Thursday, 15 January 2015

Shell + Gazprom to supply LNG? Sidpec to build USD 600 mn ethylene plant? No capital gains tax on ETFs. Emiratis eyeing Shepheard Hotel? Japan’s Abe in Cairo this weekend for talks. El-Sisi in UAE next week. Egypt baby food market worth EGP 1.4 bn pa

WHAT WE’RE TRACKING TODAY

The CBE’s Monetary Policy Committee is meeting today to set interest rates. We’re expecting current rates to remain unchanged at 9.25% for the overnight deposit rate and 10.25% for overnight lending until the end of 1Q15 at the earliest. The CBE is trying to balance two competing drivers: maintaining an interest rate conducive to investment while mitigating the effects of above-target inflation rates. If inflation rates should cool in 1H15, look for the CBE to consider easing its monetary policy stance — particularly if Sharm conference is a success.

The World Economic Forum 2015 Global Risks report is due to be released today and should be available here when it drops.

LAST NIGHT’S TALK SHOWS

It was a very slow night for talk shows as Amr Adeeb and Lamees El Hadidy have already started their weekend.

Ibrahim Eissa continued with his nightly installment of the war on terror. His theme for the night: “Wahabi Islam is the root of all evil.”

“The only thing worse than terrorism is making excuses for terrorism,” said Eissa in a commentary about Dar Al-Ifta’s statement criticizing the cover of the new issue of Charlie Hebdo. “If they were going to say anything at all on the matter, they should just say, ‘Ignore it, they have a different cultural frame of reference than we do,’” said Eissa. “But of course they can’t do this because they are in alignment with the type of extremist thought that makes people carry out acts of terror.

“In his speech on the Prophet’s Birthday, the President was very clear while addressing Al-Azhar sheikhs: He asked them to lead a religious revolution, but this will never happen because these sheikhs believe in the Wahhabi school of thought. There is no way to reform Wahhabi Islam, the problem lies within the Wahhabi school of thought itself. There are fundamental problems with this way of thinking that are completely alien to our culture,” said Eissa.

He recommended his viewers read the book ‘Fagr El Islam’ by Dr. Ahmed Amin (father of economist Galal Amin) if they want to know what Islam is all about.

“If this book is taught in our schools, I guarantee that this country will experience a noticeable change for the better within five years,” said Eissa. “This book will tell you everything you need to know about Islam — that is, of course, assuming that there are still people out there who have the patience to read.”

Eissa then interviewed Maher Farghaly, an expert and researcher on Islamic extremism, about the unbelievably large number of Jihadi websites.

SPEED ROUND

Prominent oil producer Apache is laying off up to 250 people (or about 5% of its workforce) this week in what the Wall Street Journal is presenting as “one of the first major staff reductions at an American oil producer since crude prices began to plunge last summer.” Apache employs c. 5,000 people worldwide. There’s no speculation at present as to what the cuts might mean for operations in Egypt. (Meanwhile: The long-predicted slowdown in new oil and petchem projects is coming to pass. The FT’s overview this morning is worth a read if you feel the need to get up to speed. There’s nothing new, but it’s a solid roundup.)

ETFs are exempt from capital gains taxes, the Minister of Investment said on the first day they began trading on the EGX. (Read in Arabic)

The EBRD noted today that its portfolio has reached EUR 1.5 bn in Morocco, Tunisia, Jordan and Egypt. The EBRD’s investments in Egypt in 2014 grew to EUR 593 mn, mostly in the private sector, up from EUR 151 mn in 2013. (Read)

North African oil importers such as Tunisia and Egypt are set to benefit from the decline in oil prices, according to The Wall Street Journal’s Asa Fitch citing a recent Capital Economics note. However: “because so much energy is already subsidized, the decline in prices isn’t likely to have a huge effect on inflation.” (Read)

Egypt’s baby food market is worth EGP 1.4 bn annually and grew 188% between 2007 and 2013, according to a teaser for a research product called “Baby Food in Egypt.” There’s not much more to the teaser than that, but still: Who knew? (Read)

Writing for Project Syndicate, Mohamed El-Erian on is “taken aback” by the extent of the huge bet the world is placing on:

  • A shift to a higher and more inclusive global growth
  • The avoidance of mistakes in policy setting
  • The prevention of “market accidents”

The uncertainty behind the underlying assumptions behind the first and about the unconventional and untested policies deployed for the second are driving fundamental market instability increasing the likelihood of financial instability. El-Erian stresses the need for more responsive and comprehensive policy-making in order to avoid a situation where economic outcomes are “unusually uncertain” but insists outcomes are not necessarily dire and have potential “notable upside risks… and durable gains.”

EGYPT IN THE NEWS

The lead story in the international press on Egypt this morning centers on elevated expectations thatCanadian Foreign Minister John Baird will win the release of jailed AJE journalist Mohamed Fahmy, whose family hopes he will be released within days. An unnamed Canadian official, however, speaking to the Canadian CBC, tried to manage expectations: “We’re not expecting necessarily that [Baird] is going to announce the release or anything like that when he’s there,” according to the official. (Read)

President Abdel Fattah El Sisi’s recent Azhar address calling for a religious revolution in Islam is starting to win attention in the United States, but again as we’ve mentioned before, almost exclusively among the right-wing, with some notable exceptions detailed below.

John Bolton, former US Ambassador to the United Nations under the G.W. Bush administration, writes in yesterday’s edition of the New York Daily News: ‘Egypt’s president is a courageous warrior who has the guts to confront radical Islam’: “The president of the Arab world’s most populous nation has taken bold and provocative steps. He needs U.S. and broader Western support. Let’s see which American political leaders figure this out.” (Read)

The FT’s Roula Khalaf, meanwhile, uses the Sisi speech as a jumping-off point for a discussion of why she thinks it will be some time before we see a “Muslim Martin Luther.” (Read)

WSJ doesn’t expect another revolution in Egypt. The Journal’s Yaroslav Trofimov closes a piece headlined “Middle East Turns Back Clock as Remnants of Old Regimes Rise Again” with a quote from the always bright Heba Morayef, formerly of Human Rights Watch and now at the International Crisis Group: “There is not going to be another uprising in Egypt anytime soon. I don’t think Egypt is going to see anything remotely democratic for the next couple of decades.”

The President has also become part of the ongoing debate between liberals and conservatives in the West regarding the Charlie Hebdo massacre. David Ignatius of the Washington Post, who is described by some as a liberal, notes: “First, the United States isn’t a credible voice in telling Muslims what real Islam is all about. The pushback against violent extremists has to come from religious centers in Egypt, Saudi Arabia and elsewhere in the Muslim world. A good example of what’s needed was Egyptian President Abdel Fatah al-Sissi’s recent call for a ‘religious revolution’ against violent extremism.” (Read)

On the other end of the political spectrum, in ‘Why We’re Losing to Radical Islam,’ Newt Gingrich’s op-ed in this morning’s Wall Street Journal, calls for congressional hearings on the threat posed by radical Islamists. Gingrich lays out seven points for Congress to investigate, with points 3-5 bearing mention: “3. The role of the Muslim Brotherhood. The group is vital to the global radical Islamist movement, yet so little understood by Washington elites that it deserves its own set of hearings. 4. The primary sources of radical Islamist funding, especially Saudi Arabia, Qatar and Iran. 5. The Arab countries—including Egypt, Jordan, Morocco, Tunisia and Algeria—that have successfully contained and minimized radical Islamists. We must learn how this was accomplished and what aspects should be replicated.” (Read)

#koftagate: Sarah El Deeb of the AP finally brought us some good news yesterday, quoting an unnamed judicial official as saying that military prosecutors are being asked to investigate the devices brought to us bycharlatans witch doctors “inventors” who claimed they could detect and cure AIDS and Hepatitis C. (ReadEgypt’s military prosecutor to investigate ‘AIDS detector‘)

Editor’s note: This promises to be some of the best news to grace this country in some time. Not only did this entire episode damage Egypt’s image and standing in the world, but this bogus device and those responsible offered millions of sufferers of Hepatitis C and thousands of sufferers of HIV / AIDS false hope. It is hoped that justice will be swift and uncompromising.

Prominent and internationally respected Egyptian scientists such as NASA’s Essam Heggy who spoke out against the fake device by patiently explaining the basics of reality were vilified and defamed in certain corners of the Egyptian media.

Before these devices were presented as cure-alls for AIDS and Hepatitis in Egypt, but similar, if not identical, devices have been sold as fake bomb detecting units around the world. They were sold to Pakistan to help guard Karachi airport as well as to Iraq to be used as bomb detectors as recently as 2013. The devices have been marketed by various con artists operating out of the UK. This unconfirmed news regarding the possibility of prosecution is exceptionally welcome.

DIPLOMACY

President Abdelfattah El-Sisi met with Palestinian Authority President Mahmoud Abbas in Cairo yesterday, with the main focus of the discussion on battling extremism. Abbas praised El-Sisi for his recent Azhar speech, saying that Western leaders were beginning to take note of the gravity of the issue and of the need for the international community to better coordinate their efforts, a main talking point of Egyptian foreign policy over the past year. (Read)

Japanese Prime Minister Shinzo Abe will visit Egypt this weekend from 16-17 January (Friday-Saturday), accompanied by a delegation of senior Japanese officials. Abe is set to meet with El-Sisi to discuss bilateral ties. (Read)

President Abdelfattah El-Sisi will make his first official visit to the United Arab Emirates as President on Sunday, 18 January to attend the World Future Energy Summit as well as to meet with UAE officials during his two-day trip. (Read)

UK trade delegation take a sail on the new Suez Canal: British Minister for the Middle East and North Africa Tobias Ellwood and the visiting UK trade delegation became the first group of international guests to tour the new Suez Canal project. Ellwood said the Suez Canal development project “represents an enormous opportunity for Egypt and for British companies.” (Read)

Egypt, Kenya form permanent bilateral business council at Nairobi summit. Said Minister of Trade and Industry Mounir Abdelnour: “As recognition of the fact that trade is an engine of growth, I am pleased to announce the formation of the Kenyan Egyptian Business Council.  This will bring together 20 businesses — 10 from each country — to promote trade opportunities, which each group will need to present to their government on a quarterly basis in order to help drive the execution of projects.”

Kenyan Foreign Affairs Cabinet Secretary Amina Mohamed yesterday called attention to “The challenges surrounding the importation of sugar from Egypt and the issue of pricing of Kenyan teaneed to be addressed in order to tap the existing prospects for trade given the ample trading opportunities and market potential in both countries,” in her address to the visiting Egyptian delegation at the Egypt-Kenya Business Forum. (Read)

Ethiopian Patriarch in Egypt: Patriarch of the Ethiopian Orthodox Church Mathias I said in a news conference in Cairo yesterday that Egypt and Ethiopia are “united by nature” through the Nile river. “You should help building bridges that transfer truths without distortion,” the Patriarch said. (Read)

Egypt’s charge d’affaires to Lebanon Mohammad Badreddine Zayed said yesterday that he is working on facilitating visas for Lebanese businessmen, as he called for strengthened economic ties between the two countries, according to the Daily Star of Lebanon. (Read)

Reuters notes that the U.N.-sponsored Libya talks are off to a shaky start as the leaders of the Islamist coup in Tripoli have yet to officially endorse the meetings. (Read)

WORTH READING

Prominent energy markets scholar Lutz Killian gauges the impact of shale oil production on US economy and the international oil market and advises caution as:

  • Increases in shale oil production are not necessarily permanent;
  • Estimates of shale oil stocks recoverable using current technology are subject to considerable error;
  • No one yet knows how vulnerable the shale oil industry is to a severe drop in oil prices

But most importantly, the imperfect substitutability between shale and conventional crude makes cross-country comparisons difficult and aggregate analysis of crude oil markets misleading at best. Killian’s conclusion: The expansion in shale oil production did not cause the ongoing drop in international oil prices, but rather this was driven by weaker economic performance in Asia and Europe.

NOT WORTH READING

In his latest op-ed for The New York Times, Ayatollah Friedman calls for a million Muslim march. This region needs another protest like the world needs another Thomas Friedman op-ed.

The Economist half-heartedly wades into what the possible (likely?) release of Hosni Mubarak from prison means in “From Pharaoh to Phoenix.” We’re normally fans of the Economist, but the best part of this story is the headline.

OIL & GAS

Agreement in principle with Gazprom for 35 LNG shipments
Daily News Egypt | 13 Jan 2015
The Sisi administration has reached an agreement that will see Gazprom supply 35 LNG shipments over the next five years — seven shipments annually, according the Minister of Petroleum. A delegation from Gazprom will visit Egypt in mid-January to finalize the agreement that the minister notes will be paid for at global prices and which begins this year. Meanwhile, a delegation from Sonatrach will visit Cairo by the end of the month to finalize a similar LNG import agreement with Algeria. (Read)

Shell to supply Egypt with 1 mil mt/year LNG starting 2015 — executive
Platts | 14 Jan 2015
Royal Dutch Shell will join Algeria and, potentially, Gazprom in supplying Egypt with LNG, per an announcement yesterday by a company official at an oil and gas summit in Dubai. Shell Middle East and Africa VP Mounir Bouaziz noted that more countries across the region are turning to LNG because of the flexibility afforded by floating LNG receiving technology. The piece notes that Egypt “only recently contracted a floating LNG receiving and regasification unit from Norway’s Hoegh LNG, opening the way for imports, finalizing the infrastructure agreement in November 2014 after a two-year delay. The terminal is scheduled to be in service by the end of March.” (Read)

Sidi Krir to build new USD 600 million ethylene plant with production capacity of 200,000 tons
Al Borsa (Print) | 14 Jan 2015
The Chairman of Sidi Krir Petrochemicals (SIDPEC), Ahmed Helmy, revealed that the company has obtained tentative government approval to build a new USD 600 mn ethylene plant in Port Said with an annual production capacity of 200,000 tons. Helmy said the company was still examining suitable financing methods, adding that SIDPEC was in the process of signing an agreement with the United Gas Derivatives Company (UGDC) to start work on the project. Helmy also explained that, upon completion, ethylene imports will no longer be needed because the new project will meet local demand.

Oil price collapse could delay payment from Egypt — Dana Gas
Reuters | 14 Jan 2015
Dana Gas CEO Patrick Allman-Ward believes that the drop in oil prices could delay his company’s effort to recover overdue receivables from the Egyptian government, according to Reuters. Allman-Ward said publicly he hopes to recover the USD 165 mn in overdue receivables in full by mid-2018, but noted that the calculations were based on USD 85 per barrel oil and USD 2.65 per mbtu gas. (Read)

Gas imports from Israel is a possibility – Minister of Petroleum
Reuters | 14 Jan 2015
The Minister of Petroleum said equivocally that importing natural gas from Israel is a possibility. The Minister said during an extended interview with Al Musawar magazine that “everything is possible as long as Egypt’s economic interests are served” when asked about the issue. It is believed this is the first time an Egyptian government official acknowledged the possibility of importing gas from Israel publicly. (Read in Arabic)

Six new E&P projects signed totaling USD 485 mn — Ministry of Petroleum
Al Borsa | 14 Jan 2015
The Ministry of Petroleum signed six new E&P agreements, bringing in USD 485 mn in investments. The agreements were signed with Edison, RWE, BP, and Petroceltic and are spread across the Gulf of Suez, the Mediterranean, and the Western Desert. Sixteen new wells will be drilled as part of the agreement. The Minister of Petroleum notes that this marks 48 new deals signed since November 2013 with a minimum investment value USD 2.7 bn. (Read in Arabic)

Eni inks deals for two exploration blocks
Energy Voice | 14 Jan 2015
Not mentioned in the Al-Borsa story above is Eni, which said yesterday that it had signed agreements for two deep water Mediterranean offshore blocks, an agreement separate from the South West Melehia block on which we have previously reported. (Read)

MANUFACTURING

Mehleb launches initiative to support building of 1,000 new factories; initiative appears to target SMEs
Al-Ahram | 14 Jan 2015
Prime Minister Ibrahim Mehleb will launch a campaign labeled Intaleq that aims to help create up to 1,000 small factories and spur the creation of as many as 50,000 jobs in the first quarter of this, Al-Ahram reports. The PM made the announcement at a World Bank / Arab Monetary Fund symposium. (Read in Arabic)

REAL ESTATE

PHD to earmark EGP 120 mn in support of infrastructure in impoverished villages; will spend EGP 2.2 bn on own projects in 2015
Al Mal, Al Borsa | 13-14 Jan 2015
Palm Hills Developments and the Mansour Foundation for Development (MFD) will donate EGP 120 mn to develop impoverished villages in Kafr Elsheikh, Gharbeia, and Beheira under a cooperation agreement signed with the Ministry of Housing. The agreement will see PHD set-up infrastructure and collaborate on water and sewage projects. PHD and MFD will contribute a combined EGP 30 mn annually for four years. Meanwhile, Al Borsa reported that PHD is expected to pump EGP 2.2 bn into real estate projects in 2015, with EGP 1.7 bn going to residential projects and the rest into commercial ventures. (Read in Arabic and here)

Ministry of Housing tenders land at affordable housing projects for commercial purposes
Amwal Al Ghad | 14 Jan 2015
The Ministry of Housing is preparing to tender land at the Dar Misr and the million units’ project for retail and services projects. The tender aims to provide services to the residents of units as well as increase the units’ values. In addition, a protocol was signed with MAF to build supermarkets and assess development opportunities at the ministry’s projects’ sights. (Read in Arabic)

TELECOMS

Amendments to unified telecommunications license
Al Borsa | 14 Jan 2015
National Telecommunications Regulatory Authority head Hisham Al-Alaily explains that under the amended terms of the unified telecommunications license, Vodafone and Mobinil may deliver fixed-line service through existing national infrastructure rather than being forced to establish their own networks. (Read in Arabic)

TOURISM

UAE company interested in EGP 500 mn overhaul of Cairo’s historic Shepheard Hotel
Daily News Egypt | 14 Jan 2015
An unnamed Emirati company owned by a member Abu Dhabi’s ruling Al-Nahyan family is reportedly interested in undertaking an EGP 500 mn overhaul of the (somewhat) historic Shepheard Hotel on the border between Downtown Cairo and Garden City. The 257-room hotel is owned by state holding company EGOTH and has been shuttered since the last management company drew the blinds in 2013 following a labor dispute.(Read)

Ministry of Tourism promotes Egypt as a tourist destination for Russians; Ruble to be accepted in February
Al Mal, Al Shorouk | 14 Jan 2015
The Ministry of Tourism is adopting a new initiative to promote Egypt to Russian tourists as a destination with an emphasis on the nation’s sunny climate. The ministry is launching the initiative in partnership with tour operators, who will share the costs with the state. The promotions will focus on smaller Russian cities rather than Moscow, and come after a decision to scrap visa fees for tourists from Russia until 30 April. Al Shorouk reports that the mechanism allowing for accepting payments in Ruble will begin in February, according to a statement by the tourism minister. (Read in Arabic and here)

BANKING & FINANCE

Citigroup’s consumer business in Egypt valued at USD 500 mn?
Al Masry Al Youm | 14 Jan 2015
Following up on yesterday’s story regarding the 10 bids received by Citigroup for its consumer banking business in Egypt, Al Masry Al Youm says the deal could be worth as much as USD 500mn. The figure is based on the two newest bids received from the UAE’s Emirates NBD and Mashreq Bank. Other bidders included CIB and Bahrain’s Al Ahly United Bank. An unnamed source was quoted on Al Masry Al Youm saying that the deal would not only include the bank’s retail loan portfolio, but also the division’s employees and 9 out of the bank’s 12 branches in Egypt whereby the remaining three would continue operating in the corporate credit market. It is worthy to note that Citigroup’s retail portfolio in Egypt exceeds EGP 1.7 billion with over 600 thousand clients. (Read in Arabic)

Banks present competing offers to finance Al Ghurair’s investment in Egypt
Al Mal | 14 Jan 2015
Banque Misr joined a consortium that includes CIB and QNB seeking to finance Al Ghurair Group’s investment in the Middle East’s largest sugar production plant, which it is building in Minya. A competing consortium with NBE, AAIB, Alex Bank, and Ahli United Bank had offered Al Ghurair a EGP 4.2 bn credit facility for ten years. Al Ghurair is yet to agree to a financing deal, but is expected to begin production from the plan at 25% capacity by 2017. (Read in Arabic)

CBE joins the government in supporting SME financing
Al Mal, Al Shorouk | 14 Jan 2015
CBE is launching an initiative to support SME financing exempting banks from having to maintain a reserve balance for SME loans and will issue regulatory guidelines on how manage SME financing. It will also establish a unit to educate banking sector employees about the financial requirements of SMEs. This comes in tandem with efforts from the government to support the SME sector and having the office of the PM coordinate with the Ministry of Industry and Trade to attract SMEs into the formal economy and facilitate their operations. (Read in Arabic)

EGYPT POLITICS + ECONOMICS

President El Sisi’s met with political party representatives again last Tuesday
Ahram Online | 13 Jan 2015
President Abdel-Fattah El-Sisi announced on Tuesday that he will not establish a new political party to avoid “polarization” at a “critical” time in Egypt during his second day of meetings with representatives from Egypt’s political parties. In statements to Aswat Masriya, the head of The Generation party was quoted as saying that President El-Sisi told party representatives that he will pass on amending the protest law and would defer any potential future amendments to the future House of Representatives. (Read)

UAE sources: No plans to set up UAE investment fund in Egypt
Mubasher | 14 Jan 2015
Government sources in the UAE have denied any intention of establishing an investment fund in Egypt in the coming period. The news follows reports in Egypt that the UAE was considering setting up an EGP 10 bn investment fund to pursue Egyptian opportunities. (Read in Arabic)

Three decapitated bodies among five corpses found in Sinai yesterday
Ahram Online | 14 January 2015
The bodies of five civilians were discovered yesterday at separate locations in North Sinai; three had been decapitated in what is believed to be the latest work of terror group Ansar Beit Al-Maqdis. (Read)

ON YOUR WAY OUT

This dog in Seattle knows how to take the bus by itself. So does this cat.

Who to follow on Twitter: If you’re already following her / him / it, then you may be glad to know thatKimKierkegaardashian (whose Twitter bio reads: “The philosophy of Søren Kierkegaard mashed with the tweets and observations of Kim Kardashian”) has recently come out of a nearly 3-month long self-imposed hiatus. Example: “Kanye never told anyone in a wheelchair to stand up. He merely presented a miracle. Now you must choose either to have faith or take offense,” referring to an incident last September when Kanye West refused to perform until all his fans stood up, causing the audience to boo two fans in wheelchairs until West belatedly and begrudgingly understood his error.

BY THE NUMBERS

USD (CBE auction): 7.1401 (unchanged)
USD (parallel market): 7.75 (down 9 pts — the black market rate this week is giving us whiplash)

EGX30 (Wednesday): 9,544.08 (+2.53%)
Turnover: EGP 881.6 mn (29% above the 90-day average)

WTI: USD 48.34 (-0.29%)
Brent: USD 48.40 (-0.60%)

TASI: 8,551.9 (+0.7%)
ADX: 4,506.3 (-0.1%)
DFM: 3,814.1 (flat)
KSE: 444.8 (+0.4%)
QE: 11,877.4 (-0.5%)
MSM: 6,432.8 (+1.0%)

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