Telecoms want assurances on repatriating profits if they must pay for 4G licenses in USD

Next hearing in Tiran, Sanafir case today: The Supreme Administrative Court will hold today its next hearing on the State Lawsuits Authority’s appeal of a lower court ruling declaring the islands of Sanafir and Tiran to be Egyptian.

The Markit / Emirates NBD purchasing managers’ indexes for Egypt, Saudi Arabia, and the UAE are due out on 10 June at 7:30 am CLT. Tap here to see the releases when they’re out.

The CBE ordered commercial banks to prevent customers from using EGP account debit cards abroad, according to a letter from the central bank seen by Reuters on Wednesday and reportedly circulated to banks. “Please ensure that debit cards, including pre-paid cards, issued in local currency by Egyptian banks are only used within the country,” the letter reads, according to Reuters. "We sent a letter to bank chiefs today to stop the use of debit cards outside the country. As for credit cards, it is business as usual and each bank sets their own limit for their clients," an unnamed official at the central bank confirmed to the newswire. Debit cards for foreign currency accounts can still be used abroad to a limit of USD 100,000.

CBE Governor Tarek Amer denied the news on Thursday, telling state news agency MENA the rules were unchanged, but that “we need vigilance,” Reuters reported. The CBE announced on Thursday debit cards linked to EGP accounts could be used in a "regular" way, saying its instructions only apply to individuals misusing debit cards to gain “large amounts of foreign currency,” which saps banks’ foreign reserves. "Clients would use their debit cards to get massive amounts of [USD], sometimes reaching [bns], for reasons other than travel, tourism or shopping,” says Amer. He also accused some bank clients of outright fraud: “Several banks have implemented limits on payments abroad in foreign currency for their clients that have [EGP] accounts because there was massive fraud on the part of the clients.”

Amer told Al Mal implementing the restriction is non-binding to banks, but should be used as guideline. FX traders have managed to use debit cards abroad to withdraw USD 3 bn, Amer says, and one trader was arrested in Cairo Airport in possession of 70 debit cards. An anonymous CBE source echoed a similar sentiment to Al Ahram, saying the central bank has not issued any across-the-board restrictions on using debit cards abroad. He added that commercial banks have the right to set their own limits for their clients’ spending abroad using EGP accounts.

… Either way “it is a band-aid on a hemorrhaging wound,” Ian Godot writes in his blog, but there is a point behind the move (that is not based on Amer’s hyperbole). He says the “uproar” following the result is not entirely justifiable as less than 10% of Egyptians “have bank accounts, fewer have debit cards, and fewer still use those debit cards abroad.” Those who are able to travel abroad are being given a subsidy by being charged the official exchange rate while abroad. The “official” FX rate is a fictional price, Godot writes, as USD is only available domestically at around a 25% premium. This is particularly worrisome as the amount of the subsidy goes up with the credit limit on cards, which is a proxy for wealth — so the richer you are, the bigger the “subsidy” you get. Practicalities aside, Godot does not attempt to tackle the issue of freedom of capital movement or the clearly damaging and confidence-eroding impact this would have on the Egyptian economy.

… Finance writer Patrick Werr goes straight to the crux of the matter by calling for an EGP devaluation for the umpteenth time. He sees Brexit as a window of opportunity, saying if the CBE is clever, “it could seize on the moment to sharply devalue or even float the currency. If it does not, Egypt will continue lurching from one currency crisis to the next.” The problem: the EGP is being fixed to the USD, even though the Eurozone and Britain account for a much larger share of the Egypt’s foreign trade. So as the USD goes up following Brexit, the EGP will fall, putting Egypt at an even less competitive trade position internationally. Ultimately, the only question surrounding an EGP devaluation, which Werr sees as inevitable, is one of timing.

More signs of worsening foreign currency problems? EGAS has begun negotiations with suppliers to amend payment terms for LNG, making them payable over 120 days instead of 90, a source told Al Shorouk. The initiative was presented by LNG suppliers, the source noted

HC Securities believes monetary policy decisions are becoming less relevant in terms of stimulating growth and “containing prices” in light of the current FX shortage, as “currency availability becoming an important determinant of growth prospects and price levels,” according to a research piece published Wednesday that Enterprise had a chance to read. The investment bank’s research arm also lowered its estimates for GDP growth to 4.0% in FY2016-17 compared to 4.40% as negative sentiment is set to hold back new investments in the medium term.

Egypt returned USD 1 bn to Qatar, deposited by the Gulf state to prop up FX reserves after the 2011 revolution, CBE governor Tarek Amer told Reuters on Friday. He gave no further details, responding to the wire’s query of whether the funds had been deposited with a text message that said “Yes, definitely.” A CBE source told Al Shorouk on Thursday that Egypt would make a USD 1.72 bn payment in the next few days, with USD 1 bn to Qatar, as its deposit at the CBE matured, and a USD 720 mn tranche of Paris Club debt.

A nuclear power plant agreement between Egypt and Russia could be signed in July, Russian Ambassador Sergei Kirpichenko told TASS. "They will be inked this year, maybe in the next month … For Russia… this project is of huge importance as this will be the first experience of [nuclear power plant] construction in the Arab world.” Kirpichenko added that Rosatom has already begun the necessary preparations for the project and specialists have visited the site in Daba’a to collect soil samples.

Investigators downloaded the black box data for EgyptAir flight MS804 and preliminary indications show there was a fire on board, Reuters reported. “Recovered wreckage from the jet’s front section showed signs of high temperature damage and soot, the committee said. Those were the first physical signs that fire may have broken out on the A320 airliner, in addition to maintenance messages indicating smoke alarms in the avionics area and lavatory.” Egyptian investigators said on Saturday the cockpit voice recorder (CVR) was now in a condition to extract recordings that could explain the reason behind the crash, Reuters reported. Reuters adds that no explanation for the crash has been ruled out, “but current and former aviation officials increasingly believe the reason lies in the aircraft’s technical systems, rather than sabotage.”

The Italian senate voted to halt supplies of F-16 aircraft spare parts to Egypt in protest against the killing of Italian student Giulio Regeni, Reuters reported. “The Italian Senate marked the first commercial steps taken against Cairo. After a heated debate, the upper house of parliament passed the so-called Regeni amendment by 159 to 55.” Senator Nicola Latorre “said the vote was aimed at putting pressure on Egypt to help ‘the truth emerge more quickly’ over the killing” but other lawmakers noted that it would hurt relations with "an ally in the fight against terrorism."

Egypt’s Foreign Ministry said on Friday it was “uncomfortable” with the decision, saying it is not “consistent with the size of the cooperation between the two authorities in the investigation" of the Regeni case. Egypt will “monitor developments” and come to a decision on how to “manage” relations with Italy in a way that meets the interests of both parties, the statement read.

Despite a nod from officials toward improving the investment climate, “Egypt today does not have a clear investment policy or even an overall economic vision,” writes former chairman of the EFSA and GAFI Ziad Bahaa Eldin in an op-ed for Ahram Online. The persistently poor rates of investment, productivity, employment, and exports can be attributed to five factors, including confusion over whether we’re pursuing expansionary policy or austerity, the lack of transparency surrounding megaprojects, and state neglect of hardships experienced by investors.

Prime Minister Sherif Ismail led the cabinet meeting last week, whose key decisions included:

• Approval for a reshuffle of the Council for Tourism’s board under a new tourism sector strategy.
• Approval to reevaluate an EGP 130 mn road project connecting New Cairo to the administrative capital originally tasked to the General Nile Company for Roads and Bridges. The General Nile Company’s contract will be reduced to EGP 40 mn, and the remaining EGP 90 mn will be allotted to Arab Contractors;
• Tasking companies listed under the Egyptian Federation for Construction and Building Contractors with low-income housing projects by direct order;
• Extending Law 136 of 2014 allowing the Armed Forces to assist the police in securing public and vital facilities for two years. The facilities will be considered Armed Forces facilities while the law is in effect, and violators will be punishable in military courts.

President Abdel Fattah El Sisi approved Investment Minister Dalia Khorshid’s suggestion to form a council for investment, Al Mal reported. The council will be led by the president and will oversee investment policy in all business sectors.

The State Council’s legislative department approved the decision to cancel daylight saving time (DST) on Saturday, referring the decision to the cabinet for approval, Al Bedaiah reported. We had noted last week that the House was pushing to (once again) abolish DST. Meanwhile, EgyptAir says scrapping DST might cost the airline USD 2 mn in the next four months, said EgyptAir CEO Safwat Mosallam to Al Mal. EgyptAir has already notified the International Air Transport Association about the decision to (once again) use DST, so cancelling it would result in departure delays or passengers missing flights, let alone having to pay for changing flight times, he said. On another note, the carrier announced it would launch daily flights to the Chinese city of Guangzhou as of this Tuesday, instead of just five days a week, Al Mal reported on Saturday.

MOVES- Sherif Ezzat was appointed chairman and managing director of EgyptAir Airlines, Al Mal reported. Ezzat was general manager of the general administration of airspace training at EgyptAir Airlines Operations department and inspector at the Egyptian Civil Aviation Authority. He succeeds Hisham El-Nahas.

MOVES- Mohamed El-Abady was appointed head of the alliances department at EgyptAir Holding Company. He was assistant head of the commercial department of EgyptAir Airlines. El-Abady succeeds Mohamed Soliman who was appointed adviser to Mosallam.

Sherif Abdel-Gelil was appointed head of EgyptAir holding company’s financial department, succeeding Salem Salem who was also appointed adviser to Mosallam. Abdel-Gelil was head of the general administrations of financial affairs at EgyptAir Airlines Company.

The FTSE 100 rebounded to its best performance since 2011, with Bloomberg noting “the lesson investors are taking away is that there’s no problem central banks can’t fix.” Bank of England Governor Mark Carney said “some monetary-policy easing will likely be needed over the summer,” in a televised statement on Thursday spurring bets that a rate cut was in the works and quelling the GBP’s rally. He also slammed critics who said he’d “overstepped the line” in warning of the economic fallout of Brexit. “What we said in terms of the risks to the economic outlook, in terms of the risks to financial stability — does anyone in this room not think that those risks have begun to manifest?”

Yields on US 10- and 30-year treasuries hit record lowsover the weekend as bonds surged the world over. Spanish yields didn’t fare much better, but Italian bonds rose. Meanwhile, Bloomberg reports the European Central Bank is weighing out changing rules of its asset-purchase program as Brexit depletes the asset pool.

President Abdel Fattah El Sisi’s “star has faded as an economic renaissance has failed to materialise; inflation has reached seven-year highs, hard currency is in short supply, the [EGP] is under pressure and economic growth is slowing,” Reuters’ Amina Ismail and Lin Noueihed write.

The process to shut down the Mogamma was supposed to begin on Thursday, so The Telegraph’s Raf Sanchez and Magdy Samaan profiled the building it calls “the clogged heart of Egypt’s bureaucracy, a 14-story leviathan of red tape where dreams of starting a new business or travelling abroad often go to die amid stacked towers of paperwork.” The plan intends to reduce traffic in Downtown Cairo and (maybe) “converting its 1,350 rooms into a vast hotel.” Sanchez and Samaan also talked about their personal experiences with Mogamma and, of course, the plot of Adel Emam’s film El Erhab Wel Kebab.

The ongoing refusal by Egyptian opposition parties to unite adequately and coordinate campaigns is leaving them silent in their dissent, and they are being sidelined by the government, Christopher J Cox writes for the Carnegie Endowment for International Peace. The opposition parties are now “playing the role of ‘loyal opposition’ in Egypt, as they did in Mubarak’s days. They are reinforcing a state that tolerates legal opposition parties but ensures they cannot attain power or threaten the status quo.” Cox warns that if the “parties’ ‘loyal opposition’ continues to legitimize Sisi’s rule, it will promote his facade of a vibrant democracy and perpetuate a lack of reform.”

First driverless car fatality should give industry pause -Gadfly: Tesla announced last week the first death of one of their car owners whose vehicle was driving in semi-autonomous mode. When a tractor trailer crossed the highway at a perpendicular angle to the vehicle, “Neither Autopilot nor the driver noticed the white side of the tractor trailer against a brightly lit sky,” the company said.

David Fickling at Bloomberg Gadfly argues the accident should serve as a notice to Tesla, Google, Uber and other industry players to slow down in their rush for driverless car adoption by sometime around 2020 to 2025. However, Fickling reiterates that autonomous vehicles are generally safer and will likely prevent more accidents than they cause. In the meantime, “There’s a longstanding dynamic where new transport technologies tend to produce spikes in fatalities before engineers learn the lessons of real-world accidents and make systems safer than the status quo. Driverless cars are unlikely to be an exception.” (Read All driving is dangerous, Tesla)

Not a Faceless Men training montage: The following video shows employees of the Changzhi Zhangze Rural Commercial Bank in China’s Shanxi province being beaten with a wooden stick for poor performance on a training weekend. (Watch embedded video via the Guardian, running time: 26 seconds)

The World Bank Group approved the second tranche of USD 130 mn for funding the Takaful and Karama social safety net programs, Al Borsa reported. Egypt received USD 100 mn at June’s end and will receive the remaining USD 30 mn in August.

Egypt may resume natural gas exports, Snam SpA, Europe’s biggest gas infrastructure company, said. The discovery of significant gas findings in the Nile Delta and “game changer” Zohr are “very significant for North Africa” and especially Egypt,” Snam’s CEO told Bloomberg. Zohr “allows Egypt to fulfill all its needs, which are great and significant,” as well as resume exports, he said.

Eni completed drilling the Zohr-4 well in the Shorouk concession, Oil Minister Tarek El Molla announced. The rig Saipem 10000 has moved and will begin drilling the Zohr-5 well, as planned, Al Shorouk reported. The results of all four drilled wells so far are “positive,” El Molla says, and the plan to get them onstream by the end of 2017 is on track.

EGPC expects a 3.6% drop in petroleum product consumption in FY2016-17 to 39 mn tonnes due a 19.6% decrease in mazut consumption to 12 mn tonnes from 14.9 mn tonnes in FY2015-16, the company said in a report quoted by Al Shorouk. Meanwhile, gasoline consumption is expected to rise 6.68% to 6.7 mn tonnes from 6.28 mn tonnes.

Research conducted by the 10 Tooba organization on government spending on housing, urban development, water, wastewater, electricity, and transportation found that spending on existing built environments was almost the same as spending on new urban developments, City Lab reported. The report, ‘The Built Environment Budget 2015/16,’ (pdf) found that while only 2% of the population live in new urban developments, the new cities receive EGP 29.8 bn, or 30%, of the FY2015-16 built environment budget, while existing cities receive EGP 28.4 bn, or 29%, of the budget.

The Arab Contractors were awarded a contract to expand the Iklimi Road connecting Sadat City to Kafr Daoud in Menoufiya and to build two bridges at a total cost of EGP 100 mn, head of the Sadat City Authority Mohamed Ashour told Al Borsa. The project will be financed through the Sadat City budget for the current and coming fiscal years, he added.

The House of Representatives will set up a fact-finding commission to look into allegations of corruption in local wheat procurement, Reuters reported. “Unusually high” domestic wheat purchasing figures prompted fraud allegations. House Speaker Ali Abdel Aal said MPs would question the prime minister, supplies minister, trade minister, and agriculture minister. Supply Minister Khaled Hanafy dismissed the allegations, adding that "a neutral committee formed from the supplies police, the Supplies Ministry, and the Administrative Control Authority will perform an inventory of these silos … We will stop milling wheat from private sector silos and we will depend on public sector ones until the inventory is complete.”

The General Authority for Investment and Free Zones established the Damietta Furniture City Company with a capital of EGP 5 bn and an issued capital of EGP 521 mn, Damietta Governor Ismail Abdel-Hameed Taha said, Al Shorouk reported. The governorate will own 40% of the company’s shares (the land value), the Arab Investment Bank 40%, Ayadi Company for Development and Investment 15%, and the Trade and Industry Ministry’s General Authority for the Execution of Manufacturing and Mining projects 5%. A press conference will be held on Monday to announce the details of the project. The cabinet had approved the land value for Furniture City last month.

The House of Representatives’ health committee plans to submit a request to the health ministry to allow the private sector to participate in the management of hospitals in exchange for a portion of the profits, unnamed sources told Al Borsa on Saturday. They added this would be a collaboration in terms of administration only and not ownership, with the private sector likely only allowed to receive profits of a maximum of 49%. The health ministry is also set to submit a plan to develop 460 Takamol hospitals to the parliament’s health committee on 17July. It had been previously reported the government has surveyed 75 hospitals suitable for investment to the private sector through partnerships, with the average upgrading cost of one hospital at a minimum of EGP 30 mn, however, the sources said this figure is highly overestimated.

Housing Minister Moustafa Madbouli has called for considering building housing projects for households falling in the income bracket of EGP 3,500-5,000 per month, Al Masry Al Youm reported. This income bracket is above the state’s threshold for eligibility for low-income housing and is below the income requirements for its middle-income projects, Madbouli noted.

The New Administrative Capital Company (NACC) has set prices at EGP 3,000-5,000 per sqm for land at the capital tendered by the New Urban Communities Authority, with the firm to begin offering the first phase of land for investment in September, Al Borsa reported on Saturday. For land to be developed for urban use, prices were set at EGP 3,000 per sqm for areas exceeding 500 feddans, with prices increasing to EGP 4,000-4,500 for small and medium-sized plots. As for land set for commercial, administrative, and entertainment use, prices start at EGP 3,500 for large land plots and EGP 5,000 if they’re in close proximity to New Cairo. The NACC and developers had previously had disagreements regarding the pricing of land at EGP 4,310-4,510 per sqm, where developers pushed for land prices to increase in line with other developments such as Future City.

Egypt is looking to attract 2 mn tourists from Germany in 2017, Tourism Minister Yehia Rashed told German outlet FVW. “I’m meeting all the German players who are relevant for Egyptian tourism. We’re discussing how we can market our country more aggressively in Germany. The aim is to increase our market share significantly,” Rashed said. He also added that the government plans to extend the current subsidies for charter flights beyond the end of October, when they are currently due to expire.

The Touristic Villages Organization has called on Amer Group to pay EGP 73 mn in building violations and remaining instalments, head of the organization Khaled Abou El Ata told Al Borsa. The New Urban Communities Authority (NUCA) has evaluated the building violations and the receivables from the Marina El Alamein pier’s right-to-use agreement at EGP 50 mn, plus EGP 23 mn in remaining instalments from the Porto Marina land plot, he added. NUCA has transferred the case to the dispute settlement committee at the Investment Ministry.

Telecom operator parent companies have asked for government guarantees to allow them to repatriate profits in USD in return for paying 50% of the price of 4G licenses in USD, unnamed sources told Al Borsa on Saturday, echoing previous reports we noted last month. The request falls under conditions etched out by telecom companies to pay the USD-denominated tranche of 4G licenses. The firms have also asked to be given priority when banks provide foreign currency to be able to import 4G equipment.

Overall car sales in May amounted to 18,800 units, down 6% y-o-y, according to a report from the Automotive Marketing Information Council, Al Borsa reported on Saturday. Passenger car sales on the other hand increased 5% y-o-y to 13,600 vehicles in May. In the first five months of 2016, total car sales dropped 25.2% y-o-y to 85,300, while passenger car sales fell 24% y-o-y to 58,500 cars.

Pioneers Holding’s board of directors approved converting up to a third of the company’s capital to global depository receipts. The company chairman has been tasked with inviting the EGM to vote on the matter, according to a bourse statement. Reuters covered the news in English.

The Egyptian market is a priority for Credit Agricole, and the bank has no plans to exit Egypt, Chairman François-Edouard Drion told Al Mal. Drion says the Egyptian unit has not had to resort to support from its parent organisation, despite all the operational challenges. He added that Credit Agricole Egypt continues to invest in Egypt to improve its infrastructure and electronic channels. The bank is developing its mobile banking platform and will issue a mobile application within the next two weeks, Drion added. Additionally, Crédit Agricole Egypt is targeting 20% growth in its SME financing activity within the next four years, Drion told Al Borsa, and is currently hiring 400 new employees to meet demand on SME financing, he added.

Strategy& will advise the Egyptian government on issuing the Amlak sovereign wealth fund. Al Borsa says Strategy& will set the fund’s strategy and run economic feasibility studies. The fund will act as “the state’s investment arm,” Prime Minister Sherif Ismail said, and will aim to use the state’s assets efficiently.

Government plans to list shares on the Egyptian Stock Market won’t bring state-owned companies to profitability due to issues that need to be addressed within their administration, Shalakany Law Office Senior Partner Emad El Shalakany told Al Borsa. The state restructuring its companies will only offset the problem through a capital increase, after which the same faulty administration will turn the companies back to losses, he added. The state should keep only 10-15% of its equity in the companies and retain a regulatory role, said Shalakany.

The Finance Ministry completed draft legislation aiming to settle most tax disputes (estimated at EGP 50 bn) to improve relations between the tax administrators and taxpayers, according to Finance Minister Amr El Garhy, Al Shorouk reported on Saturday. He added the government is also working on drafting new laws for insurance and pensions.

Daesh militants shot Christian priest Father Rafael Moussa of the Mar Girgis church in Arish on Thursday, the anniversary of protests that ousted former President Mohamed Morsi, the Interior Ministry and the Coptic Orthodox Church said on Thursday, Reuters reports. Daesh claimed the attack and threatened more in the future. “In a separate attack in Arish, one policeman was killed and three wounded when an improvised bomb exploded as their convoy drove near a police station, the Interior Ministry said.” Daesh also claimed responsibility for that attack.

Six Egyptian border patrol officials (two officers and four conscripts) were killed on Thursday near the border with Libya in a shootout with smugglers, a number of which were also killed or injured, the army said in a statement, Ahram Online reported.

The Professional Squash Association (PSA) announced there will a professional squash tournament by the Great Pyramid of Giza in 2016. The tournament is scheduled for 19-23 September, featuring a 16-strong draw featuring both a men’s and women’s event competing for a prize fund of USD 100,000. “The Al Ahram International tournaments of the 1990s and early 2000s inspired an entire generation of Egyptians to take up squash and, with the country currently dominating at the top of the world rankings, we believe that this year’s tournament could serve to inspire another generation of Egyptian superstars,” promoter Amr Mansi said.

The “real” reason behind adding the wealth surtax as a deductible: The 5% wealth surtax was made part of the taxpayers’ deductible costs because it is not clear how it should be applied, especially given the multiple directive issued regarding it, sources told Al Mal. The deductibility applies for just the similar fiscal year due to legal precedents that stressed fiscal years are independent units of account, the source added. The Finance Ministry announced last week that it was going to accept the wealth surtax as part of its tax deductible costs.

The Oil Ministry is investigating the source of an oil spill that appeared on some beaches in Hurghada, Al Masry Al Youm reported. A sample was taken from the spill and is being tested to identify its source. The head of the Petroleum Safety and Environmental Services company says response teams already implementing cleanup work on the affected beaches.

The National Council for Human Rights issued its 11th yearly report on human rights in Egypt, saying human rights are still not a priority of the state, amid challenges including terrorism, unorganized immigration and currency devaluation, according to Al Masry Al Youm who obtained a copy of the report.

Cleopatra Hospitals Group announced on Wednesday an increase in consolidated net profit in 1Q2016 to EGP 22.5 mn from EGP 15.1 mn a year earlier.