Mabrouk — we now have an Investment Act

The central bank is selling USD 1 bn worth of one-year, USD-denominated treasury bills today. The bills’ settlement date is 9 May and they mature on 8 May, 2018.

The House Budget Committee is due to start discussing today the state’s 2017-18 budget. Separately, Al Borsa reports that Finance Minister Amr El Garhy and Planning Minister Hala El Said have been asked to stop by the House Economics Committee for budget-related talks.

Whose turn is it today? The IMF delegation visiting to review progress on our economic reform program as a condition to disbursing the next tranche of its USD 12 bn bailout package met yesterday with Social Solidarity Minister Ghada Wali and Planning Minister Hala El Said. The delegation is expected to be in town through week’s end.

President Abdel Fattah El Sisi continues his GCC tour today. The president will wrap a two-day visit to Kuwait before heading to Bahrain. Talks on security, the war against terror, investment and trade top his agenda. We have the rundown in Diplomacy + Foreign Trade, below.

If you’re not a Eurosceptic, you may now breathe a sigh of relief: Emmanuel Macron has decisively won the French presidency, sending right-wing challenger Marine Le Pen down in flames. President Abdel Fattah El Sisi congratulated Macron on the victory, saying he looks forward to working with Macron to strengthen bilateral ties, Al Mal reports. The New York Times and the Guardian have decent coverage in English. Macron has pledged to “heal France’s divisions,” Bloomberg reports, while CNBC notes that although global markets will breathe a sigh of relief when they open today, his victory is now largely priced into the euro. Meanwhile, everyone from CNN to the UK tabloids is going nuts over the notion that Macron’s wife, Brigitte Trogneux, is his former drama teacher (and 20-some years older than he is). Trogneux will reportedly work in Macron’s administration without charge, focusing on education reform.

We’ve been spending a fair bit of time lately looking at what’s next for Enterprise and ourparent company. What macro trend will put the wind to our backs in the medium- and long-term? What’s our next product? What service do we add to our lineup? If you’re struggling with similar questions, check out “Buffett Confronts Search for Next Big Thing After Missed Chances,” wherein Warren Buffett — the so-called Oracle of Omaha — laments not having bought Google and says that it is “no fun” watching his cash hoard grow while waiting for the next investment opportunity to come down the pike.

Oh, and if you want to take a swipe at that hedgie pal of yours: Buffet also continued his roasting of the hedge fund industry at yesterday’s annual meeting of his Berkshire Hathaway. Or as Bloomberg headlines it: “Buffett Says Money Spent on Plumbers Better Than on Hedge Funds.”

Prime Minister Sherif Ismail is reportedly heading to Britain on Wednesday along with a group of ministers for a two-day visit, during which they will meet unnamed officials to discuss bilateral ties, sources tell Youm7. Look for talks on investment and scrapping the remaining travel warnings on Egypt to feature high on Cairo’s wish list.

We’re keeping an eye out for the executive regulations to the Industrial Permits Act, which the Ministry of Trade and Industry has said should be out by week’s end.

The first expo for Egyptian exports to Africa will be held in Nairobi, Kenya from 15-18 May, Ahram Gate reports. 52 companies representing six export councils will participate in the exhibition.

The Central Bank of Egypt’s Monetary Policy Committee will hold a rare Sunday meeting on 21 May to discuss interest rates. The meeting comes after IMF boss Christine Lagarde personally singled-out inflation as an issue of concern for Egyptian policymakers. The IMF’s director of the IMF’s Middle East and Central Asia department, Jihad Azour, subsequently declared that interest rates are “the right instrument” to manage inflation in Egypt. Two of our favourite bankers counter that interest rates are a poor means of transmission of monetary policy in a nation as un-banked as Egypt.

The Investment Act, which finally passed the House of Representatives yesterday, was once again the topic of the night on the airwaves (we have that covered in the Speed Round).

Investment Minister Sahar Nasr told Al Hayah Al Youm’s Lobna Asal that she is preparing a draft of the Investment Act’s executive regulations for Prime Minister Sherif Ismail to review. The House of Representatives will also have to review and sign off on the regulations. Nasr denied there being any tension or disagreement with any other member of the Cabinet economic group.

Nasr also updated Asal on her trip to DC, where she met with representatives from a number of top companies, including General Electric, and other players in the fields of power and renewable energy (watch, runtime 12:16).

Speaking to Amr Adib over on ONTV’s Kol Yom, Nasr said she expects the executive regulations to the Investment Act to be issued in a month (watch, runtime 7:02).

Adib also spoke to Finance Minister Amr El Garhy about the showdown with the House of Representatives over the 10% hardship raise for state employees not covered by the Civil Service Act. Cabinet (correctly) maintains that it cannot afford to foot the bill with which MPs are trying to saddle it (watch, runtime 8:07). (More on that in Speed Round.)

Over on Hona Al Asema, Lamees Al Hadidi spoke to Banque Misr Chairman Mohamed ElEtreby about ads for a Naeem-managed Banque Misr fund that some allege can be read as suggesting the bank raised interest rates on deposits to 26%. El Etreby denied the news and confirmed that he asked the advertising company to pull the ad (watch, runtime 6:37).

Lamees also spoke to Amer Group CEO Mansour Amer, who told the host that he stepped as chairman of Porto Group on Thursday to ensure the two companies have fully independent management teams (watch, runtime 4:44).

With Ramadan closing in, Lamees also briefly talked about food prices and the government’s preparations for the month. Agriculture Ministry spokesperson Khaled Abdel Dayem said low-income consumers can purchase staple goods at discounted prices at some 129 state-backed outlets (watch, runtime 2:29).

At last, we have a new Investment Act: After months of debate and herding of cats, the House of Representatives’ general assembly passed yesterday the Ismail government’s Investment Act in a plenary session, Al Borsa reports. President Abdel Fattah El Sisi still has to sign off on the law and its executive regulations — which Sahar Nasr had said would take no more than a month to draft after the bill passed — must be issued before it comes into full effect.

The law will offer a range of investment incentives including tax breaks as high as 50% for investments in under-developed areas, rebates on land acquisition costs provided factories begin operations within two years, and infrastructure subsidies to connect investments to utility grids. It will also bring back private-sector run free zones.

The executive regulations are where the rubber meets the road: The law creates a framework under which the state may promote investment, but the real test will be the executive regulations, which will turn broad statements in the law into more concrete statements. To over-simplify it: The text of the law might read, “The government may offer incentives to promote investment.” The executive regulations would in turn specify — or point to a policy that specifies — that “investors in sectors X, Y and Z will be entitled to an xx-year tax holiday, an xx% rebate on capital equipment and the import without customs duties of production inputs for an xx-year period.”

Why are we dwelling on this? Because it seems Investment Minister Sahar Nasr — the architect of the Investment Act — won’t be the primary “holder of the pen” on the executive regulations. For a week now, there have been rumors of discord around the cabinet table after Nasr reportedly signed off on amendments to the act proposed by the House Economics Committee, including allowing the return of private-sector-run free zones. Prime Minister Sherif Ismail and House Speaker Ali Abdel Aal reportedly had to sort things out, as we noted yesterday. Against that background, MPs agreed yesterday to the government’s request that Ismail run point on the executive regulations.

Speaking of private-sector-run free zones, Finance Minister Amr El Garhy said on Sunday that the government intends to conduct a comprehensive review of the budgets and financial statements of companies operating in private free zones to make sure they’re actually exporting. Strict regulations will also be issued to govern the establishment of new zones, which will now have to pay a 2% levy on revenues that the finance and investment ministries will be splitting evenly.

Speaking to the press on Sunday, El Garhy said he expects the second installment of the IMF’s loan to Egypt to be disbursed in June, according to Reuters. This comes in line with IMF executive director Hazem El Beblawi’s expectation of the USD 1.125 bn tranche being disbursed within six weeks. El Garhy also “told a news conference that the IMF’s review of Egypt’s economic reforms was going well.”

…Separately, Egypt is considering issuing a new Eurobond at the end of May or early June, El Garhy also said, according to Reuters. El Garhy had said in April Egypt was considering a USD 1.5-2 bn Eurobond issuance after finding strong investor appetite for its USD 4 bn issue in January.

El Garhy also said the government will outline within the next two weeks steps it will take to ease pressure on consumers caused by the economic reforms, Al Masry Al Youm reports.

El Garhy said that state authorities have been hard at work pursuing further reform, managing to achieve target tax income of c. EGP 291 bn during the first 10 months of FY2016-17. Tax income from this season’s collections reached EGP 21 bn, he added, with revenues from real estate taxes loan having more than doubled to EGP 1.9 bn from EGP 900 mn last year (watch, runtime 2:01).

Morocco’s Attijariwafa Bank won’t IPO its Egyptian subsidiary, eyes 5% market share within five years: Announcing the close of the lender’s acquisition of Barclays Bank Egypt, Attijariwafa CEO Mohamed El Kettani said he has ruled out listing Attijari Bank Egypt’s shares on the EGX. El Kettani said the bank is targeting a 5% market share within five years from 1-1.5% today, Reuters reports. The CEO also said Attijari Bank Egypt is looking to contract a consultancy to help formulate its strategy here, Al Mal notes. El Kettani says the strategy would be set over the next three months and cover the next five years. He says the bank is looking to serve the middle class and enhance financial inclusion. El Kettani also noted the bank is eyeing the domestic insurance market. Speaking with Reuters, the CEO said Attijariwafa had paid twice Barclays Egypt’s 2016 book value (or c. 7x 2017 projected profits) for the Egyptian lender.

IPO WATCH- NI Capital has invited investment banks to pitch for the global coordinator’s gig on the potential IPO of state-owned petroleum and petrochemicals EPC contractor Enppi, according to Al Masry Al Youm. This is the first phase of listing Enppi on the EGX, NI Capital CEO Ashraf El Ghazaly is quoted as saying. In total, El Ghazaly told Al Mal, NI Capital has compiled a list of 10 state-owned companies, including Enppi, that could be listed on the EGX. He did not name any of the other candidates.

IPO WATCH- The Ministry of Public Enterprise (think: holding tank for old guard state-owned companies) has changed its turn on IPOs, with minister Ashraf El Sharkawy saying yesterday that it will move forward with IPOs for select assets in a bid to raise capital and boost their performance, Al Ahram reports.

Don’t believe what your aunties says on the family WhatsApp group — Banque Misr is not increasing interest rates on deposits to 26%. The confusion arose after billboards and online advertisements said a Naeem Holding-managed Banque Misr fund carries a 26% rate of return. Banque Misr Chairman Mohamed El Etreby told Al Shorouk the bank in no way guarantees that return, saying it is merely a target. He blames the advertising firm behind the campaign for the “false publicity” and reiterated that Banque Misr’s only role is to raise funds. El Etreby asked the advertising agency to withdraw the ad as well. The Egyptian Financial Supervisory Authority has demanded the ad be pulled, posting the image above to its official Facebook page and saying the ad violates regulations on marketing of financial products.

Mmm… We love the smell of investment in the morning. The drumbeat of investment news continues as white goods manufacturer Electrostar announced it plans to inaugurate two plants in cooperation with Chinese consumer electronics and home appliances manufacturer Haier at a total investment cost of EGP 150 mn, Chairman Mohamed El Menoufy told Al Shorouk. The first plant would produce refrigerators and freezers and the other will be used to produce television screens. El Menoufy says the company is looking to expand its exports and open new markets to compensate for weak sales domestically.

Lufthansa increases Egypt flights to 33 a week: Yesterday, we told you the Germans were back. Today, we have additional proof: Demand for flights to Egypt has been increasingly gradually throughout 1Q2017, Lufthansa Country Manager Zied Gueblaoui told Al Shorouk. He added that Lufthansa has decided to increase the number of flights from Egypt to German cities to 33 flights a week, up from 29 previously. Now if he could just do something about the quality of business class out of Egypt… That whole “it’s economy seating with a bit more leg room and nobody sitting in the middle seat” thing just doesn’t work for us.

Beltone Financial is looking to become the nation’s largest brokerage hours and double its assets under management to EGP 50 bn. The firm will also add microfinance and leasing businesses to its portfolio between this year and next, CEO Bassem Azab told Al Mal. He said the investment bank is has a pipeline of IPOs for execution on the EGX and a foreign market. Azab also says Beltone is looking to expand to include a consumer finance arm. Beyond Egypt, Beltone is also considering growth opportunities in emerging and frontier markets, including Eastern Europe, Pakistan, Bangladesh, and Kenya.

In clash with cabinet, House postpones vote on 10% hardship raise for state employees not covered under theCivil Service Act: After delaying a final vote multiple times, the House of Representatives decided yesterday to push the vote to today after conflict between the government and MPs over the size of the raises and how they’ll be paid for, Al Shorouk reports.

What’s really at stake? MPs want to give a raise as a percentage of bureaucrats’ base salary, while Cabinet is allocating a far smaller sum by giving each person a raise increment in a specific EGP amount. The formula MPs want to use would add EGP 18 bn in new expenses that state coffers cannot afford, Deputy Finance Minister Mohamed Maait said yesterday — and that’s EGP 18 bn that the House will be constitutionally required to find funding for if it takes the easy way out and just strikes Article 5 from the bill.

Ismail wades in: Prime Minister Sherif Ismail told the press yesterday that passing the legislation without Article 5 would result in pay equity issues between bureaucrats who fall under the Civil Service Act and those who do not — and hammer the state’s budget deficit.

Could the government pull the bill?? Legal and Parliamentary Affairs Minister Omar Marwan said cabinet will do just that if the House insists on scrapping Article 5. Marwan suggests it could then be reintroduced if the state can arrange for the necessary funding, according to Ahram Gate. Meanwhile, House Manpower Committee chairman Mohamed Wahab said he is not particularly concerned with the final decision on Article 5, and that the priority should be passing the bill before Ramadan in order to hand out the raises before the holy month.

What’s all this about “Article 5” in the domestic press? That’s the article that stipulates how the raises will be calculated. Reports in the domestic press suggest the House had decided to remove the article from the bill during discussions last week, sparking a conflict with the government.

What’s next? House Speaker Ali Abdel Aal sided with Cabinet and tried to call a vote yesterday, prompting some MPs to raise a stink, chanting that only a minority of MPs were in agreement. Abdel Aal postponed the vote by 24 hours to give time to reach a consensus.

MOVES- Credit Agricole Egypt has appointed board member and Mubarak-era GAFI chairman Assem Ragab as the bank’s non-executive chairman. Francois Drion, the former chairman and CEO of Credit Agricole Egypt, will remain the bank’s CEO. Ragab’s appointment awaits CBE approval.

EARNINGS WATCH- Orascom Telecom Media and Technology (OTMT) reported a consolidated net profit of EGP 897.5 bn in 2016, a swing back to profitability after an EGP 3.61 bn net loss in the year before. OTMT’s operating revenues increased to EGP 538.4 mn in 2016 from EGP 291.4 mn a year earlier. The company says it recorded EGP 1.67 bn in FX gains that followed the EGP flotation as the company had foreign currency balances. The board has approved a dividend of EGP 0.10 per share, Reuters notes.

National Bank of Kuwait-Egypt recorded a net profit of EGP 329.5 mn in 1Q2017, up from EGP 186.6 mn during the same period last year.

CORRECTION- Mohamed El Mekkawy was appointed chairman and managing director of Porto Group, according to a bourse disclosure. He succeeds Mansour Amer, who stepped down from his post. We erroneously reported yesterday that El Mekkawy had been appointed president. The story has been corrected on our website.

Today’s Egypt Holiday Photo of the Day is from the Deshret Reithu region. The ancient region of Deshret Reithu near Saint Catherine’s Monastery provided Ancient Egypt with turquoise, gold and copper. Ruins of mines and temples can still be found there. The image was shot for CIB’s 2016 Annual Report (microsite and print edition) by Zeina Abaza at Inktank Communications, which has produced the bank’s annual report for the past eight years.

Wait, what? Africa isn’t a country? Writes Bloomberg: “Investors targeting Africa are broadening their horizons in their search for yield as sluggish growth and policy uncertainty in Nigeria and South Africa, the continent’s biggest economies, weigh on returns. Ivory Coast, Senegal, Ghana, Rwanda and Ethiopia are among countries featuring on the radar screens of investors… ‘There is a more nuanced story in Africa,’ Razia Khan, Standard Chartered Plc’s head of Africa macro research, said. ‘There are pockets of strength and turnaround. Local factors matter much more than they did in the past.’” The entire continent isn’t a basket case? Local factors matter? Shocking. Just … shocking.

It’s another quiet morning for Egypt in the international press, with coverage dominated by light pickup of Reuters copy on the investment act, the second tranche of the IMF loan and Amr El Garhy’s remarks on a second eurobond. Elsewhere this morning:

Successive governments’ reliance on declarations of a state of emergency has proven to be ineffectual in addressing security issues, Sherif Mohy Eldeen writes for the Carnegie Endowment for International Peace. For decades, the government has imposed the state of emergency for extended periods of time by alleging it is a necessary measure to combat violence and terrorism, rather than coming face-to-face with security forces’ shortcomings, Mohy Eldeen says. “As the attacks increase, it is not clear how the state of emergency would tackle the underlying problems it was adopted to address, yet it provides further justification for grave repression and abuse.”

…Also writing about Egypt for the Carnegie Endowment for International Peace is Nathan Brown. He says since 2013, politics in Egypt have been “grimly predictable, with authoritarianism reestablishing itself firmly in the country, challenged only at the margins, or through terrorism and insurgency.” However, Brown also says that state institutions are in conflict, as “there is a struggle for dominance as well, one in which the presidency’s short-term victories may not realize Sisi’s long-term interests.”

Other coverage worth noting in brief:

• Chinese dragon boat racing has started taking place in the Nile in Cairo, Xinhua reports.
• The cheaper EGP is attracting demand to Egypt’s housing sector and developers are trying to attract demand from Egyptian expats living in the GCC, AMEinfo reports.
• Sonia Farid asks if the recognition of baptism agreement signed between Pope Francis and Pope Tawadros is a solution for disagreements between the two churches or just cause for more debate in Al Arabiya.
• India is organizing a cultural festival in Egypt to mark the 156th birthday of the poet Rabindranath Tagore.

The power struggle over the Investment Act’s executive regulations is trivial: The House of Representatives’ decision to mandate Prime Minister Sherif Ismail with issuing and signing off on the Investment Act’s executive regulations raises questions about the logic behind the move, Hussein Youssef says in a column penned for Youm7. However, this is a tiny detail that should not detract from the significance of the legislation and the importance of attracting more investment.

One of Ismail Haniyeh’s priorities after being elected as Hamas’ leader is patch up strained relations with Egypt and Iran, according to The Financial Times. Haniyeh succeeded Khaled Meshaal, who reached his term limit, after Hamas issued a new policy document that avoided anti-Semitic language and distanced itself from the Ikhwan, “signalling a more pragmatic line.”

El Sisi looks to bolster security, trade ties with GCC: President Abdel Fattah El Sisi met with Kuwaiti Emir Sheikh Sabah Ahmad Al Jaber Al Sabah on Sunday, the first day of his official visit to Kuwait, according to an emailed statement from the presidency (pdf). The two discussed ways to deepen economic ties and bolster cooperation across the board, particularly in the regional war on terror. El Sisi also sat down with a number of other top Kuwaiti officials, Ahram Gate said, including Prime Minister Sheikh Jaber Al Mubarak Al Hamad Al Sabah and Foreign Affairs Minister Sabah Al Khalid Al Sabah, as well as National Assembly Speaker Marzouq Al Ghanim and a number of representatives.

The president next heads to Bahrain for similar talks with King Hamad bin Isa Al Khalifa after his two-day stay in Kuwait. The visits aim to strengthen Egypt’s economic ties with both countries, Trade Minister Tarek Kabil said in a statement picked up by AMAY.

Egypt’s Industrial Development Authority (IDA) will be working with its Omani equivalent, the Public Establishment for Industrial Estates, to promote investment on both sides of the fence, particularly in the food and autofeeder industries, Al Ahram reports. The agreement came during a Omani delegation’s visit to Cairo this week.

Investment and International Cooperation Minister Sahar Nasr discussed a CHF 86 mn cooperation framework between Egypt and Switzerland with Swiss Ambassador Markus Leitner. The framework discussed is for policies from 2017 to 2020 and includes programs to improve living standards and move forward with economic reform.

Saudi Arabia’s Alfanar signed offtake agreement to sell solar power to the Egyptian Electricity Transmission Company and hopes to reach financial close on a solar power station in about two months’ time, Al Borsa says. Alfanar vice chairman Sabah Almutlaq tells the newspaper the company is building a USD 75 mn, 50 MW power station with partial financing from the European Bank for Reconstruction and Development.

ECC-Aquatech is looking to inject over EGP 1 bn in four wastewater treatment projects in Egypt, Chairman Omar Attaby told Al Mal. ECC-Aquatech is already working on an EGP 157 mn plant at El Galala in cooperation with the Military Operations Department of the Engineering Authority. Attaby did not provide specific details on the other projects, but said one would include a plant in Kafr El Sheikh as part of its CSR strategy.

Archaeologists and conservation experts are meeting in Cairo to discuss transporting King Tutankhamun’s throne, chests, and bed safely from the Egyptian Museum to the under-construction Grand Egyptian Museum, according to the Associated Press. “The gathering brought together experts from Egypt, France, Spain, Germany, Switzerland, Denmark and Japan and is being organized by the Egyptian Ministry of Antiquities.” No date yet has been set for the move.

Tourism Development Agency head Hisham El Demery is in India as part of a delegation traveling to four Indian cities over the next five days to attract tourists, Al Mal reports. The delegation is looking to promote Egypt as a honeymoon destination, as well as an ideal location for filming Bollywood movies, according to El Demery.

The House Economics Committee is discussing a proposal to allocate up to 10% of the state-controlled “private funds” (the government’s semi-official slush fund) towards the country’s subsidy card system, Al Shorouk reports. The proposal, put forth by MP Mohamed Elsewedy, would also see 15% of these funds’ surplus revenues directed towards closing the state’s budget deficit. Private funds were initially formed to wean some government bodies off the Finance Ministry, but are criticized by some as being magnets for graft.

The government is reconsidering establishing a sovereign wealth fund to manage the state’s underutilized assets, Al Mal reported. The government had considered setting up the “Amlak” fund two years ago after consulting with Strategy&. Former Planning Minister Ashraf El Araby and former Investment Minister Ashraf Salman had reached an agreement to set up the fund and even had EGP 5 bn allocated for it in this year’s budget but the agreement did not come to fruition.

President Abdel Fattah El Sisi issued a decision yesterday to re-establish the Supreme Council for Legislative Reform, headed by Prime Minister Sherif Ismail, Youm7 reports. The council will be comprised of the Justice and Parliamentary Affairs Ministers, in addition to various members of the judiciary, including the head of the Council of State (Maglis El Dawla).

A group of South Sinai members of parliament collectively submitted their resignations yesterday to House Speaker Ali Abdel Aal to protest bureaucratic delays from executive bodies in their governorate, Al Masry Al Youm reports. According to the MPs, the delays are preventing them from addressing their constituents’ needs.

Electricity theft costs the state as much as EGP 200 mn during Ramadan alone, an Electricity Ministry source said, according to Al Borsa.