Thursday, 16 June 2016

4G license fees set, to be paid in EGP and USD -sources. Main locations of EgyptAir MS804 wreckage found. Could a President Trump legally bar Muslims from the US?


What We’re Tracking Today

Interest rate watch: The Central Bank of Egypt’s Monetary Policy Committee is due to meet today to discuss rates. Analyst consensus is mixed:

  • Rate hike: EFG Hermes, Arqaam, Institute of International Finance, Prime
  • On hold: Beltone, Multiples, Pharos, and HC Securities
  • On the fence: CI Capital and Mubasher see there being a 50-50 chance of a 25-50 bps price bump

When do we eat? Iftar will be at 6:59pm CLT today, while the cut-off for sohour will be at 3:08am CLT, according to Islamic Finder.

The Consumer Protection Agency (CPA) has begun taking legal action against Cottonil for continuing to run its Ramadan commercial (watch), and will refer the company, the advertising agency, and the satellite TV channels that air it, to the Prosecutor General, a CPA source told Al Mal. We had noted earlier this week that the ad’s producer said the company would not pull the spots, in defiance of the CPA’s order.

On The Horizon

The next session in the trial of former Central Auditing Organization chief Hisham Genena is due to take place on Tuesday, 21 June. The UK heads to the polls to vote on whether to remain in the European Union on Thursday, 23 June.

The House of Representatives is set to discuss the state budget on 26 June over four consecutive days, Al Mal reported. Finance Minister Amr El Garhy presented an overview of the FY 2016-17 budget to the House in May.


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Speed Round

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And we have (unofficial) 4G license prices: An unnamed government source told Youm7 that the government is set to charge Telecom Egypt EGP 7 bn, Vodafone Egypt and Orange Egypt EGP 3.5 bn each, and Etisalat Egypt EGP 4.6 bn for both 4G and what we assume are more 3G frequencies. The operators will be expected to pay for 50% of the licenses in USD, said the source. Vodafone Egypt and Orange Egypt are also set to be offered EGP 1.8 bn a piece for international gateway licenses, said the source. Operators have the FX liquidity, the source said, adding that the prices are reportedly less than what the companies had anticipated. This flies directly in the face of Vodafone Egypt saying that paying for it in foreign currency would be “problematic” and would require it to tap the domestic banking system.

Earlier on Wednesday, an unnamed source told Al Malthe National Telecom Regulatory Authority was indeed planning on issuing 4G licences in a mixture of foreign and local currencies. This would not be in violation of existing telecommunications laws, the source noted, adding that “most countries in the world” issue licences in a basket of currencies “to attract new foreign investments.” Former assistant to the CIT Minister Khaled Sherif said issuing the licence in a foreign currency would boost foreign currency holdings domestically and that mobile operators “can pay for it” using their roaming revenues or through tapping their parent companies. We are not necessarily in agreement with the reasoning behind either of the suggestions.

Meanwhile, operators are seeking to contract consultancy companies to provide technical and financial evaluation of 4G licenses and detailed studies of potential revenues, sources told Al Borsa. The consultants will also offer licence pricing estimates. Mobile operator officials expect yearly investments in the local market to increase 25% to modernize networks and stations in preparation for 4G.

Parallel market traders are carrying out their transactions abroad, “beyond the reach of the law” amid the government crackdown on them and the prison sentences introduced, Reuters’ Asma Alsharif and Marwa Rashad write. Their source for foreign currency: expatriates before they ever enter Egypt. "Once you introduce these strict capital controls you create a big crisis in the currency market that incentivises evading the banking system entirely which is why 90 percent of remittances reportedly are not going to the banking system, which is why exporters are disincentivised from bringing their money back … They are worried they won’t be able to move it later so why not just keep it somewhere else," Timothy Kaldas, non-resident fellow at TIMEP, says. Another challenge exacerbating the situation is coming from some exporters, who, according to Alsharif and Rashad, are now finding it more profitable to sell USD they earn to importers domestically who are struggling to find foreign currency liquidity. “The transactions take place abroad and the foreign currency never enters Egypt,” they explain.

Speaking of FX: Tuesday’s FX auction witnessed the sale of USD 120 mn directed toward clearing the import backlog of raw materials and intermediate goods, Al Mal reported, contradicting reports yesterday that only USD 106.7 mn were sold. Al Mal says confusion arose because banks were late notifying the CBE with their relevant backlog lists, which caused the three-hour delay of the auction and fuelled speculation of a change in the exchange rate. The exchange rate was kept unchanged at EGP 8.78 per USD 1.

The EGP weakened in the parallel market to EGP 10.99 to the USD 1, after a week of remaining stable at EGP 10.95, Al Mal reports. Over in Al Ahram land, the EGP strengthened as greenbacks were trading for EGP 10.75 with “a very low trading volume.”

Value added taxes (VAT) are no longer a salve for the Egyptian economy, veteran finance journalist Patrick Werr writes for The National. “Last summer, [introducing VAT] seemed like a good idea,” but now, Werr says, “the delay to the VAT is probably a good thing. The economy’s performance has been disappointingly bad over the past two years, making it a particularly bad time to impose a major tax on business.” He says one possible outcome of VAT “is that companies will pass the extra cost onto consumers who, lacking money, will buy fewer goods and services” which, if the drop is big enough, could lead to reduced tax revenues. Other concerns are political; “does the government want to aggravate the business community for what in the end may turn out to be a pittance in new revenue?” Instead, Werr says the government should reconsider a “major” EGP devaluation.

EGAS is reportedly in talks with Union Fenosa Gas to settle the USD 270 mn dispute over EGAS’ failure to deliver on gas supplies to the Union Fenosa’s subsidiary Spanish Egyptian Gas Company (SEGAS). The talks apparently commenced after the International Chamber of Commerce International Court of Arbitration’s ruling that EGAS was not obliged to pay the amount, a source tells Al Shorouk. Union Fenosa is exploring the possibility of being supplied with gas from the Shorouk field.

Is the amended Civil Service Act at risk of getting scrapped? The government and parliament appear to be butting heads once again over annual raises in the amended Civil Service Act. The House Manpower Committee is threatening to scrap the legislation a second time if the government does not budge in raising annual raises to 7% from the current 5%, Al Mal reports. The committee will meet with Planning Minister Ashraf Al Araby and Finance Minister Amr El Garhy next week to press the issue, said committee member Abdel Razik Zalat. Al Araby had previously stated that the government will not compromise on the 5% rate.

Main locations of wreckage of EgyptAir MS804 have reportedly been found, Reuters reports. Deep Ocean Search vessel John Lethbridge identified several main locations of the wreckage and provided the first images to investigators, the Egyptian investigation committee said on Wednesday. A search team on board the vessel is now drawing up a map of the wreckage distribution spots, the committee said in a statement. No word yet on the black boxes, which only have enough battery to emit signals for between around a day and just over a week, according to various reports. Debris from the crash including life vests and seats had been discovered several weeks ago.

Gov’t reassures tourism sector at pow-wow: Civil Aviation Minister Sherif Fathy promised to establish regular direct flights between London, Frankfurt, Milan and Rome to Egypt’s coastal cities next month. The decision came at a meeting between tourism sector investors and the ministers of tourism, investment, finance, civil aviation, local development and social solidarity to get the sector out of its slump. At the meeting, Finance Minister Amr El Garhy promised tourism operators that he’d consider pushing back collecting sales and real estate taxes, Al Borsa reports. Investment Minister Dalia Khorshid also promised that she was developing a comprehensive strategy to draw investments to the sector.

EFG Hermes has completed the acquisition of a 49% stake in European wind farms from EDP Renováveis (EDPR), bringing total group assets under management to USD 3.6 bn, the company announced yesterday, according to DNE. Vortex, a renewable energy platform managed by EFG Hermes’ equity arm, announced it was acquiring the stake in an operational 664 MW portfolio of a subsidiary of EDPR in April. “This milestone transaction not only doubles our private equity AUMs to just over USD 1.1 bn but also augments EFG Hermes’ total group AUMs to USD 3.5 bn,” said EFG Hermes CEO Karim Awad. “The successful close of this landmark deal provides EFG Hermes’ private equity division with considerable traction in Europe’s renewable energy space, a key pillar of EFG Hermes’ regional and global expansion strategy.”

A growing number of Egyptian entrepreneurs are “learning that eco-friendly businesses can solve environmental problems and boost their bottom line,” Dina Zayed writes for the Thomson Reuters Foundation. "Entrepreneurship is booming, and with this, there is an absolute shift in how startups talk about issues like energy and the environment,” Salma El Hariry, founder and CEO of ScaleUp Ventures, tells Zayed. There are no official data on how many companies in Egypt are working on environmental issues, but El Hariry estimates that at least 10% of all new startups are in the green space. Anna Dimitrova, lead account manager for Nahdet El Mahrousa says “entrepreneurs in this market may not be aiming to address climate change as a goal in and of itself, but their projects are addressing local environmental concerns … Climate change is a global problem that needs local solutions. The lesson here is that little changes have an impact."


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The Macro Picture

As expected, the US Federal Reserve kept rates unchanged yesterday, prompted mainly by slower US job growth and a possible UK exit from the EU, the FT (paywall) reports. “[Brexit] is a decision that could have consequences for economic and financial conditions in global financial markets,” Chair Janet Yellen said during a press conference following the Fed meeting. It “could have consequences in turn for the U.S. economic outlook,” she said. Watch the most important parts of Yellen’s comments here (run time 2:09).

Egypt in the News

An 18-article draft bill titled ‘Citizenship’ was submitted to parliament that includes an article that abolishes the religion field from national identification cards, provoking a sharp debate between opponents and supporters, writes Rami Galal for Al-Monitor. The article discusses the challenges facing converting a “heterogeneous society predicated on religious affiliation…into a homogenous one founded on citizenship,” and the opponents of the draft bill who consider it “an affront to Egypt’s Muslim identity.”

With annual inflation at its highest level in seven years, price hikes are particularly “painful during Ramadan,” writes Salma Shukrallah for AP. To soften the impact on low-income families, the government has opened new, mobile markets offering basic products at discount prices, but economist Omar El Shenety believes "although giving out bags of basic goods is good and it helps, it cannot be a solution," instead saying inflation has more “chronic” causes.

Italy and Europe need to up the pressure on Egypt to uncover the truth about the murder of Giulio Regeni, his parents said in new statements at the European Parliament’s human rights commission Wednesday, ANSA reports. "I ask the member States to recall their ambassadors, declare Egypt an unsafe country, suspend accords on sending weapons, inter-force (collaboration) on spying and internal repression, suspend economic accords, monitor trials against activists, militant lawyers and journalists fighting for freedom in Egypt and offer protection and collaboration, also by offering visas to those who can offer news to Rome prosecutors,” Claudio Regeni said.

The Atlantic Council’s Rafik Hariri Center for the Middle East issued a 12-page brief on Wednesday titled The economic decline of Egypt after the 2011 uprising (pdf). There’s nothing new here for anyone following Egypt, but may be a good primer or refresher. The authors conclude with some key recommendations that people have been making since before Nazif’s time (cut subsidies, float the pound, etc).

Worth Reading

The potential legal justifications Donald Trump could use to ban Muslims from the United States: Two complementary pieces were published this week attempting to identify possible legal pathways that a President Donald Trump could take to keep Muslims from entering the United States. Matt Spetalnick and David Ingram at Reuters present a more skeptical take on the ban, noting that a direct ban on Muslims may be difficult to pass. However, there seem to be a number of alternate approaches that Trump could take to achieve the same result of achieving a ban on Muslims without calling it as such. “If a Trump administration cut off immigration from certain countries, rather than certain religions, it would not violate the Constitution,” according to UC Berkeley law professor John Yoo and former Justice Department official. (Read Trump adds new twist to immigration proposals, but legal doubts persist)

For a much more in-depth look at the same issue, and one which leans much more heavily to suggesting that Trump will be able to enact such a ban, see Sasha Abramsky’s piece in The American Prospect: “Using existing immigration statutes and legal precedents, President Trump would, in fact, have plenty of ways of making life miserable for Muslims currently living in or hoping to come to the United States… such an attempt would likely start… with an expansive interpretation of Section 212 of the Immigration and Nationality Act.” Columbia University historian of US immigration policy Mae Ngai goes one step further, putting it quite bluntly: “If Congress wanted to exclude all Muslims, constitutionally they can. Congress can exclude anyone it wants to. Nobody has a right to enter the country.” (Read Don’t assume Trump’s bias is mere bluster)

Image of the Day

Sands of Time: The Guardian produced a photo essay of British archaeologist John Garstang’s operations to excavate and search for ancient Egyptian treasures in the 1910s.

Diplomacy + Foreign Trade

President Abdel Fattah El Sisi met with Uganda’s Foreign Affairs Minister Henry Okello on Tuesday for talks on cooperation and the Grand Ethiopian Renaissance Dam, according to an Ittihadiya statement. “The Nile River constitutes a framework for cooperation and development among Nile Basin countries. He added that joint action shall be enhanced to ensure optimal use of its water resources, in order to contribute to the realization of the hopes and ambitions of the African peoples for life and development, without causing harm to any party,” said El Sisi.

The Nile water committee, headed by Prime Minister Sherif Ismail, met on Tuesday to discuss technical negotiations with Sudan and Ethiopia over the studies of the impact of the dam, following a breakdown of political negotiations on the Foreign Ministry level, Al Shorouk reported. The meeting comes just weeks before Ethiopia begins storing water in July.

Envoys and representatives from major French companies are expected to begin visiting Egypt in September to discuss investment opportunities, a senior French official told Al Shorouk. The companies are interested in the renewable energy, transportation, infrastructure, and SME sectors, the official added. Government representatives will also be visiting to follow up on MoUs signed during French President Francois Hollande’s visit to Egypt in April.

Uganda has reportedly expressed interest in establishing an Egyptian industrial zone within its territories, Trade and Industry Minister Tarek Kabil said, Al Shorouk reported on Wednesday. He added that an Egyptian-Ugandan Trade Commission is also set to be formed by the end of the year, while an Egyptian office has already launched in Uganda in an effort to boost bilateral ties and investment between the two countries. The announcement came following a meeting between Kabil and Ugandan State Minister for Foreign Affairs Henry Oryem Okello, who called for Egypt’s vote to appoint Uganda the president of the African Union Commission.


Tax Authority exempts Zohr field output from sales tax

The Tax Authority has exempted any output from the Zohr field from sales tax, unnamed sources from Eni told Al Borsa on Wednesday. They added that the exemption will be applied to various production phases of the field in the coming years, as the authority has accepted Eni’s request for exemption, putting an end to the tax liability spat between both parties. However, the Italian firm will still be liable for a 40% income tax, which is significantly higher than the 22.5% that other companies pay, with the sources saying the firm has been subject to “special treatment” from authorities.

Petroleum Ministry agrees to increase gas supplies to power sector

The Petroleum Ministry has agreed to supply the Electricity Ministry with 3.2 bcf/d of gas, 27,000 tonnes of mazut, and 4,000 tonnes of diesel for this month, Al Borsa reports. The move comes after the Electricity Ministry revised its initial figures which were lower than expected. The two ministries will meet after the Eid break to determine gas supplies for July and August. As we noted earlier this month, Egypt’s power plants need 3.9 bcf/d to get it past the summer, with the Electricity Ministry initially estimating that it would need 3.4 bcf/d.

Gov’t says only prepaid electricity meters will be installed from now on

The Electricity Ministry has banned the installation of old electricity meters to standardize the new prepaid smart meters, ministry spokesperson Mohamed El Yamani told Al Shorouk. The ministry is looking to dismantle 31 mn old meters within the coming 10 years and replace them with smart meters, he added.

Government asks renewable energy companies to “convince” their lenders to accept domestic arbitration

The Egyptian Electricity Holding Company (EEHC) has asked renewable energy companies to “convince” their international lenders to accept domestic arbitration, Al Borsa reports. International lenders are refusing domestic arbitration, while EEHC is demanding financial approvals by 30 June to complete final agreements, said CEO of Cairo Solar Hisham Tawfik. The feed-in tariff delay is deterring investors, he added, including Global Elec, Cairo Solar’s main partner.

Basic Materials + Commodities

Faragello targets USD 120 mn in exports by the end of the year

Faragello Food Industries is targeting USD 120 mn in exports by the end of the year despite weak exports of USD 25 mn in the first five months, Al Borsa reported. Faragello achieved USD 59 mn in exports last year, said Faragello factory general manager Nasr Abdel Salam. The company targeted alternative markets in Africa to make up for reduced exports to Arab markets caused by the global oil price slump, he added.


Amreyah Cimpor Cement Company files lawsuit against Finance Ministry

Amreyah Cimpor Cement Company filed a lawsuit against the Finance Minister demanding EGP 16.9 mn in taxes on capital goods be returned, Al Borsa reported. The imports in question took place between 2003 and March 2005, Al Borsa writes, but the article allowing a company to discount taxes on machinery and equipment from their taxes on sales and services was issued after the imports had taken place.

Real Estate + Housing

New Ismailia city to be inaugurated next month

The first phase of the New Ismailia city will be inaugurated next month, Ismailia governor Yassin Taher said, according to Al Ahram. The first phase includes 12,244 housing units built by the Armed Forces Engineering Authority out of a total of 57,000 units in the project. A water treatment facility and a drinking station will also be completed end of the year in cooperation with the Authority, Ismailia governor said.


Amer Group chairman proposes Port Said tourism project to Investment Minister

Amer Group Chairman Mansour Amer has proposed a tourism project along the corniche of the governorate of Port Said to Investment Minister Dalia Khorshid, Al Mal reported on Wednesday. The project is said to comprise of five-star hotels, shopping centres, and a cable car to boost tourism and investment in the country. Khorshid adds that the ministry will work to remove obstacles standing in the way of the project.

JWT CEO promises that tourism will reach its 2010-levels by 2018

The government isn’t the only one making promises, as JWT CEO Hany Shokry stated that the company plans to help get Egypt’s tourism back to its 2010 levels of around 14 mn tourists by the FY 2017-18 fiscal year. These levels were targeted back in 2015, but the Metrojet disaster had hampered that plan, he tells Al Shorouk. The lifting of Russia’s and the UK’s travel ban, however, were crucial to achieving these targets, said Shokry. While we admire Shokry’s optimism, perhaps a more measured approach is called for, especially as the government itself is targeting 10 mn tourists by the end of 2017, barring no major unforeseen events. JWT is in already in hot water with the tourism representation offices for not doing enough to promote tourism in Eastern Europe.

What’s in a name?

Let’s just say he was probably misquoted: Kamel Abu Ali says he’s prepping ‘Disneyland Hurghada’. Prominent businessman and chairman of the Red Sea Investors Association Kamel Abu Ali says he is finalizing the plans to build a resort in Hurghada at a cost of USD 1.5 bn with the participation of multiple investors, Al Mal reported on Wednesday. Abu Ali is the owner of the Albatros Hotel chain, with locations primarily in Hurghada and Sharm El Sheikh. What is striking about the story is that Abu Ali is quoted by Al Mal as saying the resort will go by the name of Disneyland Hurghada, at which point the article’s author may have attempted to clarify by asking: “You mean, it will be like Disneyland? Or are you actually calling it Disneyland?” The latter question may have been appropriate, as he already owns “Sea World” Hurghada, minus of course the orcas and naming rights. On a side note, Abu Ali is also a film producer, whose works include the film Assal Eswed, a cause of endless comparisons and torment—largely by taxi, Uber and Careem drivers but also by dumb family members—to the particular individual writing this summary.

Automotive + Transportation

Prime Minister orders reworking of studies on monorail project before deciding on offers

Prime Minister Sherif Ismail has given Canada’s Bombardier and Aviation Industry Corporation of China seven days to rework their studies for the Sixth of October-Giza monorail project before the government decides on which technical and financial offer to accept, Al Mal reports.

Banking + Finance

Foreign currency CDs yield USD 850 mn for NBE, Banque Misr

FX certificates of deposit issued to foreign currency holders by Banque Misr and NBE have yielded a combined USD 850 mn, including the converted EGP holdings with an interest rate of 15%, in addition to three-, five-, and seven-year CDs and the USD-denominated Belady certificates, Al Mal reported. The foreign currency holder certificate yielded USD 55 mn for Banque Misr and was issued again due to demand, Banque Misr Chairman Mohamed Eletreby said, while the rest of FX CDs yielded USD 200 mn.

Other Business News of Note

Facebook now allows EGP payments for advertisements on its site

Facebook has started accepting payments in EGP for advertisements on the social media platform, Al Borsa reported on Wednesday, citing tech experts Digital Boom. Advertisers have voiced complaints about not being able to pay their ad bills in USD as the country struggles with an FX shortage. The CBE set a ceiling on USD deposits and put in place measures such as limiting electronic payments to limit USD outflows.

Egypt Politics + Economics

Mada Masr publishes 350-page report by Hisham Genena

Deposed Central Auditing Organization chief Hisham Genena’s report tracking corruption in Egypt was published in Mada Masr. The 350 page report alleges corrupt practices and violations across the real estate, petroleum, energy, agriculture, [healthcare compounds], banking, tourism, and other sectors and their respective ministries. The report names former and current ministers as being complicit in addition to notable companies. These include former Interior Minister Habib Al Adly and his family members and former Justice Minister Adel Abdel Hamid. The report doesn’t provide a total estimate for corruption in Egypt, but alleges that corruption in the New Urban Communities Authority amounted to EGP 879.6 bn. Genena had announced in December that total corruption stood at EGP 600 bn, statements which led to his removal and subsequent trial on charges of disseminating false news.

Parliament can annul Ittihadiya’s decision to hand Red Sea islands to Saudi Arabia

The parliament has the authority to annul President Abdel Fattah El Sisi’s decision to hand the Sanafir and Tiran islands to Saudi Arabia, Foreign Affairs Minister Sameh Shoukry said, according to AP. The decision “on the two islands would be considered ‘non-existent’ if the parliament — which has constitutional rights to review and endorse international accords — votes against it,” he said.

On Your Way Out

An influx of cars? The Port of Alexandria has released 9,840 imported cars with a total value of EGP 7.1 bn in May, a source told Al Shorouk. The source also said 906 packages of spare parts were also released. Car prices have recently risen significantly as supply dropped with importers unable to release a number of imported vehicles due to foreign currency shortage.

An Egyptian court sentenced a man to six months in prison for “regularly appearing [unclothed]” on his balcony, at his own home, Innfrad reported on Tuesday. “The defendant, who is in his twenties and is currently behind bars, said he sometimes stood on his balcony dressed in shorts and an undershirt because of the intense Cairo heat, but denied that he ever appeared [unclothed].” His neighbours, who filed the complaint, refute that story, with the police report alleging he “regularly appears on his balcony without a stitch of clothing” and [redacted] harassed his neighbours. Clearly, the best way to escape the heat is to go stand outside on the balcony in scorching hot weather, as opposed to staying inside the confines of a thick-walled Cairo apartment. Also, why are the neighbors not smart enough to photograph him to provide evidence? Almost none of the actions of anyone involved makes any sense.

A Cairo criminal court imposed a media gag order on the case of the assassination of Prosecutor General Hisham Barakat, Ahram Online reported. The gag covers information, documents and investigations related to the case, but does not include proceedings of the trial hearings.

The markets yesterday

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USD CBE auction (Tuesday, 14 June): 8.78 (unchanged since Wednesday, 16 March)
USD parallel market (Wednesday, 15 June): 10.99 (compared to 10.92-10.95 on Saturday, 11 June, Al Mal)

EGX30 (Wednesday): 7,414.81 (-2.05%)
Turnover: EGP 357.3 mn (18% below the 90-day average)
EGX 30 year-to-date: +5.83%

THE MARKET ON WEDNESDAY: The EGX30 kicked off Wednesday’s session on a negative note, with a broad-based selling wave strengthening to push the index down 2.1% by the end of the session. CIB was the biggest drag on the market, losing 3.5%. GB Auto and Edita were the sole EGX30 constitu­ents to end the day in the green. On the flip side, Egyptian Resorts, South Valley Cement, and Porto Group were today’s top losers. At a market turnover of EGP 357.3 mn, foreign investors were the sole net sellers of the day.

Foreigners:Net short | EGP – 29.7 mn
Regional:Net long | EGP + 9.1 mn
Domestic:Net long | EGP + 20.6 mn

Retail: 59.6% of total trades | 64.2% of buyers | 54.9% of sellers
Institutions: 40.4% of total trades | 35.8% of buyers | 45.1% of sellers

Foreign: 19.0% of total | 14.9% of buyers | 23.2% of sellers
Regional: 8.6% of total | 9.8% of buyers | 7.3% of sellers
Domestic: 72.4% of total | 75.3% of buyers | 69.5% of sellers


Expect the MPC to maintain rates; cost of a rate hike outweighs the potential benefits

We expect the Egypt MPC to maintain rates at its upcoming meeting on Thursday, 16 June, with a potential rate hike in one of the following two meetings. In the background: inflation; currency defense dynamics, the budget deficit, and low economic growth are not supportive of a rate hike, for the time being.

  • Inflation spiked, but the reasons are clear. The annual core inflation rate accelerated to 12.3% in May 2016 from 9.5% in April, as consumer prices jumped 3.05% m-o-m. This is a natural result of the 13% drop in the EGP versus the USD, effective March 2016, and the pre-Ramadan surge in demand.
  • Further rate hikes would not defend the local currency, unless it is undertaken aggressively at +200-300bps, which would not help an already high budget deficit. This has presented itself following the March devaluation when most banks raised rates on 3- and 5-year CDs to 12.5%, with an even higher 15% rate for USD converted to local currency funds.
  • The shortage of USD and other foreign currency continues to pressure economic growth, especially within the industrial sector. A rate hike would not be helpful for business and the private sector in general.
  • Consensus points to a Fed hike in July rather than in June. After a disappointing employment report for May 2016, the consensus has shifted towards a July, rather than June, Fed rate hike. If the Fed maintains, this will further support our view that the Egyptian MPC will maintain rates.

If the MPC maintains rates, there should be no effect on the EGX. A rate hike would be negative for equities due to higher required rate of return.


WTI: USD 47.56 (-2.70%)
Brent: USD 48.97 (-2.06%)
Gold: USD 1,296.30 / troy ounce (+0.79%)
Nymex (futures prices) USD 2.59 MMBtu, (flat, July 2016 contract)

TASI: 6,566.7 (-0.9%) (YTD: -4.99%)
ADX: 4,340.9 (-1.0%) (YTD: +0.78%)
DFM: 3,324.7 (-0.2%) (YTD: +5.51%)
KSE Weighted Index: 353.2 (-0.2%) (YTD: -7.46%)
QE: 9,768.7 (+0.1%) (YTD: -6.34%)
MSM: 5,826.5 (-0.2%) (YTD: +7.77%)
BB: 1,118.3 (-0.4%) (YTD: -8.03%)

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16 June (Thursday): The Central Bank of Egypt’s Monetary Policy Committee meets to consider interest rates.

21 June (Tuesday): Trial of former Central Auditing Organization chief Hisham Genena resumes.

23 June (Thursday): It’s Brexit Day as the UK holds a referendum on whether or not to leave the EU.

27 June (Monday): Beltone Financial’s general assembly to decide on converting a third of its share capital to GDRs, according to Reuters.

06-08 July (Wednesday-Friday): Eid El Fitr (national holiday, tentative date)

05-08 September (Monday-Thursday): The 6th EFG Hermes London MENA and Frontier Conference, Emirates Arsenal Stadium, London, UK.

11-13 September (Sunday-Tuesday): Eid El Adha (national holiday, tentative date).

19-20 September (Monday-Tuesday): Euromoney Egypt, venue TBD.

02 October (Sunday): Islamic New Year (national holiday, tentative date) .

06 October (Thursday): Armed Forces Day (national holiday).

November (TBD): Delegation of German companies in the renewable energy sector due to visit to discuss investment opportunities.

11-12 October (Tuesday-Wednesday): Global Islamic Economy Summit, Madinat Jumeirah, Dubai.

01 November (Tuesday): Prophet’s Birthday (national holiday, tentative date).

27 November (Sunday): 2016 Cairo ICT, Cairo International Convention Centre.

04-06 December (Sunday-Tuesday): Solar-Tec exhibition, Cairo International Convention Centre.

04-06 December (Sunday-Tuesday): Electricx exhibition, Cairo International Convention Centre.

11-13 December (Sunday-Tuesday): The Middle East Fire, Security & Safety Exhibition and Conference (MEFSEC), Cairo International Convention Centre, Cairo.

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