Egypt gets tub-tubs from IMF in latest regional outlook report

Wealth fund regulations to be completed “within days”: The bylaws and articles that will regulate Egypt’s proposed EGP 200 bn sovereign wealth fund will be completed within the coming days, Youm7 reports, citing an unnamed official in the Planning Ministry.

But don’t expect a CEO to be named just yet. While Youm7’s source tells it that a CEO could be named within days, an insider tells us that the team working on the fund will need more time before it announces who will lead the high-profile fund. We had reported in late October that a shortlist of Egyptian candidates had been sent to the Madbouly cabinet for approval. Youm7’s source notes that the Sisi administration is keen to launch the fund before year-end.

The Egypt M&A and Private Equity Forum gets underway this morning at the Nile Ritz Carlton.

It looks like Egypt is going to issue commemorative coins marking the 100th anniversary of AUC’s founding according to a statement issued yesterday by the Council of Ministers. AUC was founded in 1919. We have more on their weekly cabinet meeting in Speed Round, below.

Oil plunged about 7% yesterday to an eight-month low, going deeper into bear territory as “traders scrambled to adjust options positions amid fears global economic turbulence would cut into demand,” the Financial Times reports. Brent was down 6.6%, while West Texas Intermediate in the US was down 7.1%.

Why is oil plunging? It is almost a perfect storm more than it is any one factor.CNBC, the WSJ and Reuters suggest it has a lot to do with:

• Fast-rising production in the United States;
• Fears that demand could fall thanks to slower economic growth on the back of trade tensions (OPEC and the International Energy Agency both see less consumption growth than before, at a minimum);
• Last month’s stock-market sell-off (“one week after crude futures struck their highs, two-thirds of the stocks in the S&P 500 plunged into correction territory,” dragging crude futures with them);
• A stronger USD, which makes oil more expensive for countries whose currencies don’t move in tandem with the greenback;
• The sanctions waivers from the US that allow eight nations to continue importing Iranian crude.

Look for things to get more tense between Washington and Riyadh: “OPEC and Saudi Arabia [are] on a collision course with U.S. President Donald Trump, who publicly supports low oil prices and who has called on OPEC not to cut production.”

Speaking of DC and KSA: America has finally appointed an ambassador to the kingdom, naming retired general John Abizaid to a post vacant since January 2017. Abizaid oversaw the US Central Command during the early years of America’s war in Iraq.

Can we now have an ambassador here in Cairo, too, Mr. Trump?

The UK is closing in on a Brexit agreement with the European Union, the WSJ and FT suggest. British PM Theresa May could put the proposed pact could go before her “deeply divided cabinet” as early as today.

Goldman Sachs is in the spotlight this morning as it faces questioning by the US Justice Department over its role in the scandal surrounding 1MDB, the state-owned Malaysian investment fund. “After one of its senior bankers pleaded guilty to charges that he helped orchestrate a vast fraud at Malaysia’s state investment fund, 1MDB, investors have started to fret about what sanctions the bank might face. Shares in the group fell more than 7 per cent on Monday and they are now down more than a quarter since March,” the FT writes in its t-up for a piece on Key questions for Goldman Sachs about Malaysian scandal. Follow that up with the editorial board’s take: Goldman must stiffen its response to bad conduct.

In miscellany this morning:

Spotify launched yesterday in Egypt and several other Arab markets. The world’s largest streaming music service will be available at a cost of EGP 49.99 per month in Egypt as well as 13 other regional markets, including the UAE and Morocco. Egypt, Saudi Arabia, the UAE, and Morocco are expected to drive the company’s regional growth thanks to their young populations and high smartphone penetration, Claudius Boller, Spotify’s MD in the Middle and Africa, tells Reuters. We tried and were able to make an account by registering here.

Not the Onion: Take your parents to work day is apparently a thing among millennials in the United States. One dude’s mom and dad even show up in t-shirts declaring they are “Josh’s Dad” and “Josh’s Mom.” (WSJ)

The FT’s Rana Foroohar speaks for every business person everywhere in complaining that “most education is now disconnected from the needs of students and the labour market.” And if she thinks is that is bad in America…

PSA- Cool weather with a chance of rain? Temps are expected to continue dropping today and tomorrow, and there’s a chance of heavy rain in the capital city, according to the Meteorological Authority. Look for daytime highs of 23°C and overnight lows of 16°C over the next two days. Our favourite weather app sees the same high and low, but forecasts only a slight chance of morning showers today.

On another night of bland miscellany, the conference on Libya in Palermo continued to lead the conversation on the airwaves.

The conference was long overdue and the international community should have directed more attention to the crisis in Libya as it was unfolding, former Foreign Minister Mohamed Orabi tol Al Hayah Al Youm (watch, runtime: 7:00). Former Foreign Minister Hussein Haridy, meanwhile, blamed foreign “meddling” in Libya for halting progress on the Libyan unity agreement. He also told Masaa DMC’s Osama Kamal that the Palermo conference is meant to revive the 2015 agreement between rival Libyan factions to form a unity government (watch, runtime: 4:06). Yahduth fi Masr’s coverage of the conference was limited to airing highlights from President Abdel Fattah El Sisi’s speech at the conference (watch, runtime: 2:55).

The region’s first “stacked” car garage is about to open in Heliopolis: The first phase of the EGP 230 mn Roxy Garage — the Middle East’s first public garage with a hydraulic parking system — is slated for inauguration by next month, Chairman of the Roxy Garage Company Mahmoud Farag told Hona Al Asema. The company is currently working on putting the final touches on the garage, including setting up a fire suppression system, and is waiting on the necessary licenses to begin operating (watch, runtime: 39:26). The topic also earned airtime on Al Hayah Al Youm (watch, runtime: 2:57).

The Madbouly Cabinet has apparently formed a committee to assess whether locally we’re ever going to grow enough produce to meet domestic demand, Cabinet Spokesman Nader Saad told Yahduth fi Masr. The decision comes a few weeks after a “potato crisis” gripped the nation, but Saad said that the shortage of spuds was mostly a result of an unanticipated reluctance among farmers to grow the crop this year (watch, runtime: 3:57).

Egypt’s program to offer renewable residency permits to non-Egyptian homebuyers was the topic of discussion on Hona Al Asema, where Rep. Mohamed El Akkad broke down the details of the new policy for host Lama Gebril. Foreigners who purchase a home for USD 100k will be granted a one-year residency permit, while those who purchase units for USD 200k and USD 400k will be granted three-year and five-year permits, respectively. Individuals who later sell these units will have their residency revoked (watch, runtime: 5:08). El Akkad said the decision should reel in some USD 3 bn each year (watch, runtime: 3:40).

Egypt is the star among regional oil importers, according to the IMF: Egypt is setting the trend for growth and adoption IMF-backed economic policies among oil importing countries in the Middle East, according to the oil importers chapter of IMF’s November 2018 Regional Economic Outlook: Middle East and Central Asia (pdf). “Continued strong growth in Egypt and Pakistan in FY2018 is driving the regional aggregate growth higher, masking weaker and more fragile growth in other countries, particularly those affected by conflict or its spillovers (Afghanistan, Jordan, Lebanon, Somalia),” the report says. Growth in the region is projected to reach 4.5% in 2018, up from 4.1% in 2017, before moderating to 4% in 2019, says the report.

Egypt is the frontrunner on key metrics: Egypt and Tunisia were named as among the regional countries where private investment is expected to increase as a result of improved confidence. Egypt will largely drive a projected regional surge in export growth, which is expected to grow 15.4% this year, outpacing import growth of 10.1%. Egypt’s strong performance on the export front reflects “base effects from receding macroeconomic imbalances during 2016–17 and an improved business environment. … Moreover, tourist arrivals have risen steadily following improvements in security, a weaker exchange rate, and a resumption of direct flights from Russia. More broadly, growth in Europe has supported an increase in exports across the region.”

Egypt received praise from the IMF for an improving business environment. “With new laws on bankruptcy and insolvency, Egypt and Tunisia have sought to facilitate the restructuring of failing firms. Egypt is also taking steps to make it easier to improve access to industrial land for business and will sell minority shares in five state firms this year to reduce the role of the state in the economy.” It also praised attempts at strengthening government institutions, including strengthening the competition authority, and making it easier for businesses to get credit.

Egypt has also been the biggest issuer of sovereign bonds in the Middle East, accounting for USD 6.5 bn of the USD 12 bn in issued by states in 1H2018. The report noted that that the borrowing came “amid favorable external financing conditions earlier this year. … The market anticipates issuances from other countries in the region later this year. However, this could prove challenging as emerging market financial conditions have tightened.”

As for regional oil exporters, the IMF warns them not to be complacent with the gains they have made as a result of higher oil prices. Rising oil prices are expected to narrow the GCC’s budget deficit by a collective USD 77 bn, the report said, but it sounds to us as if that statement was written well before crude recent plunge of more than 20%.

You can download the full regional report here (pdf) or visit the landing page here.

Regulator’s grounds for suspending Beltone’s investment banking license are becoming increasingly clear: The Financial Regulatory Authority (FRA)’s grounds for suspending Beltone’s IPO unit from all market activity for a six-month period have yet to be disclosed, leaving market chatter to fill the vacuum. The suspension came after the FRA received complaints from investors about the firm’s alleged conduct during the IPO of structured and consumer finance player Sarwa Capital.

Now, the picture is starting to become clearer thanks to stories in Youm 7 and Al Mal and our own talks with individuals with first-hand knowledge.

So, what’s the charge sheet? While a copy has not yet been made public, it appears that Beltone investment banking has been accused of overlapping charges including:

• Not using bookbuilding software during the IPO process;
• Of pricing and allocating shares during the iPO process in tandem with the issuer (Sarwa) without reliance on this bookbuilding app;
• Of publishing misleading and / or incorrect price and / or demand information because it failed to use this software.

Separately, the regulator alleges that Beltone’s brokerage arm:

• Took “invalid” orders as part of its book by allowing investors to request (prior to the setting of a final price for the offering) “EGP xx mn worth of shares at market price” rather than specifying “xx mn shares at EGP xx each”;
• That it somehow financed the offer, despite it relying on a delivery-versus-payment mechanism that involved the independent custodian and clearinghouse MCDR;
• That the oversubscription rate announced was incorrect because Beltone failed to set aside the “invalid” orders above.

The clearinghouse and an industry association appear to be siding with Beltone. Al Mal reports that Beltone Financial received a letter from Misr for Central Clearing, Depository & Registry (MCDR) saying MCDR is unaware of any irregularities in the firm’s management of Sarwa’s IPO. MCDR also said that the retail and institutional components of the offering were fully subscribed, as Beltone announced, and that all investors received their allotted shares on the first day of trading. The sources also tell the newspaper that the Egyptian Investor Protection Fund has not received any complaints over the IPO from investors.

The Egyptian Capital Markets Association (ECMA) also said that it found no evidence of irregularities in the IPO’s bookbuilding process, according to Youm7. ECMA also said in its report on the process that — as the IPO’s manager — Beltone had the authority to set a share price for Sarwa within the announced range, as is standard in any bookbuilding process (which we described in our primer on the case when it first broke).ECMA also notes that there is no legal requirement for IPO managers to use software for the bookbuilding process, adding that investment banks can rely on “any means available” to receive subscription requests and build their books.

EXCLUSIVE- Last gasp of the automotive directive? A senior government official tells us the trade and finance ministries are studying a proposal that would impose a 10-20% “development fee” on all car sales — but then offset these for locally assembled or manufactured vehicles, which would be eligible for discounts or waivers of other fees and levies imposed by the state on each car sold and registered in Egypt.

The news comes as the domestic automotive assembly industry braces for the elimination of tariffs on cars imported from the European Union on 1 January 2019. The proposal now being developed could see cars subject to an industry development fee using a tiered system that accounts for engine size and the percentage of domestic content. The proposal would see locally assembled vehicles receiving certain “incentives” that imported vehicles would not be eligible for, the source said, without disclosing further details on what these incentives might entail.

Egypt will bring import duties on European cars to zero as planned, Trade and Industry Minister Amr Nassar told the House Economic Committee this week, according to Al Masry Al Youm. The new industry development fee would not violate that agreement, our source claims, because it would apply to all vehicles.

Background: Government officials had told us last month that the Trade and Industry Ministry had made an official request to delay the customs repeal for another 1-2 years. However, EU Ambassador to Egypt Ivan Surkos confirmed last week that the agreement would come into effect as planned, without making clear whether the EU rejected Egypt’s proposal or if the ministry simply decided to pull it.

Jordan wants to import more natural gas from Egypt — enough to eventually cover as much as a third of the kingdom’s demand, Jordanian Energy Minister Hala Zawati said, according to Reuters. The bid hinges on construction of a pipeline between Jordan and Iraq that has been delayed due political instability, Zawati said. She added that Jordan has yet to reach an agreement on the matter with Egypt, from which it began importing natural gas in September. “Now there are negotiations on how much will be pumped but we hope at least one third of the country’s requirements will be taken from Egypt,” the minister said, without providing a timeframe. She estimated Jordan’s gas demands to reach c.350 million cubic feet per day in 2019.

In other industry news: Egypt expects to approve an agreement between UAE’s Mubadala and Italy’s Eni that will see the Emirati quasi-sovereign wealth fund acquire a 20% stake in North Sinai’s Nour offshore field from the latter, Oil Minister Tarek El Molla told Bloomberg, adding that the government had already been informed and that only “formalities” await. Molla said no similar agreements were currently in the pipeline, but he expected that soon there will be as more concessions are awarded through an ongoing bid round.

All of this comes as Israel has been using gas diplomacy to deepen its economic partnership with “former Arab foes,” the Financial Times notes. Israel now has natural gas reserves that could fuel it for 50 years, the paper writes, trying to make a bit too much of a drama out of the very quiet process that saw Israeli gas producers ink a USD 15 bn sales agreement with Egypt.

CABINET WATCH- The Madbouly Cabinet signed off yesterday on the establishment of a permanent Human Rights Committee, according to an official statement. The committee is mandated with handling all issues pertaining to Egypt’s human rights portfolio, including responding to allegations of rights abuses and putting in place a vision and policy strategy for improving Egypt’s rights record. The committee will also be responsible for relaying these developments to international organizations, including the UN, and ensuring Egypt’s compliance with rights-related international agreements and laws. Cabinet spokesman Nader Saad hit the airwaves last night to discuss the committee Yahduth fi Masr’s Sherif Amer (watch, runtime: 3:57). It remains unclear whether the committee would replace the National Human Rights Council or if it is simply a cabinet-level coordinating body.

The ministers also approved a presidential decision to set up a private university in Assiut named Sphinx University. The university is required to sign a cooperation agreement with “reputable” foreign universities and hire a full teaching staff before opening its doors to students.

Raya Contact Center reported (pdf) a 14% y-o-y increase in consolidated net profit in 3Q2018 to EGP 48.5 mn, up from EGP 42.5 mn in 3Q2017. Revenues for the quarter were up 21.5% y-o-y to EGP 238.4 mn, up from EGP 196.3 mn during the same period last year.

CORRECTION- The EGPC owes UK’s Rockhoppers Exploration arrears of USD 1.9 mn, not USD 1.9 bn as we reported yesterday, for the latter’s interest in the Abu Sennan concession. We have since corrected the story on our website. Apologies for the clumsy fingers, folks.

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Amendments to Real Estate Registry Act coming: The Madbouly Cabinet is planning to introduce a bill to the House of Representatives amending the Real Estate Registry Act this week after the Egyptian Council of State completes its review, Parliamentary Affairs Minister Omar Marwan said. He did not reveal details of the amendments.

The UN Biodiversity Conference headlined “investing in biodiversity for people and the planet” will run Thursday, 13 November through to Thursday, 29 November in Sharm El Sheikh.

EBRD’s conference on opportunities for consultancies in digitalization will run 14-15 November at the Marriott Mena House Hotel.

French healthcare forum: A delegation of French companies working in the health sector will join the French-Egyptian Healthcare Forum on Monday, 19 November.

The government is due to announce in mid-November the date of its first auction of ‘unused’ state land, Public Enterprise Minister Hisham Tawfik has said. As many as 10 mn sqm of state-owned land in 10 governorates will be up for sale to developers.

It’s another relatively quiet day for Egypt in the international press, with no one story driving the conversation.

Mental illness in Egypt is associated with significant stigma and those in need of help have trouble getting it, Walt Curnow writes for the National. Society at large is insensitive to the issue, which has continued to affect more people – especially the youth who “feel trapped” by poor economic and social prospects. Even though Egypt’s suicide rate, according to World Health Organization statistics, is among the lowest internationally, evidence is suggesting that the rate is much higher — or at best — gaining momentum. A recently created Facebook page, Break the Silence, aims to raise awareness.

 Among the handful of other stories out there:

• Retired soccer great Aboutrika has been hit with a one-year jail sentence for tax evasion. The onetime icon, hit with charges he has Ikhwan sympathies, has lived in exile as a football commentator in Qatar since 2013. The Associated Press has the story.
• Egypt is taking down street signs bearing the names of Ikhwan leaders, according to Al Monitor.
• A court has sentenced a policeman to three years in prison and another to six months for beating a detainee to death, prompting criticism on social media, AP reported.
• An initiative looks to help women cancer patients handle the physical side-effects of their treatment, Reuters reports.
• An Egyptian beekeeper claims he is curing patients of rheumatism and boosting their immunity levels, according to Reuters.
• Football flap: The postponement of next week’s Egypt-UAE football friendly game has angered the UAE’s Football Association, says the National.

Rival Libyan leaders agree on UN plan for 2019 elections at Palermo conference: Libya’s rival leaders, Egypt-backed military commander Gen. Khalifa Haftar and Tripoli-based Prime Minister Fayez Al Sarraj, agreed yesterday on a UN-proposed political transition plan, according to Bloomberg. The two leaders, whose meeting at a two-day conference in Palermo to discuss the plan was their first in five years, agreed to attend a national conference early next year to lay the groundwork for national elections by Spring 2019. Egypt was among 38 countries and organizations attending the conference in hopes of brokering the agreement.

On the sidelines of the gathering, President Abdel Fattah El Sisi met with Italian Prime Minister Giuseppe Conte to discuss bilateral relations including the latest developments in investigation into Giulio Regeni’s murder, as well as economic cooperation and other issues of mutual interest, according to an Ittihadiya statement.

Egypt, the UN, and Switzerland brokered a ceasefire agreement between Israel and Palestinian factions,ending a two-day exchange of rockets and aerial strikes, an Israeli official said, according to Haaretz. Israel hit more than 100 targets linked to Hamas and other militant groups on Sunday, prompting a response from the Palestinian groups.

Foreign Minister Sameh Shoukry arrived in Addis Ababa yesterday to participate in the 11th African Union (AU) extraordinary summit, which will touch upon proposed institutional and financial reforms for the union, according to a Foreign Ministry statement.

Infinity Solar is planning to build EUR 350 mn-worth of wind power plants with a combined capacity of 300 MW in the Gulf of Suez, a source from the New and Renewable Energy Authority (NREA) tells Al Mal. The company has submitted a request to the NREA to allocate three plots of land to for the plants, which it will set up under an independent power producer (IPP) framework. We had previously noted that Infinity is looking to invest USD 400 mn in renewables projects in Egypt between 2019-2021 and had recently obtained licenses for two wind-powered stations with a combined capacity of 100 MW.

Oil Minister Tarek El Molla met yesterday with Saudi Arabia’s Energy Minister Khalid Al-Falih to discuss cooperation prospects between Saudi and Egypt in the mining industry, particularly as Egypt is pushing through with amendments to the Mineral Resources Act, according to a ministry statement (pdf). El Molla also met with UAE Minister of State and Adnoc Group CEO Sultan Al Jaber to look into potential investments in Egypt’s oil and gas sector, and had a similar sit-down with US Deputy Assistant Secretary for Oil and Natural Gas Shawn Bennett. The minister also discussed plans for exploration and production activities in Egypt with the heads of several international oil companies, including BP, Shell, Halliburton, Schlumberger, and Edison. The ministry is expecting to see some USD 10 bn in new oil and gas investments during the current fiscal year.

Toyota Tsusho Corporation is looking to increase its investments in Egypt over the coming period, representatives from the Japanese manufacturer told Prime Minister Moustafa Madbouly during a meeting yesterday, according to a Cabinet statement. No details were provided on the expected size of these investments.

The General Authority for Supply Commodities (GASC) will announce on Tuesday, 20 November the results of its tender for 25k tonnes of short or medium grain milled white rice, a source from the Supply Ministry said. Eleven companies submitted offers to supply a combined 546k tonnes of rice from China, India, and Vietnam. The bidding window for the tender, which GASC issued last month, closed yesterday, with delivery dates in January and February.

The Horticultural Export Improvement Association (HEIA) is in talks with China to make Egypt the first country to begin exporting dates to China as of January 2019, HEIA CHairman Mohsin El Beltagy said, according to FreshPlaza. The two sides have been in talks for over two years, and are expected to sign a final agreement to inaugurate exports.

Porto Group and El Mostakbal will invest EGP 11.9 bn to co-develop Porto City, for which the two companies signed an agreement earlier this month, according to local press reports.

The Egyptian Tourism Federation is looking to hire a British law firm to handle cases and rumors that have a negative impact on Egypt’s tourism industry, board of directors member Moudy El Shaer said. The death of two English tourists at a hotel in Hurghada had opened the floodgates of negative coverage of Egypt, particularly in the British press.

The SME Development Authority is in talks with the EU and the European Investment Bank (EIB) for a combined EUR 87 mn in loans to finance projects, Amwal Al Ghad reports. The authority is currently in talks with the EIB for EUR 60 mn — EUR 45 mn of which would be dedicated to financing new projects, and EUR 15 mn for scholarships. Talks with the EU involve EUR 27 mn in financing to develop local talent. The authority is also in talks with the World Bank over a USD 200 mn loan, and with Germany’s state-owned development bank KfW for a separate USD 100 mn package. It expects the agreements to be concluded by the end of 2018.

MM Group for Industry and International Trade is planning to increase its stake in Kanawat Distribution to 59.1% from 37.5%, according to an EGX disclosure (pdf). The company is expecting to finalize the transaction “within days,” IR manager Ashraf Ghannam tells Al Mal. Ghannam didn’t mention the shareholders MM is looking to buy out.

The Finance Ministry will reportedly select the winning company in its tender to digitize the Tax Authority by mid-December. Five unnamed companies are competing in the tender. Meanwhile, Finance Minister Mohamed Maait issued yesterday a decision requiring shops to begin using a tool linking its business records with the Tax Authority, according to Al Shorouk. The decisions are part of the government’s plan to transition towards a cashless economy — which is at the heart of the economic reform agenda.