Monday, 31 October 2016

EGP hits a ludicrous 18 to the USD as FX offices flex muscles


What We’re Tracking Today

The House Economics Committee will open a hearing today on regulation of the free market, including price and margin caps on certain commodities. Among those expected to testify: Mona El Garf, the exceptionally competent head of the Egyptian Competition Authority, and Atef Yakoub, head of the Consumer Protection Agency, Al Mal reports. The hearing will focus in part on the Consumer Protection Act, which includes provisions that would allow cabinet to fix prices on “strategic” consumer goods for a period of up to two years, Yakoub has previously said.

Today is the deadline for Telecom Egypt to reach an agreement to use the three existing mobile network operators’ 2G and 3G network infrastructure. There were no reports of an agreement or updates on status at dispatch time this morning.

Singapore’s president on five-day visit: President Tony Tan Keng Yam arrived in Egypt on Saturday for a five-day visit that will include meetings with Egyptian government officials. Singapore’s Straits Times has a full rundown on the visit.

Today is the one-year anniversary of the crash of Metrojet flight 9268, which went down over Sinai, killing all 224 people on board. The crash resulted in Russia’s imposition of a ban on direct flights to Egypt that continues to this day. The Civil Aviation Ministry organized a candlelight vigil at the Sharm El Sheikh Airport in memory of the victims. The Tourism Minister, Antiquities Minister, and Russian Ambassador to Egypt were also in attendance. CBC extra has coverage of the event and speeches (run time: 32:33).

What’s going on in Morocco? Thousands of Moroccans took to the streets in several cities yesterday and overnight to protest state corruption after a fish merchant named Mohsin Fikri crushed to death inside a garbage compactor as he tried to recover USD 11k in inventory confiscated by members of the police service. (A graphic image of the death is circulating on activist Twitter.) Protests have apparently taken place in Rabat, Marrakesh, Nador, Tetouan and Fikri’s hometown of Tetouan. Reuters and the New York Times have coverage, and the hashtag طحن_مو# (“Crushed to death”) aggregates more on Twitter.

What We’re Tracking This Week

The Emirates NBD / Markit PMI will be published Thursday. Don’t expect a change in the yearlong slide in business conditions.

The Petroleum Housing Conference is due to take place between Wednesday, 2 November and Sunday, 6 November at Petrosport Club in New Cairo.

On The Horizon

The first European Union-Arab World summit will take place this weekend in Athens. The Greek-sponsored initiative looks to bring together EU and Arab officials along with members of the business community to “encourage further discussion on economic and political co-operation amid the interlinked crises of civil war and migration around the Mediterranean Sea,” the Financial Times (paywall) writes in a brief notice. Our question: Is a Turkey-style funding package in return for stopping the flow of migrants to the EU in the cards for Egypt? (Background here). Dalia Khorshid is, so far, the only confirmed speaker from Egypt. The website for the 3-4 November summit is here, or you can skip straight to the agenda.

The Central Bank of Egypt’s Monetary Policy Committee will convene on Thursday, 17 November to review rates. Pundits expect a rate hike to curb inflation ahead of devaluation.

A delegation of German renewable energy companies is expected to visit Egypt in November to explore investment opportunities.

Bank of America Merrill Lynch MENA 2016 Conference will be held in Dubai between Monday, 14 November and Wednesday, 16 November.

Speed Round

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We took another step closer to the IMF loan yesterday as Egypt reportedly secured a USD 2.7 bn currency swap agreement with China, Bloomberg’s Tarek El Tablawy reports. “The agreement is being processed by the Chinese authorities, an Egyptian central bank official said Sunday, speaking on condition of anonymity,” El Tablawy wrote, noting that no additional details on the terms or timing of the agreement were provided. CI Capital senior economist Hany Farahat says “there’s a chance the funding will be expensive, but regardless of the agreement’s structure, we need every penny we can get.” Bloomberg also asked the People’s Bank of China for comment (“A fax was sent to the People’s Bank of China seeking comment.”)

A Pharos Holding research note yesterday (pdf) claimed the Chinese swap means the USD 6 bn in funding the IMF was demanding as a condition of the USD 12 bn extended fund facility is now complete.

Did the EGP break the 18 barrier? If the FX market were rational, it would welcome news of the Chinese agreement after yesterday saw the greenback changing hands at an absurd EGP 17.50-17.60 on the parallel market. Al Borsa’s sources pegged the rate at 17.60 during the day yesterday and Al Shorouk’s had it at 17.50. By Sunday evening, local news outlets were claiming that the EGP broke the EGP 18.00 ceiling and the headline over the front page of Al Borsa’s print edition simply reads “The Pound 18+” in massive type. The usual caveat applies: There’s no meaningful volume being traded on the market at any rate. Al Masry Al Youm adds another flavour to the daily story, saying FX bureaux in foreign airports are already adding premiums of more than 25% to their selling prices, with one source saying a bureau at Heathrow Airport selling is greenback for EGP 11.50 per USD 1 and another in Abu Dhabi selling them for EGP 13.35 per USD 1.

FX offices are holding the government’s feet to the fire. As we’ve said before, our take on what’s going on here is that the bureaux de change owners — the current bogeymen of the economy — are quoting absurd prices for the greenback to put pressure on the government to engage with them. They’re furious that they’ve been driven underground: Their licenses are being pulled and they face a permanent loss of market share if the government opens its own bureaux de change. The Federation of Egyptian Industries (FEI) seems to agree, with the head of its investment division, Mahmoud Suleiman, suggesting it is time to speak with the FX bureaus. The FEI is also calling for immediate movement on devaluation and, in parallel, is suggesting that the CBE should open its own exchange offices and offer “incentives” to get hoarders of small caches of USD to give up their greenbacks. The FEI outlined its recommendations in a policy paper to the government.

The Egyptian government itself has set an objective of not using its limited reserves to prop up the local currency — and the IMF is supportive, said outgoing IMF Director for the Middle East and Central Asia, Masood Ahmed in an interview with CNN (runtime: 2:39). His statement comes in response to whether the devaluation was required by the IMF. “The sooner one tries to move on freeing the exchange market the faster we’ll begin to see progress on economic activity,” he added.

Importers split on boycotting parallel market: Meanwhile, the importers division of the Chambers of Commerce is ambivalent about calls by the organization’s head, Ahmed El Wakeel, to suspend dealing with the parallel market for two weeks and to halt imports of non-essential goods for a three-month period. Importers’ division chief Hamdy El Naggar said most importers see the merit of the move, but he noted it is merely a suggestion and not an edict. The division’s board will meet on Tuesday to decide on whether to accept the proposal, AMAY reports.

With talk of further slowing imports hanging high in the air, Trade and Industry Minister Tarek Kabil said yesterday that the government has no intention of ordering an import ban at this time, Al Shorouk reports. The state is curbing imports in a way that does not violate trade agreements, said Kabil. He again noted that the country has shaved USD 7 bn from its import bill this year, AMAY reports.

To yesterday’s report of idle production lines, add a slowdown in food imports. Livestock importers tell Al Borsa that meat imports have effectively halted as there is no way to tell when the EGP will hit its limit. Companies are eagerly awaiting a devaluation before seeking FX. Imports of herbs and spices have reportedly stopped, while the timber division of the Federation of Egyptian Chambers of Commerce considers a moratorium on timber imports. A number of retailers are reporting a hike in basic food such as meat and flour. A number of pharmaceutical companies cut production by 50% due to the USD shortage, chairman of the FEI’s Pharma Division Ahmed El Ezaby told Al Borsa. Statements from pharma on this should be taken on face value as pharma companies have basically threatened to do this if the government doesn’t move prices on meds priced over EGP 30.

House Econ committee calls for Amer, El Garhy to testify. We begin in the House of Representatives, where the Economics Committee has called for CBE Governor Tarek Amer and Finance Minister Amr El Garhy to appear to outline their views on how to tackle the currency crisis, Al Borsa reports. That comes as the economics committee and the budget committee are reportedly divided on whether a devaluation is the best course of action. The budget committee’s Yasser Omar is notably against the move, saying Egypt does not have the export base it needs to generate USD liquidity. Other MPs are calling for any devaluation to be matched by an increase in subsidies and social welfare payouts.

Officials (unnamed, of course) from the ministries of electricity and petroleum are telling the press that devaluation would be disastrous. An unnamed Oil Ministry official states that there is barely enough liquidity to meet its monthly import bills of USD 720 mn, adding that there’s no way to raise petroleum product prices enough to cover the impact of devaluation and more subsidy payouts. The former head of the Egyptian Electric Utility & Consumer Protection Regulatory Agency is stating that a devaluation would make costly debt service on the massive loans the ministry took out for its projects worse.

There appear to be “major disagreements” between the government and the central bank over the timing of listing state-owned banks Banque du Caire and AAIB and selling the United Bank of Egypt to a strategic investor, an unnamed source tells Al Masry Al Youm. The disagreement is driven by market “uncertainty” domestically and internationally, the source said, saying that only studies took place so far and there are no timing details yet.

Possible shakeup at Tax Authority? Tax Authority chief Abdel Moneim Mattar may exit stage left at the end of his present term, according to Al Mal. Government sources tell the newspaper that Finance Minister Amr El Garhy has a difficult choice to make, as the most senior and qualified candidates are mostly approaching retirement age and there has been little investment in younger talent at the authority.

On another note, Mattar stated that new policies will be drawn up to get people to file their tax returns on deadline, as only 26% of taxpayers file on time, Al Shorouk reports.

Attijariwafa will finalise its acquisition agreement of Barclays Egypt before the end of the year, bank sources told Al Mal. The bank says it has already received regulatory approvals from both the Egyptian and Moroccan central banks for the transaction and has formulated a strategic plan for its operations in Egypt. The acquisition’s value has not been disclosed since we first noted it in early October.

The news came on the same day that AXA Egypt announced it is rebranding Commercial International Life Insurance Company SAE (CIL), which it acquired in December 2015 from CIB, to become AXA Life Insurance Egypt SAE (AXA Life Egypt). AXA says existing contracts, pricings, and benefits of CIL customers will not change. The company has c. 500k customers in Egypt and employs a staff of 500 to manage more than 2,000 providers and partners. More on AXA Egypt and its local product portfolio in this statement issued yesterday (pdf).

Qatari Diar has reportedly taken the first steps to initiate international arbitration proceedings against the government over the stalled City Gate project in New Cairo. The company had approached international law firms to jumpstart proceedings after reports the New Urban Communities Authority is considering confiscating the project’s land due to delays in construction, sources told AMAY. As we noted back in August, work on the project had halted after armed men seized control of the development land, threatening and preventing work crews from completing the project. The company had issued a statement that it had no control of the area. News reports had emerged that a prosecutor and an accompanying police officer were shot dead when visiting the site. NUCA had been haranguing the company to complete its work on schedule while this has been going on, and Qatari Diar is reportedly looking to exit the project. The Investment Ministry is reportedly looking to intervene to resolve the matter before arbitration begins.

** Earnings Watch: Orange Egypt reported its 9M16 results yesterday, with net losses of EGP 132.9 mn, a further decline y-o-y from EGP 20.6 mn reported in 9M15, according to a regulatory filing. Net losses for 3Q16 stood at EGP 99.5 mn, from a net profit of EGP 70.5 mn during 3Q15.

Mehwar Television Network opted against airing an interview with former head of the Central Auditing Organisation Hesham Genena, Al Masry Al Youm reports. Genena was removed from office by presidential decree and is currently facing corruption charges. The interview was intended to be the first episode showcasing host Moataz El Demerdash’s return to the channel. Al Masry Al Youm says the channel, much to El Demerdash’s chagrin, opted against airing the episode either because it saw that its timing was “unsuitable” or because Genena insisted on watching the final edit before it aired. Later yesterday, sources said the interview could be aired either today or on Saturday. The story has crossed over to the international media with a piece by the excellent Maggie Michael for the Associated Press.

Other national and international stories worth noting in what is a reasonably busy news day for a Monday:

  • Oil field services outfit Baker Hughes is near a USD 30 bn pact to sell itself to GE in a transaction that would make the new GE unit publicly traded, but controlled by GE, the Wall Street Journal (paywall) reports.
  • At least two blocs still believe in free trade: Canada and the European Union concluded a free-trade agreement yesterday. The agreement still requires approval by some 40 parliaments…
  • Hillary Clinton’s proxies accused the director of the US FBI of a committing a “partisan act” by disclosing that it was again looking into her use of email with just days to go before the election.
  • The government’s ownership of Eastern Tobacco could see Egypt excluded from the World Health Organization’s Framework Convention on Tobacco Control. China, Cuba, Bulgaria, Thailand and India could face similar issues, the writer of an op-ed for the WSJ (paywall) notes.
  • Goldman Sachs is allowing certain of its rivals to sell their financial products through one of its web applications, the Journal reports.
  • Random note: One of Pope Francis’ top assistants is an Egyptian priest named Yoannis Lahzi Gaid, Reuters notes as an aside in an otherwise still interesting piece headlined “Pope Francis the manager — surprising, secretive, shrewd.”


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Egypt in the News

Other than pickups of the Associated Press’ piece on the scrapping of former corruption watchdog Hesham Genena’s interview with Mehwar and some lingering coverage of the sugar crisis (cf: Washington Post), international media coverage of Egypt today is focused squarely on the one-year anniversary of the Metrojet crash.

Egypt’s tourism sector is “in limbo” a year after the Russian Metrojet plane crash in Sinai, Haitham El-Tabei writes for AFP. “There are no foreign tourists … Spending by Egyptian tourists does not cover our daily expenses,” one Khan El Khalili shopkeeper told El-Tabei. Over in the UK, the Independent notes “Sharm el Sheikh: still off the airline map,” while popular Instagram blogger Alyssa Ramos is getting traction for her “I Traveled Solo to Egypt, and Yes it was Safe.”

On Deadline

The Al Masry Al Youm columnist with the pseudonym Newton says Egypt’s 13% unemployment rate is caused by an attitude problem towards employment. He believes a lot of job demand goes unmet simply because people look down at those jobs. Newton compares the unemployment rate of Egyptians to Syrian refugees living in Cairo, where entire families have set up businesses and found means of employment.

Worth Listening To

There’s little we love more than listening to a new episode of NPR’s Planet Money while wandering about the house / getting groceries / puttering about the office in the early hours of the morning before the chaos of the day begins. Imagine our pleasure, then, when a reader wrote in with a Planet Money podcast recommendation. From reader Hossam T.: “Below is a link to NPR’s 20 min summary of the situation in Venezuela and the economic decisions that caused it. Now, I know Egyptians have an obsession with plagiarizing movies and calling them our own, but copying failed economic decisions, too, is just unoriginal.” Listen to Planet Money “Episode 731: How Venezuela Imploded” (no podcast player required, run time: 19:00).

Diplomacy + Foreign Trade

Investment Minister Dalia Khorshid and Singaporean minister of state at the Trade and Industry Ministry Koh Poh Koon inaugurated a USD 10 mn logistics center owned by Pacific International Lines in the Tenth of Ramadan industrial city, Al Masry Al Youm reported. The fully automated center is the first of several the company plans on building in Egypt by increasing its investments from USD 10 mn to USD 30 mn “soon,” said PIL’s Managing Director.

The House Economics Committee has approved a EUR 47 mn loan and an EUR 18 mn grant from Germany initially signed in 2014, Al Shorouk reports. Funding will primarily be directed towards infrastructure, SMEs, and agriculture projects, Al Borsa noted. The House voted was close as many MPs feel that there is no oversight in how the government manages these loans. The House also approved customs, dual taxation, and tax evasion agreements with Russia, Kuwait, and Saudi Arabia, Al Shorouk reports.


Orascom Construction seeks EGP 13 bn financing to bid for Hamrawein clean coal power plant

Orascom Construction (OC) is in talks with local banks to secure EGP 13 bn in funding to back its bid for a contract to build a 2-3.3 GW “clean coal” power plant in Hamrawein under the EPC+Finance system, unnamed sources told Al Mal. The company reportedly solicited offers from NBE, Banque Misr, Banque du Caire, CIB, ADIB, AAIB, QNB, and HSBC for the syndicated facility. Al Mal reports OC’s competitors as being Shanghai Electric, CAMC, Dongfang, SEPCO, and Gezhouba.

El Molla in talks with Iraqi PM for cooperation in drilling activities

Oil minister Tarek El Molla discussed with Iraqi Prime Minister Haider Al Abadi opportunities to cooperate in the oil sector during his visit to Baghdad, Al Shorouk reported. EGPC signed a partnership agreement with Kuwait Energy for developing Siba natural gas field in Iraq last week, granting 20% of the field to EGPC. Talks also included projects that Petrojet is implementing in Iraq and studying the establishment of joint drilling companies.

Basic Materials + Commodities

Government seizes 2.5k tonnes of sugar from El Walily packaging company

Supply Ministry inspectors seized 2.5k tonnes of sugar at Alexandria’s El Walily Company, Al Borsa reports, citing a report claiming the sugar has since been transferred to control of the Armed Forces, which is packaging the sweet stuff in El Walily’s factory for sale to the masses.


Petrochemicals Holding Company looking to build EUR 80 mn MDF wood factory in north delta

The Egyptian Petrochemicals Holding Company is looking to build an MDF fiber board factory in the northern Delta region at a cost of EUR 80 mn, Chairman Mohamed Saafan told Amwal Al Ghad. The company is entering negotiations with domestic and international lenders to finance 60% of the project, he added. The project would begin production 18 months from the date construction is completed, Saafan said.

Cement license auction in two weeks

Auctions for the new cement licenses will take place in the coming two weeks, Trade and Industry Minister Tarek Kabil told Amwal Al Ghad. This very likely means that they have been pushed back from this week as the sources had reported that the auction would take place this week. Eight bids from six companies were received, even though 14 licenses were on offer.

Alexandria Spinning & Weaving Company shuts down two factories

Alexandria Spinning & Weaving Company has closed down two factories due to rising costs of local ginned cotton of a sub-par quality, said the company’s IR manager Zakaria Abdel Mageed. He tells Al Borsa that growing costs of textiles in Egypt has driven down demand.

Health + Education

Pharco to treat 350k hepatitis C patients in Alexandria

Pharco Corporation is partnering with the Health Ministry, Tahya Misr fund, and the Alexandria Chambers of Commerce to treat 350k hepatitis C patients in Alexandria, according to Al Borsa. Pharco is one of the companies behind the Tour n’ Cure hepatitis C medical tourism program, which has the endorsement of FC Barcelona. The program has already garnered testimonials. Check out Tim’s story (runtime: 5:27).

Real Estate + Housing

2,500 feddans of the New Administrative Capital will be sold to the private sector this year

2,500 feddans of the new capital will be tendered to the private sector before the end of the year, said Housing Minister Moustafa Madbouly. The ministry has drawn up a committee to price the land, he added, according to Al Ahram. The land will be parcelled out and investors will be able to buy entire plots or partner with the government on development, he added. It was reported back in July that 10.5K feddans are expected to be on offer as part of phase 1 of the new capital. In explaining the ministry’s reliance on foreign developers such as China Fortune Land Development Company, Madbouly stated that local developers do not have the capacity to operate the many national projects being undertaken.

OC calls for exempting projects under construction from VAT

Orascom Construction is calling for ongoing construction projects to be exempted from the value-added tax, Orascom Construction Executive Director Osama Beshay said. Beshay says ongoing projects have been budgeted under the previous tax system, not taking account of VAT into consideration. Adding the cost will add losses to developers, he says.

City Stars injects USD 2.5 bn investments

City Stars Properties injected USD 2.5 bn into supporting its existing investments in Egypt, CEO Mohamed Abo El Yazid said, according to Al Shorouk. He did not specify when the additional investments were injected, but noted that the group has invested USD 4-5 bn in residential, touristic, and administrative projects since the beginning of its operations in Egypt.

NUCA floats new initiative incentivizing developers to get in on social housing

The New Urban Communities Authority has completed drafting the conditions for an initiative which would see land offered to investors for developing subsidized housing, Al Mal reports.


Tourism sector companies renew calls for VAT exemption

Tourism companies are asking the Finance Ministry to exempt them from the VAT for at least two years, Al Shorouk reported. Some operators said hotels specifically had borne the cost of the sales tax in the past few years themselves after having reduced prices significantly to attract tourists, but that VAT could be the “last nail” in the industry’s “coffin.”

Banking + Finance

NBAD says it will retain earning in Egypt

National Bank of Abu Dhabi (NBAD)-Egypt “decided” it will retain its earnings in Egypt in 2016, country CEO Ahmed Ismail Hassan told Al Shorouk. Hassan, who refused to give a project earnings figure, says the funds will be used to finance NBAD-Egypt’s expansion and investment domestically. He also said the bank’s Egyptian operation contribute 5% to its parent group’s profits.

NBE signs cooperation protocol with ministries of trade and industry, oil

The National Bank of Egypt (NBE) has signed cooperation protocols with the ministries of oil and trade and industry to provide preferential financial packages to micro, small, and medium sized enterprises, and provide raw materials for projects in the Robeky leather city, and Merghem plastic district in Alexandria, Al Masry Al Youm reported.

NBE settles EGP 384 mn in non-performing loans

NBE has settled EGP 384 mn in non-performing loans with companies in the food, automobile, construction and agriculture sectors, Al Mal notes. The bank’s non-performing loans currently stands at EGP 4.9 bn, comprising 2.3% of the bank’s EGP 700 bn capital.

CBE to issue new safety measures on mobile banking

The CBE is planning to issue new security guidelines for mobile banking, CBE Assistant Sub Governor Mai Abulnaga said, Al Masry Al Youm reports. While mobile banking had been available since 2010, improper registration of user data when issuing sim cards had made the service unreliable. It is worth noting, that the National Telecommunication Regulatory Authority had been enforcing strict regulations on obtaining accurate user data when issuing new sim cards.

Legislation + Policy

Economic, judicial, and legislative affairs committee recommend passing amendments to importers registry law

The economic, judicial, and legislative affairs committees at the House of Representatives have recommended approval on the proposed amendments to the Importers Registry Law, Al Masry Al Youm reported. The most notable changes are: increasing the minimum capital for individuals to be registered to EGP 500k from EGP 10k, for limited liability companies to EGP 2 mn from EGP 15k, and for joint-stock companies to EGP 5 mn. Business activity in the last tax declaration must be higher than EGP 2 mn for individuals and EGP 5 mn for companies. Applicants to the importers registry must pass a training program on the rules and regulations governing imports. A security or letter of guarantee worth EGP 50k for individuals and EGP 200k for VIPs must be deposited, and is returned after the registration period ends.

House approves amendments to State Lands Act

The House of Representatives also voted to approve amendments to the State Lands Act granting jurisdiction on land allocated for industrial development to the Industrial Development Authority, AMAY reports. The law also grants the New Urban Communities Authorities jurisdiction over land allocated for homes, while giving the General Authority For Reconstruction Projects & Agricultural Development authority over land for reclamation of agriculture.

Egypt Politics + Economics

Government catches criticism over handling of flooding

The government has been working overtime to address criticism of its handling of torrential rains over the weekend that left 26 dead and 72 injured nationwide. It had allocated EGP 4 bn as part of a five-year plan put in place in 2014 for drainage infrastructure, half of which has already been spent, according to cabinet spokesperson Hussam Qawish, Al Masry Al Youm notes. Tahya Misr has fund affirmed that EGP 1 bn had been allocated towards developing drainage systems, in Alexandria and Beheira, said fund’s CEO Mohamed Eshmawy, Youm7 reports. Meanwhile, the Armed Forces has begun clearing the roads leading to and from Ras Gharib, one of the worst hit places, Ahram Online reported. Defense Minister Sedky Sobhi said the army will distribute 100k food supply boxes and send medical convoys to help the residents affected by the flash floods. This comes as a petition calling for a vote of no confidence against the Ismail cabinet for its handling of the floods was circling in the House of Representatives, Al Shorouk reports. The House also formed a fact-finding committee to gather information on the flood crisis, Al Ahram notes.


Ahly wins African handball tournament

Al-Ahly won their fifth African Champions League title in handball after defeating Tunisian counterpart, Esperance, in yesterday’s final, Al Masry Al Youm reports. Zamalek came in third.

On Your Way Out

The Italian regional government of Friuli-Venezia Giulia will launch scholarships for Egyptian and international students named after murdered student Giulio Regeni (a native son of the region) to attend the United World Colleges, according to a story by Italian newspaper Il Friuli picked up by Al Shorouk. Regeni himself had graduated from a UWC campus in New Mexico after receiving a scholarship from the same regional government, before pursuing his undergraduate and graduate degrees in the UK, according to the school.

The Finance Ministry cancelled a sale of three- and nine-month t-bills on Sunday without providing a reason, Reuters’ Arabic service reports.

The markets yesterday

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USD CBE auction (Sunday, 30 Oct): 8.78 (unchanged since 16 March 2016)
USD parallel market (Sunday, 30 Oct): EGP 17.50-18.00, depending on who you believe (from 17.00 on Saturday morning, 29 Oct, Al Mal)

EGX30 (Sunday): 8,357.42 (+0.17%)
Turnover: EGP 654.9 mn (50% above the 90-day average)
EGX 30 year-to-date: +19.28%

THE MARKET ON SUNDAY: Selling pressure trimmed early gains yesterday, leading the EGX30 to close up just 0.2% in moderately heavy trading. Top gainers included Ezz Steel (+2.7%) and Orascom Construction (+2.2%), while Amer Group (down 4.2%) and Eastern (off 2.9%) led decliners. With market turnover of EGP 654.9 million, and local investors were the sole net buyers of the day.

Foreigners: Net short | EGP -39.8 mn
Regional: Net short | EGP -0.3 mn
Domestic: Net long | EGP +40.1 mn

Retail: 40.0% of total trades | 41.4% of buyers | 38.5% of sellers
Institutions: 60.0% of total trades | 58.6% of buyers | 61.5% of sellers

Foreign: 5.7% of total | 2.8% of buyers | 8.8% of sellers
Regional: 3.7% of total | 3.6% of buyers | 3.7% of sellers
Domestic: 90.6% of total | 93.6% of buyers | 87.5% of sellers


A managed float looks more politically appropriate

Previously announced dates by government officials indicate devaluation should be penciled in for November, while the Eurobond issuance is set for mid-November, coinciding with the MPC meeting on interest rates on November 17, which we estimate would be the time for a significant rate hike (c.200 bps) to raise the attractiveness of the EGP as an investment vehicle and attract fixed income portfolio inflows from international investors. These dates indicate a devaluation in November is very probable.

Monitoring the 3M non-deliverable forwards (NDFs) provides a less-speculative picture of the real market value of the EGP-USD exchange rate. Previous rounds of the EGP devaluation showed the 3M NDF exchange rate can be used as a strong indicator for the magnitude of the CBE’s next official rate adjustment. The 3M NDF rate averaged EGP 8.80 per USD in February 2016, just before the exchange rate hit EGP 8.88 versus the USD in March 2016. The 3M NDFs rate averaged EGP 11.00 per USD in September 2016 and EGP 12.05 per USD as of October 24, with the one-month moving average recording EGP 11.80 per USD. The readings suggest that the next FX rate move could be somewhere between EGP 11.00 – 12.00 versus USD.

In that context, we note that parallel market rates are quite useful in defining the EGP-USD trend, rather than the exchange rate value, due to unrealistic speculation and the high risk premium. We believe that FCY injection will walk hand-in-hand with more flexible movements in the exchange rate to ensure NIR preservation. The larger the EGP devaluation, the less CBE’s FCY injections.

Tap here for the full note.


WTI: USD 48.47 (-0.47%)
Brent: USD 49.46 (-0.50%)
Natural Gas (Nymex, futures prices) USD 3.14 MMBtu, (+0.97%, December 2016 contract)
Gold: USD 1,277.60 / troy ounce (+0.06%)<br
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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.

2-6 November (Wednesday-Sunday): Petroleum Housing Conference, Petrosport Club, New Cairo, Cairo

3 November (Thursday): The Emirates NBD PMI for Egypt, Saudi Arabia and the UAE compiled by Markit comes out here.

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.

25-26 November (Friday-Saturday): 27th Energy Charter Conference, Tokyo, Japan.

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.

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