the March investment summit in Sharm El-Sheikh.
  • Italy commends Egypt’s progress on its political roadmap, and is appreciative of the complexities and challenges it has faced in its transition since 2011
  • Both leaders welcome the restoration of the Italian-Egyptian Business Council, [headed on the Egyptian side by Khaled Abu Bakr, Chairman of Taqa Arabia]
  • Italy is ready to finance through a soft loan the study and design of a high-speed railway between Cairo and Alexandria
  • Both sides reaffirm their commitment to bilateral cooperation inagriculture and rural development, whose total value in soft loans, grants and debt swap operations is EUR 295 mn
  • Strengthening of sea links in terms of horticulture trade and commitment to stop human trafficking
  • Both governments give their strong support to the international coalition against Daesh [the joint communique actually reads “Daesh”]
  • The statement expands on a key point of Egyptian foreign policy which is to tackle terrorism on a global scale, with Italy affirming its support to Egypt in its fight against terrorism in Sinai
  • Both parties support the elected government of Libya
  • The statement calls for an early resumption of talks on the Middle East peace process
  • Annual bilateral summits will resume

Speaking after the meeting to the Italian press, Prime Minister Renzi said “Italy is absolutely convinced that the Mediterranean is not the frontier but the heart of Europe, and Egypt must be considered a strategic partner in addressing together the problems of this area … The only way to avoid an escalation of them is through very strong cooperation between Egypt and Europe … We have had 150,000 refugees or asylum seekers arrive in Italy this year, which is a record number. But Egypt has five million at the moment. That needs to be said loudly.” (Read)

Among the business deals announced (coverage below) are an MoU with Italcementi to build a USD 200 mn wind farm and a separate understanding with Pirelli that clears the way for it to invest USD 107 mn in the expansion of its Alexandria truck tire plant.

SPEED ROUND

Regional markets closed Tuesday in the red: The EGX 30 was down 0.48% on total turnover of EGP 697 mn, about on par with the 90-day average. KSA’s Tadawul shed 1.8%, the Kuwaiti exchange lost 0.8%, Qatar dropped 1.9%, the DFM eased 1.5% and the ADX dumped 2.1%.

European and Asian shares touched highs yesterday, with sentiment continuing to rise on strong signals of support last Friday from the European and Chinese central banks. European shares hit two-month highs, while Chinese stocks hit their highest levels since 2011.

US markets closed mixed on a dip in consumer confidence, while US oil prices fell 2.5% to near four-year lows in advance of tomorrow’s talks after a meeting between OPEC members KSA and Venezuela (on one side) and non-members Russia and Mexico saw no deal on production cuts.

Asian markets were mixed at today’s opening.

The Financial Times is being uncharacteristically equivocating and obtuse in their latest piece on the ongoing dispute over Cyprus’ natural gas in Egypt and Cyprus freeze out Turkey in possible gas deal. Just the title alone implies that the emerging Mediterranean energy alliance between Egypt, Greece, Cyprus and Israel bears the brunt of the blame for Turkey’s erratic and dangerous behavior in the region. The plain facts of the matter are that the aforementioned states are attempting to address their own pressing energy needs, while Turkey is attempting to act as a spoiler. Turkey sending warships into Cyprus’ waters has succeeded in terrifying absolutely no one, including the oil and gas companies who are currently drilling in the EEZ. Relying on Turkish scholar Sinan Ulgen to characterize the alliance as “fragile and ineffective” with no further elaboration or dissenting opinion is a disservice readers — while using a quote from U.S. Vice President Joe Biden as a capstone where he dreams (at length) of a future where Mediterranean gas “holds the promise of enhancing stability and prosperity by bringing together Israel, Turkey, Egypt, Greece, Cyprus and hopefully one day Lebanon” does nothing but further illustrate how out of step the Obama administration’s foreign policy is with reality on the ground. As we’ve mentioned in previous editions, Israel has no problem in principle with using Turkey as a potential route for its gas, Cyprus is committed to reconciliation with the northern half of the island, but as long as Turkey refuses to normalize itself with its neighbors and the international community, their position and demands look increasingly untenable.

Former Deputy Prime Minister Ziad Bahaa Eldin raises four issues in an op-ed in Shorouk about the economic performance of the current Egyptian government. In brief, he:

  1. Criticizes the increasing involvement of the state in economic projects and the resulting clash with — and potential crowding out of — the private sector.
  2. Believes the state’s vision on issues of social justice remains incomplete and should expand to include the creation of a complete social safety net rather than relying complacently on addressing symptomatic issues.
  3. Reviews the government’s fiscal projections and concludes that indicators including the projected budget deficit merit revision after the “unbudgeted” expansion in government expenditure.
  4. Demands a higher degree of transparency regarding changes to commercial and business laws and government policies.

Investors attending the Sharm investment summit, he warns, won’t be looking for a menu of potential mega-projects, but a concrete economic vision for Egypt. (Read in Arabic)

Evacuation of the North Sinai buffer zone is complete, according to the governor of North Sinai. A total of 802 homes were evacuated, accommodating 1,156 families. Although the majority of homeowners agreed to the move, 140 did not, though they were still evacuated.

Air Arabia targeting expansion in Egypt? It’s a throwaway line to cap a broader story on Air Arabia and its upcoming fleet order, but it may be interesting for Egypt: “Political turmoil in Egypt also affected plans. Air Arabia had set up a local unit to comply with the country’s air traffic rules. [Air Arabia CEO Adel Abdullah] Ali said the airline may consider growing operations there now that tensions in the country are starting to ease.” (Read)

19 dead, seven injured as building collapses Tuesday in Cairo’s Matareya district. A preliminary inspection of the site by prosecutors showed the owner had added two unlicensed floors to the building and that the second floor was undergoing renovation at the time of the collapse. The story is receiving wide attention in the international press. (Read Ahram Online’s latest, while theWSJ’s pickup of the AP story on the tragedy is pretty representative of how it’s playing in foreign media)

Tunisian secularist wins first presidential round, heads for run-off:Reuters reports that Beji Caid Essebsi has narrowly beaten incumbent President Moncef Marzouki in the first round of Tunisia’s presidential election, with the run-off scheduled for December. Essebsi, from the secular Nidaa Tounes party, received 39.46% in Sunday’s vote, short of the needed overall majority to avoid the run-off but ahead of Marzouki’s 33.4%. (Read in Reuters)

When will falling oil prices curb foreign spending by GCC countries?The WSJ joins the party a couple of weeks after the FT, taking a look in its Frontiers blog and in the main paper at the implications of low oil prices for six Gulf countries with appetites for foreign acquisitions (ie: London) and / or foreign assistance (Egypt):

  • Bahrain, Saudi Arabia, Oman — all have fallen below fiscal break-even
  • UAE, — on the borderline in the low USD 79 / bbl break-even
  • Qatar, Kuwait: Plenty of room yet to run with a fiscal break-evens at around USD 54 / bbl

Check out Table 6 of the IMF’s Regional Economic Outlook for the fiscal and external break-even points of the region’s oil producers (pdf download for theOctober 2014 update, or compare the figures to the earlier May 2014 edition). Then have a look at the WSJ Frontiers blog or the piece in the main edition.

CALLING ALL CHRISTIANS AND LIBERALS — Did you know you were participating in the 28 November protests organized by the Salafi Front and the Muslim Brotherhood? Neither did we. Thankfully our friends at Ikhwanweb have the scoop on all our plans for the weekend. (Read in Arabic)

EGYPT IN THE NEWS

IMF issues statement on Egypt following Article IV consultations: Egypt is in the beginning of a “turnaround in economic activity,” the IMF says in a statement issued late yesterday on the wrap-up of its Article IV consultations with Egypt. The FT’s fastFT blog picks up the story, quoting from the statement: “This is a moment of opportunity for Egypt. The economy has begun to recover after four years of slow activity. Equally important, there is growing national consensus on the need for economic reform.”

We consider the IMF’s Article IV press release to be a must-read this morning (opens as a web page, not a pdf). The very brief fastFT story on the Art IV consults is here, while Bloomberg runs a longer take, running with the FX angle in a piece headlined “Egypt Needs More Flexible Exchange Rate, IMF Says,” quoting from the IMF statement: “A more flexible exchange rate policy focused on achieving a market-clearing rate and avoiding real appreciation would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism, and attract foreign direct investment.”

A writer in Foreign Policy this morning can only be called ghiless, employing the Interior Ministry’s statement that it is ready to use force to curb planned Islamist protests on 28 November as a lever against the Obama administration and departing Secretary of Defense Chuck Hagel, writing (in part) that the announcement suggests: “…there is little evidence to suggest that Hagel’s efforts had even a minimal effect on Sisi and his government’s behavior. The use-of-force warning highlights the deep rifts between Egypt’s secular, military government and the religious segments of its society.  (Read)

ENERGY, RENEWABLE ENERGY & SUBSIDY REFORM

Egypt drops nine places on World Energy Council Trilemma Index
Al Mal and The World Energy Council | 24 Nov 2014
Egypt’s ranking on the World Energy Council’s Energy Trilemma Index fell nine positions to number 85. The WEC report cites degradation of the Egyptian power grid, reduced energy supplies that fail to meet increasing demand, and an underdeveloped renewable energy sector as the primary reason for the drop. However the report did state that policy makers have begun diversifying energy sources and increasing investments in renewable sources, encouraging the private sector to invest in domestic energy and infrastructure markets through the buy-operate-own (BOO) model. According to The World Energy Council’s website: “The Energy Sustainability Index ranks countries in terms of their likely ability to provide sustainable energy policies through the 3 dimensions of the energy trilemma: energy security, energy equity and environmental sustainability.” The WEC is an international industry lobby. (Read in Al Mal in Arabic or view the World Energy Council’s chart here which may be downloaded as a pdf or CSV at the footer of the page, and download the methodology used here as a pdf)

Egypt signs MOU with Italcementi to build USD 200 mn wind farm
Ahram Online | 25 Nov 2014
Italian cement maker Italcementi signed an MOU with the Egyptian government to build a wind farm on the Red Sea. The company will build a facility to generate 120 megawatts of electricity with an investment of USD 200 million, according to Omar Mohanna, chairman of Suez Cement, Italcementi’s subsidiary in Egypt. Construction is expected to begin in the second quarter of 2015, with production by the end of that year. (Read)

SACE to invest EUR 210 mn to enlarge Giza plant
ANSAmed | 25 Nov 2014
Italian insurance and financial group SACE has pledged EUR 210 mn to back Ansaldo Energia’s project with the the Egyptian Electricity Holding Company (EEHC) to increase capacity at the 600MW power plant in Sixth of October City, a contract Ansaldo was awarded in June 2013. SACE announced their pledge during the Italian-Egyptian Business Council Tuesday in Rome, organized to coincide with the visit of President Abdelfattah El-Sisi. The 13-year-long financing project will be entirely covered by the insurance group and will be allocated by a pool of banks led by HSBC. (Read)

Minister of Electricity: multi-billion dollar projects to generate electricity from coal
Al Mal | 24 Nov 2014
Egypt’s Minister of Electricity and Renewable Energy, Dr. Mohamed Shaker, confirmed the ministry is currently studying the use of alternative and renewable energy in electricity generation, and will present their findings to the Egyptian Supreme Council of Energy for approval. He also noted that a number of projects are being studied to produce electricity from coal, with the investment cost around USD 3 – 4 bn for each project. (Read in Arabic)

Minister of Electricity: Power generation sector has debt of c. EGP 163 bn, largely because of subsidies
Al Ahram | 24 Nov 2014
Egypt’s Minister of Electricity and Renewable Energy, Dr. Mohamed Shaker, said that the total financial obligations owed by the electricity sector stood at EGP 163 bn largely due to the ministry’s selling of electricity at less than half its cost. Shaker added that the total subsidy to be received by the sector during the current fiscal year is budgeted at EGP 27 bn, down from a previous figure of EGP 38.5 bn, with expectations for a complete subsidy phase out within a five year period. The minister reiterated, however, that the recent increase in tariffs did not affect low-income households. (Read in Arabic)

OIL & GAS

Egypt’s petroleum minister meets with Greek and Cypriot counterparts, seeks gas from Cyprus
Akhbar 2day | 24 Nov 2014
A government source disclosed that the minister of petroleum, Sherif Ismail, is currently in Cyprus to explore with his Cypriot and Greek counterparts ways to exploit the offshore Aphrodite gas field, in addition to establishing mechanisms to allow foreign gas companies to import this gas to Egypt. Among these companies was BG, which is currently in talks with Cypriot energy companies to import gas to its natural gas liquefying plant in Egypt. (Read in Arabic)

USD 23 bn invested in domestic petroleum sector
Argaam | 24 Nov 2014
Minister of Petroleum Sherif Ismail announced in a statement on behalf of EGPC chief Tarek Al Molla that the domestic petroleum sector managed to meet demand thanks to contributions by Saudi Arabia, the UAE, and Kuwait adding that the sector was bolstered by investments of USD 23 bn. He went on to discuss the ministry’s five year plan which will promote exploration and tapping into new fields, while reducing dependence on fossil fuels in generating electricity. The announcement was made during an unspecified Arab investor conference. (Read in Arabic)

BASIC MATERIALS & COMMODITIES

El Arish Cement orders vertical roller mills as part of plan to add new lines of clinker capacity of 5,500 tpd
LOESCHE news release | 24 Nov 2014
El Arish Cement is extending the clinker production capacity of its existing cement plant and will add 2 new lines with a clinker production capacity of 5,500 tpd each. El Arish Cement already operates 2 LOESCHE vertical roller mills – Type LM 56.4 – for cement raw material grinding within their existing lines No. 1 and No. 2. The mills will grind various cement types with capacities of up to 305 tph.
(Read)

EK Holding gives initial ok for South Valley Cement acquire EKH’s stake in BMIC
Al Mal | 25 Nov 2014
Al Mal reports that EK Holding has given its initial approval to South Valley Cement’s offer to buy 68.18% of EKH’s shares in cement producer Building Materials Industries Company (BMIC). This is in line with South Valley’s intention to increase its share in BMIC from 47% to 77%. The final decision is set to take place before the end of the year.

Court reduces Ahmed Ezz’s monopoly fine from EGP 100 mn to EGP 10 mn
Ahram Online | 25 Nov 2014
Steel magnate Ahmed Ezz’s fine was reduced to EGP 10 million (c. USD 1.4 mn), down from the EGP 100 mn (cued 14 mn) he was handed last year for manipulating steel prices through his Ezz Steel company, a judicial source said to Ahram Online. He has already paid EGP 55 million of the due amount and was released from prison in August. (Read)

MANUFACTURING

Pirelli subsidiary inks MoU for USD 107 mn expansion of Alexandria truck tire plant following Sisi meeting
Tyrepress + Reuters | 25 Nov 2014
Pirelli subsidiary Alexandria Tire Co. (Atco) signed a memorandum of understanding with the Ministry of Investment that paves the way for a USD 107 mn expansion of its Alexandria truck tire plant. The expansion, to take place over a three-year period, would allow Atco to add c. 300,000 tires per year to its present annual capacity of c. 850,000 units — and create some 250 direct jobs at Atco in the process. Pirelli, which owns more than 90% of Atco, has invested some EUR 200 mn in Egypt since 1999; Atco presently employs 1,200 people. (Read theReuters story on Ahram Online or check out the full press release on Tyrepress)

GB Auto denies claims it sought Peugeot representation
Al Mal | 25 Nov 2014
GB Auto Chairman and CEO Raouf Ghabbour denied claims that negotiations took place between GB Auto and Peugeot for the rights to distribute and assemble Peugeot cars in Egypt; the rights remain with Wagih Abaza. (Read in Arabic)

EGP 1 bn industrial city to be established by Suez Canal
Al Mal | 24 Nov 2014
According to the head of the Assiut Chamber of Commerce Ibrahim Abu Al Iwoon, the Egyptian Federation of Investor’s Associations (EFIA) is seeking to develop a new “industrial city” by the new Suez Canal project with funds of EGP 1 bn in an effort to bolster employment in the region. He added that a number of investors have already committed to the project. (Read in Arabic)

REAL ESTATE

El-Saeed Contracting and Real Estate Company to raise its capital to EGP 471.9 mn
Mubasher | 24 Nov 2014
El-Saeed Contracting and Real Estate Company (ECRC) announced an EGP 94.4 mn capital increase to EGP 471.87 mn through the issuance of free shares financed from the company’s retained earnings. Shareholders will receive 1 free share for each 4 shares they own as of 11 December 2014. (Read in Arabic)

Al-Futtaim to invest up to EGP 5 bn in Egypt over 3 years following settlement of Cairo Festival City land dispute
Masrawy + Reuters | 25 Nov 2014
Al-Futtaim Egypt will look to invest up to EGP 5 bn in Egypt following resolution of its dispute with the Government of Egypt over a land sale. The company will pay EHP 217.9 mn within 90 days as part of the settlement foon a piece of land on which Cairo Festival City (CFC) is built. The Emirati company has thus far paid EGP 86 mn towards the land’s value, Masrawy reports.

The settlement paves the way for Al-Futtaim to be issued new building permits, said Al-Futtaim Egypt Managing Director Mohamed Al-Makkawi, who noted, “We have not been issued any building permits since 2010, but after signing the settlement, we will now be issued building permits.” Among the first permits the company will seek are those for phase two of Cairo Festival City, which will include a hotel and some 500 residential units (about evenly divided between apartments and villas, it seems). The company broke ground on CFC in 2008. Roughly 100 retail stores in phase one are on track to open in 1H2015 to bring the total number of shops to 300. (Read in Arabic on Masrawy or read in English on Reuters)

TOURISM

Orascom Development consider selling stake in OHD
Al Masry Al Youm | 25 Nov 2014
The board of directors of Orascom Development Holding is considering the possibility of selling a 10-15% stake in its subsidiary Orascom Hotels & Development (OHD) in order to reactivate its trading on the Egyptian Stock Exchange based on the recovery of the Egyptian economy, Al Masry Al Youm reported. The company added in a statement that proceeds from the sale would be directed at financing its current operation as well as deleveraging its balance sheet. The company had reported a 9M14 Net Profit of CHF 36.4 mn compared to a loss of CHF 75.8 during the same period last year partly on the back of improved hotel occupancy rates. (Read in Arabic)

TELECOMS

Mobinil may reject Egypt’s landline licence — CEO; would take stake in new company to upgrade infrastructure
Aswat Masriya | 25 Nov 2014
Expanding on comments made earlier this month, Mobinil chief executive Yves Gauthier told Reuters in an interview that Mobinil may reject the government’s offer of a landline services licence unless it is allowed to build its own fixed-line infrastructure. “The current terms of the fixed licence are not satisfactory,” Gauthier said, noting that Mobinil would, however, take a stake in a new company dedicated to upgrading Egypt’s ageing infrastructure, describing the opportunity as the most attractive part of the “a la carte” menu of proposed industry reforms.
(Read)

BANKING & FINANCE

“Egypt constitutes a core part of our strategy” — Citi EMEA CEO
Zawya | 25 Nov 2014
Contrary to previous reports about Citi potentially divesting from Egypt, Citi Group reiterated its commitment to Egypt after a visit by the bank’s CEO for the Europe, Middle East, and Africa region, Jim Cowels. Cowels also explained that Citi’s strategy for Egypt is evolving to focus on “institutional clients, namely public sector entities, corporates, and financial institutions.” (Read)

Note from Enterprise: As we understand it, the bank’s consumer / retail banking portfolio remains very much up for grabs as it looks to exit that segment of the market, as we reported on 15 October 2014, amid plans to exit consumer banking in nearly a dozen low-margin markets. While we’re on the topic of Citi, make sure to check out Bloomberg View’s humorous takedown of Citi’s equity analysts below On Your Way Out.

EBRD to cooperate with Egyptian government to fund SMEs
Al Borsa | 24 Nov 2014
In remarks at a conference, Hans Peter Lankes, Acting Vice-President of the European Bank for Reconstruction and Development (EBRD), said the bank is committed to financing SMEs in collaboration with the government. To be eligible for financing, enterprises must prioritize sustainability and be in industries that play active roles in driving economic growth.

Note from Enterprise: EBRD, which opened its first office in Egypt at the beginning of this month, extended in November a USD 30 mn line of credit to the National Bank of Egypt to finance Al-Ahly’s SME lending program. The facility was a follow-on to a USD 50 mn LOC originally provided in December 2013 for the same purpose. (Read in Arabic)

OTHER BUSINESS NEWS OF NOTE

Arbitration committee to close 158 investment disputes
Al Mal | 25 Nov 2014
Chairman of the Egyptian Investment Authority, Hassan Fahmy, was quoted in Al Mal saying that the arbitration committee responsible for reviewing disputes between the government and investors will soon finalize 158 cases, adding that total number of disputes since January 2011 reached 864 cases 447 of which have been settled as part of the government’s efforts to create an investment friendly environment. It is worthy to note that Prime Minister Ibrahim Mehlab had previously assigned the Minister of International Cooperation, Naglaa Al Ahwany, with the task of holding arbitration sessions on a daily basis in order to settle the greater bulk of disputes before investor conference scheduled for this March. (Read in Arabic)

OSN expands Egyptian call center operations by 45%
Zawya | 25 Nov 2014
OSN will add 200 agents to their call centre capacity in Egypt to respond to growing demand for pay-TV domestically. The potential for further growth of the pay-TV market in Egypt is large given the currently low penetration of just 2.4% and the country’s vast population, according to a report issued by IHS Technologies. (Read)

Government Pension Fund to reach EGP 570 bn
Amwal Al-Ghad | 24 Nov 2014
Egypt’s head of Government Pension Fund Omar Hassan said that the fund’s value has reached EGP 570 bn. Hassan noted that the fund’s payments have reached EGP 85 bn per annum, while income has reached EGP 72 bn from subscriptions and EGP 13 bn from investment. (Read in Arabic)

GMC to build a new shipyard for USD 800 mn
Al Mal | 24 Nov 2014
According to Gamal Seif, GMC’s chairman, the company will build a new shipyard in partnership with the Egyptian government in East Port Said and Ain Sokhna. He also noted that the government will own 51%, while GMC will have the remaining 49%. (Read in Arabic)

EGYPT POLITICS + ECONOMICS

Large share of foreign aid goes to private sector – Minister of International Cooperation
Daily News Egypt | 24 Nov 2014
Grants and loans obtained by the government were not for government projects funded by the state, the minister of international cooperation, Naglaa El-Ahwany said. “The loans and grants come in through the Ministry of International Cooperation and most are directed toward the private sector,” the minister added noting that USAID programmes alone were valued at USD 140 mn last year. (Read in Arabic)

Sisi approves an agreement with the US for enhancing basic education
Al Mal | 24 Nov 2014
President Abd El Fatah El Sisi issued a decree approving a grant signed on 30 September 2014 between the Egyptian and US governments to enhance school education in Egypt. The agreement aims to improve student’s key skills during their primary education, namely reading skills, mathematics, and English. The agreement also aims to improve the math and science skills of secondary school students to solve difficult mathematical and scientific problems as well as to improve reading and computational skills for adults. (Read in Arabic)

INTERNATIONAL

Cap on unskilled labor in Kuwait
Gulf News | 24 Nov 2014
A bill calling for the imposition of a five-year residency cap on foreigners in Kuwait and a ban on bringing their families into the country has been cleared by the parliament’s legal and legislative committee. The bill also limits the size of any expatriate community to less than 10% of the Kuwaiti population, now estimated to be 1.25 mn. Under the proposal, no community should be larger than 125,000. The Indian community, the largest in Kuwait, who number more than 670,000 and the Egyptian community, the largest among Arabs with around 520,000 residents, would be the most affected and thousands of foreigners would have to leave the country. Highly qualified and skilled expatriates are not included in the proposal. Kuwait is home to around 2.5 million expatriates, mainly unskilled Asian labourers in the construction sector and domestic helpers, who make up two-thirds of the total population.
(Read)

Total will face trial in a Paris court next year in the “Iranian oil corruption scandal.Coming barely a month after the death of Total CEO Christophe de Margerie in a freak plane crash in Moscow, Total will face corruption charges in France related to Iranian oil contracts dating back to the 1990s and early 2000s. The news comes despite Total having paid nearly USD 400 mn in 2013 to settle charges brought by the US government that the IoC had paid bribes to win Iranian oil and gas contracts. De Margerie, who was director of Total’s Middle East arm at the time, was expected to have faced charges himself alongside two “Iranian middlemen” in the joint action by US and French prosecutors. Read more in the FT, the NY Times or AFP. Details of the 2013 settlement are here on Reuters.

Source tells Bloomberg OPEC mulls exempting some members from a production cut
Bloomberg | 25 Nov 2014
Iraq, Iran and Libya wouldn’t have to reduce output if OPEC decides on an overall production cut, an anonymous source told Bloomberg. It is unclear if consensus will be achieved; Russia is yet to decide whether to agree to a production cut or not and Iran and Libya refuse to use current production levels as the basis for new output quotas. (Read)

Enterprise Comment: OPEC faces persistent problems controlling its members’ production rates. Generally, upon setting a production quotas, each individual member has an incentive to deviate and exceed its output quota. Some have been exceeding their quotas for years, but this was not a pressing issue when oil prices were sufficiently high. With the recent slump in prices, it would stand to reason that OPEC should reduce oversupply to boost prices. The economic rationale is sound, but some member states disagree on the baseline from which the production cut will be imposed — and so are less inclined to agree to any production limits. Iran believes that sanctions imposed on it are limiting its vast production capacity, making its current output level unrepresentative of its true potential; the civil war in Libya drove production levels down to a third of what they were in 2010 and created significant excess capacity; and Iraq is also producing below potential as a result of domestic unrest and the struggle against ISIS. Therefore, it was strategically necessary to extend a guarantee that the three countries won’t be required to reduce output further and the move, most likely perpetuated by Saudi Arabia, was done to ensure consensus and an uneventful voting process if production was to be reduced during the next OPEC meeting.

RE-THINKING: the FT’s tourism coverage

The FT ran a story covered in yesterday’s issue with the headline “Tourists return to Egypt after 3-year break” that is misleading for having played on the notorious but potent thing that is base effects. The FT piece mentions that 884,000 tourists visited Egypt in September 2014, and while this is indeed a 193.7% y-o-y increase from 2013 (an exceptionally bad year), it is an 11.1% drop from September 2012. More illustratively, 7.7% fewer tourists visited Egypt in September 2014 compared to the average monthly visitors from 2007 to 2013. While the tourism industry is starting to see some green shoots, there is a long way to go before the sector receives a clean bill of health.

Perhaps more fundamentally: The market is transforming now. Catering to lower income tourists and attracting more visitors from Eastern European markets with a specific focus on Russia, Egyptian hotels have reduced their room rates and tour organizers are relying more on groups coming to Egypt on all-inclusive packages. As such visitors would not just spend less on their accommodation, they are also usually less inclined to spend money away from their hotels and support other industries depending on tourist arrivals.

This results in a divergence in tourism related data: Rebounds in arrivals figures might be construed as a revival of a major contributor to GDP growth, but the improvement to financial figures would not be palpable as tourism receipts — as a whole — are not rebounding at the same pace. What’s more: After heavy discounting post-2011, Egypt must grapple with the tourist industry truism that it takes five years to recover every 10 percentage points of discount, as we noted in the November 9 edition of Enterprise.

ON YOUR WAY OUT

The never-ending story of moving Egypt’s administrative capital: Al Mal reports that Minister of Housing Mostafa Madbouly announced that plans for the build-out of Egypt’s administrative capital are currently being finalized with details of such to be announced in the beginning of 2015. (Read in Arabic)

It’s best to let Bloomberg View’s Matt Levine explain this without tacking on any of our own jokes: ‘Citi Analysts Thought Everyone Knew Hold Meant Sell.’

Email is killing you. Okay, we probably have an interest in not reporting this given we’re primarily distributed at the moment by, well, email, but: The WSJ is the latest US media outlet to jump on the “we-hate-email” bandwagon. The trend was previously to condemn pressure to reply to email after work hours, a soul-crushing undertaking if ever there was one. In fact, being forced to reply to email on evenings and weeks is so corrosive to productivity that carmaker Daimler gives its employees the option to have new email automatically deleted while you’re annual leave or sick leave. The Toronto office of PR firm Edelman has a 7-to-7 rule: No sending emails to colleagues between 7pm and 7am.(See pickups in the FT, the Atlantic and the NY Times this past summer)

So, yesterday comes the WSJ with a piece headlined “Stressed at work? Blame your email.” Among its nuggets:

  • “Employees fixated on responding to emails had poorer sleep quality and were more likely to miss work for health reasons, according to the study, set to be published in an upcoming issue of the Journal of Occupational Health Psychology.”
  • “…an obsession with responding to email could also be hurting employees’ productivity. Instead of diving into bigger work tasks, they become focused on looking as if they were working.”

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