PMI is down 11th straight month + US burger chain eyes Cairo

Decision today on international arbitration in FiT program phase II? Electricity Minister Mohamed Shaker is expected to announce at a press conference today whether international arbitration would be allowed in phase two of the feed-in tariff (FiT) program, Al Mal reports. He is also expected to announce the cabinet-approved FiT rates for the second phase, which sources claim will be in the range of USD 0.08-09 per kWh for 20-50 MW projects against USD 0.14 per kWh in the first phase. Cabinet also apparently approved last week raising the FiT rate for every 200 KW of power generated from roof-installed solar panels to EGP 1 per kWh from EGP 0.82.

Today is the final session of the House of Representatives before its summer recess begins, Ahram Gate reported. The House is set to vote today on the Civil Service Act (after failing to reach quorum the last time the bill was put up for a final vote) and to discuss a report by the Legislative and Constitutional Affairs Committee on the agreement between Egypt and Bahrain to avoid tax evasion and double taxation.

Finance Minister Amr El Garhy will speak this week at the 6th EFG Hermes London MENA and Frontier Conference, where he is expected to discuss Egypt’s economic reform agenda, according to a statement from the investment bank yesterday. El Garhy will speak about “(a) restoring macroeconomic stability through well-crafted and coordinated fiscal and monetary policies; (b) implementing structural reforms in the area of streamlining the business environment, enhancing export activities, and supporting the industrial sectors; and (C) adopting ambitious well-targeted social programmes that provides adequate support to the vulnerable and the poor.” Execs from 92 companies will meet with investors from some 155 institutions through Thursday.

Trading in Misr Fertilizers Production Company (MOPCO) shares begins on the EGX tomorrow. The EGX says this will be the first time in over 10 years a public sector company’s shares are traded on the bourse. Bourse chairman Mohamed Omran MOPCO the listing will “improve MOPCO’s access to financing without burdening the state treasury” and help “improve its corporate governance.” The disclosures sent from the company can be found here. MOPCO will trade using the ticker symbol MFPC.CA.

Apple’s fall launch event will take place tomorrow night at c. 8pm CLT. You can livestream the event here when the time comes. The latest on what to expect of the iPhone 7 is here. The Wall Street Journal is of two minds on this, with one piece published late yesterday discussing “How Apple Can Make the Next iPhone Count,” while a piece from early today noting that “Apple’s New iPhones Arrive, as Glow Fades.”

Oh, and next week is (for the most part) a national holiday. The waqfa falls on Sunday, 11 September and the Eid Al-Adha vacation should run through at least Tuesday, probably Wednesday for most. We expect banks to reopen no later than Thursday. Enterprise is off next week. We’ll be back to our usual publication schedule on Sunday, 18 September.

Where is the floor? Business activity in Egypt contracted for the eleventh month straight in August, recording 47.0 from 48.9 in July, according to the Emirates NBD Egypt’s PMI, compiled by IHS Markit. The contraction “gathered pace” with sharp falls in output and new orders and survey-record pace in job losses. Purchase prices also increased to their highest levels in the series’ history, constricting the supply of raw materials and affecting liquidity. Both input buying and pre-production inventory also decreased at fast rate. “The August PMI figures underscore the urgency to initiate a wide-ranging economic reform program. Most importantly, the survey data highlights the ongoing need to move to a more flexible exchange rate system in order to achieve a market-clearing rate for the EGP,” Jean-Paul Pigat, senior economist at Emirates NBD, commented.

Health ministry joins party, bans wheat with any trace of ergot: Reuters’ Maha El Dahan and Eric Knecht, who have owned the wheat story in Egypt for the last year, note yesterday that the Health Ministry’s decision to join the party and ban wheat with even a trace of the fungus makes “zero ergot Egypt’s new normal.” The two report having seen a Health Ministry decree that sides with the Agriculture Ministry in banning even wheat shipments that meet UN FAO limits on ergo, noting that it will give the General Authority for Supply Commodities, the state’s wheat buyer and previously one of the most sophisticated outfits of its kind globally, absolutely zero room to maneuver. Reuters also has a nice timeline on the ergot flap if you need to get up to speed on events since December 2015. Ergot in very large doses may make you hallucinate, but apparently the mere idea of it is enough to drive policymakers to madness.

Egypt’s budget deficit stood at 11.2% of GDP for the first 11 months of FY2015-16, Reuters reported. An earlier version of the piece quoted a Planning Ministry report (73-pp pdf, in Arabic) as saying that the deficit for the first nine months was at 9% of GDP, a percentage unchanged from the similar period in FY2014-15.

Among the main takeaways of the report is the projection that in order for the government to meet its targeted 4.4% annual growth rate, GDP has to grow by an annualised 5% in 4Q2015-16 — which is unlikely given the evidence from the quarter’s PMI reports. The World Bank is only projecting an annual growth rate of 3.3% in FY2015-16, which the Planning Ministry says fails to take into consideration the growth in indirect taxes and the decrease in subsidies.

In the first nine months of FY2015-16, Egypt’s fastest-growing sectors were construction and real estate, ICT, and government spending. Conversely, extractive industries (oil and gas, mostly) and tourism contracted the most. Most investments were directed towards the Suez Canal, followed by construction and real estate and ICT — with a marked investment contraction seen in extractive industries. For comparison, investment in construction and real estate grew by 11.1% y-o-y in 9MFY2015-16, whereas investment in extractive industries dropped by 19.8% y-o-y in the similar period, driven by an 11.2% y-o-y decline in investment in natural gas extraction.

Implementing the value-added tax (VAT) is “credit positive” for Egypt, Moody’s says. VAT “forms an integral part of the government’s reform program over the coming three years and together with reforms to tax administration, will gradually increase Egypt’s low tax receipts and support its fiscal consolidation efforts.” Moody’s added that the VAT will likely “exacerbate an already high inflation,” but believes “VAT is an important step to increase Egypt’s tax revenues.” The additional revenues will come from the 3ppt differential between the VAT rate of 13% (in year one, rising to 14% in year two) and the current 10% GST as well as from “wider participation from Egypt’s large non-tax-paying informal sector and stiffened penalties against tax evasion.”

Did the Cabinet Information and Decision Support Center cast doubt on Mamish’s Suez Canal revenue figures? The Suez Canal’s USD-denominated revenues fell 1.9% year-on-year to USD 2.9 bn in the period from January to July, according to Al Mal, citing data from IDSC. The results come on the back of a 2.5% decline in traffic across the canal as a result of shrinking global trade. The figures contradict those presented by Mohab Mamish, head of the Suez Canal Authority, who announced last month that USD-denominated revenues from the Suez Canal grew 4% in the same seven month period to USD 3.2 bn. While Mamish had said that his data was verified by the CBE, the Suez Canal Authority had not presented its monthly accounts on revenues since March and had refrained from providing USD-denominated revenues from February onwards.

Abou Hashima’s Egyptian Media’s IPO is expected to be in the EGP 1 bn range and could close as early as 1Q18, said Omar El Maghawry, CEO of FEP Capital, which is advising on the transaction. El Maghawry’s remarks came at a press conference held yesterday, Reuters’ Arabic service reports. Egyptian Media will list in 2017 and plans a stock split ahead of its IPO that will see is par value fall to EGP 1 from EGP 100 today. The company will also increase its capital next year to EGP 1 bn from EGP 882 mn ahead of the offering.

Blumberg appears to have competition for phase two of shounas program: Russia’s Elevatorprodmashstroy consortium, led by Melinvest, will bid on phase two of the shounas development program, which would see the development of 300 state-of-the-art shounas, a representative of the group identified as Magdy Shehata told Al Shorouk on Monday. The consortium is currently preparing a bid, said Shehata, who added that the project will be funded by “Russian financiers” with favorable conditions. Shehata had stated last month that the consortium was bidding on other grain-storage projects. Blumberg Grain had announced in mid-August that it hoped to finalize an agreement with the government for phase two after the high-profile success of phase one. Then-Supply Minister Khaled Hanafy said at the time that there were other offers on the table from Emirati, American and Italian companies.

Meanwhile, Arab Contractors are set to complete work om an EGP 2 bn wheat silos project by December, Chairman Mohsen Salah told Amwal Al Ghad. The company was tasked with building 15 wheat silos in seven governorates nationwide, he added. One EGP 70 mn silo has already been completed and delivered in Port Said, he said. Salah had previously announced that the project will be concluded in June.

Orascom Construction approves share buyback program: Orascom Construction’s board approved the buyback of up to 1mn shares owned by shareholders who hold their shares on the EGX, the company said in a statement. The purchase price has yet to be announced, and the buyback program “is subject to shareholder and regulatory approval in the UAE and Egypt,” the company said. OC cancelled in June some 280k shares representing 0.24% of total issued shares circulating at the time.

Egypt’s entrepreneurs are on the right track, Sawari Ventures’ Wael Amin told Wamda’s Eman Mostafa. He explains that “Egypt is going through what can be called an economic transitional phase where the economy moves from the classical era to the knowledge era and is waiting for the investment trend of the private sector to move from real estate to tech innovation projects.” Amin says investments in Egypt are becoming more diverse, but ideas and inventions are ten times larger than the available investments and banks do not finance startups. There needs to be a regulatory overhaul, he adds, pointing to “regulations for starting a business, bankruptcy and the ease of moving capital.” Amin says Egyptian entrepreneurs need better university education and should have a fairer evaluation when building a business. Amin points to some sectors that are still innovation-free domestically: artificial intelligence, virtual reality, fintech, big data, and self-driving vehicles.

E-commerce platform Jumia will invest USD 160 mn in Egypt in the next 3-5 years, the company’s chief in Egypt Hesham Safwat said at a press conference on Monday, according to Amwal Al Ghad. The company is targeting aggregate investments worth USD 450 mn in all of its 24 countries of operations during the upcoming five years, he added, 35% of which will be invested in Egypt. Jumia aims to launch three subsidiaries, one in the tourism sector (dubbed Jumia Travel), another in the car rental and automotive sales sector, while the third will be in the online recruitment sector. Jumia will also sign an agreement with Egypt Post in 4Q2016 to expand delivery of merchandise, Al Mal reports. Africa Internet Group (AIG), Jumia’s parent company, has raised equity from Orange, AXA General Insurance, Goldman Sachs and CDC Group, said Safwat. AIG closed its most recent fundraising round in March 2016, raising EUR 225 mn in what the Financial Times described at the time as “one of the biggest fundraising rounds yet seen for any Africa-focused technology company.”

Hey, I know what Cairo needs: Another hamburger joint. US burger chain Elevation Burgers, which bills itself as selling halal, organic, grass-fed product, appears to have found an Egyptian franchisee willing to open as many as 20 locations in Egypt, according to a report in the US press. The first restaurant is set to open in Cairo later this year. The chain already has 23 locations in the region, with a presence in the UAE, KSA, Kuwait, Qatar and Bahrain. Maybe this franchisee can work on keep quality consistent for more than few months rather than following the standard industry pattern of open to raves and then lose interest (or sell) and start delivering burgers that can’t even be said to aspire to mediocrity. (And hey, Danny Meyer: Where’s that Shake Shack you promised us?)

Credit Agricole Egypt has stopped the use of its pre-paid cards outside Egypt and will not allow them to be used for internet purchases as of 1 September, Al Mal reported, citing a company statement. The pre-paid card originally had a USD 100 spending limit abroad.

The EGP strengthened slightly on the parallel market yesterday, with greenbacks trading at EGP 12.75 per USD 1, Al Mal reports, from strengthening from EGP 12.80 on Sunday. Traders speaking to the newspaper claim the strengthening was the result of remittances into the local market by Egyptians living abroad, which they characterised as “typical” before Eid.

Civil Aviation Ministry appoints Mohamed Saeed Mahrous as Chairman of EHCAAN

MOVES- The Civil Aviation Ministry has appointed Mohamed Saeed Mahrous as the acting Chairman of the Egyptian Holding Company for Airports and Air Navigation, Al Mal reported. Mahrous, who was previously the Chairman of Cairo International Airport Company, succeeds Ismail Abou El Ezz.

Assets under management in the Middle East fell 10% in 2015, CPI Financial reported, citing Boston Consulting Group’s Global Asset Management 2016 report (download the full report in pdf). Net new flows of assets, revenue growth and margins all dipped lower in 2015 as well. “The lack of overall growth was due largely to the generally negative and turbulent performance of global financial markets, which failed to buoy the value of invested assets as in prior years. Net new asset flows remained tepid. At the same time, the rising value of the [USD] reduced values of non-US assets in [USD] terms. In addition, institutional managers have divested assets to outbalance government deficits.” The report says asset managers will be required to shift from “outdated product strategies” and develop disruptive investment capabilities. “Weak and turbulent global financial markets are today’s reality—one recent example being the market response to Britain’s ‘Brexit’ vote to leave the EU,” says Ihab Khalil, a Partner and Managing Director at BCG Middle East. “Asset managers that depend on financial-market performance to drive increases in asset values are stuck in a model from the past. And while it is true that clients focus on returns, they also expect more.”

President Abdel Fattah El Sisi met with a number of world leaders on the sidelines of the 2016 G20 Hangzhou summit, according to statements from Ittihadiya. During his meeting with Saudi Deputy Crown Prince Mohammed bin Salman, El Sisi stressed the need to accomplish the goals set during King Salman’s visit to Cairo in April. El Sisi also met with Australian Prime Minister Malcolm Turnbull, who he invited to visit Egypt, Al Mal reported. Turnbull, in return, invited El Sisi to Australia and expressed willingness to provide Egypt with technical assistance in the fields of water resource management and land reclamation. El Sisi also met with German Chancellor Angela Merkel, French President Francois Hollande, and Russian President Vladimir Putin. Putin and El Sisi reportedly agreed that the Russian delegation that was originally expected to visit Egypt at the end of last month to inspect airport security will instead arrive in Egypt “in the coming days,” Ahram Online reported, citing state news agency MENA.

El Sisi also said yesterday that Egypt hosts an estimated 5 mn refugees and migrants and called on G20 nations to do more to address the root causes of refugee flows.

It’s a relatively quiet morning on the global macro front, with two stories of note. First, Saudi Deputy Crown Prince Mohamed bin Salman sat down for a meeting with Russian President Vladimir Putin and walked away with a vague agreement the two would “cooperate to stabilize [oil] global markets,” Bloomberg reports.

Elsewhere, the Financial Times emerging market corporations are issuing less debt, with EMs set to pay off more debt this year than they borrow. (Egypt essentially has no corporate debt market outside of Sarwa capital’s securitized offerings, so it’s not like we’re piling onto or bucking a trend.)

Driving the conversation about Egypt in the international press this morning is that blasted statue from yesterday, with the story being picked up by everyone from the BBC to the Jerusalem Post. On an otherwise slow news morning, you can expect pickup today of the AP’s brief note that “Egypt built a dozen prisons since 2013 ouster of Islamist,” citing a report by Gamal Eid’s Arabic Network for Human Rights Information.

Meanwhile, some genius at the Wall Street Journal thinks Egyptian troops have a role to play in a “Balkan” solution to the war in Syria, writing: “As for the rest of Syria, pacification would require a limited but decisive NATO intervention to rout ISIS from its strongholds, equip and aid the Free Syrian Army so that it can lift the siege of Aleppo and march on Damascus, and enjoin Saudi Arabia, Egypt and the United Arab Emirates to deploy a long-term Arab stabilization force.”

Also making the rounds this morning:

• France is apparently warning that Daesh terrorists could “flee Libya” to Egypt, Defence Minister Jean-Yves Le Drian said yesterday;
• Russia’s defence minister said nice things about us after a meeting with Defence Minister Sedki Sobhi, Pravda reports;
• Egypt has formed a committee that will register Jewish artifacts from synagogues to protect them from theft and neglect; Al-Monitor says the decaying state of Jewish heritage sites says more about archaeology in Egypt than it does Egypt’s view on Jewish heritage specifically.

Al Ahram columnist Farouk Goweda says the Ismail cabinet should not have issued a statement thanking the former Supply Minister in light of an ongoing corruption investigation. The supply sector has very deeply rooted corruption issues, he adds, “with questionable relationships between officials and traders.”

El Watan’s Mahmoud Khalil is pushing the line that inflation and recent spikes in the price of key commodities is a result of deep rooted monopolies, which the domestic media usually refers to as “the [insert your commodity here] Mafia.” The so-called monopolies have been used by the government to justify contracting-out manufacturing and distribution of key goods such as infant formula and steel to the armed forces.

“A small, wealthy Scandinavian democracy of 5.6 mn people, it [Denmark] is according to most measures one of the most open and egalitarian countries in the world… When it comes to refugees, however, Denmark has long led the continent in its shift to the right—and in its growing domestic consensus that large-scale Muslim immigration is incompatible with European social democracy.” (Read Liberal, Harsh Denmark, New York Review of Books)

A visual exploration of St Catherine’s Monastery in Sinai, sans dialogue and narration, from 2009. (Watch, running time: 4:35)

International Cooperation Minister Sahar Nasr is lobbying World Bank officials to approve signing off on the USD 500 mn loan signed with IBRD to finance the Upper Egypt development program, Al Ahram reports. The World Bank’s board is scheduled to discuss the loan on 16 September, and an Egyptian delegation will attend its annual meetings later this fall.

US-based Recovered Energy Group have presented the Electricity with a proposal to invest USD 30 mn on refurbishing and improving the efficiency of the Sixth of October power plant, the company’s VP for the Middle East Tarek Ghorab told Al Borsa. The company says it has lined up financing from three international banks for the project, Ghorab added. Recovered Energy is proposing to sell the produced energy for 12 years to the government, while the Electricity Ministry bears no cost for the upgrade.

The eastern Mediterranean will attract great interest from international oil and natural gas companies over the next decade and Egypt is trying to position itself as the region’s energy hub, according to analysis by Stratfor (paywall). Egypt needs to first get its own house “in order,” the piece cautions, and it is unlikely to become the major natural gas exporter that it once was.” Instead, “most of the natural gas Egypt exports in the future will have to come from the stocks it buys from beyond its borders. And for two of its neighbors, Cyprus and Israel, making use of Egypt’s existing LNG facilities is a far better option than sinking the capital required to build new ones.”

Three companies have offered to import LNG for Egypt on favourable payment plans, an EGAS source told Al Shorouk, including PetroChina and unnamed Russian and Omani state-owned companies. “All three companies offered repayment plans of up to 120 days as opposed to 90 days previously,” the source added. Egypt’s Petroleum Ministry had previously signed MoUs with Russia, France, China, Algeria, and Oman to supply its petroleum and LNG import needs.

Siemens will carry out trial runs on its combined cycle power plants in the new capital on 17 September and in Beni Suef on 25 September, a source from the Electricity Ministry told Al Borsa. As we previously reported, the power plants will begin producing electricity by December.

The Agriculture Export Council is warning that the Supply Ministry’s rice collection guidelines leave it vulnerable for another corruption scandal akin to what went down with this year’s wheat harvest, AMAY reports. The ministry had not built up either the storage capacity or the oversight capability to collect 2 mn tonnes of rice in the 50 days it has set for the harvest, said the head of the council’s rice committee Moustafa El Naggary.

Processed food manufacturer Summer Moon will launch two canned fish production lines with an annual production capacity of 8 mn tonnes, Al Borsa reports. The move is part of the company’s plan to double exports to 20 mn tonnes in the coming period.

The Health Ministry has signed an agreement with an actuarial consulting firm to run an assessment of the Universal Health Insurance Act in conjunction with the Finance Ministry, Health Minister Ahmed Rady told Al Borsa. Drafting the law was completed around four months ago, Rady said, noting that the ministry will pass it on to the House of Representatives once the assessments are completed. We had noted back in May that the latest version of the law will ensure coverage for a wider array of medical conditions that were previously excluded, including mental health issues, injuries related to natural disasters, and preventative medicine.

Speaking on the ongoing med shortages, Rady added that this is expected to be resolved in a matter of months, adding that the government will not allow a further increase in their prices. This comes as parliamentary sources tell the newspaper that the House Speaker Ali Abdel Aal is inclined to accept a motion to form a fact-finding committee to investigate the shortages, which was brought up by the House Health Committee. Rady, who has always downplayed the extent of the shortages, said only 170 types of pharma products were running low, while the House and other sources puts the figure at 1,700. Rady is also catching flak from the House over the infant formula shortages, as the National Progressive Unionist Party is attempting to bring a case against him with the Prosecutor General for alleged corruption in the import of formula.

Orange Egypt and Etisalat Misr are in talks with their parent companies to see whether they can get a helping hand with finance for their acquisition of 4G licenses, with a portion of the license fees being due in hard currency, sources tell Amwal Al Ghad. If the parent organisations will not supply the required amounts in full, the two MNOs will tap local banks for the remainder. Orange Egypt is being charged a total of EGP 5.4 bn for 4G spectrum, international gateway services, and landline fees. Meanwhile, Etisalat Misr are being charged EGP 6.9 bn for the same services. NTRA is requiring all MNOs to pay 50% of the 4G licence cost in USD.

Ride-sharing app Careem’s new taxi-hailing service will not have surge pricing, the company announced on Monday, according to Al Borsa. Booking a white taxi through Careem will cost consumers EGP 5 per ride on top the fare. The company had announced on Sunday that 42k taxi drivers will be added to the ride-hailing app’s roster of drivers following the Eid Al Adha holidays, after the House of Representatives had pushed the plan last month. The House had also called for Careem to end surge pricing.

Beltone Financial announced that Fincorp Investment Holding will conduct its fair value assessment, according to Al Mal. EFSA had required Beltone Financial, along with Egypt South Africa for Telecommunication, Arab Development & Real Estate Investment Co, and the International Company for Medical Industries to submit fair value assessments in August to justify their respective price increases recently. The deadline to submit the assessments for all four companies is 27 September.

Dice Sport & Casual Wear announced it has signed a preliminary agreement to acquire Zein Eldin Company (Nadine Print), initially valued EGP 10 mn, Arab Finance reports. The takeover should take place during 1Q2017, according to Al Borsa, adding that Nadine Print is currently undergoing due diligence and a fair value assessment and will choose a financial advisor after the Eid Al Adha holidays.

The Finance Ministry will call for a “national dialogue” on the new Customs Act, which will impose “strict punishments” on customs evaders while reducing clearance times and fees for importers, said Finance Minister Amr El Garhy, according to Al Ahram. National dialogue is a euphemism the government uses to lobby the House and, on economic matters, get the input of leading business and investor associations. Also slated for a national dialogue, is the Tenders and Auctions Act that allows the government to withhold advance payments to encourage project-financing through the private sector.

Tax evasion has cost the state c.EGP 7.3 bn in FY 2015-16, EGP 3.4 bn from income tax evasion and EGP 3.8 bn from sales tax evasion, said Tax Authority head Abdel Moneim Mattar in an interview on Mehwar TV’s 90 Minutes program focusing on the value-added tax (runtime: 26:36). Mattar added that as it stands, tax revenues make up 65% of the country’s revenues, which the Finance Ministry hopes to boost 80% as per the global standard. The Tax Authority is also overhauling its taxation disputes department in order to begin implementing the Taxation Disputes Resolution Act which passed last month in the House and aims to expedite taxation cases with the government, sources tell Al Borsa. The authority is creating 25 new resolution committees for income tax disputes and 10 new sales tax disputes committees, in addition to forming workshops to train authority employees on new guidelines for settling disputes.

The committee investigating the Russian Metrojet plane crash has successfully identified all parts of the plane found in the wreckage and completed the plane’s reconstruction, Al Masry Al Youm reported. The reconstructed model will be used to identify where the plane first began to break apart.

Egypt is aiming to equip the army with modern Russian weapons and equipment, Russian Defence Minister Sergei Shoigu told Sputnik. Egypt’s Defence Minister Sedki Sobhi is in Moscow for the third meeting of the joint military and technical cooperation commission. "We are interested in Cairo’s leading position in strengthening regional security and stability in North Africa. We aim to further consistently develop relations between the Russian and Egyptian armed forces in all fields to maintain our country’s’ security," Shoigu said according to reports covered by Sputnik and Pravda.

A police officer was arrested for shooting a driver dead on Monday following a violent altercation in Six October, Al Watan reports. The killing just comes one week after a similar incident on the Ring Road near Maadi, which led to a strike by microbus drivers.