FDI is slumping globally, but Egypt is the top destination in Africa –UNCTAD

Sure enough, MPs are in overdrive talking about a cabinet shuffle: MPs from the dominant Support Egypt coalition are blathering about who’ s in and who’s out in an expected cabinet shuffle, Al Shorouk reports. We won’t bore you with the details — it’s all hot air. The significance is in the chatter, not the content thereof. The Ismail Cabinet had submitted its resignation on Tuesday — a standard procedure after the inauguration of a president — and was promptly appointed as a caretaker government until a new cabinet is formed.

Analysts see interest rates being left on hold at the next MPC meeting: The Central Bank of Egypt’s monetary policy committee will next meet on 28 June, an top analysts are already leaning toward interest rates being left on hold, according to a poll conducted by Al Shorouk. Pharos Research head Radwa El Swaify sees interest rates left unchanged to counter a projected rise in inflation from the 46.5% increase in water prices and the threefold increase in metro ticket prices, not to mention upcoming subsidy cuts to fuel and electricity. She noted external factors such as a strengthening USD and oil prices.

Monetary easing won’t resume until at least the fourth quarter? El Swaify sees the monetary easing cycle picking up again in 4Q2018, expecting the CBE to lower rates by 200-300 bps. Beltone Financial lead economist Alia Mamdouh concurs on the upcoming MPC meeting holding interest rates steady to counter a potential hike in inflation. She sees interest rates not going up until the end of the year. Sigma Capital’s Aya Abdullah doesn’t believe rates will rise again until after 4Q2018, the newspaper reports.

Meanwhile, the Ismail Cabinet said yesterday it would take steps to offset rising oil prices (we have more in the Speed Round below).

This comes as the US is pushing for OPEC countries to increase production by around 1 mn bbl/d, people familiar with the matter tell Bloomberg. While criticism of OPEC pricing by a US administration is nothing new, this would be the first time a US government actually called for a specific production level, the business information service suggests. The request came after US retail gasoline prices surged to their highest in more than three years. This comes as Saudi Aramco raised its official selling price for Arab Light crude for July shipment to Asia. The price spike was the the highest since 2014.

In miscellany today:

“The gear you need to work from anywhere” is currently one of the most-watched videos on the Wall Street Journal, as tech columnist David Pierce gives you the rundown on “everything you need to work from anywhere, and how to fit your entire office in your bag.” You can watch the video (runtime: 2:44). Or you can take our advice: Just about everyone at Enterprise works remotely four days out of five every week — and one of us gets >90% of his daily work done on an iPad Pro (the model with LTE baked in, so we’re never away from the internet). Our go-to apps for iPad include:

• Google for Work, or whatever it’s called today, including Docs, Drive, Gmail, Sheets and Calendar. Docs is where we all work together to build Enterprise in a single file each day;
• Microsoft Office, including all the usual suspects. Word and Excel are particularly good, but don’t expect to do complex modeling on the latter. It’s best suited to reviewing reports and building tables for … still more reports;
• File Browser, to access stuff stored on our corporate Windows-based server (you want the version we’re linking to, which covers “computers + cloud”);
• Slack, the chat program that allows Enterprise staff to talk incessantly;
• PDF Expert, for viewing, editing (yes, editing), marking up, signing and storing pdfs;
• Evernote — for meeting notes, airplane ticket storage, searching inside handwitten notes, etc.

Are you ready to pay USD 1,095 a month (in the US) to “subscribe” to a Mercedes-Benz? “The app-based service initially available to drivers in Nashville and Philadelphia has three pricing tiers ranging from USD 1,095 to USD 2,995 a month, according to a company statement. Subscribers will get access to 30 different models, from C-Class sedans to GLE sport utility vehicles, and can swap cars as often as they like, depending on what tier they choose,” Bloomberg reports. The Verge has more. Or you can go read the Mercedes-Benz USA announcement about its “Collection” service.

Who is attacking US diplomats in Cuba and China? “For months, American officials have been worried that their diplomats have been subjected to targeted attacks involving odd sounds” first in Cuba, and now in China. Victims of the alleged sonic attacks “were stricken with headaches, nausea, hearing loss, cognitive issues and other symptoms after saying they heard odd sounds.” The attacks began in 2016 and appear to continue to this day,. Canadian diplomats have also been targeted. Read more in the New York Times, the Washington Post or the Globe and Mail.

NASA has something to tell us about Mars, but they won’t tell us what until we tune in for a press conference scheduled for later today. Until 8pm CLT today, you’ll have to do with Space.com’s (necessarily) skimpy overview.

Listen to the late Kate Spade talk about how she built her business. While the media force her husband and father to talk about her “severe depression” and 10-month separation, we prefer to remember the entrepreneur in the iconic designer. If you haven’t already, listen on your morning or afternoon commute to Kate and Andy Spade speak with NPR’s How I Built This (listen, runtime: 42:02).

Parents in emerging markets spend more time focused on their kids’ education than do their peers in western economies, the Varkey Foundation found in a survey of 27k parents in 29 countries, according to a guest piece written for the FT’s Beyond Brics blog.

No, dude, tell us how you *really* feel about women. The bozo who runs Statelet Airways told reporters earlier this week, “Of course it [Qatar Airways] has to be led by a man, because it is a very challenging position.” Akbar Al Baker’s subsequent apology tour has only slightly dimmed the aggressive “nothing wrong here, we’ve won” campaign Qatar has mounted in global media this week to mark the one-year anniversary of the Arab Quartet’s boycott.

The USD 500 mn yacht for the oligarch in all of us: Yesterday, we told you about the messy corporate divorce between Facebook and WhatsApp. Now, it’s the world’s most expensive divorce that’s caught our eye. Not because we have divorce on the brain, but because at the center of the dispute is a USD 500 mn yacht with “a spa, a swimming pool, two heliports and room for 18 guests, the Luna is more like a floating luxury villa than a yacht. A crew of 50 keep all nine decks in pristine shape.” Expecting trouble with the neighbors or an assassin or two? Don’t worry: “It has a missile detection system, an anti-drone system, bulletproof windows and bombproof doors,” the New York Times reports.

Your Ramadan rundown for today:

Bank hours run 09:30 am to 01:30 pm for customers and from 09:00 am to 02:00 pm for employees.

The EGX is running shorter trading hours. The trading session kicks off at 10:00 am, but closes at 1:30 pm. Tap or click here for the full schedule.

So, when do we eat? For those of us observing, Maghrib is at 6:55 pm CLT today. You’ll have until 3:08 am tomorrow to finish your sohour.

Egypt will announce on Sunday the details of the prequalification stage of a tender to manage the Grand Egyptian Museum (GEM), according to the Investment Ministry (pdf).

Saudi Arabia could be upgraded to MSCI emerging markets status this month.

Unified port fees will permanently come into effect in July, SCZone chief Mohab Mamish has said, Youm7 reports.

The World Bank is offering seed funding, access to mentorship for agritech startups through its “DigitalAG4Egypt” program. The deadline for submissions is 1 July. Tap or click here for more information.

Our coverage of last night’s talk shows will resume when the the talking heads return to the airwaves after their Ramadan hiatus.

Foreign direct investment is slumping around the world: The latest figures from the United Nations. World Investment Report show global FDI fell 23% in 2017 and may not grow at all this year. You can thank rising trade tensions, including the brewing trade war between the US and China as well as the US and traditional its allies in Canada and the European Union.

Egypt was the top destination for FDI in Africa last year (outpacing Ethiopia, Nigeria, Ghana and Morocco), but still fell 8.8% y-o-y to USD 7.4 bn. On the regulatory side, the report took note of the Industrial Permits Act and Investment Law coming into effect, which should promote domestic and further investment “by offering further incentives, reducing bureaucracy and simplifying administrative processes.”

Where did the inflows to Egypt come from last year? UNCTAD thinks they were “supported by a large increase in Chinese investment across light manufacturing industries and wide- ranging economic reforms beginning to pay off: financial liberalization, for instance, fostered more reinvestment of domestic earnings.”

We’re not sure we agree with UNCTAD’s analysis: Far from reinvesting earnings last year, Egyptian companies saw profits eroded by (among other factors) high interest rates. Earnings recovery is a 2018 story, and the return of CAPEX spending will be a theme for 2019. What’s more, Chinese investment in the TEDA industrial zone seems to us to have been far from sufficient to move the needle — the big stuff is in major infrastructrure and urban development projects, many of which haven’t seen final contracts signed.

FDI to Africa fell 3% for the year thanks in part to “weak oil prices and lingering effects from the commodity bust.” You can read the full UNCTAD World Investment Report 2018 (pdf) or check out coverage in the Financial Times.

The World Bank sees Egypt’s economy growing a brisk 5.3% during 2018, according to its Global Economic Prospects report (pdf). Real GDP is then seen growing to 5.7% in 2019 and 5.8% in 2020 as “investment and net exports have improved, supported by the stability of the exchange rate and stronger domestic demand.” Inflation has also cooled in Egypt, the report notes, falling to around 13% in April from a record-high of 35.3% last summer after the government hiked fuel and electricity prices, in turn allowing the CBE to implement two consecutive interest rate cuts of 100 bps each.

For the fiscal year, the World Bank had previously said in its Economic Outlook April 2018 report that real GDP would grow by 5.0% in FY2017-18 and rise gradually to 5.8% by FY2020-2021.

CABINET WATCH- Gov’t looks to offset higher oil prices: The Ismail Cabinet gave the finance and oil ministries the green light to begin talks with international banks to adopt measures to counter rising global oil prices, according to an official statement. The statement isn’t exaclty clear on what that means, but our money is on some from of hedging strategy. This comes as the Finance Ministry leaves its projected average oil price in next year’s budget at USD 67/bbl despite the recent surge in oil prices, which saw Brent break the USD 80/bbl mark before retreating to just under USD 76 this morning. Finance Minister Amr El Garhy has said that it seems price growth has cooled and Egypt’s international oil agreements will help keep supply in Egypt stable.

El Garhy calls on state companies to pay overdue bills as oil prices go up: The ministries of oil and electricity are owed EGP 900 bn in overdue electricity and gas payments, Finance Minister Amr El Garhy reportedly said yesterday. The situation just cannot continue, especially in light of higher oil prices, he stressed. As we reported last month, cabinet has been pushing state-owned companies to pay overdue electricity and gas bills, going so far as to encourage liquidity-starved companies to start selling assets to the private sector, Al Ahram reports.

Also from the meeting — pension hikes, tax cuts to cost the state EGP 67 bn: El Garhy also commented on the tax breaks and pension increases announced earlier this week, will cost the state some EGP 67 bn, according to the newspaper.

The Council of Ministers also signed off yesterday on a USD 53.2 mn loan agreement with the OPEC Fund for International Development for phase two of a program to upgrade irrigation and sewage systems. It also approved a new Real Estate and Property Registration Law to replace the current 1964 law that created a numerical code-based system for land registration.

INVESTMENT WATCH- Sawari Ventures looks set to reach a USD 55 mn first close on venture capital fund by the end of June, according to a piece in Al Mal quoting founding partner Wael Amin. Limited partners in the fund include the National Bank of Egypt and Banque du Caire, who collectively contributed EGP 125 mn, as well as the European Investment Bank, the story claims. The Sawari fund will invest in 15-20 startups in sectors including education, tech, health and power generation, allocating c. USD 2.5 mn to each company. Sawari could look to raise a further USD 15 mn for the fund in about 18 months’ time, Amin is quoted as saying.

INVESTMENT WATCH- Private equity firm Gateway Partners is eyeing opportunities in consumption-driven markets including Egypt, the UAE, and Saudi Arabia as it looks to fully invest its USD 757 mn fund over the coming year, Bloomberg reports. The company, which typically invests USD 50-75 mn from its own balance sheet in every transaction, has already committed 65% of the fund’s capital to emerging markets. “As populations grow and more importantly, as middle classes expand, there will be strong consumption demand, whether in confectionery or in healthcare or housing,” Partner Anil Dua said in an interview. The eight-year fund looks for yields of 2.5-3x its capital.

Healthcare blockchain startup Iryo is planning to expand into Egypt, Iraq, Syria, Jordan, and Djibouti after it successfully “deployed blockchain-based electronic health records in refugee camps in the Bekaa Valley in Lebanon,” according to the FT.

LEGISLATION WATCH- Are we one step closer to seeing short term bonds? The Financial Regulatory Authority (FRA) appears to have begun fleshing out legislation that would open the door to issuing short-term bonds, Al Mal reports. Representatives from organizations including EBRD, investment banks and credit ratings agencies attended an FRA workshop on the topic yesterday. While it unclear what form the legislation will take, sources said last month that the FRA’s board of directors has already approved proposed amendments to the Capital Markets Act’s executive regulations. Short term bonds appear to be the only major financial instrument which didn’t make it in the act. The amendments introduced mechanisms to govern short selling, alongside a host of other financial instruments such as sukuk, and commodities and futures exchanges.

LEGISLATION WATCH- The House of Representatives will likely pass a new Water Act during its next legislative session, House Agriculture Committee deputy chair Hisham El Hosary tells Youm7. According to El Hosary, the committee plans on finalizing its discussion of the law during the current session, which is expected to come to a close on 30 June. The law — which first emerged back in 2014 — outlines how water is distributed, who has the right to use it, sets new penalties for wasting and new regulations for Egypt’s sewage systems. Cabinet had approved the amended act last September.

Bahrain sets new regulations before resuming guava imports from Egypt: Egypt must provide Bahrain with a list of guava farms and suppliers, as well as accredited packaging stations, if it hopes to see its guava shipments re-enter the kingdom at the start of the upcoming 2018-19 season. The stipulation is part of a list of new rules that the Bahraini government reportedly set last month when it agreed to lift the ban on Egyptian guava imports, which was put in place last year due to pesticide contamination. The conditions also mandate that every shipment to Bahrain carry a safety certificate issued by a government-approved lab, and undergoes tested for residual pesticide levels, Al Mal reports. The Saudi government will begin implementing similar-style rules on Egyptian imports as of 13 July, after it agreed to lift blanket bans on guavas, strawberries, and peppers imported from the country. Tighter quality control measures led to a rise in fruit and vegetable exports this season.

Meanwhile, a 64 year-old Australian was reported dead after allegedly contracting Hepatitis A from frozen pomegranates imported from Egypt, Australian health authorities said, according to the BBC. Australian fruit provider Creative Gourmet had recalled pomegranate arils imported from Egypt back in April after the produce was linked to a Hep A outbreak that sickened at least 24 other people.

Quarantine to go digital? This comes as the Agriculture Ministry waits to receive financial allocations to start creating a digital platform for the Quarantine Authority, head Ahmed El Attar tells Al Masry Al Youm. The move would include creating a website and functional database for the authority, as well as linking its offices together and with a central control room to monitor all import/export-related activities. The Agriculture Ministry had said in March that it would launch a smart card system for farmers that will allow it to better track produce earmarked for exports and trace any sources of contamination.

EARNINGS WATCH- Elsewedy Electric reported a 7% y-o-y drop in net profit after tax and minority interest to EGP 1.4 bn in 1Q2018, down from EGP 1.5 bn in the same period the year before, the company said in its earnings release (pdf). Revenues inched up 2% y-o-y to EGP 9.9 bn, driven largely by the wires and cables segment, which grew by 18% y-o-y. The company is “actively exploring new growth avenues with a particular focus on infrastructure,” and will focus on “screening and identifying EPC tenders across infrastructure projects such as electricity, water treatment and desalination projects,” says CEO Ahmed El Sewedy.

Elsewedy looks to get in on the deregulated electricity market: “In parallel, we are also pushing ahead with our strategy of building recurring revenue streams in the power generation space through the ownership of facilities as an Independent Power Producer (IPP),” El Sewedy added. Under the IPP framework, private companies are allowed to directly sell power to consumers while paying the state a fee to use the national grid for transmission. The Electricity Ministry is currently working on developing the pricing scheme for power produced and sold under the framework.

CLARIFICATION- Regarding our piece earlier this week on plans for the overhaul of the economic model for mining in Egypt, Wood Mackenzie has been contracted by an affiliate of the Petroleum Ministry to lead on the study, not by players in the industry themselves. Per the State Information Service in March of this year: “Under the contract, Wood Mackenzie will study the mining sector in Egypt and lay out an appropriate development strategy by August. Enppi company will offer needed logistic and technical support for the consultancy group.”

Benzema: Why bother playing the World Cup when you can tan by the Red Sea? Real Madrid’s Karim Benzema left the Red Sea coastal city of Hurghada yesterday after spending two days cruising and snorkeling around iconic touristic sites like Giftun island and Marsa Alam, Egypt Independent says. Red Sea tourism chamber member Ihab Shoukry said that Benzema’s visit to Hurghada was part of a tourism campaign. The French striker will not be participating in the World Cup.

Egypt’s national football team has a plan B in case Mo Salah’s shoulder injury fails to heal in time for the World Cup, coach Hector Cuper said yesterday, according to the Independent. Cuper didn’t name Salah’s backup, saying only that the team “will be ready with another player.” The football star made the final lineup of Egypt’s World Cup squad as he appeared to be showing positive signs of recovery from his shoulder injury. Cuper’s comments topped coverage of Egypt in the foreign press this morning.

Without Salah on the roster, Egypt suffered a 3-0 defeat to Belgium yesterday in the last pre-World Cup friendly, Reuters reports. The defeat does not bode well, with even Manchester United boss Jose Mourinho saying he doubts the Pharaohs can make it past the group stage, according to King Fut.

Is Salah heading to Barcelona after the World Cup? Rumors flooded the Spanish press that Mo Salah’s agents have told FC Barcelona that the Liverpool forward “would be willing” to move to the Spanish team, according to Onefootball. Reports had since been denied by the agents on Twitter.

Civil servants’ wages are eating up far too much of the country’s resources — and allowing them to account for the lion’s share of expenditures in the upcoming fiscal year’s budget suggests that funding development is not a priority for cabinet, Ashraf El Barbary writes for Al Shorouk. The bloated budget for state employees could have been put to better use had it been allocated to the country’s education development program, which El Barbary fears is sorely lacking the necessary financing.

We’re on our way to becoming like The Jetsons with this joystick-operated flying car: Flying car company Kitty Hawk has rolled out a fully electric flying vehicle, the Flyer, which has just enough space for the driver and can fly for up to 20 minutes, according to CNBC. The vehicle, which is currently available for pre-order, is “something between a pontoon plane and a drone, and it’s not too comfortable for the driver” (runtime, 1:01).

The African Development Bank (AfDB) is planning to finance new energy, industrial, and agricultural projects in Egypt, Country Manager for Egypt Malinne Blomberg said in a meeting with Trade and Industry Minister Tarek Kabil yesterday, according to a ministry statement. The bank is currently studying a number of projects, including some n the Suez Canal area.

The Housing Ministry has launched a local tender for a number of rural sanitation projects in Sharqiya, funded by a USD 550 mn World Bank loan, Housing Ministry Senior Undersecretary Rania Al Menshawi tells Al Mal. The project aims to upgrade sanitation services in more than 150 villages around Egyptian governorates. The contractor awarded will be required to pay 5% insurance on the contract’s total value, according to Housing Minister’s technical advisor Sayed Ismail. Egypt and the World Bank had signed an agreement on Tuesday to begin the second USD 600 mn phase of the project’s implementation, which will be co-financed by the Asian Infrastructure Investment Bank.

Transport Minister Hisham Arafat announced yesterday the qualifying bids for the USD 100 mn Six October dry port project, according to a ministry statement. The list includes a consortium comprising Elsewedy Group, Germany’s Schenker, and Cairo 3A. A Groupe PSA-Hassan Allam Construction-Concorde Engineering and Contracting consortium is also bidding on the project, as is a consortium made up of the Holding Company for Maritime and Land Transport, the Suez Canal Economic Zone, and DP World. The 100-feddan Six October dry port will be developed under a PPP framework.

Egyptian German Automotives is launching a new factory to manufacture brake parts in Six October City in September, Business Support Manager Mohamed Salem tells Al Mal. With plans to reach the maximum production capacity of 30k tonnes annually, the company is planning to increase its exports, targeting global auto brands. The company has already been exporting its products to Mercedes-Benz since 2002 and Volkswagen since 2012. Kayan Egypt CEO Karim El Naggar had said that his company was in “serious negotiations” with Egyptian German Automotives and other manufacturers to assemble SEAT cars locally by 2020. The value of the project was not disclosed.

Orascom Development Egypt (ODE) has signed an MoU with the New Urban Communities Authority (NUCA) to build a Gouna-style town in 6 October City, CEO Khaled Bishara said yesterday, without disclosing further details about the cost or timeline for the project, according to Al Masry Al Youm. The new development will mimic Gouna’s sustainable city model.

Hotel occupancy rates in Egypt are expected to rise from April-June 2018, Colliers International said in a report on MENA hotels (pdf). Sharm El Sheikh and Hurghada are expected to see the biggest jump in occupancy rates over the three months, reaching 42% and 55% y-o-y, respectively. Cairo’s occupancy rates are expected to rise to 61%, while Alexandria’s are projected to reach 67%. Sharm El Sheikh and Hurghada’s markets are both “growing from a very low base last year” and are expected to grow on the back of improved security perceptions and relaxed travel advisories, the report notes.

Three local and international consortia have reportedly qualified to design and supervise the EUR 360 mn Alexandria tram project, sources tell Al Mal. A Systra-led consortium topped the list of bidders. A SITC Group-led consortium and a consortium headed by France’s Ingerop were among the top contenders. The three consortia include local companies Moharram.Bakhoum and Menarail, among others. The National Authority for Tunnels (NAT) will begin reviewing financial offers within 15 days and announce the results a month later, the source adds. The Cabinet had said that work on the Alexandria tram project would begin early next year and is expected to take three years to complete.

The Industrial Development Authority (IDA) will decide today whether to begin seizing land from 128 investors unlucky enough to be part of the 1,000 factories who are constantly crying out for help in New Cairo over delays in completing construction or beginning production, according to an IDA source. The authority had previously issued several warnings and ultimatums to these investors to remedy the situation, which the investors reportedly did not heed. The factories ran into repeated infrastructure and regulatory hurdles since the zone was developed.

Online supermarket Awfar Market is in talks with four investment funds in the US and UAE to secure funding for expansion plans in the Arab region, specifically in Kuwait and the Emirates, according to CEO Abdelrahman Galal.

President Abdel Fattah El Sisi issued yesterday a presidential pardon for 712 prisoners, according to Reuters’ Arabic service.

English Lit professor Mona Prince said on her Facebook page that she intends to sue Suez Canal University after she was dismissed from her teaching post three weeks ago, Ahram Online reports. Prince — who was being investigated last year for “inappropriate behavior” after a two-minute video of her dancing on the roof of her own home went viral — was also accused of “glorifying Satan” and spreading “destructive ideas” for teaching students John Milton’s Paradise Lost.