Price of European cars in Egypt could rise 2-5% on back of customs changes

We still can’t quite get over the fact that it is now December, and it is shaping up to be a very busy week. Among the highlights:

News triggers:

• Finance Minister Mohamed Maait will hold a presser today on a decision that will see Egypt use the market rate for USD in calculating customs duties. The move is a potential boon for local manufacturers, as we report in this morning’s Speed Round, below;
• The defense expo EDEX 2018 kicks off tomorrow;
• An Irish business delegation will be in town Tuesday and Wednesday, our friends at the Irish embassy said in a statement (pdf);
• Uber CEO Dara Khosrowshahi is due in Cairo on Tuesday for “an important announcement” with Investment Minister Sahar Nasr;
• The central bank will release its net foreign reserves figure for November this week;
• The purchasing managers’ index is due out on Thursday;
• OPEC is under pressure heading into its meeting in Vienna this Thursday as members jockey for output cuts as crude has plunged more than 25% since October;
• News from the House will be limited to the committee level as the general assembly is on hiatus until the week after next.

Things you can attend:

• AUC’s knowledge portal Business Forward marks its first anniversary with an event tomorrow.
• Consumer finance is in the spotlight at a French Chamber event on Monday;
• Startupfest RiseUp runs from Friday, 7 December through Sunday, 9 December.

We’ll know by February who will lead Egypt’s first sovereign wealth fund and the fund itself will open for business in the first quarter of next year, Planning Minister Hala El Said announced.

George H.W. Bush, 41st president of the United States and father of the 43rd, dies at age 94: Former US president George H.W. Bush passed away Friday night at the age of 94. A Republican, he presided with intelligence and decency over the end of the Cold War during his single-term 1989-1993 presidency and led an international coalition to kick Iraqi forces out of Kuwait.

Bush’s passing is the lead story in the international press. Must-reads are obits from the New York Times and Washington Post (both of which shine at moments like these). Also worth a look are offerings from the Wall Street Journal and the Financial Times. Bill Clinton wrote a farewell to the politician whose bid for a second term he crushed — a man who disdained him, but with whom he became very close friends in the 2000s.

US financial markets are closed on Wednesday in honor of Bush as America observes a national day of mourning, Bloomberg reports.

The G20 meeting in Buenos Aires ended with something of a whimper with a joint statement that promised a vague overhaul of the World Trade Organization that The Donald has consistently savaged and suggesting only that “the multilateral trading system had made a ‘contribution’ to growth, development and innovation but there was ‘room for improvement,’” the Financial Times notes. The WSJ adds that the statement was watered down to get both the US and China on board. Chinese media are reporting that Trump and Xi Jinping agreed there would be no additional tariffs imposed after 1 January 2019, CNBC suggests.

Oh, and everyone at the G20 reiterated their (largely half-hearted) commitment to fighting climate change except for Trump, Axios adds.

It was a good November for emerging markets: The MSCIEmerging Markets stock index closed the month with a gain of 4.1% amid speculation that the US Federal Reserve could raise interest rates in 2019 at a slower pace than expected, according to Bloomberg.

Morgan Stanley likes Egypt as it sees EM bonds kicking off 2019 with “above-average returns”: “Emerging-market bonds should return to winning form next year after a rough 2018 with a couple of caveats — the trade war doesn’t worsen and a pause in Federal Reserve tightening puts a lid on the USD,” Michael Kushma, chief investment officer for global fixed income at Morgan Stanley, told Bloomberg in an interview. “Egypt is a country we like,” he adds. “They’re trying to disinflate their economy, trying to keep the exchange rate strong. It may depreciate but not as much as the forwards. It’s not a high-profile country that is caught up in a lot of geopolitical noise right now.”

In miscellany this morning:

80% of new customer acquisitions at this bank are through brick and mortar branches: Physical branches are making a comeback at Canada’s TD Bank, which has found that 80% of all new customer acquisitions still comes through branches. “It’s not branches or digital, it’s both,” TD’s head of retail banking tells the Globe & Mail, noting that the new branches she is opening are more conversation-centric than designed to quickly speed through transactions.

Morocco is said to be the frontrunner to host the 2019 African Cup of Nationsafter the Confederation of African Football pulled the plug on Cameroon’s hosting rights amid reports of preparation delays and security issues, CAF said in a statement. Egypt’s next qualifier is against Niger in March.

Neil deGrasse Tyson, one of our favorite public intellectuals, is being investigated by Fox and National Geographic amid accusations the astrophysicist engaged in [redacted] misconduct, Axios says.

Our daily roundup of the nighttime talk shows is on hiatus this morning. We’ll be back tomorrow.

End of CBE’s special repatriation mechanism is a boon for banks, says industry: The CBE’s decision to terminate its parallel foreign exchange repatriation mechanism for new portfolio investments starting 4 December is receiving so much positive attention from the banking sector, it would have received a “certified fresh” from Rotten Tomatoes had it been a film.

The bottom line: The move will drive much-needed USD liquidity into the banking sector, allowing banks rebuild their positions, Beltone Financial writes, noting that “the banking sector[‘s net foreign assets] continue to weaken, registering a deficit of USD 3.95 bn in September, up from a deficit of USD 2.3 bn in August.” Shuaa Capital concurs, but with a caveat, saying in a report out on Thursday, “We believe this will revive banks’ net foreign assets in the near term but highly subject to international investors’ appetite for Egyptian assets and net trading position as net buyers / sellers.” Sell-side analysts universally saw the decision as expected.

Background:  A growing number of analysts have been suggesting that the central bank has been pushing banks to prop up the EGP amid outflows of hot money. Arqaam Capital had warned last month that banks are now “less shock absorbent for a future devaluation” of the EGP (however unlikely at this stage) and need fresh inflows of FX to continue acting as shock absorbers. Providing a single mechanism through the interbank system by which investors can bring USD into and out of the country will drive more FX liquidity to banks.

The timing of Thursday’s announcement was interesting, coming as it did after a rough period for banking stocks. Shares in publicly traded banks plunged after the government moved to amend the tax treatment of income from state bonds. Thursday’s trading saw select private sector bank stocks gain moderately or remain flat, following a number of days last week of across-the-board declines in stock values. CIB’s shares rose 0.6% and ADIB shares were up 0.4%, while Faisal Islamic Bank rose 1.7%. Other major private sector banks, including QNB and Credit Agricole, were flat.

Those proposed changes to the tax treatment of bank holdings of treasuries? They’re likely to spur private lending, Reuters reports. Banks will be prompted to “boost credit to the private sector” at the same time as the move forces up yields on treasury debt, the newswire says, noting that “Egyptian banks have for years been top-heavy on government lending at the expense of the private sector.” They’re not wrong, but the issue here is not bank appetite to lend to the private sector: It’s private-sector demand. Businesses faced with credit-card interest rates on capex are simply opting not to borrow. Banks, for their part, would have happily allocated funds to both state paper and private borrowers had the market for the latter been there.

Egypt has scrapped a discounted customs exchange rate of EGP 16 for non-essential imports including tobacco and cosmetics. The move is effective for at least one month starting 1 December, the Finance Ministry said in a statement (pdf). The rate for these goods will now be determined by the CBE’s average exchange rate from the previous month. The discount rate remains in effect at EGP 16 for strategic and essential goods.

The move is expected to bring in around EGP 2-2.5 bn for state coffers once it is applied to the more than 400 items, a Customs Authority official tells Enterprise.

Expect to pay more for mobile phones, computers and pet food: The list of non-essential goods includes pet food, mobile phones and computers, as well as products for which domestically manufactured or assembled alternatives exist. A complete list of all the goods now subject to a floating FX rate for customs calculations can be found here. The list was drawn up by the Cabinet economic group, which includes the ministries of finance, trade and industry, investment, and planning.

Egyptian manufacturers love the move, importers less so — shocking, we know. The head of the Federation of Egyptian Industries’ (FEI) engineering division, Abdel Moneim El Kady, lauded the move.

Local car assemblers like it, too, saying it will help offset the cut to 0% of customs duties on European Union car imports that goes into effect on 1 January, said a spokesman for AMIC, the car industry association. Prices of imported cars could rise 2-5%, said an expert quoted by financial daily Al Mal.

Finance Minister Mohamed Maait is expected to hold a presser today to further explain the decision, according to Masrawy.

Beltone goes on offensive against IB division’s suspension, says it is bad news for ECM and M&A activity market-wide: The six-month suspension handed down by the Financial Regulatory Authority (FRA) to Beltone Financial’s investment banking unit threatens to derail a number of IPO and M&A transactions in the investment bank’s pipeline, Beltone CEO Bassem Azab said in an interview with Bloomberg. The decision could delay an industrial company’s listing that was set for November, along with four M&A transactions, said Azab. (Our internal IPO tracker suggests Azab is referring to the Giza Spinning and Weaving IPO, which was initially set for November. News reports later put the listing date in December.) Azab also stressed that the decision could also have implications for the state privatization program, as it sends the wrong message to investors.

The decision seems to be based on “the regulator’s lack of understanding” of the private-placement process and an absence of codified rules on book building, he said. He denied the FRA’s allegations that Beltone Financial committed irregularities during bookbuilding for Sarwa Capital’s IPO, which prompted the suspension. “What if Sarwa went up? Would the regulator have communicated what they called ‘irregularities’ and taken such immediate action based on what they stated as a ‘preliminary review’?” Azab said. Sarwa’s shares fell 11% in their first day of trading. Misr for Central Clearing, Depository & Registry and the Egyptian Capital Markets Association both said last month they found no evidence of wrongdoing.

A watershed case for bookbuilding in Egypt: The current dispute will likely lead to new regulations on how bookbuilding is run for private placements, as the process is in a legal “grey area,” said the director of research at Naeem Holding’s brokerage unit Allan Sandeep, who claimed that oversubscription figures are routinely inflated.

Appeals are still pending: The Administrative Court postponed yesterday its ruling on an appeal to suspend the FRA’s suspension of Beltone’s IB unit, pending its review of the documents presented by each side, according to Al Mal. The ruling is now expected on 15 December, and the FRA itself is also looking at an appeal on the decision on 10 December.

INVESTMENT WATCH- Naguib Sawiris’ Orascom Investment Holding aims to invest EGP 10 bn in four sectors within two years,Group CEO Tamer El Mahdi said. The company is looking at opportunities in real estate, consumer, logistics and non-banking financial services, he said. OIH’s board of directors approved last week a USD 170 mn facility from the African Export-Import Bank (Afreximbank), and the company is actively seeking a substantial non-majority stake in consumer- and structured-finance player Sarwa Capital. OIH is the parent company of Beltone Financial.

INVESTMENT WATCH- Qalaa to invest EGP 30 bn over three years: Qalaa Holdings is planning to invest EGP 30 bn over the coming three years, Chairman Ahmed Heikal said. That includes capital earmarked for subsidiary Egyptian Refining Company’s USD 4.3 bn refinery in Mostorod, which is currently around 98% complete, according to Heikal. The chairman had previously said that the refinery is set to become fully operational by May of next year. Heikal was tight-lipped about the remainder of his company’s planned investments.

TAQA Arabia, Hassan Allam to inaugurate EGP 1.35 bn Benban solar plant next month: Qalaa subsidiary TAQA Arabia and Hassan Allam Holding are also expecting to inaugurate their EGP 1.35 bn, 50 MW solar power plant in Aswan’s Benban complex next month, Heikal said, according to Al Mal. Qalaa had said in August that trial operations were expected to begin by year’s end, with commercial operations ramping up early in 2019.

INVESTMENT WATCH- Japanese laboratory equipment giant Sysmex has set up shop in Egypt, according to a press release. Sysmex, a top-three supplier to domestic companies including International Diagnostics Holdings, specializes in the manufacture and sale of laboratory testing and laboratory equipment, computer systems and software for medical facilities, and healthcare information systems. Sysmex’s Egypt general manager says the Cairo office, its first branch in the Middle East, came at an investment cost of EGP 10 mn. Ahmed Shawky said the company will deploy another EGP 30 mn here as it builds a training center for healthcare professionals.

Keep an eye out for updates on the set of tax incentives for fresh investment in a limited list of sectors. An Investment Ministry committee is identifying which geographic areas and sectors will enjoy tax breaks of up to 50% for “underdeveloped” areas and 30% in select other areas, under the Investment Act, according to a ministry statement. The news comes as Nasr is set to meet today with the House Foreign Affairs Committee to discuss investment incentives and obstacles that investors face in Egypt, Al Shorouk reports.

Egypt’s M2 Money Supply grew 15.4% y-o-y at the end of October to EGP 3.56 tn, according to CBE data. The pace is slower than September, when broad money supply grew by 16.3%.

Rosneft applies for natural gas import license: Russian energy giant Rosneft has begun the process of acquiring a license to import natural gas, sources told Al Mal on Thursday. The company has apparently received preliminary approval from the government to form a JV with a local entity for the activity, they added. If true, the move indicates that not only is the government jumpstarting the process of issuing gas import licenses, but that it has drawn the appetite of oil and gas majors.

Background: After being formed in 2017, the Natural Gas Regulatory Authority — the country’s regulator overseeing a newly liberalized gas import and distribution market — has not moved to issue licenses as quick as some in the industry had hoped. The regulator had postponed in September the issuance of natural gas import licenses to private sector companies, ostensibly because the private sector was “unprepared.” This all appeared to change following the signing of an agreements paving the way for gas imports from Israel. The Oil Ministry is ready to consider permit requests from the private sector to help Egypt become a regional hub for gas trading, Oil Ministry spokesperson Hamdi Abdel Aziz had said at the time. EGAS has renewed preliminary approvals giving Qalaa’s TAQA Arabia, BB Energy and Fleet Energy the import licenses.

No new tuktuk licenses … for now: Prime Minister Moustafa Madbouly has ordered a temporary freeze new licenses for three-wheeled tuktuks, according to a cabinet statement. The prime minister singled out child labor and youth “wasting their potential” by driving tuktuks.

LEGISLATION WATCH- E-Payments Act with Council of State for review: The final draft of the E-Payments Act, which is meant to guide Egypt’s transition to a cashless, paperless economy, has been referred to the Council of State (Maglis El Dawla) for review, CBE Sub-Governor for Payment Systems and Business Technology Ayman Hussein said yesterday, according to Masrawy. Once the council completes its review, the draft law will be shipped off to the House of Representatives for debate and a final vote. The entire process should take one or two months, Hussein said.

Background: The Madbouly Cabinet had signed off on the final draft in October. The bill is expected to serve as a prerequisite for enacting the Finance Ministry’s new billing and payments system that would see it roll out ATMs and point-of-sale (PoS) terminals at which people will be able to pay fees for various government services, as well as introduce a new national debit card. The CBE-drafted act would also grant incentives to anyone paying government service fees electronically, including discounts and, possibly, rebates, officials previously said.

Italian prosecutors will open an investigation this week into two Egyptian security officials who it alleges were involved in the murder of Italian graduate student Giulio Regeni, according to Reuters. Italy said it would reveal the names this week. The news came as Italy’s parliament cut off ties with Egypt’s House of Representatives until Cairo makes progress with the investigation. The House said in a statement (pdf) that it regrets Italy’s decision.

Pressure from Italian foreign ministry: Italy’s foreign minister summoned the Egyptian ambassador to pressure Cairo to take action on the murder of the 28-year-old PhD student, Reuters reported. Enzo Moavero Milanesi said Rome needed to see “concrete investigative developments” and that the country was not at all satisfied with how Egypt has been handling the case.

Is Egypt on the cusp of a citrus export rush? That appears to be the headlining topic at the Food Africa Expo taking place in Cairo on 8-11 December at the Cairo International Convention & Exhibition Centre. “The expo takes place at the start of the Egyptian citrus season and Transmar will be spearheading the export drive of lemons, limes, tangerines, grapefruits and especially oranges using containers from its home port of Adabiya ideally located on the Red Sea,” according to a press release by container company Transmar.

Uber / Careem court appeal postponed to January 26: The Supreme Administrative Court postponed its hearing of an appeal by Uber and Careem against a lower court decision ordering the suspension of the companies’ operation to 26 January 2019, according to Al Mal.

Topping coverage of Egypt in the foreign press are the charges brought against Egyptian actress Rania Youssef after she appeared at the Cairo International Film Festival in a revealing dress that exposed most of her legs, BBC reports. The actress is to go on trial on charges of “inciting debauchery” and public obscenity, and could face five years in jail if found guilty. The international press is having a field day, with Daily Mail, Sputnik News, Reuters and Daily Record also covering the story.

The charges against Youssef displaced the foreign press’ interest at the start of the weekend in the discovery of eight 3,000-year-old mummies in Egypt. CNN is one of the many that have the story.

Other stories worth noting this morning:

With the EuroAfrica Interconnector project, Egypt takes a big step towards its goal becoming the region’s energy hub, according to construction industry trade journal the Construction Review. The project will see Egypt connect 2,000 km of undersea cables with Cyprus and Greece, with an annual transmission capacity of 17.5 TW. “The country has now met it power needs and the 1,707 kilometer cable will transform Egypt to an energy hub for Africa and an electricity carrier for the European continent.”

Why is Egypt concerned with Libya? President Abdel Fattah El Sisi’s efforts to act as mediator between fighting Libyan factions are more inspired by his fight against Islamists than reuniting Libya, Khalid Mahmoud writes for the Carnegie Endowment for International Peace. Mahmoud argues that, in supporting Haftar, Egypt is putting its goal of fighting political Islam first, which could come at the cost of its credibility as an unbiased mediator.

In brief:

• A story on Egypt and Saudi Arabia pushing Arab states towards economic ties with Israel by Al Araby Al Jadeed is getting wide attention in the Israeli press.
• Egypt is unlikely to warm up much more to Iran, which would pose a risk to its more valuable alliances with Iran’s regional rivals, including Saudi Arabia and the UAE, Bahauddin Foizee writes for International Policy Digest.
• Egypt’s new human rights committee is still receiving attention in the foreign press, with critics saying “it will do nothing to improve human rights in the country,” according to Reuters.

The inauguration of Egypt’s first-ever defense expo, EDEX 2018, is leading the conversation in the country’s three main state-owned newspapers (Al Ahram | Al Akhbar | Al Gomhuria). Also featured on each newspaper’s front page this morning is the start of the second phase of the government’s nationwide Hepatitis C survey.

Fancy a trip abroad (or back in time) without ever leaving the ground? This Japanese “virtual airline” operator has you covered. First Airlines has since February been offering the world’s first virtual air travel experience, and has recently added “back in time” to its list of destinations, says the Financial Times. The experience includes mimics a regular flight — mock boarding passes and all — from a room designed to mimic an airplane cabin with first-class seats. The passengers, who pay up to USD 62 for their tickets, fasten their seatbelts, listen to safety instructions, and see their cabin “windows” light up with cloud and sky displays. Passengers also get a tour of their destination via VR headsets (watch, runtime: 1:13).

You said “back in time”? The company is making time travel possible by taking customers through a recreation of life in Ancient Egypt, through to the construction of Rome’s Colosseum, the 18th century French revolution, and the 1991 fall of the Berlin Wall. All of this is in the span of two-hour “excursions.”

Libyan-British student Mohammed Abulkasem was detained by Egyptian airport security on charges of espionage “after being accused of taking a photograph of a military helicopter” out of the window of his plane, according to the Guardian. 19-year-old Abulkasem, who arrived at Borg El Arab airport from Libya, is facing trial for “collecting information of a military facility,” his family says.

Netherlands imposes restrictions on arms exports to Egypt, others over Yemen war: The Netherlands has decided to stop exporting arms to Egypt, Saudi Arabia, and the UAE unless it is proven that they will not be used in the Yemen war, Dutch Foreign Trade and Development Minister Sigrid Kaag said on Friday, according to PressTV. The “restrictive conditions” were initially applied to Saudi Arabia, but have since been expanded to the UAE and Egypt.

Oil Minister Tarek El Molla met yesterday with a delegation of Romanian oil companies to discuss potential cooperation between Egypt and Romania in the oil and gas sector, specifically in manufacturing and advanced technologies, Al Ahram reported.

Edita is planning to grow its exports by 10% over the next two years, CEO and Chairman Hani Berzi said, according to Al Shorouk. The company has an “ambitious” plan in place to expand its footprint in local and international markets, Berzi said.

The number of UK holidaymakers visiting Egypt is expected to rise to 450,000 in FY2018, up from 350,000 in FY2017, UK Ambassador to Egypt Geoffrey Adams told Egypt Today. While he did confirm that negotiations with the UK over the resumption of direct flights with Sharm El Sheikh were going well, he hit us with the "promising results soon.” All those holding their breaths have died of asphyxiation months ago.

Steigenberger Hotels and Resorts has opened the Steigenberger Pure Lifestyle resort in Hurghada, its twelfth hotel in the country, according to a press release. The new “5-star boutique hotel” holds 132 suites. The launch comes as another of the company’s hotels, the Steigenberger Aqua Magic Hotel, was the focus of the “holiday-gate” controversy over the summer after two UK tourists died from complications of e-coli while staying at the hotel.

Banque du Caire is in talks for a USD 100 mn facility from international institutions during the first quarter of 2019, the bank’s chairman Tarek Fayed told Al Mal. The bank is also applying for a QR code license as part of its plans to provide mobile banking services in 1Q2019, Fayed added.

The United Bank of Egypt is considering offering funding to micro projects through its online banking tools, Vice President Nevine Kashmiry told Al Mal. The bank had announced its plans to launch a specialized microfinance unit by the end of the year back in August.

A Cairo criminal court ordered yesterday the release of activist and blogger Wael Abbas “under probationary measures,” Ahram Online reported. Abbas was arrested earlier this year on charges of publishing false news.

“Hundreds” of Egyptian women took to Heliopolis’ streets on Friday for a run around to campaign for ending violence against women and call for greater acceptance of women running in public, Reuters reports. It is not commonplace for women to exercise outside the confines of membership-based sporting clubs in Egypt, and the Thomson Reuters Foundation named Cairo as the world’s most dangerous city for women last year, the newswire notes.