May inflation rises at slowest pace in two years

Let’s get the *really* important news out of the way: You’re looking at a four-day weekend: At least if you work in banking or finance. The Central Bank of Egypt will observe Eid El Fitr through Monday, according to a statement it put out yesterday. Thursday is expected be the last day of Ramadan, with the Eid El Fitr holiday starting on Friday. We look forward to working on a caffeinated state when our first post-Ramadan issue hits your inboxes on Tuesday.

Meanwhile, we have a packed issue for you today. Let’s get started:

Prime Minister-designate Mostafa Madbouly could unveil his cabinet as early as today, presenting the lineup to President Abdel Fattah El Sisi, according to Al Shorouk. The domestic press is in overdrive speculating about who is in and who is out. Typical us this report in Al Masry Al Youm that claims the new Council of Ministers will see as many as 10 new faces and add more women to its ranks. “Unnamed government officials” tell both Al Shorouk and Al Mal that Deputy Housing Minister Essam El Gazzar will inherit Madbouly’s old post of Housing Minister. Both newspapers are also suggesting that Dr. Hala Zayed, who heads up the 57357 Children’s Cancer Hospital, will get the nod to replace Ahmed Rady as Health Minister.

As for the Cabinet economic group, the consensus in the domestic press is that our friends Amr El Garhy and Tarek Kabil could be leaving office after periods of distinguished service. The domestic press continues to tout Vice Minister of Finance Mohamed Maait as our next finance minister and Engineering Industries Export Council boss Amr Nassar as the incoming minister of trade and industry. El Garhy and Kabil staying would be good for business —but both of their supposed successors are pro-business choices, signaling that for policy continuity would be the order of the day. Maait told Youm7 yesterday that he “has yet to receive an official nod.”

We’re in the midst of what some are calling “the world economy’s most important week of the year.” Donald Trump is feuding with his closest allies, having alienated the rest of the Group of Seven industrialized nations and taken remarkably personal shots at Canadian Prime Minister Justin Trudeau, who is being backed by everyone from UK Prime Minister Theresa May to European Council boss Donald Tusk. That backdrop leads today’s front pages (FT | WSJ | NYT) as the world economy gears up for what Bank of America is calling the “world economy’s most important week of the year,” Bloomberg reports. At stake:

• Trump and North Korea’s Kim Jong Un meet tomorrow in Singapore in a high-stakes game of nuclear diplomacy. The same day, the US government will release its monthly inflation report, giving us a sense of whether and how the US economy is growing.
• The UK’s Brexit legislation goes back to the House of Commons, sparking debates and votes set for Tuesday and Wednesday on topics including whether Britain should try to remain in a customs union with the EU.
• On Wednesday, the US Federal Reserve looks set to hike interest rates for the second time this year.÷
• On Thursday, the European Central Bank will start discussing how and when to end its bond-buying program.
• Also Thursday: Russia’s Vladimir Putin and KSA’s Mohammed bin Salman will get together at the opening game of the World Cup, offering a chance to confirm they’re on board with an oil production increase just a week before a “crucial OPEC meeting in Vienna.”

All of this comes amid more talk of an “emerging-markets rout” sparking “contagion fears,” with both the Wall Street Journal and the Financial Times getting in on the party (also here and here).

Against that backdrop, it should be an interesting MPC meeting this month: Inflation cooled again in May, rising at the slowest pace in two years, according to data released yesterday by CAPMAS (we have chapter and verse in Speed Round, below). A common thread among analysts discussing the results is that this should give the CBE more breathing room during the next monetary policy committee meeting on 28 June, especially as the government is expected to cut fuel subsidies very soon. EFG Hermes and Beltone Financial joined the chorus yesterday, telling clients in research notes that they expect the central bank to leave interest rates on hold when it meets at the end of this month.

Other emerging market central bankers are raising interest rates: India, Indonesia, Turkey, Pakistan and the Philippines, have all raised rates in the past few weeks to counter the EM sell-off and a resurgent USD, the FT reports. All told, EM countries have tightened policy 22 times in 2018.

The US Fed and the European Central Bank could just make it worse, with some expecting both the US Federal Reserve and the European Central Bank to raise rates to signal confidence in global economic growth, despite risks of a trade war, currency swings and political turbulence.

Back on planet finance:

An Abraaj audit found corporate and investor cash were commingled, but says there is no evidence of embezzlement, the Financial Times’ Simeon Kerr reports in an exclusive, having gotten his hands on briefing notes prepared last week for creditors. “Abraaj dipped into investor funds because of cash shortages at the group, but there is no evidence of embezzlement, a forensic review of two funds at the struggling private equity firm by Deloitte has found,” Kerr writes. Creditors are trying to give Abraaj breathing room to restructure its USD 1 bn in debt, Cerberus Capital Management is still making a USD 125 mn play for Abraaj’s fund management business, and the Dubai Financial Services Authority apparently backs the plan. But the Kuwaiti pension fund is still looking to play the spoiler by forcing Abraaj into bankruptcy proceedings.

Bulge bracket investment bank profits are at pre-financial crisis levels, the FT reports elsewhere, noting that “the world’s top investment banks made more money in 2017 than in the year before the collapse of Lehman Brothers, highlighting the industry’s resilience from a crisis that threatened to overwhelm it.”

So, when do we eat? For those of us observing, Maghrib is at 6:56 pm CLT today. You’ll have until 3:08 am tomorrow to finish your sohour.

The Pharaohs landed in Chechnya (their training base) yesterday for the 2018 FIFA World Cup, which kicks off on Thursday. Mo Salah was “given a hero’s send-off” by hundreds of Egyptian fans at the final training in Cairo Stadium before heading to Moscow, the Sun reports. Salah did not participate in the team’s first training session in Chechnya yesterday, appearing instead in the stands to greet fans, according to Sputnik. Egypt will play its first match in the tournament against Uruguay on Friday (the first day of Eid El Fitr) at 2 pm CLT. Egypt’s second match will be against host Russia at 8 pm on 19 June, followed by the country’s last match in the first round against Saudi Arabia at 4 pm on 25 June. Tap or click here for the full schedule.

Oh, and that thing creepily smiling at you up top there? That’s what the creative marketing geniuses have come up with as our mascot. They’re telling us it’s a Nile crocodile. But it reminds us of Kaa, the snake from Jungle Book.

You may get to watch the World Cup without charge thanks to the ECA: The Egyptian Competition Authority (ECA) has ordered FIFA to grant the National Media Authority the right to broadcast 22 of the World Cup’s 64 matches on Egypt’s satellite channels, an ECA statement reads. FIFA had awarded Qatar’s beIN Sports the exclusive rights to air games in the region, but the ECA says that the tender process was neither fair nor transparent. According to the ECA, Egypt’s Competition Protection Act grants it the authority to compel FIFA to comply with its demands since FIFA’s agreement with beIN violates articles of the Competition Protection Act on fair practices.

FIFA has yet to respond to the ECA’s complaint letter. The National Media Authority had been in talks with FIFA for the rights to broadcast the Egyptian team’s matches for a nominal fee, but FIFA reportedly did failed to respond, prompting the authority to file a complaint with the ECA, Al Masry Al Youm reports.

Meanwhile, Employers across the Middle East are shuddering at the expected dip in productivity during the World Cup. A new survey by online recruitment portal GulfTalent found that 92% of the region’s workers are planning to watch at least some of the games, according to Forbes Middle East — not surprising considering four Arab countries (Saudi Arabia, Egypt, Tunisia and Morocco) are taking part for the first time in decades. “Since most of the matches will be played during Middle East working hours of 2:00 pm to 1:00 am UAE time [12:00-11:00 pm CLT], they plan to watch it through live streaming on smartphones.”

Talk shows are off until the end of the Eid holiday. Move along.

Inflation rose in May at its slowest pace in two years: Annual headline inflation rate cooled to 11.4% in May from 13.1% in April, according to data from state statistics agency CAPMAS released on Sunday. That rate (the slowest rise in two years) beat the central bank’s inflation target, hitting the bottom of its range of 13% (+/- 3%). Monthly headline inflation fell to 0.2% last month from 1.5% in April. Annual core inflation — the CBE’s preferred gauge, which strips away volatile items such as food — was down to 11.1% in May from 11.6% in April. On a monthly basis, core inflation was 1.5% in May from 1.1% in April, the CBE said yesterday (pdf).

Figures beat expectation: “Assuming that the numbers are accurate, this is certainly an unexpectedly good development in terms of incoming macroeconomic data,” Naeem Brokerage head of research Allen Sandeep tells Reuters. Crucially, it “comes as a contrasting development versus other emerging economies witnessing a steady rise in inflation,” he added.

The drop in May came despite a 46.5% increase in water prices and the threefold increase in Metro ticket prices. All eyes now turn to the CBE’s monetary policy committee meeting at the end of the month.

Just remember: It’s coming off a really high base effect, with inflation having started to peak in May of last year following the late 2016 float of the EGP before starting to show signs of cooling in August.

May inflation figures give the central bank breathing room to absorb the shock of upcoming fuel subsidy cuts, EFG Hermes’ Mohamed Abu Basha wrote in a note to clients yesterday, saying the “inflation outcome expands the margin of real positive rates by 1.8pp to 5.9%, leaving CBE with a comfortable buffer ahead of the upcoming fuel price hikes. As such, we do not see a need for CBE to react to the fuel price hike, especially with inflation likely to be within its target of 13% +/-3%.” Abu Basha sees the CBE leaving rates on hold at least until 4Q18 “to: i) ensure the subsidy cuts do not have any surprising second-round effects; and ii) seek better visibility on global oil prices.” In a note yesterday, Beltone Financial said it sees inflation rising a further 3-5% in 3Q2018 on the back of a 35-45% increase in fuel prices, which could come as soon as next month.

Meanwhile, Pharos Research head Radwa El Swaify sees headline inflation averaging 13-4% in 3Q2018, with monthly core inflation surging to 3.5% in July as a result of higher fuel prices. She sees that figure dropping to 2% in August then 1.5% in September, she tells Al Mal. “Inflation may have moderated, but the rate could accelerate again if the government goes ahead with another round of fuel subsidy cuts,” writes Bloomberg Tarek El Tablawy.

EXCLUSIVE- Eastern Company will issue a tender for advisers on its 4% stake sale after Eid: The Eastern Tobacco Company is on the hunt for advisers for its 4% stake sale and will issue a global tender in the coming few days, Public Enterprises Minister Khaled Badawy told Enterprise. Bidding will be open to both local and international investment banks, he added. The sale of 4% is expected to bring in EGP 2-2.5 bn, Badawy added. The head of Eastern’s parent company, the Chemical Industries Holding Company, Emad El Din Mostafa had said last month that sale could be split in two stages, each offering 2% of the company’s shares

Badawy also confirmed that the sale will take place before the end of the month. This would make it the first state company to sell shares as part of the government’s privatization program.

The bulk of the state privatization program will take place this year, Badawy revealed. That includes companies looking to IPO and those looking to list additional shares. Companies which he says will likely list shares this year include Misr Insurance Holding Company, whose EGM approved listing shares on the EGX last month. He added that either the Damietta Container & Cargo Handling Company or the Port Said Container & Cargo Handling Company will list this year.

REGULATION WATCH- Hear ye, brokers looking to short: Meanwhile, FRA is looking into imposing “strict” compliance regulations for brokerages looking to get into short selling, FRA deputy head Khaled El Nashar reportedly said on Sunday. The regulations will ensure that only brokerages with the balance sheet strength to offer short selling will be allowed to offer the service, adding that he expects very “few brokerages” to win licenses to short.

Limits on which shares to short and by how much: FRA is also planning to limit shorting to shares that meet certain conditions based on a company’s size, he added. FRA also plans to limit the number of shares a short seller can borrow for a short position. The regulations, El Nashar suggested, should be ready soon.

 FRA amends listing regulations to comply with amendments to the Companies Act: The board of the Financial Regulatory Authority (FRA) approved on Sunday amendments to listing regulations, bringing them in line with the most recent amendments to the executive regulations of the Companies Act. The most prominent fixture of yesterday’s changes is the establishment of a weighted voting system when shareholders vote on board members, according to a statement from FRA picked up by Youm7. The amendments also allow shareholders to ask questions to the board ahead of a general assembly meeting, Ahram Gate reports. FRA is expected to issue a statement clarifying the details of the amendments.

EFG Hermes is best in frontier, second in MENA in 2018 Extel Survey; CI Capital third in MENA. Egypt-based investment banks had a strong showing in the 2018 Extel survey ranking research provided by brokerage houses, which saw 11,000 financial professionals at more than 4,000 firms (nearly 2,700 of them on the buy side) cast votes. EFG Hermes won the nod as the number-one frontier market brokerage firm, up from ninth place in 2017. The win comes just two years into the firm’s expansion drive into frontier emerging markets. EFG was also ranked number two in MENA behind HSBC and saw an unprecedented nine individual analysts make the top 20, including our friends Elena Sanchez-Cabezudo (financials, #3), Mohamed Abu Basha (economics, #5), Hatem Alaa (consumer, #6) and Nada Amin (consumer, #8) in the top ten. CI Capital ranked third in MENA, the firm noted in a statement (pdf) yesterday.

BUDGET WATCH- The House of Representatives Budget Committee approved the government’s request for a EGP 70 bn overdraft for the FY2017-18 budget, according to Al Masry Al Youm. Cabinet had approved last month the overdraft to cover “necessary expenditures,” the lion’s share of which was likely importing fuel at higher prices than had been anticipated.

LEGISLATION WATCH- The House of Representatives gave preliminary approval to part two of the Press and Media Act yesterday, but referred the legislation to the Council of State (Maglis El Dawla) for review before taking a final vote, Youm7 reports. The House’s Culture and Media Committee had decided on Saturday to split part two of the act into three separate bills that would each regulate work at different types of media organizations, as we noted yesterday.

Freedom of the press to be protected — with plenty of caveats: The law offers certain protections to journalists, safeguarding their right to access information, protect their sources, hold an opinion, and publish news without obstruction. Journalists would also be protected from being held in pretrial detention for any political or free speech-related cases. These protections, however, are highly contingent: They disappear instantly if a journalist “fails to obtain necessary permits” to conduct interviews or film in public spaces or if they are found to have published “fake news.” Prosecutors would also be given power to shut down or ban any printed or online outlet if deemed necessary at a time of war or public mobilization. Journalists and outlets that publish “private information” about individuals or fail to respect a state- or court-ordered media blackout would also face penalties.

The regulations will apply to social media accounts and blogs with a follower base of 5,000 people or more and impose a minimum capital requirement for all new outlets based on their medium, content, and frequency of publication as a prerequisite for obtaining the necessary permits from the state regulator. The minimum capital for a daily print newspaper would be set at EGP 6 mn, while online publications would only be required to have capital of EGP 100k. Television channels would be required to have capital of up to EGP 50 mn, depending on their purpose and content. All outlets would also be required to pay EGP 50k-250k for a five-year license.

Other regulatory stipulations: Requiring all press and media institutions to set a minimum wage and to establish insurance funds for their employees, and publicize their budget and expenditures, in addition to making sure that 50% of any institution’s editorial team and 70% of its overall staff is registered with the Press Syndicate. All media professionals and outlets would have six months from the date of the law’s issuance to comply with its requirements.

Are Google and Facebook about to get taxed? The law would also require all websites, including global advertising giants such as Google and Facebook, to pay taxes on all Egyptian advertisements they run. These taxes could bring in as much as EGP 1 bn in revenues to the state each year, Tax Authority head Emad Samy tells Youm7. The authority plans to collect taxes retroactively as of September 2016, according to Samy. Sources in government had told us earlier this month that the authority was also looking to impose VAT on e-commerce transactions.

You can also view the full text of the legislation here, courtesy of Youm7.

The legislation has not been particularly well-received by journalists and rights defenders. Parliament has not sent the final draft of the law to the National Council for Human Rights, head of the council’s media committee Gamal Fahmy tells Al Shorouk. Fahmy said the initial draft of the legislation had been put up for community dialogue and had been approved by journalists, media professionals, and the government, but the House’s amendments to the bill have undermined that consensus.

The Grand Egyptian Museum is now open for business: Investment Minister Sahar Nasr announced on Sunday the launch of the international tender for the management of facilities at the Grand Egyptian Museum (GEM). The USD 1 bn museum — USD 750 mn of which was funded through the Japan International Cooperation Agency — will host a number of facilities which will now be open to the private sector to bid on and manage, said Nasr. These include a conference center, cinema, restaurants, bookshops, and crafts centers, according to a business brochure of the museum (pdf) put out by the ministry. Winning companies will manage the facilities for a period ranging between 7-10 years. Companies bidding for the management of the Grand Egyptian Museum (GEM) will be announced by August, according to Al Mal. BWC international, Ehaf Consulting Engineers, Lord, and Hill & Knowlton will be the consultants overseeing the tender, Al Mal reports.

Antiquities Minister Khaled Anany also unveiled the GEM’s logo, which will be used in the museum’s promotional campaign in Egypt and worldwide.

1Q2019 opening: Construction work on the museum’s first phase is scheduled to be completed by end of 2018 and the facility will open its doors in 1Q2019, but interested investors can visit the site as of the second week of July.

A look back at Sadat and Carter’s meeting, among others in history, on eve of Trump and Kim summit: On the eve of US President Donald Trump’s highly-anticipated meeting with North Korean leader Kim Jong Un today, the Wall Street Journal looks back at other historical summits that have taken place over the past few decades between various US presidents and counterparts from across the globe, including the definitive encounter between Egypt’s Anwar El Sadat and the US’ Jimmy Carter back in 1978. The then-US president mediated a peace agreement between Egypt and Israel and the signing of the Camp David Accords, which earned Sadat a Nobel peace prize and the ire of other Arabs.

In a similar piece, the Washington Post also points to ex-US president Barack Obama “[compromising] on his foreign policy idealism” to meet with Egypt’s Hosni Mubarak in 2010. The Financial Times has also gotten into the game, but leads its roundup of four summits with the appeasement of Adolf Hitler in Munich in 1938.

It’s a quiet morning for Egypt in the international press, with most news being focused on either the World Cup or the new-found resolution between Egypt and Ethiopia to overcome their issues over the Grand Ethiopian Renaissance Dam (see Diplomacy + Foreign Trade).

A couple of other headlines that caught our eyes this morning:

• The Australian Museum in Sydney is spending AUD 50 mn to renovate its expo halls before it hosts the largest “Tutankhamun exhibition to ever leave Egypt,” the Sydney Morning Herald says. The artefacts will be on display in Sydney for six months before they settle permanently at the new Grand Egyptian Museum.
• Egypt is appealing to UNESCO to have a full-size replica of the Sphinx in China dismantled on the grounds that the monument is a “blatant copy” that Egypt did not approve, the South China Morning Post reports.

Reforms are not about who’s in power: The expected hike in fuel and energy prices will be among the first items of business on the Madbouly cabinet’s agenda, which proves that progress on the implementation of economic reforms is not contingent on any specific person or group of people being in charge, Emad El Din Hussein writes for Al Shorouk. Hussein said the move reinforces the message that the government is serious about seeing the reform program through to the end, regardless of who’s in power.

Unemployment is lower in (some) developing countries than it is in richer nations because fewer people can afford not to work, according to the Economist. The magazine zones in on Asia, where unemployment rates are both low and “boringly stable,” largely because these countries do not offer the same jobless benefits as developed countries like the US. This discrepancy means that unemployment in developing countries is quite literally seen as a luxury that most cannot afford. “In poor countries, unemployment is paradoxically concentrated among the better off and better educated. They can afford to wait a bit for a job that matches their aspirations and qualifications. Their behavior may also explain unemployment’s curious stability.”

Microsoft has sunk an experimental data center off the coast of Orkney, Scotland, in bid to boost energy efficiency, BBC reports. Packed with enough computers to store five mn films, the submerged waterproof tube could sit on the seafloor for up to five years. The experiment hopes to demonstrate how storing data underwater can help make data centers more energy efficient while providing a cheap solution for cooling. “On land, we might use 15% or 20% or even more of the energy for cooling. It’s almost zero when we’re in the water,” says Microsoft Researcher Ben Cutler. Using renewable wind and coastal energy through a cable on the ocean floor, the cylinder will be connected to the wider internet.

Have Egypt and Ethiopia finally reached middle ground on GERD? Egypt and Ethiopia agreed on adopting “a joint vision” on the construction of Grand Ethiopian Renaissance Dam (GERD) “based on mutual respect to the interests and development rights of the other,” Ittihadiya spokesman Bassam Rady said in a Sunday statement. President Abdel Fattah El Sisi met yesterday with Ethiopian Prime Minister Abiy Ahmed during his three-day visit to Cairo at Ittihadiya Palace in what is being touted as a historic summit between the two countries on an issue that have soured relations since 2011.

What’s the compromise? It appears that both sides are looking for an arrangement by which Ethiopia caters its timetable of filling the dam to Egypt’s needs in exchange for economic cooperation. This includes establishing an Egyptian industrial zone in Ethiopia, spurring private sector imports of Ethiopian meat, as well as cooperating in the fields of agriculture, livestock, and health.

Catch the joint press conference held after the meeting (watch, runtime 17;44), or read the text here.

The story is topping coverage of Egypt in the international press this morning and was picked up by newswires including Reuters and the Associated Press.

Energy group Empower began selling power to the North Delta Electricity Distribution Company (NDEDC) from its 350-920 kWh biogas power plant in Kafr El Sheikh, where operations launched a few days ago, according to CEO Hatem El Gamal. The plant is currently selling electricity at a feed-in tariff rate of EGP 0.92 per kWh, but it looks like Empower wants to renegotiate the price up to the standard waste-to-energy (WtE) tariff of EGP 1.40 per kWh set by the Cabinet last month, according to El Gamal. Empower plans to open four new power plants in Kafr El Sheikh for EGP 387 mn.

Germany’s ThyssenKrupp expressed interest in working on five new refining and petrochemicals projects in Egypt. The overtures came during a meeting between company reps and Oil Minister Tarek El Molla on Sunday, according to an Oil Ministry statement.

The Transport Ministry is planning to issue a tender to operate the EGP 200-300 mn Sohag river port by mid-July, according to River Transport Authority (RTA) head Abdel Azim Mohamed. The ministry broke ground on the project last week. The project is the second of several river ports the ministry plans to develop along the Nile in Upper Egypt. Arafat had said the ministry would launch river port tenders once legislation regulating river traffic and commercial transport is passed. The bill, which the Ismail Cabinet signed off on in August last year, is still before the House of Representatives. On that front, the RTA is looking to complete a EUR 9.2 mn river traffic control system project by the end 2018, a project funded through a loan from the Austrian government, Mohamed said, according to Al Shorouk.

The first phase of the USD 2 bn Chinese textile industrial complex in Sadat City, which is expected to house 100 factories, should be complete by the end of the year, China’s commercial attaché said. The complex will be Egypt’s largest textile project and will include 568 factories once it’s fully operational and completed by 2020, Trade and Industry Minister Tarek Kabil had previously said. The project is expected to generate some USD 9 bn in annual revenues upon completion.

Redcon Construction is in talks with the China State Construction Engineering Company (CSCEC) to take part in the development of the new administrative capital’s business district, Redcon head of projects Amr Badawi tells Al Shorouk. CSCEC, which signed the contracts to develop the district early this year, plans to spend USD 3 bn on the project. CSCEC is currently negotiating offers with other Egyptian contracting companies, Badawi adds.

Hometown Real Estate Development has launched its first commercial project in the new capital, with up to EGP 1 bn in investments, according to Chairman Diaa El Din Farag. The 7,000 sqm project is expected to be completed within three years. The company is currently working on an EGP 40 mn residential project in New Cairo.

The Tourism Promotion Authority (TPA) is planning to launch a promotional tour for Egypt in four Indian cities from 23 to 27 June, Al Shorouk reports. The TPA is looking to attract Indian tourists during the typical “off-season” for European travelers to maintain a stable inflow of visitors year-round.

Prosecutor General Nabil Sadek referred yesterday 28 individuals to a criminal court on charges of “forming an illegal group aiming to topple the government,” inciting violence, and disseminating false news, among other charges, the AP reports.

Three Egyptian universities made it to the Times Higher Education’s table of the best “middle-aged” universities in the world. The Universities of Ain Shams, Alexandria, and Assiut were among the top 200 “Golden Age Universities,” or schools that were founded after the Second World War. This comes shortly after four Egyptian universities made the cut for the list of the world’s top 1,000 universities this year.