Reassuring IMF on how we’ll plug the funding gap

It’s a pleasantly slow news day today after the avalanche of the past few weeks. Cabinet has launched the next phase of its messaging on the IMF facility, this one designed to explain where the government is going to secure the USD 6 bn it needs before the IMF’s executive board votes on a three-year, USD 12 bn facility. Prime Minister Sherif Ismail led the charge, and Finance Minister Amr El Garhy and International Cooperation Minister Sahar Nasr held a joint presser yesterday. Details on this and on the possibility the VAT law may go up for a vote in the House of Representatives as early as 28 August are in Speed Round.

The Russians are coming, the Russians are coming: A delegation of Russian security officials arrived yesterday in Sharm El Sheikh to begin airport security inspections, Al Ahram reports. The officials will also look at overall security at hotels and in the city of Sharm, said South Sinai Governor Khaled Fouda. The review is a critical factor in Moscow’s decision on when Russian tourists might be allowed to return to Egypt.

The Sisi administration is not purchasing four Falcon 7X jets, Ittihadiya spokesperson Alaa Youssef told Daily News Egypt, refuting media reports on Tuesday in the French and domestic press that Egypt was entering into a EUR 300 mn contract for the aircraft. The reports, Youssef said, are “not true.”

The Rio Olympics end on Sunday, 21 August. Islam El-Shehaby’s behaviour aside, this is a “rebuilding” games for the national team, where Egyptians have mounted the podium only twice, taking home two bronzes in weightlifting so far. The antidote: Relive the 2004 Athens Olympics, when Karam Gaber, arguably Egypt’s most accomplished athlete ever, dominated the Greco-Roman wrestling 96 kg weight category. Gaber won the final match with remarkable ease and brought home Egypt’s first gold medal at any Olympic event since 1948 (watch highlights, runtime 03:46).

Summer ends for MBIS students on Sunday, while BISC kids go back a week later. Most international private schools in Egypt hit the books once more on 4 September.

El Sisi in state visit to China: President Abdel Fattah El Sisi is expected to sign bilateral agreements worth several bn USD while in China 4-5 September for a state visit that overlaps with the G20 meeting.

We’ve got a week off coming up, at least if you want to bridge a day or two. Eid Al-Adha starts sometime around Sunday, 11 September.

Change is both a glacial process and an overnight phenomenon, as all of us have learned in the past decade. That’s the key thing to keep in mind as we draw our series to a close, asking in our fifth and final installment: When all is said and done, what can we do?

It starts with a change in mindset

It’s not enough to talk about capacity building, regulatory change and intra-agency coordination. If we’re going to make a dent in the average of four hours that each Cairene spends in transit each day and the number of homes needed for them, we need to change how we think about the housing and urban planning policies as well as governance at both the national and municipal levels.

A change in mindset starts with a clear-headed approach to policy, and as with anything, it’s less a case of coming up with a new solution as it is adapting proven strategies to our Egyptian reality. Charles Euchner, editor and writer at the Yale School of Management, is the man who coordinated Boston’s first citywide planning process back in 1965. As he sees it, the three tenets of a good urban plan are strong support from the central authority; a clear definition of the plan; and a rigorous process that involves broad engagement from all stakeholders, including the public and private sectors, civil society and professional organizations.

Boston isn’t Cairo, we all know that. But when it comes to housing policies that can have a transformative effect on cities, the rules of the game are largely universal. Take Mexico, an example very similar to our own emerging-market reality, and you’ll see how transformation in the country’s housing sector began when the authorities took serious steps in 2012 with a new approach to housing and urban policy.

Tap here to learn how Mexico did it in the fifth and final instalment in our series — and find out why embracing your inner Keynesian, finding the “missing middle,” working on pricing and creating a local tax base could be among the solutions we deploy to save our beloved city.

** This is part five of a five-part series by SODIC, a leading real estate developer and proud sponsor of Enterprise, in which the company shares its views on how business and government can work together to save Cairo — doing good for more than 20 mn people and making a reasonable profit at the same time. We hope you’ve enjoyed the series and would welcome comments and feedback on editorial@enterprise.press.

** Read the full series:

• Part 1: Why is your day in Cairo so hard — and what can we do about it?
• Part 2: Egypt’s real housing sector: Market-based informality
• Part 3: There’s a reason middle-income housing doesn’t exist — here’s how the government can fix it
• Part 4: Mythbuster: Land registration has nothing to do with why Egypt doesn’t have a large-scale mortgage system

Cabinet’s message for the week: We know we need to raise more USD as a condition of the IMF facility, and we’re on it now. Prime Minister Sherif Ismail set the tone yesterday, noting that Egypt’s allies, including Saudi Arabia and the UAE, will help plug our financing gap over the next three years. International financial institutions will also help finance the government’s three-year program with the IMF, he added, according to Bloomberg. The piece also confirms that the IMF’s executive board will not consider the USD 12 bn facility before Egypt secures as much as USD 6 bn in funding separately, as previously noted by IMF mission chief in Egypt Chris Jarvis. Ismail told Bloomberg in addition to the IMF, funds will come from the World Bank, the bond market, and bilateral agreements.

(Somewhere in an alternate, Bloombergian universe (or: Wow, did your scriptwriter mess up): The Bloomberg story quoting the PM gets things right, but there’s an auto-play video embedded in the story that can’t say the same thing. The news anchor says she’s providing “context and background” on the story, but completely messed up the timeline: “Here’s the situation: Unrest resurfaced in 2016, fuelled by anger at police violence and President El Sisi’s move to cede two islands to Saudi Arabia. Officials responded severely to protests, and thousands of Egyptians died in political violence.”)

Finance Minister Amr El Garhy and International Cooperation Minister Sahar Nasr took it from there, saying at a joint press conference yesterday that the International Cooperation Ministry has received pledges of USD 22.5 bn. Of that figure, USD 11.5 bn has been locked-in, including USD 3.8 bn in the form of grants. The message from the presser is perfectly clear: We have nothing to worry about in terms of plugging the finance gap.

Where is the money coming from? Al Mal claims Nasr has confirmed the origin about USD 7.5 bn of the funding: Saudi Arabia has agreed to deposit USD 2 bn at the CBE and the government will borrow USD 1 bn from China. A combined total of USD 4.5 bn will come from the African Development Bank (AfDB) and World Bank. Nasr said the World Bank will vote on a USD 500 mn financial assistance package to develop Upper Egypt on 17 September. In total, Egypt is set to receive USD 3.0 bn from the World Bank and USD 1.5 bn from the AfDB, Youm7 says.

Both ministers refuted rumors that there was division within the cabinet economic group about how to best employ the IMF loan. You can watch the press conference in Arabic (runtime: 24:35)

We may also be seeing an influx of FDI from China: The government is talking about building a 1,000 MW solar power plant and a solar panel factory using USD 3.3 bn in financing from China. International Cooperation Minister said the project would be implemented over two phases, each of about 500 MW. The international cooperation, electricity, and military production ministers discussed the fast-track project on Tuesday. President Abdel Fattah El Sisi will be in China on 4-5 September for a state visit coinciding with the G20 summit.

First electricity prices, now Cairo Metro prices increase: The cost of a ticket to ride the Cairo Metro will rise, said Prime Minister Sherif Ismail. “We have yet to decide on the rate of the increase, but services will not be sustainable if the ticket price does not change,” he added. This is the first time the Ismail government has outright said it would increase ticket prices after months of rumors, leaks and half-hearted denials, largely by the Transportation Minister. Cabinet is studying multiple proposals on how to raise prices, but the lowest-income citizens will be shielded from any hikes, said cabinet spokesperson Hossam Qawish in call-in to Al Hayat Al Youm on Al Hayat TV (watch: runtime: 5:13). Qawish insisted the price rises will not break the EGP 3 or EGP 5 barrier. Should ticket prices rise, it would be the second time in a month that a public service or utility rose in price; the state earlier this month raised electricity prices.

Also yesterday: Ismail reiterated that the government will not fire 3 mn public service and stressed the need to boost local content in Egyptian manufacturing.

Charm offensive: Ismail made his remarks on the sidelines of the weekly cabinet meeting. Other government officials took advantage of meetings yesterday as part of the national dialogue to sell the economic reform program to the public to chatter about developments in their portfolios. We have more below.

Is cabinet nearing a VAT compromise with the House? The Finance Ministry is planning to stick to its baseline rate of 14% for the value-added tax, a Finance Ministry source tells Al Shorouk, signalling at the same time that the ministry thinks it “understandable” the House wants to exempt some products from VAT. The statement hints that a possible compromise is in the works, which may see an expanded exemptions list, but a 14% rate maintained. The source does acknowledge the possibility that the House may pass the VAT with a 13% baseline rate.

An agreement will be reached next week, with the House expected to vote on the VAT legislation on 28 August, two days before the President is expected to put parliament in summer recess, said the source.

Accepting a VAT rate lower than 14% would significantly change FY2016-17 budget calculations, said Deputy Finance Minister Amr El Monayer, who declined to discuss where the ministry might look for revenue in the event the tax is watered down. The average VAT rate worldwide ranges from 15-20%, he added.

NTRA approves 4G contract terms, gives MNOs new deadline: The National Telecommunications Regulatory Authority (NTRA) “has approved the final terms for 4G mobile broadband network licences and will send the forms out to licensee companies on Sunday,” a CIT Ministry official told Reuters. Mobile network operators (MNOs) now have until midday on 22 September to accept them. The regulator had previously set 7 August as a deadline for responses to its proposal, but only Telecom Egypt had approved the initial contract. NTRA agreed to compromise on granting MNOs additional spectrum, but refused to budge on pricing or the requirement that 50% of the license fee has to be made in USD. An NTRA source told Al Mal the 22 September deadline is firm, adding that no applications will be accepted after that date. The authority is preparing contingency plans if any of the MNOs reject the 4G proposal.

The parallel market for FX “remains active and resilient behind the scenes,” traders tell Reuters’ Asma Alsharif. "There is difficulty in making transactions and there are big risks, but with those increased risks come the increase in profit and that is why this market will keep working. One way or another, it will continue in unofficial locations … The gaps in prices are big and that is because of the security crackdown. This market is now a market of fear. The price [for USD] edged down but now it is rising again because the demand is strong while supply is less,” one FX bureau manager said. Another impact of the intensified surveillance is that the differences between the price of USD quoted across the parallel market are becoming more varied as communication between bureaux has “gone quiet.” Don’t expect the crackdown to do much, CI Capital’s Hany Farahat says, “on the contrary, excessive regulation will increase the opportunity cost of engaging in unofficial transactions and push traders to charge a higher fee, and therefore increase the parallel market premium.”

The Finance Ministry is set to pick four banks, including JPMorgan and Morgan Stanley, to manage its upcoming USD-denominated bond issuance worth USD 3 bn, unnamed government sources told Al Borsa on Wednesday. Between eighteen and twenty banks are reportedly competing to advise on the process, which will see the state issue paper with tenors of five to 10 with a possibility of a tenor for 30 years for foreign investors, according to Deputy Finance Minister Ahmed Kouchouk. He added that the government will most likely issue the bond on the Luxembourg Stock Exchange in September or October. Three potential legal advisors are also on a short list.

Mercedes isn’t leaving Egypt, not looking for a new local-market representative: Mercedes-Benz has denied it is seeking a new distributor in Egypt, Al Borsa reports, adding that it has received no indications of interest from anyone interested in joining its network. “As the solely responsible entity for the local appointment of authorised local retail network and dealerships, we would like to confirm that we have not received any requests or applications of interested parties to join the Mercedes-Benz network,” Mercedes-Benz Egypt reportedly said in a statement. The company also denied it is considering exiting the Egyptian market given the FX challenges and customs restrictions.

The Ismail cabinet’s weekly meeting reviewed progress on multiple projects including the tendering of construction and management of 200 schools to the private sector before March. Key decisions taken at the meeting include:

• Approving a EUR 46.2 mn grant from Germany for development projects;
• Commissioning a feasibility study to expand corn production to around 2.5-2 mn feddans;
• Approving issuing permits for river barges in Assiut;
• Tasking the Local Development Minister with ensuring schools are adequately prepared for the back to school season.

MOVES- Hill+Knowlton Strategies has appointed Bashar Al Kadhi as its new Chief Executive Officer for the Middle East, North Africa and Turkey, the company said in a statement. Al Kadhi was previously the COO of ASDA’A Burson-Marsteller.

We’re really enjoying this feature-length piece in the Financial Times on how Goldman Sachs is pushing into consumer and small-business banking. It’s a great read, it’s about Goldman, and it underscores the challenges any of us face when we look to expand into nearby verticals that we mistakenly think are closely related to our own.

Excerpt: “For almost 150 years, [Goldman Sachs] had prospered by getting close to people of power and influence: wealthy institutions, multinationals, rich families. Now it was trying to appeal to hoi polloi, offering online savings accounts that can be opened with a deposit of just USD 1, with interest rates about 100 times better than those at big US retail banks like Wells Fargo or Bank of America.” The problems with the April roll-out were legion, and as one client put it: “Because it was Goldman everyone expected the white glove service. It was not the white glove service.”

The piece looks at the industry forces that prompted Goldman’s decision to love the consumer and concludes that “Recasting Goldman as the friend of the consumer and small business will not be easy.” Read: “Goldman Sachs, a play for the 99%”

Story of eight anchors suspended for weight gain goes viral — globally The story of eight Egypt state news television anchors suspended for their weight gain, — which we first noted last Thursday — has now suddenly caught the attention of the international media. Both BBC News and the Independent picked up on a belated story filing from Youm7 on Sunday. The Atlantic, in turn, cited the BBC. Buzzfeed’s Maged Atef followed up on the story to get comments from some of the fired anchors, while NY Magazine cited the Buzzfeed report. Even the Gray Lady has picked up the story.

British lawyers are renewing their calls for the release of Irish national Ibrahim Halawa, who was arrested three years ago during a siege on Al Fath mosque in Cairo 2013, BBC reported. Halawa is the son of the most senior Muslim cleric in the Republic of Ireland. The Irish government announced it was concerned when Halawa’s trial was adjourned 14 times.

The Al Masry Al Youm economics columnist writing under the pseudonym Newton chastises the House of Representatives about their inability to take decisive action on the economic reform agenda. All traders have already priced their products at a 14% VAT rate, regardless of what the House decides to pass, he says. The discrepancies will only serve traders, and not the government or consumers. Parliament needs to move quickly and decisively as all delays are now becoming too costly, he adds.

Left-leaning Abdullah El Sinawi looks at the IMF loan and the political implications of economic reform in a piece for Al Shorouk. “When you’re in a crisis, no one will give you gifts. Everything has a political price,” he says, referring to efforts to raise additional USD to form a liquidity shield before devaluation of the EGP. Pressures to increase prices will have an expected social backlash reminiscent of the 1977 bread riots and Egypt needs political reform to go with the economic reform measures, he says.

The Ikhwan leadership is to blame for the massacre at Raba’a in 2013, Al Ahram columnist Farouk Goweda writes. He asks if it was wise to amass so many women and children, announce the formation of an Islamic caliphate in the heart of Cairo, and escalate the situation with proven accounts of weapons at the sit-ins. “If accountability is necessary, the Brotherhood should hold themselves accountable,” he says.

Makram Mohamed Ahmed looks outward at US politics and the presidential race in a piece for Al Ahram. Because Donald Trump “went so far out” in his attacks on his opponents, it’s become very difficult to back down and change course, he says. The Republican Party’s stance on Donald Trump is fractured further every time he does something like accuse US President Barack Obama of founding Daesh, subtly incite his supporters to armed protest if he loses, or become the first nominee in a generation to refuse to release his tax returns.

Great Moments in Internet History: Kitchen Nightmares — Amy’s Baking Company, 2013. The following clips are from the only episode of British chef Gordon Ramsay’s reality television series Kitchen Nightmares where he withdrew from his promise to help turn around struggling Arizona restaurant Amy’s Baking Company. The restaurant’s owners, Amy Bouzaglo (who had previously served 14 months in prison for credit card fraud) and her husband Samy Bouzaglo (who reportedly had a history of drug trafficking and extortion) became the subject of an intense trolling campaign after the episode aired, and have since shut down their eatery. (Watch The craziest moments of Amy’s Baking Company, running time: 3:47 — followed by Introducing: Amy’s Baking Company for more background, running time: 3:55)

Tehran-Cairo rapprochement? Enhanced regional cooperation between Egypt and Iran “can be effective in reducing tensions in the region,” former Iranian deputy foreign minister Hossein Amir Abdollahian said in a meeting with Khaled Ammare, the head of the Egyptian interests section in Tehran. “Increased consultations between officials of both countries will be effective in improving the situation in the region,” Ammare added, according to Iran’s Tasnim News Agency.

The General Authority for Investments and Free Trade Zones (GAFI) met with a delegation from Iraq’s National Investment Commission and the World Bank to implement an MoU signed in 2013, Al Masry Al Youm reported. The MoU allows for offer technical assistance and training in the fields of investment, stock exchanges, and capital markets.

A delegation of as many as 500 Chinese investors is set to visit Egypt in September to assess opportunities in the Suez Canal Axis and other regions, Egyptian Union for Investors Associations board member Mohamed Helal told Al Borsa.

The House of Representatives is considering inviting Giulio Regeni’s mother Paola Regeni, as well as the Speaker of the Italian Parliament, to visit the House, foreign affairs undersecretary Tarek El Kholy said, AMAY reported on Wednesday.

El Sewedy Power System Projects, a subsidiary of Elsewedy Electric, signed an EPC contract in Saudi Arabia for the Al Sarfi 110/13.8kV substation, according to a company statement. The contract, valued at SAR 80 mn, was signed with Abnia Consulting Engineers in Jeddah on turnkey basis.

The Supply Ministry has removed four mn ineligible names from its subsidy smart card database following a review by the Military Production Ministry, sources told Al Mal. The omitted names include those of deceased people, others who immigrated, and duplicates, the source said. The database contains 21 mn cards serving around 70 mn people. The Supply Ministry had announced in March it would strike about 9 mn people from the list by April and has since increased the target to 15 mn cuts, the source added. As we had earlier reported, the government has tapped the Military Production Ministry with managing the smart card platform to increase overall efficiency and ensure data protection after news broke out of multiple infiltrations of the system.

The Egypt Teda Investment Company (TEDA) has signed two agreements worth a combined USD 410 mn for projects in the expansion of its special economic zone, according to a company statement picked up on by Al Masry Al Youm. The first agreement is with Dayun Motorcycle to build a USD 60 mn factory, the statement adds. The second agreement was signed with an Egyptian company called “Villard” to build an “international gold city.” TEDA is in negotiations with 10 other companies to build projects in the new expansion.

State-owned Vacsera has imported 3 mn doses of meningitis vaccines worth EGP 32 mn, Al Borsa reports. The company is planning on importing another 2 mn doses to supply them to the Education Ministry to vaccinate school-age children.

Private real estate developer PACT signed an agreement with contractor Asas, a subsidiary of Multiples Group, to develop the first phase of White Bay in Sidi Heneish, North Coast, said Omar El Shenety, managing director of Multiples, Al Borsa reported on Wednesday. Under the contract, Asas will finance the first phase as well as part of the second phase, worth EGP 325 mn. White Bay, an EGP 1.7 bn development, spans across an area of 60 feddan.

Egypt is targeting Chinese tourists as an attempt to restore tourist inflows, Tourism Minister Yehia Rashed told Xinhua. “We have turned our eyes on China, a country with a large population and ancient culture, similar to Egypt … we have broad prospects in the Chinese market," South Sinai governor Khaled Fouda said.

International car manufacturers will not be enticed to build production or assembly plants in Egypt’s economic zones, honorary chairman of the Automotive Marketing Information Council Ashraf Masrouga told Al Mal. Egypt lacks trained labour and attractive investment incentives, he added. One sqm of land at the special economic zones cost EGP 650, he says, which is far too high. Also, Masrouga says Egypt does not possess an industrial database that allows international car manufacturers to deepen their industries by exporting to regional markets.

GB Auto released yesterday an update on the use of proceeds from its EGP 959 mn capital increase, concluded last year. The company said at the time it would use the proceeds to build a motorcycles and three-wheeler factory and a tire manufacturing plant. The first facility will have a capacity of 240k motorcycles and 120k tuktuks, giving the company new capacity to serve a market in which the import of already-assembled motorcycles is presently banned. The factory is set to start operations by 1Q2018, according to a statement to EGX on Wednesday. Management has meanwhile said it is re-evaluating the tires plant and reallocated some of the capital from the project to accumulate passenger car inventory, helping it post record market share gains in 2Q2016 when competitors had no stocks. The company disclosed its market share gains in its 2Q2016 earnings release (pdf), at which time it also said it had deployed “all of its available liquidity to ensure the company had sufficient inventory on hand to meet market demand.”

Naeem Holding has confirmed its completion of due diligence on its acquisition of AT Financial and AT Brokerage, the company said in a statement to EGX, Al Mal reported on Wednesday. It had first expressed interest in the acquisition in March, with Mubasher and Sigma Capital also signaling interest in the brokerage.

The importers and home appliances divisions of the Federation of Egyptian Chambers of Commerce are apparently incensed that the foreigners have been allowed entry into the importers registry in the recent amendments to the Importers Registry Act which the Ismail cabinet recently sent to the House of Representatives. The divisions are planning on holding an emergency meeting on 29 August to discuss these amendments. They feel that the move goes against the government’s policy to limit imports. The division is also not happy with the imposition of a minimum import requirement of EGP 5 mn for individuals and EGP 10 mn for companies, Al Mal reports.

The Aswan Governorate has approved a plan to build an EGP 400 mn animal farm and automated slaughterhouse in cooperation with the Misr El Kheir Foundation, Aswan Governor Magdy Hegazy told Al Masry Al Youm. The land for the for the project has yet to be allocated. The farm will have a capacity for 20k livestock and will produce meat and dairy, he added. The project is set to be built over three months over an area of 50-100 feddans once the land is allocated, Managing Director of Misr El Kheir Ahmed Saafan said.

The European Union will provide grants worth a total of EUR 45 mn to the Irrigation Ministry for the implementation of two water projects, according to Water and Utilities Sector Manager at the EU mission to Egypt Ayman Ayad, Al Mal reported on Wednesday.

Construction and logistics firm Westend Technology proposed a EGP 5 bn fish farming project at the Suez Canal Economic Zone to develop as part of a consortium of Finnish and Russian companies, said CEO Hisham Younis, Al Borsa reported on Wednesday. A residential area and a port are also planned to be built as part of the project. Younis also added that the firm, along with its Finnish partners, would be interested in handling the industrial development of the proposed Russian industrial park by the Suez Canal, which aims to attract Russian investment of c. USD 4.6 bn by 2035, according to the Russian Trade Ministry.

Marketing companies are not sure whether their sector will be subject to the value-added tax, Al Mal reports. They do not welcome the prospect, with the chairman of one agency calling applying the tax to the sector “an arbitrary decision,” as it would tax intellectual property in his view.

Egyptian naval forces have concluded a joint military drill with NATO’s SNMG 2 navy during a multiple-day visit, according to a military statement carried by Ahram Online. SNMG 2 is one of NATO’s two Standing Maritime Groups, a “multinational, integrated force made up of vessels from various allied countries…[providing NATO] with a continuous maritime capability for operations and other activities in peacetime and in periods of crisis and conflict.” Egypt will also take part in anti-terror drills with a division of the Russian Airborne Forces in October, Sputnik reports.

Locusts won’t swarm Egypt, but we’re prepared anyway, the Agriculture Ministry says. Agriculture Minister Essam Fayed said the minister has enough stocks of pesticides and trained personnel to handle locust swarms. However, Fayed noted that the event remains unlikely, Al Mal reported. Egypt is not a stranger to locusts, with one particularly bad instance taking place in 2004, which the AP described at the time as: “an echo of the biblical plagues … Clouds of the red insects, up to 2 1/2 inches long, flitted about over Cairo, while others hopped around on rooftops … the swarm was an offshoot of a serious locust infestation in West Africa that was blown by strong winds across the Sahara.”