The VAT cometh…

[Redacted] just got interesting. We’ll be keeping a close eye going forward on the implications for Egypt of a decision by the United States and all permanent members of the UN Security Council to begin arming the officially recognized Libyan government. The communiqué from the meeting held yesterday noted that more than 20 nations are “ready to respond to the Libyan government’s requests for training and equipping" government forces and “we will fully support these efforts while continuing to reinforce the UN arms embargo.” Cairo has long been supportive of arming the Libyan government as a block against an Islamist takeover of our Western neighbor. The Associated Press and Financial Times have more.

We expect Libya to be high on the agenda when U.S. Secretary of State John Kerry stops in for a visit tomorrow. The visit is already being positioned by wire services as coming “amid a stark crackdown on political freedoms in Egypt.

The House of Representatives’ budget and economics committees are set to meet today to discuss approving a USD 243 mn loan from the Arab Monetary Fund, Al Borsa reports. The loan, which carries a 1.2% interest rate, will be used to shore up FX reserves, said Economics Committee member Ashraf Al Araby.

The Egyptian Capital Market Association’s 20th anniversary takes place today at the Four Seasons Nile Plaza Hotel’s Plaza Ballroom. Pharos Holding is platinum sponsor of the event. The occasion gets underway at 5pm with registration and networking, followed by remarks by ECMA Chairman Dr. Mohamed Taymour, Egyptian Financial Supervisory Authority Chairman Sherif Samy and Investment Minister Dalia Khorshid. The evening will feature dinner and live entertainment. Joining for a panel discussion headlined “Egypt: For a Better Future” and chaired by Dr. Hani Sarie El Din are:

• Former Foreign Minister and Arab League Secretary General Amr Moussa
• Former Finance Minister of Finance Dr. Ahmed Galal
• Former Trade and Industry Minister Mounir Abdelnour (who also served as minister of tourism)
• Former Deputy Prime Minister of Egypt for Economic Development Dr. Ziad Bahaa El Din (who also served as minister of international cooperation)

Ticket information and other details of the event are available from Dalia Younis (01021188844 | dalia.younis@excellentdandn.com).

The Press Syndicate will hold another general assembly on Wednesday to discuss what’s next in its showdown with the Interior Ministry, Al Mal reports. The Syndicate postponed an assembly which was supposed to take place last Wednesday to decide on whether to hold a general strike.

On 25-26 May (Wednesday-Thursday) The Middle East and North Africa Solar Conference and Expo MENASOL 2016 kicks off at the Hyatt Regency in Dubai.

The second Africa and Middle East conference on software engineering (AMECSE) is happening at Intercontinental Citystars in Cairo on 28-29 May.

N Gage’s Investment Regulation Forum in cooperation with Pepsico kicks-off on 29 May (Sunday) at the Four Seasons Nile Plaza, Cairo. Register here.

The Ismail government pulled the value-added tax (VAT) bill from consideration by the House of Representatives and will return an amended bill for consideration this week. Cabinet approved the amended bill during its weekly meeting yesterday, according to Al Masry Al Youm. Deputy Finance Minister for tax policy Amr El Monayer said the amendments include the imposition of a 0.5% fine for late filing of returns as well as changes to procedures for how the VAT is accounted for in income tax filings. El Monayer said the bill will also clamp down on tax evasion, making clear that a difference of 10% or more between a company filing and a Tax Authority audit would be regarded as criminal tax evasion; a difference of less than 10% would be seen purely as an administrative matter. For the education sector, El Monayer tells Al Mal that only international schools will be subject to 10% VAT; other institutions, including private schools, are exempt. The amended VAT bill will return to the House of Representatives this week.

Sherif Ismail’s cabinet also approved the long-awaited media and press at yesterday’s cabinet meeting, which was held in place of their standard Wednesday gathering. The legislation, which would establish a state-controlled regulatory body for media and journalism in Egypt, was sent to the State Council and will then move to the House of Representative, Planning Minister Ashraf El Arabi told reporters, according to Ahram Online. While we still don’t understand how journalists could welcome more regulation, the Press Syndicate praised the move and said cabinet had met one of its demands, said Gamal Abdel Rahim, a syndicate official. (Passing the act had been one of the 16 demands issued by the syndicate during the first week of its standoff with the Interior Ministry earlier this month.) Abdel Rahim announced that the cabinet had instructed the Justice Ministry to draft a law that would forbid the arrest of journalist for publishing content, Al Masry Al Youm reports. The cabinet responded through its spokesperson, saying that the Press Syndicate’s-MOI beef had nothing to do with the passing of the act, adding that the cabinet had been working on the legislation for some time, AMAY reports.

Cabinet also approved raising by 20% the price healthcare compounds that had been retailing for under EGP 30, the Health Ministry announced, according to Reuters. “[Compound-making] companies will now be obliged to offer those medicines or risk having their licences revoked,” the Health Minister reportedly said, saying the decision to allow price increases was to ensure the compounds were made available in the market. Al Borsa says the decision effectively raised the price of 9,000 compounds, representing 75% of those available domestically. Ahmed El Ezaby, head of the uniqueasthmatreatmentsecrets.com association, estimates the percentage at 70% and expects shortages to ease gradually. House Health Committee chairman Magdy Morshid said the move to allow price rises would end shortages for up to 1,470 treatments, Al Borsa reports.

Other decisions coming out of yesterday’s Cabinet meeting include:

• Approval on a USD 120 mn equivalent financial agreement for the development of the Kasr Al Aini hospital with the Saudi Fund for Development;
• Approval a USD 100 mn equivalent financial agreement for the expansion of the West Cairo power station with the Saudi Fund for Development;
• Approval on paying EGP 1,250 per qintar (160 kg) for long-staple cotton and EGP 1,100 per qintar for short staple cotton;
• Approval an agreement with Saudi Arabia to prevent double taxation.

The National Bank of Egypt (NBE) sold USD 169 mn worth of high-interest-rate certificates launched in March to attract foreign currency into the banking system, NBE deputy chairman Yehia Aboul Fotouh told Reuters. The certificates were issued to foreign currency holders who convert their holdings to EGP and carried an interest rate of 15%. Aboul Fotouh’s remarks contradict earlier news citing unnamed sources as saying the certificates were being scrapped because they failed to attract significant market interest. He said NBE collected USD, EUR, SAR, and AED from the certificates’ sales. It was not clear how much foreign currency Banque Misr and Banque du Caire collected from the certificates, but, as Reuters notes, the operation did not appear to ease the USD shortage in the banking system. The certificates were made available for two months only, with the subscription period ending yesterday.

Edita chief Berzi says company aims to deliver quality earnings growth, looks to Jordan as hub to serve KSA: Speaking on an investor call yesterday, Edita Chairman and CEO Hani Berzi said the reported 46% y-o-y drop in Edita’s 1Q2016 earnings masked the “real story” in 2016. Earnings from ongoing operations were up 20% in 1Q2016, once FX losses on the revaluation of non-operating foreign currency liabilities — primarily on a facility to finance capital expenditures — are set aside. Berzi said this marked a “willingness to sacrifice some measure of top-line growth in favour of better margins and quality earnings growth going forward.” Berzi also promised to continue rolling out new Hostess-branded products during the year and will continue pursuing regional expansion, with a greenfield opportunity in Jordan having been identified. The company is introducing new, higher-margin products across its lines of business to enhance margins and profitability “especially with expected further devaluation in the EGP and the introduction of the [value-added tax],” Berzi said. On Jordan, he noted, “We believe Jordan would geographically serve as a hub and facilitate supplying our products to neighboring countries with huge domestic demand where we are already present such as Iraq, Syria and Saudi Arabia.”

Domty was awarded a “third” contract in Russia to supply Russkoe Moloko with Tetra Pak-packaged white cheese products. The USD 10 mn contract runs through the end of 2017 and, according to an EGX statement, brings the total value of contracts Domty signed with Russian importers to USD 40 mn. We had reported last month on a similar agreement reached with Magnit, a Russian retailer. In a separate statement, the company denied it was targeting sales of EGP 140 mn in 2016 or that it would increase prices by 5%.

Beltone Financial is advising on two acquisitions worth a total of EGP 1.5 bn and expects to execute them in 3Q2016, according to Al Borsa. One is an EGP 500 mn acquisition by a foreign und of a non-controlling interest in an Egyptian manufacturer, said Mohamed Al Akhdar, head of investment banking at Beltone. The second mandate is for advisory on an EGP 1 bn acquisition of a majority interest in a consumer goods manufacturing company. On the IPO front, company is currently restructuring a construction company ahead of a possible offering in 2H2016. Beltone could take an electric appliances company public in the same period, Al Akhdar tells Al Borsa.

Speaking of Beltone: The Egyptian Financial Supervisory Authority (EFSA) sent the Prosecutor General’s office its case file on 10 so-far unnamed traders it’s accusing of market manipulation. The trades in question involve Beltone shares; EFSA has not made clear which brokerages the traders worked for. Local media reports quote EFSA chief Sherif Samy as saying the regulator has a strong case. EFSA is also looking into the appeal filed by Beltone to end the reversal of trades of its shares, which have been consistent since February, Al Borsa reports. Samy said Beltone is not suspected of any wrongdoing in the case.

MOVES- Former Investment Minister Ashraf Salman has been appointed a non-executive board member of Orascom Telecom Media and Technology Holding, according to an EGX statement.

The Central Bank of Egypt extended its grace period on loan payments due from tourism companies and employees in the sector by another six months to December, according to a CBE statement. The initiative was part of series of decisions to help bail out the sector, which included pushing banks to reschedule with operators for up to three years without interest.

Egypt looking at water shortages for “years to come”: Demand for water has outstripped supply by 20 bn cubic meters with Egypt looking at a future of water shortages for some years to come, said Deputy Irrigation Minister Ragab Abdel Azeem. Disputes over Egypt’s share of the Nile (i.e Grand Ethiopian Renaissance Dam) are collectively the most pressing and urgent challenge to Egypt’s water security, said Abdel Azeem in an interview with Al Shorouk. The ministry has a plan in place to reduce the negative impact of the shortages that will focus on developing new water resources, cutting down on consumption, and reducing water pollution until 2050, he added. The interview goes on to detail come of the components of the strategy, which will include enforcing limits on rice production, targeting and cleaning up polluted wells, and studying the impact on climate change on water resources.

Human rights lawyer and United Group law firm head Negad al-Borai was called in for questioning on Tuesday after a complaint was filed against Borai and two judges, all of whom stand accused of attempting to pressure President Abdel Fattah El Sisi into issuing their drafted anti-torture bill as law. Borai, who was questioned for over three hours before being released on bail, also faced allegations that he was instating an illegal group, according to a statement by on the firm’s Facebook page. “The group in question is the United Group and it is a law firm established by my mother in 1941,” Borai wrote on his Facebook page. This is the fifth time Borai says he has been interrogated. Mada Masr has more.

Morning shay in jeopardy?: Egypt was one of several nations receiving Kenya’s 399.2 mn kg, USD 1.24 bn tea exports in 2015, according to Bloomberg. But due to excessive taxation in all states of production and marketing, large-scale producers are finding it difficult to remain competitive, says CEO of Kenya Tea Growers Association, Apollo Kiarie, on Monday. “We either break even or change to a different crop,” he said. Unclutch your pearls, folks, it looks like the country’s Agriculture Ministry is catching on, with a statement saying they would reconsider some of the levies charged on its tea producers and traders. “We are willing to do any preventive measure to make sure tea producers are doing well,” Ministry of Agriculture, Livestock and Fisheries Cabinet Secretary Willy Bett told reporters in Nairobi.

Goldman Sachs Group has increased its target price for crude for the second half of 2016 to USD 50 a barrel as global oil markets slip from a surplus faster than anticipated, analysts Damien Courvalin and Jeffrey Currie wrote in a report dated 15 May. “The physical rebalancing of the oil market has finally started,” Goldman said. But it looks like oil producers aren’t quite as confident about crude prices, raising their hedges against a price drop to the highest level in four and a half years, Bloomberg writes.

Meanwhile, China isn’t looking too hot right now. Industrial production, retail sales, and investment data released over the weekend missed estimates. Money creation and credit growth measures were also lower than expected. But the People’s Bank of China was quick to chime in and reassure us that public that policy would continue to support growth. "Even with substantial stimulus at work, the accumulated problems of high debt and industrial overcapacity mean that the pass-through to stronger activity remains decidedly muted," Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note.

Egypt gets no love from The Economist: The Economist’s deputy foreign editor Anton LaGuardia says Egypt is an example of leadership failure on The Week Ahead podcast. LaGuardia says the administration “…is ruling in a more repressive way … making a hash of the economy and appears not even to control his own government,” LaGuardia adds (run time 21:20). Also in The Economist this week is a report about the “endless obstacles to political freedom” in the Arab world in which Egypt is similarly pilloried. “Democracy in the Arab world faces two peculiar hurdles. The first is the fear of Islamist parties taking power… A second stumbling block for democracy is the diversity of Arab peoples. In good times it makes for an admirable multiculturalism. But these days all groups behave like embattled minorities.” It notes “democratic progress and economic reform should be encouraged in Tunisia and Morocco… Next, pressure needs to be exerted on Egypt to return to the path of reform. One in four Arabs is Egyptian. If the country does well, it will lift the region; its collapse would be a threat to all, including Europe.”

Realpolitik is what is hindering the hunt for Giulio Regeni’s murderers, The Guardian’s Stephanie Kirchgaessner, Chris Stephen, and Ruth Michaelson write. The key is interest in Libya and Italy is reportedly seeking Cairo’s cooperation there. “A senior Italian government official, speaking on condition of anonymity, said Italy was concerned about Egypt’s alleged support for Khalifa Haftar … The official claimed Egypt was giving military aid to Tobruk, causing an obstacle in the peace process.” An Italian university professor says “Italy was facing a ‘collision course’ in Egypt, seeking to keep Cairo onside on the issue of Libya for its own national interest, but also responding to domestic political pressure to respond to Regeni’s murder.”

What do El Sisi and Trump have in common? Egypt had a role to play in a Financial Tims (paywall) piece on the Trump “phenomenon,” in which Gideon Rachman says the orange-haired developer is just part of a global trend favoring the return of the “strongman” leader in international politics. President Abdel Fattah El Sisi is described as just one of many of these strongmen, who have “promised to lead a national revival through the force of their personalities and their willingness to ignore liberal niceties..”

It’s time to release Hosni Mubarak: Yes, we said it. While the New York Times’ Declan Walsh takes no opinion on the matter either way, he asks the right questions in his latest piece on why former President Hosni Mubarak remains detained in a military hospital despite having served his time. (Read The Strange, Unending Limbo of Egypt’s Hosni Mubarak)

Six signs of deep depression, by Shanwar for Mada Masr. (View image)

Egyptian QIZ agreement companies claiming to have been defrauded by Israeli polyethylene sheet manufacturer AA Politiv are demanding reparations and calling on the Egyptian side of QIZ to press for them, Al Shorouk reports. AA Politiv had provided around 68 companies with what Egyptian companies are claiming are bogus receipts for production inputs it sold them that it claims were made in Israel, but were in fact sourced elsewhere. An Israeli court had found AA Politiv guilty of fraud back in April after Israeli customs provided testimony in support of the Egyptian companies. The Israeli side of the QIZ agreement had informed the companies that they must buy the materials purchased from AA Politiv at the same value stated on the receipts from other Israeli companies by June or risk being kicked out of the QIZ agreement. The move places the companies at risk of paying for the same product twice, which has unsurprisingly infuriated them. 15 of the 68 companies have already begun to comply.

EGAS has increased its LNG imports to 1 bcf/d through the FSRU at the Ain Al Sokhna port, up from 850 mcf/d last week, sources told Al Borsa. Liquidity is the determining factor in deciding how much LNG is imported, a source said, noting that the bill for gas imports currently stands at USD 250 mn to supply the domestic market with 1.2 bcf/d. EGAS recently reduced natural gas supplied to fertilizer factories by 75% of contractual amounts, estimated at 600 mcf/d due to an inability to meet demand. The company also plans to rent a gasification unit from Jordan with a capacity of 500 mcf/d of gas and to keep it in a private port controlled by SUMED in Ain Sokhna in 2017, DNE quotes an EGAS official as saying.

The Petroleum Ministry has signed agreement with Jordan that would see Jordanian Egyptian Fajr for Natural Gas provide Jordan’s National Electric Power Company with surplus natural gas from its gasification unit in Aqaba. The agreement, which came at the behest of the Jordanian cabinet, was signed at the Jordan International Energy Summit 2016, which was attended by Petroleum Minister Tarek El Molla. (Read in Arabic)

The fourth turbine for the Siemens Beni Suef power plant arrived at the construction site along with the first generators, Upper Egypt Electricity Production Company Chairman Ibrahim El Shahat told Al Borsa. The turbine is one of eight, each with a capacity of 400 MW, generating a total of 4,800 MW as part of three major energy projects currently under construction by Siemens. The company has completed 25% of construction at the Beni Suef plant, at a total investment cost of EUR 2 bn, he added. (Read in Arabic)

President Abdel Fattah El Sisi is expected to launch the development of a 1 GW power plant west of New Assiut today, Al Ahram reports. The first phase of the EGP 4.5 bn combined-cycle power plant, one of the largest developed in Upper Egypt and will see its capacity increased by another 500 MW as part of phase two. The plant is expected to officially open in September 2017. (Read in Arabic)

Solar Shams is participating in three solar energy projects under the feed-in tariff program with a combined investment value of USD 300 mn, Al Borsa reported. The projects include a 50 MW solar power plant in Benban with Building Energy at an investment cost of USD 100 mn, and two 50 MW plants with Axis Renewables at an investment cost of USD 200 mn, head of operations at Solar Shams Faisal Eissa said. (Read in Arabic)

The juice and soft drinks market is experiencing a 20-25% increase in sales due to the current heatwave, head of the Food Division at the Cairo Chamber of Commerce Ahmed Yehia told Al Borsa. Beverage companies have faced up to 30% increases in production cost, for relying on imported packaging material, as well as increasing cost of labor and energy. (Read in Arabic)

The Agriculture Ministry has collected a total of 3 mn tonnes of domestic wheat, procuring 200k tonnes yesterday alone, evidence the stalling that plagued the previous two weeks have now ended, Al Mal reports. So far, government has paid farmers around EGP 2 bn for the wheat harvest, said Agriculture Minister Essam Fayed.

The Health Ministry has postponed issuing a tender to import hepatitis-C treatment Harvoni indefinitely, Al Borsa reported. The ministry had announced it intends to issue a tender in March. Health Minister Ahmed Rady refused to comment on the delay. Some 11 domestic companies filed to register Harvoni, but only three companies began manufacturing. (Read in Arabic)

Three of the four telecom operators now have expressed interest in obtaining 4G licenses, sources at the National Telecommunications Regulatory Authority (NTRA) told Ahram. The operators are Telecom Egypt, Vodafone Egypt, and Etisalat Misr. Orange Egypt has not expressed interest yet, but is expected to acquire a license, the source added. Al Shorouk had quoted an unnamed NTRA source on Sunday as saying mobile network operators had not yet expressed interest in the licences.

A campaign calling for a two-month boycott of car purchases was launched by group of young car enthusiasts calling themselves “Enough Greed,” Al Masry Al Youm reports. The campaign comes as a reaction to prices of passenger cars jumping anywhere from EGP 25,000 to EGP 100k, which auto dealers have been blaming on the FX crunch. The group is also planning to stage sit ins outside car exhibitions in protest of the hikes, said the campaign’s leader Mustafa Maghraby. Hassan Suleiman, head of the Automobile Division, dismissed their complaints as “exaggerations.” (Read in Arabic)

AT Leasing, a subsidiary of investment banking firm AT Financial, has postponed the the flotation of 10% of its shares for three months due to weak demand, said AT Leasing’s CEO Tarek Fahmy. He blamed the volatility in the market for the lack of appetite. (Read in Arabic)

Current banking laws make the Federation of Egyptian Banks (FEB) “a non-independent subsidiary of the CBE, where it hinders its ability to represent the interests of member banks and present their demands,” Daily News banks columnist Hany Aboul Fotouh writes. Aboul Fotouh says the current setup provides for a clear conflict of interest as member banks of the FEB are unable to express their views clearly to the regulator. The required amendment does not seek to undermine the CBE, but rather support the FEB’s role. (Read)

Rasmala acquired the AbbVie House office building in Vanwall Business Park, Maidenhead, Kent, UK for GBP 24.5 mn. “The building is located in the Thames Valley district, near Heathrow Airport, an area with many leading international technology and R&D companies, as well as others. The expected opening of a Crossrail link will further improve the area’s connectivity with central London,” according to CPI Financial. Rasmala has plans to invest USD 1.5 bn in “a broad mix of commercial real estate transactions in the UK, continental Europe and the US over the course of the next three years.” (Read)

Renewable energy equipment and recycling machinery specialists Elite Environment Energy are looking to build an EGP 30 mn factory in the Suez Canal Economic Zone in partnership with Kuwaiti investors, said company CEO Khaled Abdel Rahman. Negotiations are ongoing with the Suez Canal Authority over a 50k sqm land plot to begin construction of the first phase in the beginning of 2017, he added. (Read in Arabic)

A petition purportedly drawn up by leaders of the Muslim Brotherhood in Egypt and abroad is calling for elections throughout the organizations, including the Guidance Bureau, Al Masry Al Youm reports. The authors of the document insist that Mohamed Badei remain the supreme guide and that his position not be contested. The petition was signed by 243 members of the outlawed organization and calls for the formation of a committee to organize this movement toward elections. The petition comes less than one week after an inter-Ikhwan factional dispute ended with the resignation of Mohamed Kamal from the Ikhwan’s Guidance Bureau, paving the way for his rival, the exiled deputy / acting supreme guide Mohamed Ezzat, to assume full control.

Cairo will have a new governor before Ramadan, said Local Development Minister Ahmed Badr. He gave no hint as to who would replace current incumbent, Galal Saeed, who has held the position since in 2013. The new governor “may be a civilian or of a military background,” he added in an interview with Al Hayat, holding out the possibility of a non-military appointee. Commenting on the spree of fires that has continued for almost two weeks straight, Badr blamed poor practices and fire safety measures, AMAY reports. (Read in Arabic)

Our friends at Sharkawy & Sarhan are helping us understand EFSA’s new regulations on capital market instruments in their most recent legal update. They explain how mandatory tender offers may be waived by EFSA “in case of indirect offshore acquisition of Egyptian listed companies, if certain conditions apply,” as well as the requirements for issuing unrated and covered bonds.

They don’t want you to pay in cash — no one wants EGP: Emirates is offering customers in Egypt a 30% discount on all destinations booked online only between 12 and 26 May for travel from 15 May to 5 July 2016. Emirates says the offer is available for business and economy flights.