Thursday, 10 September 2015

Even if they have them, the FX bureaux aren’t going to sell you greenbacks



A sandstorm that clobbered Cairo yesterday has been hitting Middle East all week. BBC said, “parts of Lebanon, Israel, Turkey and Cyprus were also affected. Lebanon’s state news agency said two people died,” a casualty number CNN Arabia puts at three. Waheed Seoudi, the spokesperson of Egypt’s Meteorological Authority, said the sandstorm should break today. The sandstorm had impacted visibility severely and the Safaga Port was shut down as a result, Al Ahram said.

Apple dropped plenty of new toys last night, including:

  • The iPhone 6s, with a better camera and funky new menus and features calling on “3D Touch”
  • The massive iPad Pro, complete with an “Apple Pencil”
  • A pretty funky new Apple TV box and “Siri remote with Touch”

We iSheep are pleased. So, too, is the FT, for the most part.

Otherwise: Wednesday was an epically slow news day, and last night was no better. Maybe everyone stayed home because of the sandstorm. Or perhaps it’s because Prime Minister Ibrahim Mahlab and at least seven members of his cabinet were in Tunisia for meeting. Either way, we close the week having at last witnessed that heretofore mythical “slow news day” in Egypt.

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Khairy Ramadan, host of CBC’s Momkin, was in an uncharacteristically bad mood on Wednesday night. The host kicked-off his program by attacking Reuters for reporting that the Egyptian military had sent ground troops to Yemen. “I have spoken to sources in the military. Egypt’s participation is limited to air and naval attacks; there are no troops in Yemen,” said the exasperated host. He then accused the news of agency of disseminating misinformation, adding that Reuters’ actions were “part of a larger war” against the country. The host subsequently made a series statements that could only be interpreted as a warning shot to the news agency.

Ramadan: “I do not want to Reuters to follow in the footsteps of another media outlet that lost all of its credibility due to its actions… Egyptians once relied on Al Jazeera for their news. Now, no one can stand to watch them.”

Meanwhile, Wednesday night’s episode of  El Sada El Mohtaramoon focused squarely on corruption. Host Youssef El Husseini was joined by journalist and guest commentator Abdullah El Sinnawy for a talk about the root causes of graft.

El Sinnawy’s explanation had a rather socialist tinge to it, attributing the country’s high-levels of corruption to the unlawful practices of crony capitalists rather than a bloated state bureaucracy. “Corrupt elements have had over 40 years to infiltrate the state… Ever since the Infitah [the opening to capitalism in the 1970s] businessmen have grown wealthier by unlawfully exploiting the state’s wealth… This is why there are so many people in the business community that are worried about the President El Sisi’s fight against corruption. They are worried it will hurt their pockets.”


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Current estimates of the gas holdings at Eni’s Zohr gas find are “conservative” and could be raised, Eni’s CEO Claudio Descalzi said, noting that the estimates will become clearer once exploration begins. Before entering a senate hearing in Rome, “Descalzi told journalists that the gas estimates for the Zohr field could be upgraded but not to the same extent they were for the Mamba field in Mozambique, where estimates were raised by 100 percent,” Reuters said. Descalzi also said that Oil Minister Sherif Ismail’s estimate of having USD 6-10 bn invested in developing the field is “a reasonable order of magnitude” but that Eni is expected to remain within USD 10 bn for the overall development of the field. “He also said that he expected Italian oil services group Saipem to play a big role in the development of the field, without giving details,” Reuters reported. The story has since crossed over to Reuters Arabic, giving it wide play in the domestic press. Bloomberg reported that Descalzi said “the company plans to fast-track development in Egypt, starting production in 2017.”

Neither Amer Group nor company chairman Mansour Amer have had any direct or indirect dealings in agricultural investments, Amer Group said yesterday in a statement (pdf) released to the EGX. The disclosure came one day after its shares were hammered in a selloff sparked by persistent reports that an ongoing probe into corruption at the Agriculture ministry was targeting publicly traded real estate companies.

Egypt’s balance of payments for FY2014-15 grew to a USD 3.72 bn surplus from USD 1.48 mn in FY2013-14, the CBE’s 4Q release showed. The current account deficit widened to USD 12.18 bn y-o-y from USD 2.7 bn for two main reasons: the decrease of petroleum exports from USD 12.45 bn in FY2013-14 to USD 8.70 bn in FY 2014-15 and, more significantly, international grants (transfers) fell from USD 11.92 bn to USD 2.67 bn a year later. GCC deposits, however, were recorded in the financial account and contributed directly to the larger balance of payments surplus. Two clear positives: the consistently strong remittance figures (which came at USD 19.20 bn in FY2014-15) and the growth in net FDI to USD 6.37 bn from USD 4.12 bn in FY 2013-14. You can check out the CBE’s official BoP release here.

Huawei considering Egypt expansion, mobile phone plant: Chinese telecoms giant Huawei is considering expanding in Egypt after having assessed building a mobile phone plant, company representatives told CIT Minister Khaled Negm. The company is also considering expanding cooperation in research and development as well as helping Telecom Egypt expand into African markets. Negm met with Huawei Egypt’s CEO Yang Tao yesterday, following up on an earlier meeting between Sun and President Abdel Fattah El Sisi during the latter’s recent trip to Beijing. Sun spoke with the president in China about the telecom company’s work with MCIT and the Ministry of Electricity, noting at the time that “Huawei seeks to expand its activities in Egypt and implement joint ventures that will further advance Egypt’s development process.”

IFC could inject USD 690 mn into Suez Canal axis development: The IFC is currently assessing participating in financing three power stations in the Suez Canal axis development project, Mouayed Makhlouf, the Middle East and North Africa Regional Director, said. One power station will be natural gas fired and the other two projects are for a windfarm and for a solar power plant. The IFC is setting aside USD 200-230 mn per project, Makhlouf said. (Read in Arabic)

Arabtec’s Egypt housing project cut to tenth of original size: Arabtec’s USD 40 bn project to build one mn houses in Egypt could be scaled back to just a tenth of its original size, Housing Minister Moustafa Madbouly said. “Negotiations with the company are currently taking place over the building of 100,000 units within five years… There is no place for talks about assigning the million-unit project announced 18 months ago,” Madbouli noted. Arabtec declined to comment on the Minister’s statements.

Auto assemblers could invest USD 3 bn to move into manufacturing — but only if the government passes legislation that would grant the auto industry a breather from a flood of European, Turkish and Moroccan imports, says GB Auto CEO Raouf Ghabbour. New legislation, the Daily News quotes Ghabbour as saying, would help Egypt shift from “being consumption-producer to an exporting country. I pledge to pump investments of approximately USD 1.5 bn into automotive manufacturing.” Others in the industry would could invest a similar sum, “but they are waiting for the government’s proof of seriousness” with the introduction of new legislation. As we reported yesterday, Trade and Industry Ministry Mounir Abdelnour said he expects to table a draft bill to support the auto industry “within weeks.”

The Central Bank of Egypt (CBE) announced on Wednesday that it has instructed banks to allocate 40 percent only of their own resources to cover short-term facilities, Al Mal reported, saying the Central Bank prohibits the use of USD from its FX auctions to cover short-term facilities. The CBE has also apparently capped interest on short-term deposits at 1.5 ppt over the three-month LIBOR. The announcement came as the EGP fell to 8.09 against the USD on the parallel market, Al Borsa reported.

At the same time, foreign exchange offices have either run out of USD or are hoarding after Investment Minister Ashraf Salman’s remarks earlier this week about the need to embrace devaluation, Al Mal reports, quoting Mohamed El-Abyad, the Head of the Exchange Division at the Federation of Egyptian Chambers of Commerce (FECC). USD liquidity is just about impossible to source, he added, asking, “Who will sell USD if they know it will appreciate against the Egyptian pound soon?” JPMorgan Chase expects the EGP to lose 2.8% in the coming two weeks, the paper added.

Reuters’ Eric Knecht hits the nail on the head with a look at how the Central Bank’s war on the parallel market for FX and its prioritization of foreign exchange for commodity and energy imports is crushing small and medium-sized businesses. “Caught between the formal banking system – which prioritizes hard currency for imports of strategic items such as food and energy – and the depleted black market, are all the businesses struggling to import, slowing the country’s growth. Manufacturing output contracted almost 30 percent in June compared with the same period last year. ‘Egypt has all the ingredients in place to build itself as a manufacturing hub, but it seems in the near term or at present that things aren’t going in its favor with currency restrictions,’ said economist Jason Tuvey of Capital Economics.” As a way into monetary policy, it’s an interesting hook. For very accurately articulating the pain that many small business owners feel daily, Knecht gets an A+.

ASCOM (known to the local press by its registered name — ASEC for Mining) received EGX approval on Wednesday for an EGP 120 mn capital increase by rights issue. The company will issue 12 mn shares at par (EGP 10 per share), bringing the mining and quarrying company’s capital to EGP 470 mn. ASCOM is a business unit of Qalaa Holdings.

Elections Committee to redraw constituency boundaries in Cairo and Qena: The High Elections Committee (HEC) said Wednesday it will redraw the boundaries of two electoral constituencies, one in Cairo and one in Qena, following a ruling by the Administrative Court on Monday that pointed to administrative errors. The HEC held a meeting to redraw the electoral districts, according to their spokesperson, and elections look to proceed as planned, with no extra round of voting for Qena as some had suggested.

Making the tax system more efficient could reduce the perception of corruption in Middle Eastern countries, including Egypt, the IMF suggests. What can be done to make the taxation system more efficient regionally? Simplifying tax structures by consolidating multiple VAT rates and reducing the number of tax rates paid by corporations; widening the base on which taxes are collected by eliminating corporate income tax exemptions, and reducing and better targeting those for VAT; increasing progressivity of personal income taxes; introducing or better design and enforce taxes on real property; and making tax and customs administration more user-friendly by improving “customer service” and simplifying codes and regulations. Of course, the researchers give the usual caveats “this may sound easy in theory, but the reality is that there will be much resistance to these reforms. Policymakers, across the Middle East and North Africa, will have to tackle vested interests, build broad-based support, and reform tax administrations that may have little appetite for change.”

Israeli embassy reopens in Egypt: The Israeli embassy, which had been shut down for four years after a group of protesters stormed the building in September 2011, has been reopened, reported Reuters. Israeli Foreign Ministry Director General Dore Gold was in Cairo for the ceremony, which, as reported by Haaretz, was attended by a lone Egyptian official, the deputy director of the Foreign Ministry’s protocol department.

Egypt sent in 800 troops into Yemen on Tuesday, Reuters reported, following up on reports we noted yesterday on an unspecified number of Egyptian forces arriving to join the Saudi-led coalition. Yemeni officials put the number of foreign troops at 2k, with Al Jazeera giving a number of 10k troops. The Egyptian troops are part of a force to attempt to recapture Sanaa from the Houthis.

Ayman Zawahiri is doing that Islamist doublespeak claptrap thing, with the Al Qaeda supremo still calling Daesh and Abu Bakr Al-Baghdadi illegitimate, but at the same flirtatiously saying “Despite the big mistakes [of Daesh], if I were in Iraq or Syria I would cooperate with them in killing the crusaders and secularists and Shi’ites even though I don’t recognize the legitimacy of their state, because the matter is bigger than that,” he said, according to an audio recording posted online, Reuters reports. It is also important to note that Zawahiri looks like a frightened baby alien.

Rooftop gardens are gaining a foothold in the minds of Cairenes captivated by promises of homegrown food, lower energy bills and —just maybe — a reduction in summertime temperatures. But the obstacles are legion, from questions over who owns rooftops to whether shoddily built structures can support the weight of rooftop installations. Veteran finance writer Patrick Werr tackles the subject this week in his regular column on Egypt in the UAE’s The National.

Egyptian soldiers killed 30 militants and captured another 41 on the third day of Operation Haq El Shaheed, as per a statement on the Egyptian military spokesperson’s Facebook page.

Increased Russian involvement in Syria? Sources tell Reuters that “Russian forces Russian forces have begun participating in military operations in Syria in support of government troops,” on Wednesday, following previous rumors suggesting limited Russian involvement, as noted by Bloomberg View’s Leonid Bershidsky. Bershidsky doesn’t offer a definitive opinion as to whether he believes Putin will risk further engagement beyond supplying armament, but instead explores different paths of reasoning the Russian leader might take.


Newsflow on Egypt was as slow internationally as was at home in the wee hours of the morning, with the top stories being widespread pickup of Reuters’ claim that Egypt has sent some 800 ground troops to Yemen, followed closely by stories on Israel’s re-opening its embassy after a nearly four-year closure.


He’s a commie, but… Sometimes, ladies and gentlemen, it’s difficult to remember that if Egyptians in general have a tendency to suffer from groupthink, those of us active in the business community in general (and finance circles in particular) forget even more frequently to lift our heads up and look around for new perspectives. That point was driven home when a senior (and impeccably capitalist) reader passed along a link to this: “The G20 Summit: A Spectacle of Political Bankruptcy.” It’s food for thought heading into the weekend.


It’s the internet your momma warned you against visiting — and it could teach you something about doing business: Wikipedia defines the dark web as “is the World Wide Web content that exists on darknets, networks which overlay the public Internet and require specific software, configurations or authorization to access” In a TED Talk, Jamie Bartlett explains how the market for illegal items on the dark web is the shaping the future of e-commerce and providing improved customer experience. There are a few lessons for online payment systems, including micro-laundering, there too. “The creation of functioning, anonymous, competitive markets is … a phenomenal achievement,” Bartlett says describing online trading on the dark net and that is why, he adds, the dark net might be going mainstream soon (watching time 14:01).


Images of artifacts from the new Osiris Exhibition in Paris, CNN. “Submerged for well over a thousand years, around 250 artifacts from the ruins of Thonis-Heracleion and Canopus are shown to the public for the first time in an exhibition at the Arab World Institute.” The exhibition was inaugurated by French President François Hollande. An Egyptian delegation was also present, as we noted on Monday, including foreign minister Sameh Shoukry, Antiquities Minister Mamdouh El-Damati, Tourism Minister Khalid Rami and Egypt’s Ambassador in Paris Ehab Badawi, according to a release from SIS.


President Abdel Fattah El Sisi met with a delegation from the Italian Senate Foreign Affairs Committee on Wednesday, led by its Chairman Pier Ferdinando Casini, according to a statement from Ittihadiya. The two reportedly discussed Eni’s Zohr gas find, the quick turnaround by the Egyptian government on the restoration of the Italian Consulate in Cairo, future inter-parliamentary relations, and foreign policy issues including Libya and Syria. President El Sisi also called on the international community to assume their responsibility toward refugees.


Apache Corp pushing forward with Egypt plans, to drill 60 wells in 2H2015
E&P | 08 Sep 2015
Apache Corp is pushing forward with its plans in Egypt and is planning on drilling 60 wells as well as running 11 or 12 rigs in 2H2015, E&P magazine reported. The magazine describes Apache’s Egypt operations as among “the bright spots during dark times for the oil and gas sector.” Two factors drive E&P’s description: “The structure of existing production-sharing contracts largely insulates these assets from large swings in commodity prices” and the shortening of cycle times through having “extensive gathering, transportation and processing infrastructure in place,” according to Apache’s spokesperson. “Our strategy … is to continue working on our cost structure, continue investing in acreage and 3-D seismic, and continue key play delineation and target testing … such that when it is time to ramp up our drilling program, we will be doing so in the most efficient manner possible, which will maximize program rates of return and net present value,” CEO John Christmann said. (Read)

Other companies also drilling in the Mediterranean, Oil Minister says
Daily News Egypt | 09 Sep 2015
Companies including BP, Total, Edison, and Kuwait Energy are all drilling for gas in deep Mediterranean waters, and not just Eni, Oil Minister Sherif Ismail said. The Ministry had also finalized pricing negotiations over production from Eni’s Noras field and BG’s phase 9B wells, Ismail said adding that “there is a different view regarding the pricing of gas with foreign partners, where the gas pricing has to be suitable in order to achieve revenues that are consistent with the amount of risks and investments in the gas and petroleum research and exploration field.” He added that EGPC will be issuing new E&P tenders in in the Gulf of Suez and the Western Desert. The Minister added that crude oil production nationwide is at 700k bbl per day, exceeding the official target of 695k per day. (Read)

Kuwait Petroleum Corporation to set up Egypt office
Daily News Egypt | 08 Sep 2015
The Kuwait Petroleum Corporation (KPC) is setting up an office in Egypt, EGPC head Tarek El Molla said. “The office’s purpose is to market the corporation’s crude oil products, as part of the plan to turn Egypt into a logistics center for marketing and storage petroleum products,” Daily News Egypt reported. Other options are being assessed including having the Kuwaiti side provide Egypt with “more crude oil for refining and then sale on international markets. Another option is the KPC storing the crude oil in EGPC warehouses, and then selling it through the Sidi Krir terminal in Alexandria.” (Read)


80% of Suez Cement’s energy at two plants comes from coal, Chairman says
Al Shorouk | 09 Sep 2015
80% of Suez Cement’s energy in the Katameya and Suez plants is now generated from coal, Omar Mehanna, the company’s Chairman, said. The company is now working on having 80% of its energy coming from coal across all of its five plants. The cost of transforming a plant to run on coal is USD 1 mn, Mehanna said. He added that it is unclear how much output the company will manage this year, but it is expected to be better than last year’s 52 mn tons. (Read in Arabic)


Tatweer Misr launches first phase of Il Monte Galala El Sokhna
Al Mal | 09 Sep 2015
Real estate developer Tatweer Misr announced the launch of the EGP 1.2 bn first phase of Il Monte Galala El Sokhna. The first phase includes 1500 houses out of a total 5000 spread over three phases. The estimated total cost of the project is EGP 8 bn, and aims to create 10k jobs. The expected time for delivery of the first phase is 2019, and the whole project will be completed within 10 years, according to company Managing Director Ahmed Shalaby. (Read in Arabic)


Arqin border crossing with Sudan 90% complete, says Transportation Minister
Al Mal | 09 Sep 2015
The Arqin border crossing connecting Egypt and Sudan is 90% complete, according to Transportation Minister Hani Dahy. The EGP 90 mn crossing will be the second land port between the two countries after the Qustul crossing. The port will increase trade volume between Egypt and the African countries, giving Egypt a strategic advantage and making it the world’s portal to Africa. (Read in Arabic)


Potential yakuza gang war in Japan: At the end of last month, Japanese police became alert to the potential danger of open gang warfare following a recent split in the largest yakuza crime syndicate, the Yamaguchi-gumi, in the city of Kobe, The Japan Times reported. The concern is based on previous experience: “In 1984, a splinter group called Ichiwa-kai, which was unhappy with then top gang leader Masahisa Takenaka, broke away. The result was gun violence in the streets of Kobe and elsewhere that lasted nearly two years, led to the assassination of Takenaka in early 1985, and left 25 gang members dead and scores of innocent bystanders wounded.” The Yamaguchi-gumi are currently led by the impeccably-dressed Shinobu Tsukasa, who spent 13 years in prison for killing a rival with a katana samurai sword. According to Fortune magazine, the Yamaguchi-gumi are the wealthiest crime syndicate in the world, with an estimated USD 80 bn in revenue per year. Renewed security concerns over yakuza violence has prompted a wave of coverage, from The Guardian and the Wall Street Journal, with the latter putting together a short explainer video on the yakuza, (Watch, running time: 1:24, next video on autoplay) as did the BBC, (Watch, running time 1:14), using mostly similar footage and information to that of the WSJ video. For a longer look at the connections between the yakuza and right-wing politics in Japan, see VICE News’ documentary from May (Watch, running time: 22:03)

Yesterday, Britain’s Queen Elizabeth became the country’s longest-reigning monarch. She surpassed “the 63 years, 7 months, 2 days, 16 hours and 23 minutes that her great-great-grandmother Queen Victoria spent on the throne,” Reuters said. The British Monarchy’s official website said that, over the course of Queen Elizabeth’s life, much has happened “television has been invented, man has walked on the moon for the first time and the Berlin Wall has been built and then razed to the ground.” If you’re not terribly fond of the monarchy, may we draw your attention to these 70s and 80s hits.

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QUICK FACT: The Buttonwood Agreement, which essentially started the New York Stock Exchange (NYSE), was signed in May 1792 when 24 brokers and merchants met on Wall Street in New York and agreed to allow securities to be traded on a commission basis.

USD CBE auction (Wednesday, 09 September): 7.7301 (unchanged since Sunday, 05 July)
USD parallel market (Wednesday, 09 September): 8.06 (down 0.03 from Tuesday, 8 September, Al Borsa)

EGX30 (Wednesday): 7,050.02 (+1.82%)
Turnover: EGP 332.4 mn (29% below the 90-day average)
EGX 30 year-to-date: -21.02%

Foreigners: Net Long | + 17.8 mn EGP
Regional: Net Long | + 1.5 mn EGP
Local: Net Short | – 19.3 mn EGP

Retail: 66.7% of total trades |  64.1% of buyers | 69.2% of sellers
Institutions: 33.3% of total trades | 35.9% of buyers | 30.8% of sellers

Foreign: 16.1% of total | 18.8% of buyers | 13.5% of sellers
Regional: 10.2% of total | 10.4% of buyers | 10.0% of sellers
Domestic: 73.7% of total | 70.8% of buyers | 76.5% of sellers


Ministers Brace Devaluation to Face ‘EM Storm’

An unprecedented loud noise came out of key ministers over the past two days to reiterate that an EGP devaluation is indeed inevitable. The strongest statement came from the minister of investment during the Euromoney Egypt Conference. He explicitly acknowledged that “an EGP depreciation is no longer an option (i.e., it’s a must), given developments in the global economy”. Salman’s statements echoed those of his Industry and Trade counterpart, who explicitly noted that a strong EGP is a key explanatory variable behind the contraction in merchandise exports y/y in 2015. We interpret both statements as a confirmation that EGP devaluation has been discussed in the cabinet, approved at the highest institutional level and is nearing the execution phase. Tap here to read more — and to learn the shares we think you may want to consider right now.

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