Welfare, social security spending to rise in state budget set for unveiling this week

Bahrain’s King Hamad bin Isa Al Khalifa is in Cairo today on an official visit, according to Bahrain News Agency. Bahrain’s Royal Court said in a statement short on specifics that the king will meet with President Abdel Fattah El Sisi to discuss bilateral relations.

Central Bank of Egypt Governor Tarek Amer returned to work yesterday, according to Al Mal. The governor was in Germany for surgery and was the subject of weekend rumors that he was leaving office.

The House of Representatives’ Legislative Committee is expected to receive the Tiran and Sanafir islands’ sovereignty handover agreement today and will review its “constitutional soundness,” an unnamed MP tells Al Mal.

Integrated Diagnostics Holdings, the high-profile LSE-listed MENA medical diagnostics business, will host its FY2016 results call today. The company reported last week net profit of EGP 466 mn (up from 267 mn in 2015) on revenues of EGP 1.2 bn (up 15% over the previous year). Its board has recommended a final dividend of USD 0.14 per share (or USD 21 mn in total) compared with USD 0.06 per share last year. The company’s final results statement is here.

A quick smile for some you this morning: Don Draper’s “Pass the Heinz” ketchup campaign — the one dismissed as “half an ad” that failed the get him the Heinz account 50 fictional years ago on Mad Men — has come to life. If you’re in Manhattan, head over to 49th and 7th to see the first installation (the French fries copy). Tap here to read the full story in Adweek, which includes a 1:09 clip of the scene in question that isn’t region-blocked by AMC and a photo of the fries ad in the wild.

Are we going to formally make up with KSA this week? Look for extensive expressions of brotherly respect and pan-Arab love between Egypt and KSA at Wednesday’s Arab League Summit. President Abdel Fattah El Sisi is one of 17 Arab leaders expected to attend, with the Associated Press noting that US President Donald Trump will be looming over the summit.

Last night’s talks shows nearly put us to sleep until Kol Youm’s Amr Adib started ranting about the rumble in the jungle that is the House of Representatives fight over the National Elections Act, where MPs got into a fist fight. MP Mahmoud Mohie El-Din phoned in to blamed the fight on House Speaker Ali Abdel Aal’s attempt to split votes between the majority coalitions and the opposition in a bid to rescue the bill (watch, runtime 5:44). The squabble had been over the role the judiciary will hold in running the new regulator set up by the law to govern national elections. .In the end, MPs gave a preliminary nod to the law, Al Shorouk reports. Adib (along with probably everyone else tuning in) was clearly just waiting for the juicy details on the fight, of which we could not find a video by dispatch time. Look to our Worth Watching section this week — we’ll have it when it (inevitably) leaks.

Adib also showcased a report on the “recession” hitting shopping stalls and food markets in Cairo (watch, runtime 3:50). Showing off his economic chops,Adib said the economy will not improve if prices drop — what’s really needed is an increase in incomes (watch, runtime 2:49).

Over on Masaa’ DMC, Eman El Hossary hosted Egyptian Financial Supervisory Authority head Sherif Samy for a chat about what happens to brokers who violate securities regulations (watch, runtime 2:00). Bad things, apparently, including suspensions of licenses for three months while EFSA investigates and publication of alleged ne’er-do-wells’ names in the Official Gazette. (Al Masry Al Youm has more on the story).

Al Hayah Al Youm’s Lobna Assal aired a report on Supply Minister Ali El Moselhy’s press conference at the “Ahlan Ramadan” Supermarket Expo (watch, runtime 3:20). He noted that private-sector companies will offer food at discounted prices during the holy month. Nothing like a bit of moral suasion to “guide” us all on prices…

Ali Faramawy, Microsoft’s boss for the Middle East and Africa, gave Hona Al Assema’s Lamees El Hadidi the low-down on a digital transformation unit he established within the company that will consult on ways technologies can benefit emerging markets (watch, runtime 25:51).

The carry trade is alive and well: Egypt attracted USD 3.1 bn of foreign investment in domestic debt instruments since the float of the EGP last November, Deputy Finance Minister Ahmed Kouchouk told Reuters. Kouchouk says the funds were invested in treasury bills and bonds.

The government will increase spending on social security and welfare in FY2017-18 bysetting aside a sum equivalent to 1% of the nation’s projected EGP 4 tn in GDP, said Finance Minister Amr El Garhy. This should come to around EGP 40 bn, he told President Abdel Fattah El Sisi and Prime Minister Sherif Ismail in a budget briefing yesterday, Al Ahram reports. Other key highlights on the budget, which is expected to be sent to the House of Representatives later this week, include:

• A budget deficit in the range of 9.2-9.5% of GDP next year;
• Welfare spending will be primarily directed towards cash and food subsidies as well as health care and education;
• Wages for civil servants will cost the state around EGP 240 bn next year, with no plans to slash them, according to House Budgeting Committee member Yasser Sheba;
• A 24% y-o-y increase in state revenues during the coming fiscal year, driven mostly by further tax reforms;
• State investments are set to increase 22% year-on-year to EGP 646 bn;
• The government had projected in its IMF agreement an exchange rate of EGP 13.3 to the USD, weakening the EGP from EGP 11.9 in the FY2016-17 budget, Al Mal reports.

El Garhy confirmed that there will be further changes coming to the Income Tax Act, Al Mal reports. These will include a new tax code for SMEs a mechanism of implementing any tax incentives ultimately specified by the Investment Act.

Kramers everywhere, rejoice: You live to mooch another year: Supply Minister Ali El Moselhy has poured cold water on that subsidy fraudsters would be cut from the welfare rolls starting this year, then, telling Daily News Egypt there would be no cuts at all in FY2017-18. His reason: Times are tough and people cannot afford to go without it. This latest backpedaling of a key politically-sensitive issue follows his roll-back on an attempt to reform the bread subsidies system — and as the Ismail cabinet gears up to sell the FY2017-18 budget to the public. El Moselhy added that the ministry’s efforts will be dedicated to creating a database of those eligible for food subsidies — conspicuously omitting when or what they plan to do with the rest. He had stated on Saturday that some 19 mn ration card holders must update their personal information in 60 days.

El Moselhy confirmed to Reuters yesterday that state spending on food subsidies will reach EGP 86 bn in the FY2017-18 budget. He also added that the General Authority for Supply Commodities will continue to import wheat during this harvest collection season to build up strategic reserves. The minister also promised that the private sector will help keep prices low during Ramadan, something reportedly confirmed by Federation of Egyptian Chambers of Commerce head Ahmed El Wakeel.

On the other side of the import-export ledger, Food Export Council chairman Hani Berzi said the council is working to increase food exports this year beyond the USD 2.4 bn shipped abroad in 2016.

And speaking of social welfare programs: The government is not planning to replace school meals with cash handouts, Prime Minister Sherif Ismail told the press yesterday, Al Shorouk reports. Ismail said the government is currently working to develop better procedures for storing, inspecting, and distributing school meals. Hundreds of students in schools across Egypt fell ill over the past several weeks due to food poisoning from the government-issued school meals. It is unclear whether El Moselhy’s plan to issue smart cards for school lunches is still on the table.

BP announced a gas discovery from the Katameya Shallow-1 exploration well at the North Damietta Offshore Concession in the East Nile Delta. “The wireline logs, pressure data and fluid samples confirmed the presence of 37 metres of net gas pay in high quality Pliocene sandstones. Options to tie the discovery back to nearby infrastructure are being studied.” BP CEO Bob Dudley said “Qattameya marks our third discovery in the block where we are already developing the Atoll field and appraising the Salamat discovery. This latest discovery confirms our belief that the Nile Delta is a world-class basin.” The find is BP’s third in the concession. Tap here for a larger version of the map above or here to read the press release in full (in MS Word).

Tanmiya Capital Ventures has announced first close on TCV1, its midcap investmentfund. Anchor limited partners include the Egyptian-American Enterprise Fund and EFG Hermes. TCV is looking “to capitalize on our first-mover advantage in the mid-cap space with the goal of deploying EGP 250-300 million in investments by the end of this year,” said Managing Partner Karim Hassan. The firm will target opportunities including exporters, manufacturers of import substitutes, specialized healthcare service providers and FMCG players, among others. EAEF Executive Director Amal Enan has joined TCV’s Investor Advisory Board, as has EFG Hermes Group Chief Financial Officer Mohamed Abdelkhabir. TCV has also named external appointees to its investment committee, including the high-profile entrepreneur Christopher Khalifa (founder of the Zooba casual dining chain) and Gihan Fathy, a 17-year private equity veteran. The firm was co-founded by former EFG Hermes Investment Banking boss Ahmed El Guindy alongside ex-Coca-Cola marketing boss Youssef Ayoub, former EFG Hermes investment banker Omar Ekram and Hassan, a former chief investment officer of Raya Holding. You can read the full press release here (pdf) or visit TCV’s website here.

IPO watch- Raya Holdings subsidiary Raya Contact Center will list on the EGX in 2Q2017, sources told Al Mal. EFG Hermes is managing the offering. Al Mal says Raya had mulled the listing last June and had even appointed Beltone Financial to manage it before backing out because of poor market conditions.

M&A Watch- A Saudi outfit called NAD Development & Investment Company said it is presenting an offer to acquire 100% of the shares of Egypt for Poultry (Egypco), according to a bourse filing. NAD, which is chaired by Nawaf Abdullah bin Dayel, is offering to buy all of the shares at EGP 2.57 per share. Bin Dayel had reportedly invested in three Egyptian agrifood companies between May 2011 and 2012 according to a report by Reuters, saying valuations back then were attractive.

M&A Watch- Gulf law firms, including Emirati firm Mahmoud Hussein and Qatar’s Al-Sulaiti, are looking to expand in Egypt by partnering or merging with domestic firms, Al Mal reports. According to Salman Al Taweel, a partner at Mahmoud Hussein, the law firm has been looking to enter the Egyptian market for some time, and is currently in talks with a number of Egyptian firms. The newspaper quotes Al-Sulaiti founder Mubarak Al-Sulaiti as saying deal flow between Egypt and the GCC makes the move into Omm El Donia attractive.

The House of Representatives’ Economic Committee signed off on Egypt’s USD 12 bn bailout agreement with the IMF on Sunday during a joint meeting with members of the Budgeting Committee and Finance Minister Amr El Garhy, Al Mal reports. The committees will prepare a report on the agreement before it’s sent to the House general assembly for a plenary session vote, MPs tell the newspaper.

The House also gave its final nod of approval to the Industrial Permits Act during its plenary session yesterday, Al Shorouk reports. Under the new act, licenses issued will automatically be renewed on an annual basis, replacing the current system of issuing temporary permits valid for 3-5 years. The act aims to cut wait times for industrial licenses to as little as 30 days and guarantees investors will receive licenses if they can prove their facilities meet health, safety, and environmental regulations.

Business community agrees to Investment Act split: Business associations appear to be nodding in agreement to the House Economic Committee’s decision to split the Investment Act into two separate bills in order to simplify the law for investors, Al Borsa says. Investors are mostly interested in the conventions and conditions for incentives and tax breaks rather than the law’s regulatory framework “and the split achieves that,” the head of the Federation of Egyptian Chambers of Commerce Ahmed El Wakeel tells the newspaper, adding that the single bill would have been too difficult to explain to foreign investors. The logic is completely lost on us, but we’re clearly neither smart enough to be foreign investors nor heads of business associations.

Speaking of the Investment Act: Its chief proponent, Investment Minister Sahar Nasr, has been named one of the Arab world’s 23 most powerful women by Arabian Business.

Public Transport Authority to hike bus fares? Apparently emboldened by the decision to raise metro ticket prices, the cash-strapped, debt-laden Public Transport Authority is reportedly studying raising bus fares 15-20% to cover its widening budget shortfall, Al Mal reports. The final decision is Cabinet’s to make. In a clear attempt to spin the issue, the newspaper’s source says the fare hike is “unlikely” to meet the same uproar the recent rise in Metro fares as the increase in bus ticket prices will be implemented gradually.

MPs continued criticizing Transport Minister Hisham Arafat yesterday for the decision to double metro ticket prices to EGP 2 from EGP 1 without waiting for parliamentary approval, Al Masry Al Youm reports. Members of the House Transport Committee accused Arafat of “deceiving” them and “making them seem worthless” in the eyes of their constituents. One MP placed the blame on parliamentary speaker Ali Abdel Aal, saying he is responsible for “being lax” with the government, and threatened to resign if the situation remains unchanged. In the midst of all the grumbling, Cairo Metro spokesperson Ahmed Abdel Hady announced that the company’s monthly revenues are now expected to reach EGP 90 mn, up from EGP 50 mn, Al Borsa reports. Abdel Hady said revenues won’t double because ticket prices for the elderly and people with disabilities were left unchanged. That leaves the company with excess cash of about EGP 15 mn a month to service its debt, he suggested.

Five banks raked in 43% of the banking system’s EGP 53.1 bn in profits last year, according to a CBE report that’s making the rounds in the local press. DNE suggests these include the National Bank of Egypt, Banque du Caire, CIB and QNB Al Ahly. The news came as an unnamed “top banking official” told Al Borsa yesterday that the banking sector has pulled in USD 15 bn since the EGP was floated last November.

The Federation of Egyptian Industries’ pharmacies division is leveling accusations of corruption at Health Minister Ahmed Rady, claiming that he was involved in securing profitable agreements for pharma companies at the expense of pharmacists and patients, Ahram Gate reports. Division head Mahmoud Abdel Maksoud accused Rady of pressuring pharmacists to bear the brunt of losses in the sector, while secretary-general Hatem El Badawy said that Rady used the float of the EGP as a “false pretext” for the Health Ministry’s decision to raise the prices of meds in January. In a clear sign of coordinated action, the Pharmacists’ Syndicate is expected to hold an emergency meeting today to discuss the “crisis” caused by the ministry’s decision to allow med prices to rise, Al Borsa reports. In other words, it’s Monday in the Byzantine world of Egyptian healthcare politics.

MOVES- CIB Chairman Hisham Ezz Al Arab was reelected as head of the Federation of Egyptian Banks on Sunday,AMAY reports. The National Bank of Egypt’s Hisham Okasha was re-elected as deputy chief, while Barclays Egypt’s Hala Sakr becomes the first woman on the association’s board of directors.

MOVES- The House of Representatives approved yesterday the appointment of Mohamed Erfan as head of the Administrative Control Authority (ACA), the nation’s top anti-corruption watchdog, for a four-year term, Al Masry Al Youm reports. Erfan was previously tapped as the acting head of the ACA until April.

Egypt’s team at the 2017 Special Olympics World Winter Games in Austria has done us proud, with Mohamed Abdo bringing home the gold medal and Alaa Abdel-Aziz winning the bronze, both for the 100-meter snowshoeing race. Egypt was represented by 20 athletes, 16 of whom are were on the floor hockey team, while the rest were competing in snowshoeing.

A handful of international headlines worth noting this morning:

• Stop us if you’ve read this before in any one of the last “n” political or economic “crises”: “London and New York lose ground to Asian rivals in finance rankings,” warns the FT, scolding that “Brexit and Donald Trump raise questions over strength of City and Wall St.” Sure. Check back in five years, okay?
• In what’s being billed by the Wall Street Journal as the “most significant challenge to President Vladimir Putin in years,” thousands of demonstrators took to streets in Russian cities including Moscow to protest corruption.
• Not content to let McKinsey sop up all of MBS’s money, Goldman Sachs wants in on the party that KSA and is seeking an equities license, Bloomberg reports. Get ready to lend from your own balance sheet, boys and girls.
• The WSJ is also warning Americans that “foreign robots are invading American factory floors.” Because it would be so much easier to swallow if the bots were ‘Murican, right?

Finally, if you’re as obsessed with US politics as we are, you’ll want to do two things this morning: First, go read “Trump vs. Congress: Now What?” from the New York Times magazine, written after The Donald’s legislative defeat. Then go subscribe to Crooked Media’s Pod Save America podcast. It’s hosted by ridiculously funny (and profane) veterans of the Obama administration. Not a podcast fan? At least check out their bios page (Obama speechwriter Lovett’s is written in Trump’s voice). Already a fan? Newsweek has an interview with the three anchor hoses and the incomparable Kara Swisher interviews the three on stage at SXSW about how they plan to build a media empire.

The Alexandria Stock Exchange’s (ASE) newly renovated building, in the Mediterranean city’s downtown Mohammed Ali Square, was inaugurated on Sunday after months of work to restore its historical glamor as Egypt’s first bourse and one of the Middle East’s oldest. While the building that stands today (and its surroundings) may look wildly different from those of the past, this historical establishment came into being in the late 19th century — some 20 years before the Cairo Stock Exchange — and was primarily focused on the cotton trade, but slowly grew to incorporate other industries. You can brush up on the history here, courtesy of the EGX.

Topping coverage of Egypt this morning in the foreign press is the sentencing 56 people to prison over the migrant boat capsizing that killed over 200 people last year, with widespread pickups of the Reuters story.

AFP has a report on how Magda Haroun, one of “Egypt’s last Jews,” is working to keep Jewish heritage in Egypt alive. Haroun’s dream “is for Jewish artifacts to be seen by the public, perhaps in a planned museum of Egyptian civilisation.” Antiquities Minister Khaled El Enany told the AFP “all antiquities have the same importance for us because they all belong to the Egyptian civilization,” (runtime 02:15).

Arabic calligraphy has recently begun to fire the imagination of artists striving to create street art with an Arab identity, India Stoughton writes for 1843, The Economist’s sister magazine. Stoughton points to now-famous Manshiyat Naser mural “Perception” that spans more than 50 buildings. “They seem abstract and random,” Stoughton writs, “But stand in the cafeteria on top of Mokattam, a nearby hill, and all these mismatched patches of paint suddenly come together, forming a single phrase written in Arabic calligraphy and thus transforming a collection of ugly buildings into a poem that celebrates the neighbourhood’s history and culture.”

Other international news stories worth noting this morning include:

• Residual shade from some outlets on Hosni Mubarak’s release, including one from Canada’s Global Research Centre for Research on Globalization, and one pitiful moaning by the Eurasia Review on the fate of the Arab Spring.
• A weird set of stories are seeping in as well including the frantic accusations by a UK mother that her Egyptian husbands kidnapped her daughters to perform FGM, and pickups of the [redacted] assault of a 20-month old toddler in Egypt. We also expect to hear reports of an Egyptian court decision barring a man who likes other men from entering Egypt. (Apologies for the circumloquacious verbiage and lack of links, but the terms involved upset the algorithms that govern our deliverability to your inboxes.)

What if banks haven’t figured out how to price the USD? CI Capital macro analyst No’man Khaled asks in his latest column for Al Shorouk. Sharp swings, rather than slight fluctuations, in the EGP-USD exchange rate seem to be more the result of “short-sighted personal effort” rather than a deep understanding of the economic situation or a medium- or long-term outlook, Khaled argues. His suggestion sounds like a step away from a managed float: Theestablishment of an FX committee made up of “experts and industry professionals” to guide the banks and the market.

President Abdel Fattah El Sisi met yesterday with World Jewish Congress President Ronald Lauder and his advisor for Middle East Affairs, Thaer Mukbel, to discuss regional issues, primarily restarting Israeli-Palestinian peace talks, Ahram Gate reports. The two also discussed efforts to fight terrorism and El Sisi’s planned visit to Washington next month.

The situations in Libya, Syria, and Palestine, as well as illegal immigration and terrorism are at the top of the agenda for President Abdel Fattah El Sisi’s meeting with US President Donald Trump in Washington next week, Al Masry Al Youm reports.

Egypt is expected to receive two more fuel shipments from Saudi’s Aramco this week, with next month’s shipments set to follow a regular schedule, Egyptian General Petroleum Corporation CEO Abed Ezz El Regal tells Al Borsa.

Egyptian Steel broke ground on a EGP 6 bn cement manufacturing plant in Sohag, Al Mal reports. The project is part of a building materials complex that is being established by China’s Sinoma-CDI. The plant, which is scheduled for completion in 2018, is projected to have an annual production capacity of 2 mn tonnes.

El Garhy Group for Steel is building a USD 200 mn iron ore pelletizing plant, Chairman Gamal El Garhy tells Al Mal. Once completed, the plant will have a production capacity of 1.5 mn tonnes of pellets annually, covering the needs of the group’s steel rolling mills. New production lines will also increase the Group’s steel production to 3 mn tonnes per year from a 1 mn tonnes currently, El Garhy adds.

Sima Food Industries is looking to raise its prices 5% and its exports 10% this year to offset increased costs, Al Mal reports. The company is eyeing new export markets, including Russia, Ukraine, and Kazakhstan and is also looking to increase its annual production capacity to 25k tonnes from 20k tonnes, according to Sima’s head of exports Mahmoud Salah El Din. Sima is also looking into adding a new production line to manufacture biscuits in 2018.

Civil aviation authorities in Egypt and Saudi Arabia have refused to grant private charter airlines licenses to fly Egyptians to Saudi Arabia for the current umrah season, Al Shorouk reports. The refusal came despite the shortening of the umrah season and the increase in airfares. Tour operators organizing umrah trips suggest the cost this year would be double last year’s.

Mobile network operators will receive their 4G spectrum after they take possession of equipment the National Telecommunications Regulatory Authority required them to import in order to prevent frequency interference between the networks, an unnamed source tells Al Mal. The equipment will cost 10% more than the operators paid for the 4G licenses, according to the newspaper.

Huawei’s USD 5 mn Customer Solution Innovation and Integration Experience Center (CSIC) was inaugurated today by ICT Minister Yasser El Kady, according to a ministry press release.

The Egyptian General Petroleum Company (EGPC) is negotiating for a EGP 10 bn loan with a banking consortium led by CIB to finance oil imports, Al Mal reports. Four-to-five private banks are funding the facility that is expected to carry a tenor of five-to-eight years, unnamed sources said. The sources add that the Egyptian Electricity Holding Company will pay back part of the loan to the banks, as part of the EGP 40 bn it owes EGPC.

Blom Bank Egypt recorded revenues of EGP 539 mn in 2016 compared to EGP 372 mn in 2015, Managing Director and CEO Mohamed Ozalp said on Sunday, Al Borsa reports. The bank will be focused on expanding its domestic activities, which in the near term include a EGP 12 mn securities firm that will launch in May. BLOM Bank Egypt has also decided to raise its paid-in capital by around EGP 450 mn to EGP 1.7 bn, according to Al Borsa.

Orascom’s tech arm A15 signed a partnership agreement with Dell EMC to provide technological support and training programs to startups, Al Mal reports.

Contractors are now accusing the government is trying to set up “a legislative loophole” in the Contractor’s Compensation Act to not pay them, Ahram Gate reports. The law stipulates that only contractors who have made timely deliveries on their projects would be compensated. Sahl El Damrawy, a member of the Cairo Chambers of Commerce’s building division, believes that part of the reason why “over 96%” of contractors haven’t met deadlines was because the government stopped paying them regularly.

The size of the informal economy is the biggest challenge to financial inclusion, Planning Minister Hala El Said told Al Borsa. There is no complete information and participants in the parallel market are wary of being involved in the formal economy, she added. El Said aims to limit the usage of cash and looks at expanding mobile banking as a means to promote financial inclusion, which we predicted will be the government’s buzzword throughout 2017, and integrating the informal economy into the formal one.

2018 is expected to be the peak year in Egypt’s five-year debt repayment schedule, which sees the Central Bank paying around USD 5.22 bn this year, USD 12.9 bn in 2018 (of which USD 8 bn will go to Kuwait, Saudi, Libya, and the UAE), USD 6 bn in 2019, USD 6.1 bn in 2020, and USD 3 bn in 2021, according to Al Shorouk.

A Cairo appeals court gave former Press Syndicate head Yehia Qalash a one-year suspended prison sentence on Saturday on charges of harboring fugitives at the Press Syndicate headquarters last May, Reuters reports. Syndicate board members Khaled Al Balshy and Gamal Abdel Rahim received the same sentence. All three had been sentenced to two years in prison last November.

EgyptAir was given the maximum score in air safety following an inspection by the Safety Assessment of Foreign Aircraft (SAFA), EgyptAir Holding chairman Safwat Mosallam said yesterday, Al Shorouk reports.