The House may not be down with taxing int’l school tuition as VAT debate continues

Finance Minister Amr El Garhy is expected to announce new details on the proposed value-added tax and his discussions with the House Budget and Planning Committee at a press conference today. El Garhy is also scheduled to give a talk at a Canada-Egypt Business Council seminar today discussing challenges and opportunities for investors, Youm7 reported on Monday. Banque Misr Chairman Mohamed El Etreby is also due to attend. We have more on the VAT in our Spotlight section, below.

The House of Representatives voted in favor of articles 13, 14, and 15 of the Civil Service Act but postponed voting on article 16 until today, because 204 MPs voted it down, Al Ahram reports. The article allowed the government to contract outside experts for a period of up to three years, which is an apparent no-no to entrenched bureaucrats who don’t like to be told how to do things better. Also: There’s no word on when the Labor Unions Act will be up again for a vote, after it was postponed because a quorum was not met.

Foreign Minister Sameh Shoukry is due in Washington on Thursday for a ministerial meeting of the anti-Daesh coalition.

Saturday is a statutory holiday marking the 1952 Revolution. We’re still waiting for a major policy speech from President Abdel Fattah El Sisi to mark the occasion.

Interest rate decision a week from Thursday: The Central Bank of Egypt’s Monetary Policy Committee will meet on 28 July to review interest rates. That’s one day after the 26-27 July meeting of the U.S. Federal Reserve’s Federal Open Market Committee meets for the same purpose.

Foreign investors are pricing their USD investments in Egypt on an exchange rate of EGP 12-13 per USD 1, Ayman Abou Hend, head of the direct investment at American Cartel Capital Company told Daily News Egypt. Abou Hend says local partners are accepting the rate due to their USD needs to buy capital goods and production inputs as well as their ability to convert large USD sums locally only at a rate of around EGP 13 per USD 1, which is higher even than the average of the informal market’s. Beltone Financial’s head of research, Hany Genena, says foreign investors are pricing the USD at EGP 11.80-12.50, citing the FX premium implied by CIB’s GDR.

A team of taxation experts from the International Monetary Fund is in Cairo, ostensibly to provide technical assistance to the Finance Ministry on tax reform policy, according to unnamed ministry sources. The sources deny that the team’s presence has anything to do with talks of a loan or Article IV consultations. AMAY is suggesting that something more could be afoot, considering the team’s arrival coincides with Finance Minister Amr El Garhy presenting the value-added tax legislation to the House of Representatives, which if passed could secure Egypt funding promised by the World Bank. These sources do note that Deputy Finance Minister Amr El Monayer did request technical assistance from the IMF during the ‘spring meetings’ back in April.

Top cheesemaker Domty will invest EGP 240 mn in expansions in 2016 and 2017, CEO Mohamed El Damaty told Reuters’ Arabic service. The investments will allow Domty to increase capacity and expand product lines to pastries and yellow cheeses. White cheese production capacity is set to be increased to 215k tonnes by the end of the year, after reaching 175k tonnes this past Ramadan, El Damaty said, as Domty is looking to increase its share of the market from its current 40%, to 49-50%. Most of the yellow cheeses in Egypt are imported, making the segment market becomes more attractive in view of the current FX shortage; Domty expects to capture a ‘decent’ market share, El Damaty said. He noted the company had plans to raise its product prices by 11% in two phases, but ended up raising white cheese prices by 4% and is working on raising them by an average of 10% this quarter depending on the FX rate. The company is facing its own cost constraints as it imports 50-60% of its inputs; Domty’s profitability this year will depend on the USD, El Damaty said. Reuters also carried a comparatively brief summary of the interview in English.

You can still take up to USD 10k in cash out of the country on any given trip, the Central Bank of Egypt said yesterday, denying rumors the maximum amount had been lowered, Al Mal reported. What has changed: New regulations specify that sums over USD 5k have to be declared on exit, the statement said.

Growing international interest in 4G license? Add Saudi Telecom and China Telecom to the list of international mobile network operators said to be interested in bidding for Egypt’s upcoming 4G licenses should the current MNOs in Egypt not all bid. Bloomberg’s Tamim Elyan reports that while neither STC nor China Telecom have made official requests, a CIT Ministry staffer says the two are interested. This comes after we noted yesterday a newswire report that Kuwait’s Zain and one other operator had formally expressed interest.

Meanwhile, global mobile operator trade association GSMA (Groupe Spécial Mobile Association) has called on the Egyptian government to put together a clear roadmap for implementing 4G services. “The GSMA is concerned about sufficient spectrum being made available at fair, market-reflective prices to support full-fledged 4G rollout,” GSMA Chief Regulatory Officer John Giusti said in a statement. “A clear spectrum roadmap is necessary to allow operators to understand how and when sufficient spectrum will be made available.”

The final agreement with Russia for the Daba’a nuclear power plant will be signed “soon,” Electricity Minister Mohamed Shaker told Al Borsa. “There is no rush,” he said, as the preliminary agreement with Russia lasts for 60 years. Shaker added that the government has commissioned an international law office to review the final version of the agreement and President Abdel Fattah El Sisi is also being briefed of the developments in the negotiations. However, a source denied to Al Shorouk that an agreement with Russia is almost finalized. “There are no developments in the negotiations” and news that a final date was set for signing are false. The source said negotiations are being done in secrecy and publishing false details about them “harms Egypt.” Mounir Megahed, the former head of Egypt’s nuclear plants authority, said the delay could be because of differences between the two parties on the terms of payment.

The Transport Ministry launched yesterday the construction of the second part of Cairo Metro’s Line 3 Phase 4B which will run through Heliopolis to Salam City, Al Shorouk reported. Arab Contractors and Orascom Construction won the contract for this section, as we noted back in June, and Arab Contractors Chairman Mohsen Salah said yesterday the two parties are now lining up foreign contractors, according to Amwal Al Ghad. The EGP 5.9 bn Phase 4B is set to be completed by end of 2018, about half a year ahead of schedule, Transport Minister Galal Saeed said. Construction of Line 3 Phase 3 will start next September; France’s VINCI Construction Grands Projects won the bid.

Meanwhile, the Egyptian Tunnels Authority will launch the construction of phase one of Cairo Metro’s fourth line by 2017 at a total cost of EGP 25 bn, authority chief Tarek Gamal El Din told Amwal Al Ghad. Line 4 Phase 1 stretches over 19 km from 6 October to Fustat and includes 17 stations, he added. The following phase, Line 4 Phase 2, will include 12 stations on a 23 km stretch and will cost EGP 30 bn. As for Lines 5 and 6, the transport ministry will be looking for sources of funding for their development, Saeed said, Amwal Al Ghad reported. Studies for Lines 5 and 6 will take up to two years to complete, the minister said.

Investors in feed-in tariff projects (FiT) are skeptical about the success of the second phase of the FiT program, saying they believed the first phase ground to a halt due to government restrictions, most notably the state’s insistence on domestic arbitration, Al Mal claims. Issues from the first phase have not been addressed, said Cairo Solar Chairman Hisham Tawfik, and the government should have solved the crisis with the first phase instead of issuing a second one. The second phase is only meant to install capacity of 1 GW, while the first phase involves projects with a total capacity of 4 GW, said Tawfik.

Despite this, Cairo Solar is making lemonade: The outfit is negotiating with a Chinese contractor to build a 50 MW solar power plant under the feed-in tariff program, according to Tawfik. The contractor was also tasked with arranging USD 55 mn for the project, he added. The International Finance Corporation had backed out financing the project as a result of the domestic arbitration issue, Tawfik tells Al Mal. As we noted last week, Cairo Solar is one of 12 investors looking to alternative funding since international funders backed out. These companies will now be joined by Scatec Solar, which has begun negotiations with CIB and another unnamed bank to finance five solar projects with over EGP 1 bn in loans, sources tell Al Mal.

The ball of red tape on land allocation may have just thickened: The Justice Ministry is drafting a Unified Land Act that would grant different government bodies full rights to tender and privatize land under their jurisdiction. This would run directly contrary to articles of the Investment Act that stipulates all government land must be tendered through GAFI. Sources tell Al Mal that GAFI has apparently written to the Justice Ministry requesting that it retains the authority to act as channel for the government to issue land to investors under the single window policy. Agencies including the industrial and tourism development authorities are simultaneously pushing back against the consolidation of land allocation under GAFI. Government sources added that the law would also establish an oversight authority to annually oversee how these different bodies have used the land under their care. It would also establish a Supreme Development Committee and an authority to protect government land from misuse and informal ownership and development.

House committee meets on Regeni case, relations with Italy: An ad-hoc committee of the House of Representatives said yesterday Egypt cannot legally comply with recent requests from Italian investigators probing the murder in Cairo of grad student Giulio Regeni. Italian officials have asked that Egypt turn-in three people who contact with Regeni; one mn phone call records; and various camera recordings, House foreign affairs undersecretary Tarek El-Kholy tells Al Mal. This decision came during yesterday’s hearing session held by House committees of foreign affairs, defense, national security and human rights, where representatives of the justice and interior ministries as well as public and national security representatives were summoned for a briefing. The House committees will draft a report about the briefing, to be submitted to House Speaker Ali Abdel Aal within 48 hours.

Egypt faces a shortage of both drinking water and water for agriculture, as the water share per person decreased to around 600 cubic meters per year, below the water poverty line of 1,000 cubic meters, according to Al Borsa which sat down with Abdessalam Weld Ahmed, Assistant Director General and Regional Representative at the FAO Regional Office for the Near East and North Africa. The agricultural sector also suffers from water shortages which damaged 200k feddans of rice in Sharqiya and some cultivated lands in Gharbiya. Weld Ahmed’s comments contradict those of Irrigation Minister Mohamed Abdel Ati, who said last month that governorates do not face water shortages. A spokesman for the ministry, Waleed Hakiki, had said earlier the same month that a lack of flooding last year forced the country to tap into its strategic water reserves.

The Committee to Protect Journalists awarded Egyptian photojournalist Mahmoud Abou Zeid, often referred to in domestic press as ‘Shawkan,’ one of its four 2016 International Press Freedom Awards, according to a statement from the advocacy group on Monday. Shawkan has been imprisoned since August 2013. Another of this year’s winners includes Can Dundar, editor-in-chief of the Turkish daily Cumhuriyet, who has been sentenced to five years and 10 months in prison for writing news reports alleging that Turkey had tried to smuggle weapons to Syrian opposition groups, according to the CPJ.

EU foreign policy chief Federica Mogherini thinks Turkish President Recep Tayyip Erdogan may still be manipulated by ethereal promises of European Union ascension, threatening on Monday that Turkey will not be admitted to the bloc if it chooses to reinstate the death penalty to purge the country of Erdogan’s rivals, CNN reported on Monday. Turkey submitted its application for membership into the European Economic Community nearly 30 years ago, in 1987. In his first interview with a media outlet since the coup attempt, Erdogan told CNN, with regard to those arrested and charged with treason: “Why should I keep them and feed them in prisons, for years to come? That’s what the people say.” Turkey abolished the death penalty in 2004 in a bid to win membership in the EU.

Meanwhile, Erdogan is busy with slightly more pressing concerns like regime survival and preventing another coup, taking the failed attempt launched against him on Friday as an opportunity to clean house. Over 103 generals and admirals have been arrested, representing one-third of the general officer corps of the Turkish military, and the crackdown has expanded to the interior ministry, with the arrest of 8,777 officers. With regard to US-based cleric Fethullah Gulen, Erdogan reiterated his demand that the United States hand him over, saying he would make a formal request soon.

Meanwhile in America: The last gasp of the Never Trump movement was snuffed out on the floor of the Republican National Convention last night (which is still ongoing and may be livestreamed here) when the delegation from Utah called for a roll call vote to allow delegates to be unbound from voting in accordance with their state’s primary or caucus results, Politico reported. “Trump critics were unlikely to be able to vote down the [convention] rules — and even less likely to achieve their ultimate goal of replacing the rules with ones that ‘unbound’ pledged delegates — but they were seeking a platform to voice their displeasure with Trump and demonstrate the strength of their movement,” Politico’s Kyle Cheney explained. (Watch the chaos of the roll call vote via CNN, running time: 1:30)

Hillary Clinton blamed for Benghazi deaths: The other most dramatic moment of the first night of the convention was an emotional speech delivered by Pat Smith, mother of intelligence analyst Sean Smith, a member of the US Foreign Service who was killed in the 11 September 2012 attack on the US consulate in Benghazi. “The last time I talked to Sean, the night before the terrorist attack, he told me, ‘Mom, I am going to die. All security has been pulled from the embassy,’ he explained. And when he asked why, he never received a response. Nobody listened. Nobody seemed to care… I blame Hillary Clinton, personally, for the death of my son.” (Watch, running time: 1:56)

No change in price of cars and fuels under VAT: The Finance Ministry denied yesterday that additional taxes on cars will be imposed as part of the value-added tax (VAT) regime, adding in an emailed statement yesterday that the sales tax already in place will be the sole tax on cars. Furthermore, implementation of the VAT will have no impact on petrol or diesel prices at the pump, a spokesman for the Oil Ministry said, adding that the current selling prices are net of tax, Al Mal reported. The statements put to rest speculation we noted yesterday that vehicles and fuels would be subject to new taxes under the VAT.

Youm7 leaks what it claims is the draft VAT legislation: The newspaper has posted a draft of what it claims is the draft bill presented yesterday to the House by Finance Minister Amr El Garhy. The list of exemptions (beginning page 69) appears only to exempt crude oil, natural gas, and butane (the only refined fuel product mentioned in the exemptions list). This list correlates for the most part the 52 goods and services we had previously noted which includes basic and consumer foods (no mention of cooking oils), financial services, healthcare, broadcasting and publishing.

In any event, El Garhy is expected to clarify the state of the VAT in a press conference today.

What about telecoms? A VAT of 8% on mobile phone networks was being suggested by both Al Mal and Al Borsa (which published an extended list of possible VAT rates). The House of Representatives has apparently called on representatives from the sector to discuss the issue. Sources from the telecommunications industry told Al Mal that they were uncertain whether an 8% VAT on their services would be on top of a 15% sales tax unique to the industry or replace it. The exemptions lists does include landline phone calls and ADSL internet.

As for the discussions in the House of Representatives themselves, committee members attacked the new additions to the tax including those for the fertilizer industry, professional services and tuition for international schools, with member Talaat Khalil telling Al Borsa that the committee plans on amending the exemptions list and the list of recommended taxes on goods under the VAT. Khalil called for civil society groups and senior economists to be invited to attend these sessions.

Meanwhile, the House Planning Committee plans to invite investors and the business community representing a multitude of sectors including the automotive, fertilizers, food, and tobacco sectors to participate in the VAT hearings. Committee member Sylvia Nabil tells Al Mal that these sessions will begin on Thursday and will be joined by representatives of the Tax Authority and the Finance Ministry.

We interrupt your regularly scheduled macro briefing to bring you this bulletin on “How social media helped defeat the Turkish Coup,” by fund manager and Bloomberg columnist Mohamed El-Erian, heretofore one of Enterprise’s favourite Egyptians living abroad and a member of Egypt’s sainted Coordinating Council tasked with harmonizing fiscal and monetary policy. Please, God, we ask of you two things this morning: That columnists have the courage to admit they have nothing to say on a given day, and that should they still feel the need to produce filler, that you smite them before they can juxtapose the words “coup” (or “revolution”) and “social media” ever again.

Israeli Prime Minister Benjamin Netanyahu’s visit to several Nile Basin countries has “stirred up curiosity in Egypt concerning the goals of this visit,” writes Mohamed Saied for Al-Monitor. During his tour, Netanyahu said Israel will support Addis Ababa in benefitting from water resources by extending advanced technology. “Israel has exploited Egypt’s growing distance from African states since the era of former President Hosni Mubarak,” said secretary of the African Affairs Committee in the Egyptian House of Representatives Mai Mahmoud. Meanwhile, Israeli affairs expert at Al-Ahram Center for Political and Strategic Studies Saeed Okasha believes Netanyahu’s visit will play a positive role should tensions grow between Egypt and Ethiopia.

Fam Khalaf, 27-year old cousin of a priest in Minya, was stabbed and killed by a mob of Muslims on Sunday night, the Associated Press reported. What started as a personal dispute between four Muslims and the father of a priest escalated when the four mobilized a mob to fight “on the basis that this was a fight with a Coptic man,” according to Mada Masr, citing Ishak Ibrahim from the Egyptian Initiative of Personal Rights. The incident comes at a time of an increasing number of sectarian attacks in Egypt, often linked to rumors of church construction, as well as the continuation of the state’s policies to conduct informal reconciliations rather than resort to a formal legal process. Informal reconciliations put Christians who are attacked at a disadvantage, and the result mediation is often that the attacked Christians are forced to leave their homes. “The few incidents that ended up in court were dismissed because of lack of evidence and such,” Ishak said.

TIE Fighter, a short animated film by Paul Johnson, told from the much-maligned Imperial perspective. (Watch, running time: 7:27)

A New York Times columnist writes on “Why you will marry the wrong person” — and then suggests it may not matter, anyway, if you look at it in the right light. “Embrace a philosophy of pessimism. Every human will disappoint you, and you’ll do the same to them.”

El Sisi at AU Summit: President Abdel Fattah El Sisi met yesterday on the sidelines of the African Union summit in Kigali with other leaders including the presidents of Rwanda, Somalia, Sudan, Ghana, the Democratic Republic of Congo and Togo.

Moroccan King Mohammed VI said in a message delivered by his envoy to the African Union (AU) summit in Uganda that the time has come for his country to rejoin the bloc, the BBC reported on Monday. “It has been a long time that our friends have been asking Morocco to take back its seat in its natural institutional place, and now the time has come,” the king wrote in his letter, Reuters reported. Morocco is seeking support for a plan to offer the disputed Western Sahara territory autonomy while remaining under Morocco’s jurisdiction. The country left the AU 32 years over the organization’s recognition of the breakaway Western Sahara. At least 36 of the 54 AU’s members do not recognize the Western Sahara, Morocco claims. Influential members such as Algeria and South Africa, however, prefer a referendum be held to resolve the issue. The United Nations has a mission in Morocco whose objectives include preparing for such a referendum to take place. The mission has been in operations since 1991.

The Ministry of Foreign Affairs has rescued and evacuated a number of Egyptians from the infighting in Juba, South Sudan, according to a statement by the ministry. The Egyptian citizens were flown from Nairobi and Addis Ababa to Cairo after being moved out of South Sudan. Assistant Foreign Minister for Consular Affairs Hesham El Nakib called on Egyptians still in South Sudan to remain vigilant and urged others not travel there until the security situation is settled.

A clear plan for price liberalization is a precondition for deregulation of the natural gas market, a source at the Oil Ministry told Al Borsa. It is expected that, once approved by the House, the law will allow private market participants to import LNG and use the national natural gas grid for a fee. The source said that EGAS will not remain the sole provider and distributor of gas either, as the market opens up to new entrants who will have the ability to sell natural gas directly to consumers. Private sector participants were allowed to vote on the proposed law through a closed website before sending it to the cabinet, the source added.

An EU-funded project headlined “Technical Assistance to Support the Reform of the Energy Sector (TARES)” could save Egypt 20 mn tonnes of oil equivalent (20 Mtoe) by 2035, the EU said in a statement, Daily News Egypt reported. Energy consumption is projected at 112 Mtoe in 2035, of which the TARES project can save 18% of total consumption, the report said. The construction sector can save 8.6 Mtoe, while industry can save 6.76 Mtoe and the transportation sector 4.5 Mtoe, the report added.

Wait, didn’t the barter economy die out in the Middle Ages — or at least with the passing of the hippies? EGAS agreed to receive payment from the National Cement Company (NCC) in the
form of cement packages, NCC’s Chairman told Al Mal. The amount NCC will send will correspond to 30% of the arrears owed to EGAS and will be directed to oil services subsidiary Petrojet. NCC’s Chairman said this is the optimal solution given the company’s liquidity shortage.

First Misr Chemical Industries Co’s first production line using the upgraded electrolysis cell will begin operations in February following an EGP 132 mn upgrade job of six cells, the company’s Chairman Samir El Khouly told Al Borsa. The second production line is expected to begin operations in April, he added, while the entire project will be completed in the next fiscal year. The upgrade will boost caustic soda production to 170 tonnes daily from 92 tonnes, and chlorine gas up to 150 tonnes from 82 tonnes, he added.

Delta Pharma Bio is set to launch its EGP 100 mn factory in 10th of Ramadan City next year, Al Borsa reported on Monday. The new factory will include seven production lines for both solid and liquid products and allow the introduction of new products. Delta currently has c. 70 products on the market. (The article was down at dispatch time this morning.)

Compounds to treat blood diseases and cancer are in exceptionally short supply as a result of the FX crisis, an unnamed ministry official told Youm7 yesterday. The source added that this shortage is likely to be resolved by 2017, at which time the benefits of the government allowing a 20% price increase on compounds priced under EGP 30 will take effect. It is unclear, however, whether his remarks have taken into consideration the threat by a number of multinational manufacturers to curtail supplies to Egypt of products currently prices over EGP 30 if the government does not allow them to increase retail prices, which we noted yesterday.

The Egyptian Medical Syndicate referred four doctors who promoted a fraudulent hepatitis detection and treatment device to a disciplinary committee, according to a statement by the syndicate on Monday. The doctors named include Ahmed Ali Mu’anas, Sally Mustafa Mahmoud, Ahmed Abdullah Sabri and Wael Ahmed Mohamed Attia. Five other doctors were acquitted as they were not involved in making inaccurate public statements. The architect of the AIDSKoftaGate scandal, Ibrahim Abdel Atti, however, is not a member of the syndicate and remains at large. The story is getting coverage internationally thanks to a story by the Associated Press.

Private developer M2 Development will begin constructing the first phase of its M2 Gardens project in New Cairo at a total investment cost of EGP 900 mn, Chairman Moustafa Aboul Fotouh told Amwal Al Ghad. The project will be built over an area of 35 feddans divided into three phases, including 950 homes, he added. The first phase will be completed by 4Q2019, while the entire project should be completed by 2021 at a total cost of around EGP 2 bn, said Aboul Fotouh. The company was recently in the news for an 800 feddan land reclamation project in Aswan.

The New Administrative Capital Company expects to net EGP 30 bn from tendering 10.5k feddans during the first phase of development of the project, Al Borsa reported on Sunday. Government sources add this is only one-off sales revenues and that the state is expected to net annual revenues through its partnership and investment agreements with private sector developers throughout the years of construction.

Construction outfit ICON Egypt has requested EGX approval for an issued and paid-up capital increase of EGP 35.6 mn to reach EGP 142.6 mn, over 8.9 mn shares priced at EGP 4 each, Al Borsa reported on Monday. The transaction will see the distribution of one bonus share for each three held.

Union National Bank reported a net profit after tax of EGP 90.1 mn in 1H2016, marking a 26% y-o-y increase, according to a statement to the EGX on Monday.

Raya Data Center, a subsidiary of Raya Holding for Technology and Communications, launched a platform ‘Raya Cloud’ to offer cloud computing services, Al Mal reported. Raya will offer data storage services whether on private clouds or on the internet through public clouds, or a combination of both, a company official said.

The FX crisis is the main contributor to increasing inflation as the government devalues the EGP against the USD to relieve pressure on FX reserves, according to a report from credit insurer Atradius, Daily News Egypt reported. Inflation rates are expected to rise to 11.9% by the end of the year, and may rise to 12.2% in 2017, the report adds. Any expected increases in exports will be cancelled out by increased servicing on foreign debt as public debt hits 91% of GDP.

Foreign aid and funding worth USD 8 bn, including loans signed for 7 years ago, have been unutilized due to red tape and because some, international cooperation minister Sahar Nasr said, Amwal Al Ghad reported. Nasr even goes so far as to accuse some government bodies of not being serious about implementing their projects. On a related note, Egypt’s current portfolio with the African Development Bank (AfDB)increased to USD 2.24 recently after Egypt received the first USD 500 mn tranche of the budget support loan worth USD 1.5 bn, AfDB Resident Representative in Egypt Leila Mokaddem told Amwal Al Ghad.

Take this with a cubic meter of salt, but the fact of it being in Al-Ahram’s breaking news service may have some measure of significance: The Egyptian Legal Foundation has filed a lawsuit against CBE Governor Tarek Amer accusing him of harming national security, Al-Ahram reported. The lawsuit states that Amer’s decision to limit withdrawals and tightly control USD reserves are allowing FX traders to control the Egyptian market, harming national security.