The VAT horse trading begins

The House Planning and Budget Committee will vote on its recommended rate for the value-added tax today. The committee is also due to meet today with Finance Minister Amr El Garhy, setting up a week of horse trading ahead of a vote on the measure that could come as early as Sunday, 28 August.

More from the House: The long awaited report on the wheat corruption scandal will reportedly be submitted to the House Speaker today. We expect the report to directly blame Supply Minister Khalid Hanafy for the debacle, possibly prompting a vote of no confidence on the minister.

The Rio Olympics end today, with a program heavy on wrestling and rhythmic gymnastics. Heading into the final day, the United States tops the medal standings, followed by Great Britain, China, Russia and Germany. Egypt is in 74th place with three bronze medals. We’re just behind Norway, tied with Tunisia and one slot ahead of Israel. Tap here to view the full country standings; the infographic atop the page tells us that European countries have won the most medals (47%), followed by Asia (22%). Africa has taken home all of 5%.

Hedaya Malak, 23, won the bronze medal in the women’s Taekwondo 57 kg category, beating Raheleh Asemani of Belgium, Ahram Online reported on Friday. The reigning African champion in women’s Taekwondo, Malak is the second Egyptian woman to receive an Olympic medal at this year’s games.

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.

Eid Al-Adha starts sometime around Sunday, 11 September. With a bit of luck, you can tweak your meeting schedule so you can take a day or two off and bridge the whole week.

Michael Bolton is coming to Egypt in October. No, not the former diplomat tied to think tanks American Enterprise Institute and Gatestone. That’s John Bolton you’re thinking of. We mean Michael Bolton, the guy people’s moms listen to. We’d link to the song he did with Lonely Island, but it isn’t worth the angry emails.

House Budget Committee to set VAT rate today, most likely to reject 14%: The House Planning and Budget Committee looks likely to recommend a baseline rate for the value-added tax (VAT) below the 14% rate recommended by the Ismail government when it votes on the matter later today. Al Borsa notes that the majority of committee members voted for a 12% VAT in a straw poll last week; rates of 12.5% and 13% tied for second place, the committee’s deputy chair, Yasser Omar, said. Omar confidently tells Al Shorouk that the rate of 14% will be rejected, and a rate between 12% and 13% will be the likely choice. The committee will also recommend that 55 goods and services be declared VAT-exempt (up from 52 at the start of last week), while reducing taxes on others items including cooking oil, according to Omar. Meanwhile, the deputy chair of the House Economics Committee is reportedly lobbying for an 11% VAT rate.

Some banking and non-bank financial services may be subject to VAT, it seems, as the Ismail government wants to make as many as 24 additional categories of goods and services subject to VAT, Al Masry Al Youm, which claims to have a obtained leaked version of the updated list of items. Banking and financial services had been on the exemptions list, but some services could now be subject to VAT, as could legal and other professional services, newspapers, security services, restaurants outside the tourism sector, and “internet and computer services” (ADSL internet services had been VAT exempt). A full and detailed list of items subject to the VAT will be published when the legislation is voted on, said Deputy Finance Minister Amr El Monayer.

The Planning and Budget Committee is expected to meet with Finance Minister Amr El Garhy today where it will receive a detailed report on projected revenues from the VAT, which the House Budget Committee’s Omar says will ring in at c. EGP 24 bn in the current fiscal year, below the EGP 32 bn projected by the government. The meeting comes after El Garhy warned of dire consequences if the VAT vote was delayed. As we noted last week, a Finance Ministry source had put the voting date on the VAT at 28 August.

The government is planning on raising prices of Cairo Metro tickets and will raise the price of some fuel products before the first tranche of the IMF loan is received, a government source tells Al Shorouk, suggesting a 6-8 week timeline for the cuts. The source added that diesel prices won’t rise (directly contradicting another report in the same newspaper last week). LPG and butane will rise in price, as will natural gas for industry, the source says. The news comes as the head of the House Transportation Committee said over the weekend he accepts in principle raising the price of metro tickets, Al Mal reports.

As grandstanding goes, this doesn’t even get a passing grade: MP Amin Masoud convinced some friend at Al Shoroukto give him some ink to advance the notion that a draft law that “is being drafted” (never trust the passive voice, folks) will ban anyone making EGP 10k a month from benefiting from subsidies — and would raise prices 10% for anyone earning more than EGP 15k monthly. Setting aside questions on implementation, Masoud plans to ask House Speaker Ali Abdel Aal to “request a census on national income levels” when the House returns from its upcoming recess. (CAPMAS performs its census once every 10 years, and is already scheduled to conduct a census this year.) Don’t take the story seriously, but as a harbinger of the debate to come. It’s going to get messy, folks.

Moody’s Investors Service affirmed the Government of Egypt’s B3 rating with a stable outlook, according to a statement on Friday, citing the initial IMF agreement as credit positive. “The rating affirmation is based on Moody’s view that the B3 rating appropriately captures Egypt’s credit risk profile, which faces a number of deep structural challenges reflected in very weak government finances, a fragile external payments position, and continued security risks,” the statement reads. However, the stable rating reflects that “despite the somewhat slower-than-expected implementation of fiscal and economic reforms over the past 12-18 months, upward and downward pressures on the rating are balanced… While reform momentum has slowed somewhat since April last year, the government has recently introduced another round of electricity price hikes, which together with the civil service law will help to keep current spending in check. The expected introduction of value-added tax and measures to improve tax compliance will help increase government revenues and support a gradual reduction in the government’s large fiscal deficit to 10% of GDP by fiscal year 2019, according to Moody’s estimates.”

Egypt’s borrowing costs have fallen significantly since talks with the IMF were announced, Bloomberg reported. The government announced on Thursday that it had picked JPMorgan Chase, Citigroup, BNP Paribas, and Natixis to oversee the sale of USD 3-5 bn in in eurobonds in 2016, with the first issuance planned for October. Alan Cameron, a London-based economist covering frontier markets at Exotix Partners, expects Egypt to pay 6-7% to sell 10-year bonds, higher than the 5.875% paid on eurobonds issued in 2015, but lower than the highs the 2015 issuance was trading at in 1H2016. The Finance Ministry has tapped the law firm of Matouk Bassiouny to act as domestic legal consultant for the issuance, Al Borsa reported. Seven firms bid on the project, of which three technical bids were accepted including Helmy, Hamza & Partners, Matouk Bassiouny, and Zaki Hashem & Partners.

Meanwhile, it does look like we’re going to receive USD 2 bn from Saudi Arabia, but it’s not “new” money. A widely circulated Reuters story on Thursday claimed Egypt would be receiving a USD 2 bn deposit from Saudi Arabia. The funding had been agreed on in April during King Salman’s visit, but “had not been previously announced,” the newswire says. The deposit was widely discussed in May and June, and we noted earlier this month that the decline in reserves in July suggested that both the Saudi money and a similar Emirati deposit had not arrived. International Cooperation Minister Sahar Nasr told Reuters via text message that she’s uncertain whether the funds will count toward the USD 5-6 bn the IMF expects Egypt to collect before the USD 12 bn, three-year extended fund facility is made official: “This is old money. I don’t know if they count that.”

“In Egypt, IMF deal brings austerity few can afford” -Reuters: In a widely picked-up piece from yesterday, Reuters’ Lin Noueihed quotes a “smartly-dressed” civil servant in line for subsidized infant formula as saying: “Electricity is up, food is up. The only thing that doesn’t rise in Egypt is people’s pay yet all they talk about is cutting subsidies.” The pace of change in Egypt “is slow … and this is a reform program that calls for quick action and bravery, especially because some of the impact will be inflationary," Pharos Holding Chief Operating Officer Angus Blair. Egypt’s previous attempts to obtain an IMF loan were unsuccessful due to a lack of political will at the top to implement reforms, head of the IMF mission in Egypt Chris Jarvis said. Support from GCC allies “did more harm than good as it was not conditional on reform delivery, and actually removed the urgency to carry out critically-needed policy changes,” VTB Capital said in a note to clients. “Egypt now has a weaker macro / social starting point and requires deeper and, hence, more painful adjustment.”

Will the government agree to international arbitration clauses in FiT agreements? A source at the New and Renewable Energy Authority (NREA) tells Al Mal the government is considering allowing international arbitration in feed-in-tariff agreements for renewable energy projects following backlash from developers. The “restrictive” contract clauses in the feed-in tariff agreements (domestic arbitration and the requirement that companies seek 85% of their project’s financing from banks abroad) were placed based on advice from national security entities. So far, only two companies have submitted official requests to withdraw from FiT: Abdul Latif Jameel and Enel Green, the source added. (We note that at least six players have said they’re pulling out of phase one: Cairo Solar, ACWA Power, OTMT, SunEdison-Orascom Construction, Scatec Solar, and Engie.) NREA is planning to keep the price of wind power unchanged from phase one at EGP 0.83 per kWh but change that from solar power to EGP 1.02 per kWh.

Amendments to the Capital Markets Law that “aim to protect minority rights” through limitations on market shares of brokerage houses that share a corporate parent will be sent to cabinet this week for approval before being tabled in the House, said Investment Minister Dalia Khorshid, according to Al Ahram. The changes will force will force the regulator to take market share into consideration when reviewing mergers and acquisitions and in reviewing transactions that would result in changes in shareholder structure. The amendments had received preliminary approval of the cabinet and had been sent to the Egyptian Council of State (Maglis El Dowla) for review back in May.

Other amendments to the Capital Markets Law include regulations governing the types of contracts on the upcoming futures market and risk management of futures contracts. Further amendments will regulate sukuks, Khorshid said without providing specifics. The Capital Markets Law will also be amended to ensure the independence of the Egyptian Financial Supervisory Authority (EFSA). Khorshid and EFSA chief Sherif Samy discussed the changes yesterday.

According to an emailed statement, Health insurance will be regulated under the Insurance Supervision Act under proposed changes. Other changes being pushed by EFSA center on takaful insurance and insurance for SMEs, said Samy. Changes will also set corporate governance requirements for the insurance industry and outline new requirements for professionals working in the sector, Samy added. The legislation would officially wind-down the Egyptian Insurance Supervisory Authority, making EFSA as the sole entity charged with regulating the industry. EFSA also plans to introduce clauses on insurance related-disputes in the Economic Courts Act.

Upcoming financial markets regulations also include the executive regulations of the Movable Assets Act, which Samy had initially promised would come in June. The legislation will help provide SMEs with access to funding by allowing them to collateralize assets such as equipment, inventory and crops. The regulations will establish a database for these assets, said Khorshid, who did not elaborate further.

On a related note, Samy plans to put changes to the Insurance Supervision Act and the upcoming Leasing and Factoring Act to a “national dialogue” in November, the chief financial regulator tells Al Mal. This will likely mean that Parliament will be consulted on these changes ahead of a vote, which we can safely assume will not come before November.

Just when you thought it couldn’t get worse for Hanafy: MPs who have been gunning to oust embattled Supply Minister Khalid Hanafy over the wheat corruption scandal are now accusing him of misusing public funds. These MPs led by none other than Moustafa Bakry, have accused Hanafy of costing the ministry EGP 7 mn for an extended stay at the Semiramis Intercontinental, Ahram Online reports. Both the Supply Ministry and Hanafy denied the accusation, with the latter adding that the matter was a private affair and “only my family can judge me on it,” Al Shorouk reports.

This comes as the long-awaited report on the wheat corruption scandal is expected to be handed to the House Speaker today after numerous delays. Deliberations on the report are expected to begin on today or tomorrow. Hanafy had been accused of directly contributing to the squandering of EGP 14 bn by members of the House of Representatives committee investigating allegations of fraud in this winter’s wheat harvest, which drafted the report. Other members have put the figures at a more conservative estimate of EGP 600 mn. Bakri said, "The corruption exposed by the fact-finding committee and Hanafi’s shady practices should put the government before two choices: either Hanafi chooses to resign from office by his own free will, or parliament withdraws confidence from him."

Meanwhile, the House is maneuvering to take an oversight role on wheat imports, having formed a committee that will work with the Agriculture and Supply Ministry to “ensure that limits on ergot contamination are enforced,” Al Mal reports. The new committee will be led by MP Hisham El Shoeiny. So much for separation of the branches of government…

BPE Partners and Sigma Capital have submitted a bid to acquire Arabiyya Istithmaraat (Arabian Investments)’s 80% stake in UE Lease, according to an EGX statement. BPE and Sigma have submitted a preliminary offer of EGP 36 mn for the stake, pricing it at EGP 225 per share. The offer, which will be looked into by the board of directors, is valid for 15 days, the statement noted.

There are no plans to list or privatise EgyptAir Holding as part of the Ismail government’s economic reform plans, CEO Safwat Mossallam says. There has been speculation in the press of late regarding EgyptAir’s future given the company’s accumulated losses since 2011.

Did Eni get itself involved in the Regeni case? Apparently Eni had been using its clout to get the government to reach a settlement with the Italian authorities on the Regeni case, an energy industry insider tell Al Shorouk. Eni had reportedly reached out to Egyptian energy executives to lobby the government on a settlement to mitigate pressure the company is facing from Italian lawmakers over its involvement with Egypt and the Regeni affair, the source added. Back channel mediation on the Regeni case have apparently failed as a result of mounting public pressure on the Italian government, a source from the Italian cabinet tells Al Shorouk. Another Italian source confirmed to the newspaper that Rome had asked Cairo to presenting the credentials of Egypt’s next ambassador to Italy until a resolution had been reached.

The CBE has shutdown 53 FX bureaus since the beginning of the year for “manipulating FX rates and other violations,” CBE Deputy Governor Gamal Negm told Al Borsa. Some 26 companies have been permanently shut down, while 27 others will be shut down with three months to a year, he added. The House of Representatives had earlier approved a draft law to enforce stricter punishment for parallel market USD trades.

“Emerging markets back in vogue” –FT. Writes the salmon-colored newspaper: “Investment into emerging market equity funds hit a 58-week high [last] week as investors searched for positive returns, with borrowing costs in developing economies falling to three-year lows and currencies rebounding to a year high.

Reuters’ piece “In Egypt, IMF Deal Brings Austerity Few Can Afford” is getting wide pickup, including nods in Fortune magazine and the New York Times, easily making it the most widely-circulated business story on Egypt this morning. FastFT, meanwhile, notes that JPMorgan, Citi, BNP Paribas and Natixis have been tapped to run Egypt’s upcoming issuance of up to USD 5 bn in bonds, with no bonds likely to hit the street “until Egypt finalises an agreement with the International Monetary Fund for a USD 12 bn loan.

News that eight female state television anchors had been dismissed for being overweight continued to make headlines over the weekend, while a 13-year-old Egyptian illegal migrant who traveled to Italy to seek medical treatment for his brother is making global headlines after Euronews picked up the story.

Elsewhere, Alaa El Aswany’s “The Automobile Club of Egypt” gets notice in the New York Times’ “Paperback Row” as one of seven notable novels to debut in paperback this week: “The author, one of the Middle East’s most popular, offers keen insight into midcentury Egypt’s colonial tensions.”

Egypt is a strong country with lots of potential, Masood Ahmed, who is retiring in October as the IMF’s Director of the Middle East and Central Asia Department, told Asharq Al Awsat in an interview. Egypt has to face urgent problems including anaemic growth rates, a large budget deficit, a weaker external position, and high unemployment, he says. The IMF welcomes Egypt’s economic reform programme, which aims to tackle economic imbalances and put Egypt on a path of economic growth. The economic programme will tackle the country’s FX challenges, channel spending towards improving the infrastructure network, and support working women, he added. Ahmed also talked about the IMF engagements regionally.

Harsher penalties, including longer prison sentences, are unlikely to reduce FGM in Egypt, Amel Fahmy, managing director of Tadwein Gender Research Center, writes for Opendemocracy.

El Watan columnist and TV presenter Emad El Din Adib says extremists from Afghanistan, Iraq, and Egypt are trying to resurrect the caliphate to counter the modern-day civil state. The moderate Arab Muslim world is put “between a hammer and an anvil,” said Adib, with Daesh on one side, and Iran, Turkey, and Israel on the other. Cutting-edge insights, surely.

Also writing in El Watan, Khaled Montasser looks at how the law on contempt of religion has been used to silence intellectuals, complaining that the House of Representatives has failed to address the issue.

The US federal government’s abandoned contingency plan to round up Muslims in America: Politico’s Ben Wofford details a plan that the Immigration and Naturalization Service’s Alien Border Control Committee were tasked with developing to achieve a rapid, mass deportation of non-immigrant Muslims residing in the United States. At the time the proposal was floated in 1987, the plan would have seen 230k Muslims from eight nationalities — Libya, Iran, Syria, Lebanon, Tunisia, Algeria, Jordan and Morocco — transported to a 100-acre outdoor facility in rural Louisiana, to be housed in tents before their deportation. (The functions of the now-defunct INS were assumed by the Department of Homeland Security, among other agencies) (Read The forgotten government plan to round up Muslims)

What Hafþór Júlíus Björnsson, The Mountain on Game of Thrones, looked like when he was a basketball player 10 years ago. (View image, versus what he looks like today)

The government is in talks with USAID on a funding package worth USD 150 mn, Al Borsa reports. The programs will target underdeveloped governorates, a government source said, without elaborating further. The source did not give a timeline for the proposed funding.

Joint Indian-Egyptian projects worth a reported USD 100 mn are expected to be signed during a conference in New Delhi by the Egyptian-Indian Business Council between 31 August and 5 September, according to the council’s Chairman Khaled Abu Al Makarem, Al-Ahram reported on Wednesday. He added that an unnamed Indian company, specialising in plastics, will announce an EGP 380 mn investment in Egypt.

Nasr, IFC MENA director meet: International Cooperation Minister Sahar Nasr and International Finance Corporation MENA director Mouayed Makhlouf discussed support for SMEs and the challenges currently facing the private sector, according to an emailed statement.

The NREA will finish studying offers presented by General Electric to build 2,000 MW in wind farm projects in addition to a wind turbine factory, by September, NREA chief Mohamed El Sobky told Al Mal. The projects are expected to be completed over eight years, with the Egyptian Electricity Transmission Company also studying the proposals as they include multiple transformer stations, he added.

Siemens has completed feasibility studies on the performance of the national grid, where it reportedly pinpointed weaknesses in the grid, Electricity Minister Mohamed Shaker said, according to Al Shorouk. The study is part of the EGP 18 bn upgrade of the national grid.

The China State Construction Engineering Corporation (CSCEC) has signed a letter of intent to build the New Administrative Capital’s government block, Al Mal reported. The letter of intent allows CSCEC to begin construction on 18 government ministries “within days,” Managing Director of the Administrative Capital for Urban Development Mohamed Abdel Latif said. We had previously reported that CSCEC was set to sign a USD 3 bn agreement to build the government block before the end of the year.

The Supply Ministry has contracted with Ayadi, an affiliate of the National Investment Bank managed by NI Capital, to develop and upgrade the Food Industries Holding Company (FIHC) subsidiaries, Supply Minister Khaled Hanafy told Al Mal. As we had reported earlier, FIHC is one of the public sector companies the government is planning to IPO.

The General Authority for Supply Commodities (GASC) has reportedly issued a tender for 10k tonnes of sunflower oil and 15k tonnes of soybean oil for 15-30 October delivery. The tender closes on August 23.

The Construction and Design Company (Constec) is working on projects with SODIC and Porto Group worth EGP 200 mn in total, CEO Talaat Fawzy told Amwal al Ghad. Constec’s assignments include building 59 houses for SODIC that will be delivered in early 2018 and another 40 houses in the company’s Caesar project. Fawzy said the company is also constructing a number of houses for Porto Group, but did not specify a number or delivery date.

Real estate firm Al Bostany is set to launch its EGP 750 mn Ain Sokhna resort by the end of the year, Chairman Mohamed Al Bostany said, Al Borsa reported on Thursday. The project will span over an area of 60,000 sqm, and will include 500 to 600 homes. Al Bostany will also launch a new medical services complex in 2018, made up of 50 specialised clinics, pharmacies and laboratories, among others.

Tourism inflows from Italy declined by 70% y-o-y during the first seven months of 2016, according to Al Borsa.

The House of Representatives Information and Communication Technology Committee will meet with representatives from mobile network operators (MNOs) and officials from the NTRA to discuss 4G mobile broadband network licences, Al Borsa reported. As we had reported earlier, the NTRA has agreed to compromise on granting MNOs additional spectrum, but refused to budge on pricing or the requirement that 50% of the license fee be paid in USD. The NTRA set 22 September as the deadline for MNOs to accept contract terms.

US-based network hardware and software company Arista Networks is studying expansion to Egypt and has held talks with CIT Minister Yasser Al Qady on potential investment in data centers, according to a company official, Al Shorouk reported on Saturday.

The Coptic Orthodox Church and the Evangelical Church each issued statements on Thursday criticizing the draft law on church construction, following their meeting on Wednesday with state representatives, Ahram Online reported. “The Church was surprised to find unacceptable amendments,” the statement from the Coptic Orthodox Church read, without specifying the content of said amendments. The statement went on to describe such amendments as “impractical,” featuring complexities and obstacles that pose a danger to national unity. Legal and parliamentary affairs minister Magdy El Agati confirmed such objections and remarks were made and that they are under consideration, but rejected the charge that the amendments in question posed a risk to national unity.

A military court on Thursday sentenced 400 supporters of the Muslim Brotherhood to prison in jail terms of up to 25 years for their alleged involvement in violent acts in Minya following the ouster of Mohamed Morsi in 2013, Ahram Online reported. Of those convicted, 249 were handed life sentences in absentia for storming a police station in Minya, while another 101 were also sentenced in absentia to life in prison over the storming and burning of a government telecommunications building in the same city. On Wednesday, President Abdel Fattah El Sisi extended for five years a provision allowing for the trial of civilians in military court for charges of attacking state facilities or blocking roads.

North Sinai-based Daesh affiliate Wilayat Sina confirmed the death of its top commander at the hands of the Egyptian military two weeks ago, according to a statement released by the militant group on Thursday, Ahram Online reported. The group said it had appointed an individual named Sheikh Abdullah to take the place of slain Abu Doaa Al Ansari. Also on Thursday, two conscripts from the Egyptian armed forces were killed by snipers while manning a security checkpoint in Arish, Ahram Online reported, citing Al Ahram.

Defence Minister Sedki Sobhy and Military Chief of Staff Mahmoud Hegazy met with a US Central Command (CENTCOM) commander Joseph Votel, Al Mal reports. The generals discussed regional affairs and counter-terrorism efforts. No further details were provided.

Dutch coach Martin Jol quit Al Ahly after six months into his term over threats made against him by fans for the club’s failure to reach the semi-finals of the African Champions League, BBC News reported on Friday. Al Ahly drew 2-2 with Zambia’s Zesco United, ending the club’s chances. Following receiving threats over social media, Jol decided to leave, with a statement issued by Ahly noting that Jol had said it was for personal reasons.

A Cypriot court refused to hear testimony from a Cambridge University professor in the case of the “lovejacker” Seif Eddin Mustafa, The AP reported. The professor’s testimony, which would’ve said Mustafa’s extradition would put him at risk of torture or death, was inadmissible as the court deemed his experience not “specific to Egypt’s current domestic situation and his academic research pertained to regional foreign relations in general.” The judge adjourned proceedings until next month.

Deputy Finance Minister Mohamed Moeit has denied that the government is buying four private jets from France’s Dassault Aviation, AMAY reported on Thursday. French newspaper La Tribune had reported that the government was paying EUR 300 mn for four Falcon 7X private jets. The aircraft manufacturer had also issued a denial of the report.

It’s been a busy week for US politics, with two prominent figures thrown under the bus by both presidential campaigns: Trump dumping Paul Manafort and Hillary Clinton blaming the idea of private email use on former Secretary of State Colin Powell. Only hours after we noted on Friday in our weekend edition that questions regarding Manafort’s past political consulting for the former Ukrainian president Viktor Yanukovych were casting a black cloud over the Trump campaign, Manafort’s resignation was announced in a short statement. Trump’s new campaign manager, Kellyanne Conway, confirmed that Manafort had been asked to step down.

Meanwhile, Democratic presidential candidate Hillary Clinton told the FBI in early July that former Secretary of State Colin Powell had advised her to use a personal email account for non-classified work-related matters during her tenure as Secretary of State, according to documents handed over by the FBI to the US Congress on Tuesday, the NYT reports. Clinton reportedly testified that Powell had offered her the advice in a dinner attended by a number of former secretaries of state, including Madeleine Albright and Condoleeza Rice.