Mohamed El-Erian has investment advice for you.

TL;DR

USD 1.5 bn in loans before year’s end, says Sahar Nasr (Speed Round)

Moody’s expects 5% growth, says gov’t record on revenue side of the equation is “mixed” (Speed Round)

Budget deficit improved to 11.5% in the last state fiscal year (Speed Round)

Salman to extend investment banks’ ‘contracts’ to market national projects? (Speed Round)

Oil minister sees USD 1 bn in new IOC investments in FY2015-16 (Speed Round)

Why is a young, nearly-paralyzed woman still in pre-trial detention? (Last Night’s Talk Shows)

Mohamed El-Erian has some investment advice for you: Cash isn’t a wasting asset (Speed Round)

By the Numbers + A Single Chart that Should Keep You on Guard — #2

WHAT WE’RE TRACKING TODAY

The Emirates NBD Purchasing Managers Index (PMI) for Egypt, Saudi Arabia, and the United Arab Emirates will be out today at 7:30am CLT here.

Heavy rain and thunderstorms are expected in Alexandria today, Al Shorouk warns, and the city remains without a clear plan on how to avoid flash floods such as those from last week, and has yet to appoint a new governor. The outlook for Cairo: Sunny with intermittent cloud today, a high of 28ºC, but a 40% chance of light rain tomorrow and highs of 26ºC.

Otherwise, ladies and gentlemen, yesterday was a mercifully slow news day at home and abroad, a development for which we’re certain to be punished today. But take heart: It’s mid-week.

WHAT WE’RE TRACKING THIS WEEK

President Abdel Fattah El Sisi will visit the UK from 4-6 November, Youm7 reports. El Sisi is expected to meet with British Prime Minister David Cameron and Secretary of State for Defence Michael Fallon after receiving an official invitation from the British government. An overnight statement from Ittihadiya puts an emphasis on security cooperation between the two countries, but also notes the president will meet members of the U.K. business community as well as the president of the European Bank for Reconstruction and Development. “Two MoUs in the fields of security and higher education will be signed between Egypt and the UK during the visit,” the statement said, noting that, “the UK is the largest foreign investor in Egypt with investments that exceed USD 20 bn.”

LAST NIGHT’S TALK SHOWS

Amr Adeeb opened Al Qahera Al Youm last night with a backhanded defense of Esraa El Taweel, a 23-year old photojournalist who was forcibly disappeared in June for allegedly spreading false news and belonging to the Muslim Brotherhood.

“Esraa should be dealt with in a merciful way. This girl made mistakes, but she is only 18 years old [sic, 23] and should be forgiven. It is heartbreaking to see… Yes, she is a member of the Ikhwan. Even so, she must be treated in a more merciful manner… Esraa has become a symbol… What threat does she pose to the Egyptian state? … Just because Esraa does not have money or a state to defend her she remains in jail? This is wrong,” screamed Adeeb. Adeeb’s comments were in reference to El Taweel’s hearing on Monday, which resulted in her detention being renewed for an additional 45 days and which may be renewed indefinitely under an amendment to Egypt’s criminal code signed into law by former interim president Adly Mansour in 2013.

(El Taweel has been in pretrial detention for five months. Photographs of the young woman in tears as she received an extension of her detention were published in the domestic press and widely circulated on social media. El Taweel has consistently claimed not to be a member of the Ikhwan and has reportedly been denied physical therapy since her the time of her detention to treat the damage from a bullet that struck her spine in 2014 while photographing protests commemorating the January 2011 revolt. Alaa El Taweel, her sister, issued a statement on yesterday’s hearing here (Arabic). Information on her condition, and the risk of permanent paralysis, is also detailed by her sister in Arabic here.)

Over on Hona El Assema, Lamis El Hadidy talked with with Cabinet spokesman Hossam El Qawish, who provided viewers with updates on the status of the government’s investigation into the crash of Flight KGL-9268 over the Sinai on Saturday. “The bodies of the 196 passengers have been flown to Russia… The government intends to release a comprehensive report, detailing the cause of the tragedy. The conditions of the plane’s two black boxes will determine the amount of time we will need in order to issue the report, which we expect will take between 2 to 4 weeks.”

El Hadidy was then joined on the phone by Supply Minister Khaled Hanafi for a chat about the government’s strategy for decreasing commodity prices. The Minister’s comments follow President Abdel Fattah El Sisi’s remarks during his televised address on Sunday in which he promised to provide affordable commodity prices through the use of army co-ops.

Hanafi: “The state intends to decrease prices by increasing the number of subsidized food outlets. In parallel, we plan to increase the supply of specific goods, which the government has yet to determine, to decrease speculation and lower their respective prices… We plan to lower the price of meats by increasing the number of subsidized meat outlets by 38 additional locations. This task will be undertaken in partnership with the military.”

Finally, at Al Kahera wal Nas, Ibrahim Eissa said the government’s approach to stabilizing commodity prices “lacked imagination” and “failed to address the root cause of the problem.” He began: “Commodity prices have fallen around the globe. Nevertheless, the prices of staple goods have either risen or remained the same in Egypt. Why is this happening? The cause of this problem has to do with the way in which the merchants purchase and deliver goods to consumers… Unfortunately, the state has attempted address the issue by increasing the number of subsidized food outlets, a temporary solution at best. The government must find a way to address the source of this problem, a solution that will ensure long-term stable prices that citizens can afford.”

We’re taking a break from talk show reviews tomorrow – reviews will resume on Thursday.

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SPEED ROUND

Egypt will receive USD 1.5 bn in loans before the end of the year… International Cooperation Minister Sahar Nasr told Prime Minister Sherif Ismail that Egypt will receive USD 1 bn from the World Bank and USD 500 mn from the African Development Bank before the end of 2015, Al Masry Al Youm reported. In total, Egypt is in talks for USD 4.5 bn in funding from the WB and the AfDB. The rest of the amount will be disbursed over the next three years and will be repaid over 35 years, including a three-year grace period, at an interest rate of 1.86%. These loans are pending approvals from boards of their respective organizations. The World Bank has also agreed to increase its loan portfolio in Egypt to USD 6 bn to be distributed over the coming three years, up from USD 5.5 bn, Nasr announced at a press conference Monday evening.

…and it’s no secret we need that cash, as Moody’s reminds us this morning: The ratings agency is out today with a global credit research note pointing out that while “reforms have sparked improvements in Egypt’s (B3 stable) public finances and economic conditions …  challenges remain … [including] the government’s large financing needs, structural economic issues such as high unemployment and inflation, and elevated political risks.” The research report, which the agency points out “does not constitute a rating action,” suggests the economy will grow 5.0% in FY2016 (up from 4.5% last year). While acknowledging that “economic and fiscal reform momentum in Egypt will help fiscal deficits and government debt levels to gradually reduce,” Moody’s Steffen Dyck points out that, “So far the government’s track record of implementing revenue-enhancing measures, such as the introduction of new taxes, is mixed.” Read the full Moody’s statement here.

The budget deficit in FY 2014-15 stood at 11.5% of GDP, an improvement compared to the 12.2% recorded in FY 2013-14, the Finance Ministry said in a statement. Public expenditures rose by EGP 31.8 bn to EGP 733.4 bn. Spending on education increased to 4% of GDP, while the public outlay on health inched up to 1.5% of GDP. According to Article 18 of the constitution (pdf), the state is mandated to spend the equivalent of at least 3% of GDP on healthcare. The Finance Ministry said it is still concerned with financial performance of some of the state’s “economic entities.”

Investment Minister Ashraf Salman plans to meet with investment banks in the coming days to renew contracts to market national projects, said Egyptian Capital Markets Association vice president Mohamed Maher. The remarks follow a meeting between the two on Sunday, where Maher strongly recommended the move. Fourteen investment banks have been marketing 35 projects, with 28 being announced at the EEDC. (And correct us if we’re wrong, but aren’t you nice investment bankers out there marketing the projects pro bono?) Also at Sunday’s meeting, Salman discussed making it easier for foreign nationals and institutions to repatriate capital, The request was made by ECMA head Mohamed Taymour, Al Borsa reports.

From the Reuters Middle East Summit: IOCs to invest USD 8.5 bn in current fiscal year, El Molla says: IOCs will increase their investments in Egypt to USD 8.5 bn in FY 2015-16, up from USD 7.5 bn in the current fiscal year, Oil Minister Tarek El Molla told Reuters (Arabic and English). Projects in north Alexandria are set to commence next year as well as the beginning of the drilling operations at Zohr. El Molla reiterated that production from the Zohr field will begin in 2017 adding that Eni is prioritizing the project over its other engagements worldwide. Before the end of the year, EGPC will issue a tender for concessions in the Eastern and Western Deserts as well as in the Gulf of Suez, El Molla added. The oil minister also has plans for a third FSRU by the end of 2016 or early 2017— and expects to stop importing LNG by 2020 as Eni and BP fields come into production.

Other headlines from the Reuters summit worth checking out include:

• Egypt bourse hit by emerging market storm, sees new IPOs in 2016: EGX chairman Mohamed Omran says IPOs have been “hit by this year’s rout in emerging markets,” but that “parliamentary elections should help restore investor confidence in 2016.” Omran told Reuters he expects new public offerings in 1H2015 “once liquidity and prices recover.” Reuters notes that “Egypt saw three large IPOs in the first half of 2015 worth a total of about 6 bn Egyptian pounds.” Among those considering listings: Cheese maker Domty and real estate developer Misr Italia.
• Saudi’s Jarir retailer says population growth to offset cheap oil drag on economy: “The company, Saudi Arabia’s second largest listed retailer by market value, will go ahead with its plan … to invest SAR 1.1 bn over five years to open six to seven new stores on average each year.” The company’s chairman said: “People can think about it negatively, but … this is a time of opportunity for us to increase our market share through stronger marketing and aggressive store opening.”

• Saudi developer Dar sees new era of government cooperation: The company aims to keep growing in FY2016 “despite low oil prices, as the government prioritizes spending on housing and tries to increase the private sector’s role in ending a shortage of homes.”
• Tunisia aims for foreign investment jump with new investment law
• Algeria will move to free private sector, but slowly

No payment delays or dispute with NUCA, Palm Hills says: There is no ongoing dispute with NUCA over a plot of land in Sixth of October City, Palm Hills Developments said in a disclosure sent to the bourse (pdf). The disclosure denied news reports that the company has delayed payments for the land, saying the company was reiterating its commitment to making timely payments.

Flight KGL-9268 update: “We exclude technical problems and reject human error… Planes don’t just break apart in midair,” Alexander Smirnov, an official at Kogalymavia, told CNN, saying that the “only reasonable explanation for the crash of a Russian passenger jet in Egypt is ‘an external influence.’” But a source on the investigating team handling the so-called ‘black box’ flight recorders has reportedly told The Independent that “initial examinations of black boxes from Metrojet flight 9268 show that it was not struck by a missile.” Speculation continues to circulate that investigators have not found explosive residue in tests so far, a development that would appear to rule-out an on-board explosive device, if true. Russia’s top air transport official criticized the Kogalymavia statement, saying, it was “premature and not based on real facts. It is absolutely premature to speak of a cause,” the WSJ (paywall) reported. Meanwhile, Russia’s Sputnik is claiming that baggage handlers and ground crew at Sharm El Sheikh International Airport have yet to be questioned in connection with the disaster.

Meanwhile, details emerged that the aircraft had previously had an accident involving its tail section during a flight from Beirut to Cairo in 2001, Al Masry Al Youm reported. Smirnov downplayed the impact of the accident, saying Airbus repaired the plane “and that there was no reason to think that the prior accident had anything to do with the crash Saturday.” This comes as the first bodies from the plane crash arrived in St Petersburg early on Monday Morning, according to Reuters.

Writing in the FT this morning, Mohamed El-Erian has some investment advice for you: He’s all about the cash. El-Erian says the possibility of the European Central Bank and the U.S. Fed taking different tacks on monetary policy mean that in the short term, investors will face “a stronger USD, greater equity market volatility and a wider trading range for key interest rate differentials. The longer-term consequences are up for grabs. Both suggest investors should revisit conventional wisdom that dismisses cash as a ‘wasting asset’ in their portfolios.” (Read, paywall)

It’s all about the stability, ladies and gentlemen: We here at Enterprise may be crying in our cups over Erdogan’s win at the polls in Turkey’s general elections, but the market reaction is a reminder that business everywhere wants stability: In the wake of a return to one-party rule, the lira was up 3% yesterday and shares closed ahead 5% for the day. The FT and WSJ have more (both are paywalled).

SPOTLIGHT on the VAT and customs evasion

Picking up where the good people at Moody’s left off (above): The Ismail government is enlisting the Tax and Customs Authorities to help plug its budget deficit and buy it time to cope with the FX crunch. The Cabinet economic group passed several decisions on Monday aiming to keep a tighter grip on imports, Al Mal reports. Among the measures: coming up with estimates of fair prices for imported goods to avoid importers padding their bills as part of ploys to stash FX outside the country; studying tariffs and taxes on imports in cooperation with the CBE; and strengthening the security presence at ports of entry to clamp down on smuggling and customs evasion.

Over the past few days, Tax Authority chief head Abdel Moneim Mattar has made numerous statements on the coming of the value-added tax. He announced that 40 goods and services would be exempt from the VAT. We mentioned on Sunday that these would include certain food products, health and education services. These will now include certain construction materials. One thing that didn’t make the cut were sales in installments, Al Borsa reports. Mattar also met with the Competition Protection Agency and other government bodies to discuss ways of keeping inflation in check.

Against that backdrop, the Tax Expert Group will host a forum on the VAT on Wednesday at which Mattar will be the keynote speaker. He plans to address the main features of the law and its benefits to investors. The stated goal of the forum is to create a national dialogue on the VAT, in addition to addressing the concerns of the business community, AMAY reports.

EGYPT IN THE NEWS

News on the crash of Flight KGL-9268 continues to rank among the most-read stories in major international media, including (as of early Tuesday morning Cairo local time) the New York Times (in the top ten trending stories), the BBC (their feature story on their landing page) and the Washington Post (among their top five most read stories), among many others.

In popular Russian newspaper Argumenty i Fakty, only three of its top-ten most read stories have nothing to do with the crash.

Ria Novosti cites a report (registration required) from private intelligence firm Stratfor on Monday that theorizes that KGL-9268 was downed by a bomb onboard.

Liberal Russian newspaper Kommersant cited a video report from American news network NBC (incorrectly stated as American network CBS) stating that an American intelligence satellite detected a heat flash in the vicinity at the time of the fall, which could either be due to a bomb blast, or alternately the explosion of the fuel tank. (Watch on NBC, running time: 1:53). In the text accompanying the video, an unnamed senior American defense official is quoted as saying “The speculation that this plane was brought down by a missile is off the table.”

WORTH READING

What a viral picture tells us about child poverty in Africa: Following in the same vein as Ermahgerddon: The Untold Story of the Ermahgerd Girl which we highlighted in our last weekend edition, BBC Trending tries unraveling the origin and individuals behind the “Skeptical Third World Child“ meme. (Read)

DIPLOMACY

Federica Mogherini, High Representative of the European Union’s Foreign Affairs and Security Policy, will meet with President Abdel Fattah El Sisi to discuss regional developments in her two-day visit to Cairo, Youm7 reports. Mogherini met with MFA Sameh Shoukri on Monday evening and is set to participate in a panel discussion and lecture on Tuesday at Cairo University, according to Al Shorouk. Mogherini tweeted on Monday: “In Cairo, meeting FM Shoukry to revitalise bilat relations. Focus on #Syria, #Libya, #MiddleEast, #migration #Egypt.”

ENERGY

EGPC opens revolving LC for BP, DEA project, will impose fines if production is delayed
EGPC opened a revolving letter of credit for BP and DEA’s share in the gas produced from the North Alexandria concession to be renewed every three months, as per an amendment issued by President Abdel Fattah El Sisi last February with regard to their contract. Two-hundred mcf of gas is expected to be produced from the concession from 1 July 2017 and the agreement with the developers includes fines in case of delays in production “unless the delay was caused by extreme circumstances.” Imposing fines in case of the delays “ensures the state’s right in the gas production, and prevents manipulation or delays from foreign partners,” former Oil Minister Osama Kamal told Daily News Egypt. He added that this is first time an agreement stipulates that EGPC opens a revolving letter of credit to ensure the partners’ rights. (Read)

Bapetco successfully connects well, produces 38 mcf of gas per day at Obayed
Bapetco, a Shell JV, began producing 38 mcf of natural gas and 1,000 bbl of condensates per day from a well drilled at its Obayed concession in the Western Desert. Bringing the well online increases the total production of Bapetco nationally more than 500 mcf per day, Chairman Emad Hamdy said. He also added that the company managed to successfully connect another well that produces 26 mcf of gas and 600 bbl of condensates per day. (Read in Arabic)

200 MW wind farm in Gulf El Zeit begins operations
A 200 MW wind began operations on Monday in the Gulf El Zeit, announced the German Embassy in Cairo, according to Al Mal. The project was a collaboration between the Electricity Ministry, the KfW Development Bank, and the European Investment Bank. Another 200 MW wind farm in the Gulf of Suez will be developed in 2016 with funding from KfW, the EU, EIB, and the French Development Agency (AFD). (Read in Arabic)

MANUFACTURING

Opinions differ on the outcome of EGP 150 mn factory rescue fund
Trade and Trade Minister Tarek Kabil’s announcement of an EGP 150 mn fund to rescue 871 factories has stirred debate among the chattering classes. Ahmed Taha, chief executive of the government-affiliated Industrial Modernization Center described the policy as necessary, in light of a banking system that blacklists defaulters. On the other hand, FEI board member Mohamed El Bahy doubted its efficacy as former prime ministers Ibrahim Mahlab and Hazem El Beblawi had failed to provide ailing factories with EGP 500 mn set aside for this. (Read in Arabic)

REAL ESTATE + HOUSING

Legal disputes halt EGP 12 bn Orascom Housing Communities investments
Orascom Housing Communities (OHC) has a total of EGP 12 bn in stalled investments due to legal disputes over its projects in Haram City, Qena Gardens, and Luxor. OHC has decided to halt any further investments until the disputes are resolved, and the projects become operational, said Saeed Hefny, OHC’s legal advisor. The disputes include OHC only receiving 620 feddans out of 2000 in Haram City, not receiving the land at all, despite a EGP 4 mn down payment, in Luxor, and the governorate of Qena reclaiming land that OHC had bought for Qena Gardens. (Read in Arabic)

Abraj Misr looking to ink EGP 500 mn loan to fund The Gate
Abraj Misr Construction are looking into an EGP 500 mn loan to fund its The Gate project, sources tell Al Mal. The company signed 6 agreements with consultants to begin executing the project which contains smart housing, administrative, and commercial buildings that are eco-friendly and built over an area of 35k metres squared and a total investment cost of EGP 4.5 bn. The company is pending necessary licensing and expects to begin construction at the start of next year. (Read in Arabic)

TELECOMS + ICT

Telecom Egypt owed EGP 2 bn in retained earnings from Vodafone Egypt since 2012
Vodafone Egypt owes Telecom Egypt (TE) EGP 2 bn in retained earnings and TE expects to receive “more than EGP 500 mn” before the end of 2015. The profits are retained since 2012, TE’s CEO Ossama Yassin said. Yassin added that TE is moving forward with resolving the disputes with the mobile operators “in a fair manner.” (Read in Arabic)

BANKING + FINANCE

Banque Misr to finalise borrowing USD 250 mn in December
Banque Misr expects to complete procedures to borrow USD 250 mn by next month, the bank’s chairman told Reuters. The loan will be for three years and pays a margin of 3.2%, 2.9% over LIBOR. “Two banking sources aware of the matter had earlier told Reuters the bank had begun marketing to lenders on Sunday” and that “Arab Banking Corp, Emirates NBD, HSBC, Mashreq and Union National Bank will arrange the loan.” (Read)

LAW

Former President Adly Mansour to remain at helm of SCC until mid-2016
Former interim president Adly Mansour will remain as president of the Supreme Constitutional Court (SCC) until June 2016, the court’s deputy president told Al Masry Al Youm. This is despite having Mansour reach the legal retirement age in December. A loophole that allows members of the judicial authority to continue their terms until the end of the fiscal year on 30 June. Judge Abdel Wahab Abdel Razek is expected to succeed Mansour. (Read in Arabic)

El Agaty delegated as temporary People’s Assembly President
Magdi El Agaty has been delegated as temporary People’s Assembly President by Prime Minister Ismail Sherif until the assembly elects a new speaker after the announcement of final elections results, Youm7 reports. Article 51 of the People’s Assembly Law stipulates that in the event that the parliament is dissolved, either the PM or an individual delegated by the PM occupies the position temporarily. (Read in Arabic)

EGYPT POLITICS + ECONOMICS

Government to increase ration card subsidies to mitigate VAT effects
The government will increase subsidies it pays on rationed food items through it ration cards system to mitigate the inflationary effect of applying the VAT, Abdel Moniem Matar, the head of the Tax Authority. said. The counteraction by the government should alleviate concerns over the social impact of the new tax system, Matar added. He also noted that the authority has met with the Supplies Ministry and the Consumer Protection Agency to ensure that market prices are kept under control. (Read in Arabic)

ON YOUR WAY OUT

Traffic surveillance cameras installed in Ismailia: The road traffic authority in Ismailia will be using surveillance cameras placed across the city to administer traffic violations. The authority has already published a number of pictures showing cars in violation of traffic laws and warned motorists that they are being watched even if there are no traffic police officers on site. (Read in Arabic)

Endowments Ministry to publish Friday sermons in English: The Ministry of Endowments will release its Friday sermons in English starting on 6 November, Al Shorouk reports. The report does not indicate where these translated sermons will be released, but it did indicate that master’s and doctoral degree graduates from the ministry, specializing in foreign languages, will administer the translations. (Read in Arabic)