Monday, 3 October 2016

Devaluation fever grips the nation

TL;DR

What We’re Tracking Today

Welcome back from the long weekend — we hope everyone is set to enjoy a productive, three-day workweek before we’re off again on Thursday for Armed Forces Day. Heading into this morning, it looks as if devaluation will be the dominant story of our week, with the “sleeper” story being the fate of the tourism industry as Russia walks-back talk of direct flights resuming this month on a trial basis.

The big story: Don’t expect the USD 12 bn IMF facility to be approved this week: Finance Minister Amr El Garhy and Central Bank Governor Tarek Amer will reportedly be in DC on Wednesday to lay the groundwork for Egypt’s final push to secure the USD 12 bn IMF facility ahead of the upcoming annual meetings of the IMF and World Bank Group, due to take place on 7-9 October. They will reportedly be joined by International Cooperation Minister Sahar Nasr and Planning Minister Ashraf El Araby.

IMF won’t pass the package before mid-month: El Garhy and IMF Egypt mission chief Chris Jarvis both warned in the past few days that it’s unlikely the IMF’s executive board will pass the facility in the next two weeks, as we note in Speed Round (below).

That hasn’t stopped talk of imminent devaluation, particularly after a research report by Beltone Financial was widely (and breathlessly) interpreted by the domestic press as declaring devaluation would happen basically any hour now.

That said, the facility remains on track: Amer briefed President Abdel Fattah El Sisi on Saturday, telling him “that according to plan the IMF agreement is on its way to be endorsed by the IMF board,” according to an Ittihadiya readout on the meeting. Our take here is that the key is not the expectedly vague content of the statement (pdf), but the fact that the meeting took place — and prompted a statement in the first place. The key quote: “President El Sisi stressed the importance of taking all the necessary measures to reduce the public budget deficit and increase cash reserves, while taking into account the economically vulnerable groups that should not be affected by any of these measures.”

Another parallel market loophole closes: Civil Aviation Minister Sherif Fathi has issued a decree banning the issuing of airline tickets for trips that do not begin, end, or have any connection to Egypt. The measure comes into effect on Wednesday, 5 October. Al Masry Al Youm says the decision as travel agents were booking tickets from Egypt for trips that did not originate or end here, allowing them to benefit from the difference between the official and parallel market exchange rate.

Cheese maker Obour Land will list 200 mn shares at a fair value of EGP 1 per share today. As per EGX regulations the company has six months to launch its IPO, Al Borsa reports. CI Capital is advising.

What We’re Tracking This Week

Also on Wednesday, the Emirates NBD/Markit purchasing managers’ indices for Egypt, Saudi Arabia and the UAE are out at 6:15 am CLT. The Egyptian gauge has deteriorated for 11 straight months through August.

And if it does become 12 months in a row we have the solace of Thursday, 6 October being a national holiday in observance of Armed Forces Day. Here’s to one of the shortest work weeks of the year.

We’ll be spending part of the upcoming long weekend mulling Google’s Tuesday, 4 October event. iSheep we may be, but we generally loved Google’s Nexus line of phones running unadulterated Android (Nexus 4, Nexus 5 and Nexus 6P in particular) and are looking forward to reading about the Pixel phones the G will apparently roll-out to replace Nexus. The Verge’s Dan Seifert has a great roundup on what to expect of Tuesday’s meeting.

El Sisi, Al Bashir to meet: President Abdel Fattah El Sisi will discuss the Grand Ethiopian Renaissance Dam with Sudanese president Omar Al Bashir at Ittihadiya on Wednesday for the Joint Sudanese-Egyptian High Committee, Al Shorouk reports.

On The Horizon

Egypt, Greece and Cyprus will hold a tripartite summit on 11-12 October, following PM Alexis Tsipras’ expected state visit to Egypt on 9-12 October, Al Masry Al Youm reports.

Mohamed Khan retrospective this month: Downtown Cairo’s arthouse cinema Zawya will screen a retrospective of six films by late Egyptian director Mohamed Khan, who passed away earlier this year, according to a brief announcement. A more detailed screening schedule is expected to be released soon.

Speed Round

Speed Round is presented in association with

THE USD 12 BN IMF FACILITY is a “few weeks” out: The executive board of the International Monetary Fund will not consider Egypt’s request for a USD 12 bn, three-year extended fund facility for another few weeks, according to statements by IMF mission chief to Egypt Chris Jarvis picked up by Al Borsa. Finance Minister Amr El Garhy also threw cold water on the notion that the IMF board might sign-off on the agreement immediately following the IMF and World Bank Group’s three-day annual meetings, which are set to begin on Friday. Approval of the staff-level agreement is essentially a formality at this point and does not represent a delay, according to El Garhy. Both Jarvis and El Garhy noted that Egypt is well on its way to securing the USD 6 bn in third-party financing the IMF has required as a condition for approving the extended fund facility.

Research note causes stir domestically: Beltone Finance head of research Hany Genena set off a firestorm over the weekend after wide pickup in the domestic press and on social media of a research note suggesting that devaluation will take place by Wednesday. Genena sees the EGP hitting 11.50-12.50 to the greenback in a two-phase devaluation — and expects a 200-300 bps hike in interest rates by mid-October.

The case for devaluation this week rests on three pieces of evidence: (1) Beltone has crunched the numbers and thinks the CBE has built its liquidity shield, saying Saudi deposits, the eurobond issuance, the loans from China that we noted last week, and the IMF facility will drive net reserves in October to USD 32 bn, far above Tarek Amer’s USD 25 bn threshold for devaluation. Beltone sees the CBE announcing on Wednesday that it had reserves of USD 18.5 bn as at the end of September — a figure it believes would be strong enough to run a devaluation. (2) Pharos Holding, meanwhile, correctly notes that bankers have been asked to update their backlogs of demand for FX, particularly for essential goods. Pharos sees this as a sign that “the build-up of USD liquidity within the banking system is on track and devaluation should follow,” possibly in an exceptional FX auction or at Tuesday’s regular sale. (3) Al Masry Al Youm has cited unnamed sources as noting the government wants to devalue the national currency before the IMF board convenes.

Arqaam Capital also takes the view that a devaluation is just days out, according to Al Mal, and CI Capital also expects a two-stage devaluation once the reserves base is in place, Al Borsa reports.

But are the numbers really that strong? We had a long chat with one of the smartest bankers we know on Thursday, and his take was that however you look at it, we’re still short the USD 25 bn Amer said was necessary for devaluation. The most likely scenario, he suggests, leaves us USD 2 bn short:

  • To get the full USD 4 bn year-one tranche from the IMF right away — and get permission to move it all directly into the market
  • USD 3-5 bn from the eurobond issuance
  • USD 2 bn from China
  • USD 2-3 bn from the GCC
  • USD 6 bn in additional commitments the gov’t has already said it has in hand
  • USD 2-3 bn from reserves (what can actually be moved into the market, not gold and the rest of it)

Meanwhile, the EGP continued its slide against the USD on the parallel market,reaching EGP 13.40 by Al Borsa’s estimates and EGP 13.65 according to traders speaking to Al Shorouk. Conventional wisdom is that the EGP will come under further pressure this week amid the expectation of devaluation.

This post on life after devaluation will go viral: AUC Assistant Professor and Jameel Chair of Entrepreneurship Ayman Ismail writes on evidence for — and implications of — a pending devaluation in a Facebook post: “The reality is that the next quarter will be painful, especially for the middle class (or whatever is left of it) as well as small businesses. Individuals will experience a substantial decline in their standard of living, with unpleasant choices to prioritize their spending. SMEs will experience delays in revenues and cash flow problems.” Definitely worth reading this morning.

THE WORLD BANK GROUP HAS APPROVED a USD 500 mn loan to finance the Upper Egypt development program, particularly in the governorates of Qena and Sohag, according to a statement from the International Cooperation Ministry. The program, which comes as part of the World Bank’s Country Partnership Framework (CPF) agreement with Egypt, is aimed at bettering government services, providing job opportunities, developing infrastructure, as well as improving the management of industrial zones in the governorates, among others. Nasr is expected to sign the agreement at the World Bank’s annual meeting next week.

Furthermore, a delegation from the African Development Bank (AfDB) will submit a report to the bank’s board endorsing the release of the USD 500 mn second tranche of its USD 1.5 bn loan agreement, according to another statement from the ministry. The news follows a meeting on Sunday between International Cooperation Minister Sahar Nasr and the delegation to discuss among other topics potential future funding for projects by the AfDB.

Egypt wants to receive the second tranches of funding from the World Bank and AfDB before the end of this year, Prime Minister Sherif Ismail told Reuters. The World Bank already provided a USD 1 bn tranche of its USD 3 bn loan to Egypt, and AfDB delivered USD 500 mn as part of a USD 1.5 bn agreement.

RUSSIA ISN’T ABOUT TO THE LIFT ITS FLIGHT BAN: It seems this morning that Russia is months away from lifting its ban on direct flights to Egypt. Russian Transport Minister Maxim Sokolov denied on Friday rumors that Russia’s flight ban on Egypt would be lifted this month, saying, “These are indeed rumors, although I can say that our Egyptian colleagues have done a lot,” Russian state-owned news agency Sputnik reported, citing an interview with Rossiya-24. Sokolov met with President Abdel Fattah El Sisi in Cairo on Tuesday, where a joint press conference had been expected to be held between Sokolov and Civil Aviation Minister Sherif Fathy to announce an agreement on the restoration of flights. That press conference never happened, reportedly due to time constraints, according to the domestic press at the time.

When can we expect a resumption of flights from Russia? Sokolov also said on Friday that a civil safety agreement between Russia and Egypt may be “finalized by the end of the year, though this will depend on domestic procedures,” state news agency TASS reported.

So, are we making progress on beefing up security at Egypt’s airports? The results are mixed. Anyone who has travelled recently has no doubt been subjected to pat-downs. And in a piece of encouraging news, Egypt is about to issue a tender for retinal scans for use by Cairo Airport employees, the Associated Press reports, part of Russia’s demands on improving airport security, citing Egyptian aviation officials on Sunday. (No word on Sharm or Hurghada.) That would be encouraging, if not for news in the same AP report that police and customs officials were seen shoving each other in Cairo Airport, an incident noticed by passengers, over customs officials not wanting to be frisked by police. “The Cabinet member in charge of customs, Finance Minister Amr el-Garhy, visited the airport on Thursday in a bid to resolve the crisis, making a point of submitting to a police search himself,” the AP’s Hamza Hendawi writes. Customs officials are now returning the favor, insisting on searching police who leave the airport, which is reportedly fueling tension.

Great. Anything else, bearer of bad news? The two accidental heroes who defused a bomb in Manhattan left by terrorist Ahmed Khan Rahami have been identified as Hassan Ali and Abou Bakr Radwan, according to unnamed EgyptAir officials speaking to the New York Times — and they’re not EgyptAir pilots, but rather in-flight security officers, Egypt’s rough equivalent to America’s air marshals. While their antics in accidentally defusing the bomb and preventing potential loss of life are being generally well-received (we ourselves are inexplicably, vaguely and unreasonably proud of them), it does raise some questions as to why in-flight officers were unable to identify a bomb that they held in their hands. For reference, this is what the undetonated bomb looks like for our own readers to judge — a pressure cooker with wires sticking out of it.

EgyptAir issued a statement late last night with regard to the alleged involvement of two of its employees in the accidental defusing of the bomb in Manhattan, making the following points: First, that American authorities have not made any attempt to contact EgyptAir employees for questioning regarding the incident; that all employees, particularly higher-level staff, undergo security checks; that the EgyptAir CEO denies any employees were called in for questioning by the authorities upon their arrival to Egypt; that if the entire story turns out to be true, it is an isolated incident; but of course the entire incident is not true because this is all part of a conspiracy to discredit EgyptAir and destroy its reputation.

Ending on a positive note: EgyptAir is set to resume direct flights between Luxor and London today, after a year-long suspension, CEO and Chairman of EgyptAir Holding Safwat Mossallam said, Al Mal reported.

RUSSIA OFFICIALLY RESUMED IMPORTS of Egyptian fruits and vegetables, except potatoes, after the agri-safety watchdog Rosselkhoznadzor decided to lift the ban, Sputnik reported. The lift comes under the condition that Egypt will meet all Russian demands on sanitary safety of supplied produce," Rosselkhoznadzor spokeswoman Yulia Melano said. A decision will be made on potato imports after a Russian visit to Egypt in October or November, she added. Russia introduced temporary restrictions on the import of Egyptian agricultural produce on 22 September after Egypt rejected a wheat shipment under the old zero-tolerance policy. Officials from both countries continue to frame the issue as a quality control problem and not a retaliatory measure over wheat.

VAT EXECUTIVE REGS DUE THIS WEEK: The executive regulations for the value-added tax have been drafted, Tax Authority chief Abdel Moneim Mattar says, and will be presented to Finance Minister Amr El Garhy for final approval. The regs are due to be released this week and will declare private medical practices — with the exception of cosmetic and dietary treatments — to be exempt from the VAT, Mattar tells Al Masry Al Youm. This contradicts previous statements by Finance Ministry officials that these would be part of the tax. The exemption was made to help reduce the price burden on citizens, said Mattar. Lawyers will apparently get a break, for reasons we’re utterly unable to comprehend: Legal services will be subject to a 10% tax, not to the 13% baseline rate, which is set to rise to 14% next year. Lawyers will also not be subject to the mandatory minimum income of EGP 500k to register for the VAT. Unemployed lawyers will not be required to pay a tax but must register. Lawyers, like everyone else, continue to protest being included in the VAT regime, Mattar notes.

So let us get this straight: Lawyers are getting a break and accountants are making more money? Where’s the justice?

EMIRATES NBD HAS REPORTEDLY TOPPED Attijariwafa’s USD 500 mn bid for Barclays Egypt, unnamed industry sources tell Al Shorouk.

HYDE PARK TO IPO IN TWO YEARS: Real Estate firm Hyde Park is looking to IPO sometime in the coming two years and could appoint an investment banker as soon as this month, Al Shorouk reports. In the meantime, the builder is looking to partner with other developers on projects in Six October City, the North Coast and Hurghada, CEO Amin Serag said.

BPE PARTNERS is considering bidding for the PPP schools project the Education Ministry prepared, Chairman Hazem Barakat told Al Mal. The Education Ministry is tendering a project to build 200 schools on a PPP basis. BPE Partners has not submitted an official bid and is looking to a attract a foreign partner in its investment, Barakat noted. Separately, he said BPE Partners has not yet decided on whether it will invest in phase two of the feed-in tariff programme or not, preferring to wait for more details about the project and view the direction of international funding institutions.

ENI GETTING IN ON RENEWABLES IN EGYPT: Eni is supporting Egypt in implementing renewable energy products, the company says. It is building a 50 NW solar power plant Sinai, which expects construction to be sanctioned this week and it to be completed by the end of 2017. Eni says expanding renewables’ output “will allow for a reduction in the use of natural gas in electricity generation” and this gas could instead be used to expand the usage of CNG “as fuel in the automotive sector, in alternative to diesel or gasoline.”

GSMA SAYS 4G TALKS should be restarted: The global mobile operator trade association GSMA (Groupe Spécial Mobile Association) has called for a “renewed dialogue” between Egypt’s government and the local MNOs. “The GSMA understands the existing mobile operators are ready to support and invest in 4G in Egypt if sufficient spectrum is allocated, at a fair price, so that 4G services can be operated efficiently and enable customers to enjoy significantly faster speeds.” The GSMA says, based on its international experience, “the total amount of spectrum assigned to each operator for 4G needs to be in the range of 2x30MHz to 2x60MHz, across a range of coverage and capacity bands, with a minimum contiguous bandwidth of 2x10MHz in each band. In contrast, only 2×2.5MHz to 2x5MHz were proposed to mobile operators by the Egyptian authorities in the recent 4G licence offering. It is also essential that the price of spectrum access is appropriate to the national market and takes into account the investment necessary to provide robust networks to enable the delivery of the long-term social and economic benefits of mobile broadband.”

In other 4G news: Telecom Egypt has reportedly started drawing down on the first tranche of an EGP 5 bn facility from a syndicate that includes the National Bank of Egypt, QNB Al Ahli, and CIB, unnamed banking sources tell Al Shorouk. The loan, which does not include a USD tranche, is to finance TE’s acquisition of the 4G licence.

CAREEM SEEKS USD 500 MN fundraising round. Careem, the Dubai-headquartered regional ride-sharing app backed by Abraaj, is reportedly seeking up to USD 500 mn in new funding, according to unnamed sources speaking to Bloomberg. Credit Suisse is reportedly helping Careem drum up the money from investors; the funding, if raised, would make Careem a unicorn — a startup valued at in excess of USD 1 bn. Careem, which operates in 30 cities throughout the region, raised USD 60 mn last year from investors that included Abraaj Group to help bankroll regional expansion.

THE COURT OF URGENT MATTERS has blocked the nullification of the maritime border agreement that had moved the sovereignty of the Tiran and Sanafir islands from Egypt to Saudi Arabia. The Administrative Court had originally blocked the maritime border agreement in June, but the government had appealed the voiding of the agreement. The Court of Urgent Matters’ decision only blocks the Administrative Court’s decision. The Administrative Court will begin its first session on the appeal of its decision on 8 October, Al Shorouk reports.

TERROR ATTACK IN NEW CAIRO: The terrorist group calling itself the Hasm Movement has claimed responsibility for an assassination attempt on assistant prosecutor general Zakaria Abdel Aziz on Thursday, Reuters reported. A car bomb exploded in New Cairo near a vehicle carrying Abdel Aziz, resulting in the injury of a bystander. The group has released a statement claiming that it was avenging thousands of allegedly innocent convicts who have been sentenced to death. The group has claimed responsibility for four other attacks since July, including an assassination attempt on former Grand Mufti Ali Gomaa, who was increasingly outspoken against Islamist groups.

GOOD NEWS FOR EGYPT? “Simply put, the world has too much wheat,” Bloomberg’s Jeff Wilson writes. “Like many commodities, wheat is a victim of a long-gone boom. Those high prices seen several years ago helped to open up a lot of land to production,” Jim Banachowski, a VP at grain merchandiser The Andersons Inc says. Talking about US wheat, Chuck Elsea, senior VP at grain supplier The Scoular Co says “the oversupply issue will last until there is a weather event somewhere in the world to reduce supply. We are the residual wheat supplier to the world markets.” Wilson notes that Russia is set to retain its title as the world’s largest wheat exporter for the second year in a row; “the success of Russian grain in the latest tender held by Egypt, the world’s largest buyer, shows how the country’s grain continues to be competitive on international markets.”

The Macro Picture

COULD DEUTSCHE BANK SPARK GLOBAL PANIC? Hedge fund clients are reportedly pulling business from Deutsche Bank to limit exposure to what some observers fear is a possible “global shock.” Business Insider has a nice wrap (including the very profane name one trader is using to refer to DB), and followed that with a piece that seems to confirm DB CEO John Cryan was once a government official in MENA as he says: “Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.”

Egypt in the News

Rep. Elhamy Agina is back, and his remarks on requiring women to undergo [redacted] tests to be admitted to university is of course the most reported-on story on Egypt in the foreign press over the weekend, covered by the Independent, Russia Today, the Washington Post, the Daily Mail, Times of India, and Morocco World News, to but name a few.

This thing called Agina suggests the move would somehow stop urfi marriages. The MP is known for controversial remarks including calling for women to undergo FGM, calling for women in the House of Representatives to wear modest clothing, and claiming migrants who died when a boat capsized “deserve no sympathy.”

The National Council of Women is filing complaints with the prosecutor general and with House Speaker Ali Abdel Aal, a member of the council told Ahram Online. At least one other Al Wafd’s MP Mohamed Fouad plans to bring up a motion to bring Agina up for the House disciplinary committee, Al Shorouk reports.

Heba Mahfouz covers domestic reaction to President Abdel Fattah El Sisi’s “loose change” suggestion, in a piece for the Washington Post this weekend headlined “Egyptian president’s solution for crumbling economy: Spare change.”

US Treasury Secretary Jack Lew said “we have been working collaboratively with Egypt,” speaking to Bloomberg radio in an interviewed transcribed partially by Barron’s. Lew says, unlike a country like Colombia, Egypt does not have many internally displaced people due to military conflict. He says the Egyptian government has worked with the IMF on “what reforms are needed to get financial support,” cautioning that “if you don’t have an economic base that is sound, the security problems only get worse.”

Jacob Wirtschafter writes for USA Today on Egypt’s new administrative capital, which “China is bankrolling.” One remaining issue that is yet to be resolved, Wirtschafter writes, is naming the new city. “The name is an issue … We are working on branding now,” Khaled Abbas, an assistant to the Housing Minister, says.

On Deadline

Most people cannot fathom how big Egypt is and the magnitude of poverty here, Mohamed Aboul Gheit argues in Al Masry Al Youm urging people to avoid false generalisations such as Egyptians are (secretly) wealthy / lazy / don’t want to work and the like. Aboul Gheit cities CAPMAS’ income and expenditure survey and its annual statistical bulletin to give readers the raw facts. If you live in a household that can afford to spend EGP 4,160 a month, congratulations, you’re amongst the richest 15% in the Egypt — the poorest 10% of households cannot afford to spend more than EGP 277 per head each month. 21% of kids under the age of five suffer from dwarfism due to malnutrition, 42.2% of households don’t have access to sewage networks, and 23.7% of adults are illiterate. Egyptians also work long hours, up to 50 a week, as most have to switch between more than one job a day. Bad traffic makes you think everyone owns a car in Egypt? Think again; there are just 4.1 mn private cars nationwide, belonging to just 7.9% of the country’s households. Put it all in context, Aboul Gheit urges, there are over 90 mn people living in Egypt and most of them are struggling in these challenging times.

Worth Reading

Worthwhile guidelines for sending emails: The Atlantic’s James Hamblin published a how-to guide on sending emails on Thursday, and we believe it’s something which many of our readers could find beneficial. Some of the rules, such as “No signoff,” and “No greeting,” will sound absolutely startling to some, but would really help cut down on that uniquely Egyptian email greeting: “Dears,” which we had written our own special email guide that consisted solely of asking the entire country to please stop using that nonword back in April: “Egypt must immediately stop writing business emails that begin with “Dears.” (Read How to Email via The Atlantic)

Worth Watching

Alec Baldwin does second-best Trump impression ever in SNL’s take on the first presidential debate of the campaign: Yesterday’s cold opening on Saturday Night Live featured cast member Kate McKinnon reprising her role of Sec. Clinton — a role portrayed by previous cast members but only really inhabited by McKinnon — as well as Alec Baldwin in what appears to be the second most true-to-life rendition of Donald Trump ever seen, (we agree with the astute observation of Bloomberg’s Will Leitch that the best Trump impression belongs to the late great Phil Hartman). The only problem with the SNL’s rendition is that it is all too depressingly real, and that real life has become far more farcical than anything a satirical show could produce, as noted by NPR’s Sam Sanders. (Watch Donald Trump vs. Hillary Clinton Debate Cold Open on SNL)

Diplomacy + Foreign Trade

International Cooperation Minister Sahar Nasr signed a USD 15 mn grant agreement with the Kuwait Fund for Arab Economic Development as part of a wider grant to countries hosting Syrian refugees, Al Mal reported.

Energy

El Sisi meets with head of Russian state nuclear agency Rosatom

President Abdel Fattah El Sisi met with the head of Russia’s Rosatom State Atomic Energy Corporation Sergey Kiriyenko, according to a statement from Ittihadiya on Thursday. The President underscored the importance of finalizing the contracts to build the [Dabaa] nuclear plant,” and “addressed the final technical and financial aspects of the contracts,” the brief statement reads.

EGPC issues tender to import gasoil

EGPC has issued a tender seeking 177k tonnes of gasoil for delivery into Suez, Alexandria and El Dekheila in October, Reuters reported.

Infrastructure

Caterpillar commits to Egypt, is “exploring substantial investments in rail centers”

Caterpillar Inc says it has affirmed its commitment to Egypt’s infrastructure development. Following a meeting with President Abdel Fattah El Sisi, CEO Doug Oberhelman said that his vision for Egypt’s future was “impressive” adding that “Egypt is on the move and Caterpillar is committed to being a central part of the exciting developments on the horizon." Besides providing machinery working on power generation projects, tunnel projects, and the new road network, Caterpillar is “exploring substantial investments in rail centers” and said its Egyptian dealer, Mantrac, “intends to build a branch that will support the construction” of the new administrative capital.

Basic Materials + Commodities

Mondelez Egypt looking to increase chocolate market share to 50%

Mondelez Egypt is targeting increasing its share of Egypt’s chocolate market to 50% from 40% currently, Al Borsa reported. Mondelez estimates the size of the market to be EGP 3.5 bn annually. The company currently operates three production plants in Egypt that export their output to 23 countries regionally.

Edita to open Six October factory in 1H2017

Edita Food Industries is expected to launch its new factory in the Polaris Al Zamil industrial park in Six October in 1H2017, said Chairman Hani Berzi, Al Shorouk reported. We had previously noted that the firm had recently bought an EGP 19 mn plot of land spanning across an area of 12,878 sqm for the project.

Tourism

Air Cairo to increase flights from Germany to Sharm

Air Cairo will increase flights from Germany to Sharm to four per week by next summer, up from one flight per week, Al Shorouk reports. Flights between Frankfurt and Sharm El Sheikh were only scheduled to begin this month, according to Egypt Independent.

Banking + Finance

EBRD provides USD 50 mn trade facility to Crédit Agricole Egypt

The European Bank for Reconstruction and Development (EBRD) is providing Crédit Agricole Egypt with a USD 50 mn trade facility under its Trade Facilitation Programme. “Through the facility, the EBRD will issue guarantees in favour of international commercial banks covering the political and commercial payment risk of the transactions undertaken by Crédit Agricole Egypt.” EBRD says the programme promotes foreign trade to, from and within the EBRD’s countries of operations.

Other Business News of Note

Spinneys to expand in Upper Egypt, earmarks EGP 100 mn in investment

Supermarket chain Spinneys is planning on expanding into Upper Egypt this year through opening a branch in Minya, Managing Director Mohannad Ali told Al Mal. Spinneys has earmarked EGP 100 mn for its investments in 2016 and plans to expand aggressively in the next four years to reach 25 branches nationwide by 2020. Ali says Spinneys Egypt enjoys ample liquidity and is using most of that to finance its investment, ruling out an intention to list the company on the EGX.

Legislation + Policy

Gov’t to set simplified tax structure for SMEs within six months -El Monayer

The Finance Ministry is working on setting up a “simplified” tax structure for SMEs and microenterprises that should be ready within six months, Deputy Finance Minister Amr El Monayer told Al Masry Al Youm. The system will included requirements of the income tax and VAT, he says, for business that have a turnover of EGP 50k-500k. El Monayer says the new structure will support integrating the informal economy to the formal sectors and reduce tax evasion.

Other Business News of Interest

Egypt asks for Hussein Salem removed off watchlist

Egypt requested Interpol and the EU drop charges against Mubarak-era businessman Hussein Salem on Thursday, an unnamed Justice Ministry official told Reuters. Egypt reached a reconciliation agreement with Salem and his family in August to drop charges in exchange for 75% of their wealth, and allow for their return to Egypt.

National Security

Spate of security incidents in North Sinai on Saturday including killing of six police, IED injures eight

Militants suspected to be members of Daesh’s North Sinai affiliate Wilayat Sina ambushed a taxi carrying off-duty policemen on Saturday, killing five police before escaping, along with a number of other security incidents all related to the Associated Press from unnamed security and medical officials. In a separate incident on Saturday, an IED hit a police armored personnel carrier in which nine were wounded, with one later dying in hospital from his wounds. Also on Saturday, a severed head was found belonging a man who had gone missing and had been suspected of being kidnapped by militants for allegedly cooperating with authorities in Rafah. Four Sufi clerics known for being outspoken critics of Daesh were also kidnapped from their village on the Egyptian-Israeli border on Saturday.

On Your Way Out

“Lovejacker” to be extradited: A Cypriot court upheld an Egyptian request to extradite Seif El Din Moustafa for hijacking an EgyptAir plane to Cyprus that was headed from Alexandria to Cairo in March, Famagusta reports.

Police detained three journalists who were conducting street interviews about President Abdel Fattah El Sisi’s recent call for the collection of “loose change” to raise funds for projects, the Associated Press reported.

The markets yesterday

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USD CBE auction (Thursday, 27 Sep): 8.78 (unchanged since 16 March 2016)
USD parallel market (Sunday, 02 Oct): 13.40-13.65 (up from 13.25 on Wednesday, 28 Sep, Al Borsa, Al Shorouk)

EGX30 (Thursday): 7,881 (-0.3%)
Turnover: EGP 477.9 mn (10% above the 90-day average)
EGX 30 year-to-date: +12.5%

THE MARKET ON THURSDAY: The EGX30 ended the week down 0.3%. Market bellwether Commercial International Bank fell 1.7%. Among the day’s worst performers were Qalaa Holdings, Edita and Amer Group. The day’s top gainers were Eastern Company, Elsewedy Electric and Egypt Kuwait Holding. Market turnover was EGP 477.9 mn with foreign investors the sole net sellers of the day.

Foreigners: Net Short | EGP -63.6 mn
Regional: Net Long | EGP +19.0 mn
Domestic: Net Long | EGP +44.6 mn

Retail: 52.7% of total trades | 57.3% of buyers | 48.0% of sellers
Institutions: 47.3% of total trades | 42.7% of buyers | 52.0% of sellers

Foreign: 33.4% of total | 26.7% of buyers | 40.0% of sellers
Regional: 8.8% of total | 10.8% of buyers | 6.8% of sellers
Domestic: 57.8% of total | 62.5% of buyers | 53.2% of sellers


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PHAROS VIEW

USD liquidity build-up on track; devaluation is imminent

Local media have reported that the Central Bank of Egypt has requested a complete list of backlog of demand for foreign currency, specifically for essential goods. This is a sign the CBE is about to meet pending USD requests, possibly in an exceptional FX auction, or through its upcoming Tuesday regular FX auction. This is clearly a sign that the build-up of USD liquidity within the banking system is on track and devaluation should follow, possibly before the International Monetary Fund Fall meetings on 7-9 October. Tap here to read the full note by Pharos Head of Research Radwa El-Swaify.

Also this morning, Pharos notes that Orascom Construction announced on Thursday that the Board of Directors has approved the purchase of 1mn shares at a price of EGP 74.05 per share through an offer only to shareholders who hold their shares on EGX. The buyback offer will commence once final regulatory approvals to proceed are obtained. Pharos notes that Orascom Construction is a beneficiary of infrastructure spending and that devaluation is a key upside. Tap here to read the full note.

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WTI: USD 47.85 (-0.81%)
Brent: USD 49.81 (-0.76%)
Natural Gas (Nymex, futures prices) USD 2.89 MMBtu, (-0.45%, Nov 2016 contract)
Gold: USD 1,318.90 / troy ounce (+0.14%)<br
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Calendar

06 October (Thursday): Armed Forces Day (national holiday).

07 October (Friday): Deadline for phase one feed-in tariff investors to decide whether to remain under phase one conditions or move to phase two terms.

11 October (Tuesday): 2nd Annual Leasing Conference entitled “New insights to stimulate financing instruments”, Four Seasons Nile Plaza Hotel, Plaza Ballroom, Cairo.

11-12 October (Tuesday-Wednesday): Global Islamic Economy Summit, Madinat Jumeirah, Dubai.

19 October (Wednesday): Digital Media Forum Cairo, Four Seasons Nile Plaza Hotel, Cairo.

26-27 October (Wednesday-Thursday): The Marketing Kingdom Cairo 2 event, Cairo.

31 October (Monday): Deadline for Telecom Egypt to reach an agreement with MNOs over using their 2G and 3G network infrastructure

November (TBD): Delegation of German companies in the renewable energy sector due to visit to discuss investment opportunities.

14-16 November (Monday-Wednesday): Bank of America Merrill Lynch MENA 2016 Conference, The Ritz Carlton, Dubai International Financial Centre, Dubai.

17 November (Thursday): Central Bank of Egypt’s Monetary Policy Committee meets to review rates.

27 November (Sunday): 2016 Cairo ICT, Cairo International Convention Centre.

29-30 November (Tuesday-Wednesday): Citi’s Global Consumer Conference, London, UK.

04-06 December (Sunday-Tuesday): Solar-Tec exhibition, Cairo International Convention Centre.

04-06 December (Sunday-Tuesday): Electricx exhibition, Cairo International Convention Centre.

07-08 December: Citi’s 2016 Global Healthcare Conference, London, UK.

10-13 December (Saturday-Tuesday): Projex Africa and MS Marmomacc + Samoter Africa, Cairo International Convention Centre.

11 December (Sunday): Prophet Muhammad’s Birthday (national holiday; date to be confirmed).

11-13 December (Sunday-Tuesday): The Middle East Fire, Security & Safety Exhibition and Conference (MEFSEC), Cairo International Convention Centre, Cairo.

13 December (Tuesday): Amwal Al Ghad’s top 50 most influential women in Egypt women forum, Four Seasons Nile Plaza Hotel, Cairo.

29 December (Thursday): Central Bank of Egypt’s Monetary Policy Committee meets to review rates.

14-16 February 2017 (Tuesday-Thursday): Egyptian Petroleum Show, Cairo International Convention and Exhibition Centre.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

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