Rejoice (for now): Inflation cooled down in November

The EFG Hermes Egypt Day Summit gets underway today and runs through Thursday at the Four Seasons Nile Plaza. Chief executives at public and private companies as well as multinationals will gather tonight for the firm’s annual EFG Hermes Egypt CEOs Gala Dinner. Also attending are some of the most active investors in the Egyptian market.

Dominating front page news in the global business press this morning: UK Prime Minister Theresa May’s decision to abandon a planned House of Commons vote on Brexit. May’s move came after Chief Whip Julian Smith warned the government would undoubtedly lose the vote had she gone forward, according to the FT. “We have known for at least two weeks that Theresa May’s worst of all worlds [Brexit agreement] was going to be rejected by parliament because it is damaging for Britain,” Labour leader Jeremy Corbyn said.

What are May’s options now? The New York Times breaks down the scenarios, Brexit for Dummies style. They include May seeking Parliament’s consent to hold a second referendum on Brexit and give Brits a chance to backtrack on their choice to leave the EU. Despite previously saying this is not an option, May might have no other choice if she wishes to remain in power. Other scenarios include leaving the EU with no agreement — “a nuclear option, considering the chaos that would ensue” — or May facing a leadership challenge from within her own party. In all cases, EU leaders are not willing to renegotiate the terms of the agreement, the FT notes.

What does this mean to Egypt’s trade and investment relationship with the UK? Not much. UK Trade Commissioner for Africa Emma Wade-Smith OBE told us this past weekend that formal talks on the contours of our post-Brexit relationship will not begin until the UK officially exits the EU. Informal talks are ongoing at a senior level.

The Fed may slow the pace at which it raises interest rates or end its tightening cycle next year amid market fluctuations and signs of a global slowdown, Goldman Sachs’ chief economist and futures traders told Reuters.

The US has set “a hard deadline” of 1 March to reach a trade agreement with China or it will impose new tariffs, US Trade Rep Robert Lighthizer said, according to Reuters.

SIDE NOTE- One of us made a very rare after-dark appearance in public last night (heck, just a rare public appearance — ain’t none of us known for being sociable) at a gathering hosted by members of the business community we hold in the highest esteem. Allow us, please, to just say this: There are some very smart people building some very interesting new businesses in this country. Thank you for the shot in the arm.

Save for continuous coverage of the political developments in Paris, there was no single topic that featured heavily on the airwaves last night.

The deceleration of headline inflation in November came on the back of the prices of food products falling or remaining stable, economist Mostafa Badra told Al Hayah Al Youm (we have the full breakdown of last month’s inflation figures in Speed Round, below). Badra largely blamed traders for price gouging and driving up inflation figures during the previous months (watch, runtime: 06:04).

Cabinet spokesman Nader Saad vehemently denied rumors that the government hiked 95-octane petrol prices, telling Al Hayah Al Youm that this was one of seven bits of “fake news” Cabinet has quashed over the past five days (watch, runtime: 07:33).

British Coventry University’s decision to set up a campus in the new administrative capital in cooperation with El Sewedy Education is the fruit of the government’s efforts to diversify the educational systems available in Egypt, Higher Education Minister Khaled Abdel Ghaffar said on Hona Al Asema (watch, runtime: 05:03). El Sewedy Education Chairman Ahmed El Sewedy also talked about the institution, whose staff will be highly trained Egyptians (watch, runtime: 03:25). We have more on the story in Health + Education, below.

Deputy Education Minister Mohamed Megahed had a chat about plans to develop technical education in the country with Hona Al Asema’s Lama Gebril (watch, runtime: 03:17).

Egypt’s ties with the EU were in the limelight on Al Hayah Al Youm, where former assistant foreign minister Gamal Bayoumi discussed European trade with and investment in Egypt since the signing of the EU-Egypt Association Agreement in 2001 (watch, runtime: 06:58)

The state has spent some EGP 515 bn over the past four years to upgrade the energy sector, Electricity Ministry spokesman Ayman Hamza said on Al Hayah Al Youm. Hamza praised the steps taken since 2014 to help Egypt meet its domestic energy needs and begin exporting power to other countries, including Jordan and Libya (watch, runtime: 05:23).

El Hekaya’s Amr Adib continued to fixate on the explicit photos allegedly taken atop one of the Giza Pyramids and called on the Supreme Council of Antiquities’ secretary general, Mostafa Wazery, to discuss the matter at length (watch, runtime: 15:14).

You may now (at least temporarily) rejoice: Headline inflation fell last month: Annual headline inflation dropped to 15.7% in November, down from 17.7% the previous month, falling back into the government’s targeted range of 13% (+/- 3%), statistics agency CAPMAS said. The drop was a result of a steep fall in the prices of vegetables and poultry products, the agency said. Monthly inflation also fell, coming in at -0.8% in November, down from 2.6% in October. “The drop shows headline inflation is continuing its downward path after occasional volatility in food items subsided,” said Hany Farahat, senior economist at CI Capital.

Annual core inflation, which doesn’t include volatile goods, also fell in November, coming in at 7.9% in November against 8.9% in October, CBE data showed (pdf). That’s the lowest rate in two years.

So prices are falling, right? Nope. It just means that the rate at which prices were increasing slowed down. Stuff still got more expensive, just at a slower pace. Inflation decelerating ≠ deflation, or falling prices.

So why did inflation cool off? You can thank concerted government action, it seems. “The government increased the supply of vegetables that had created a problem in months past,” Pharos Holding head of research Radwa El Swaify told Bloomberg. “This helped bring the annual rate back in line with the target.” Reuters also had the story.

Okay, but interest rates are going to fall now, right? The central bank’s monetary policy committee meets on Thursday, 27 December to decide on corridor rates, which it has left unchanged since May. The MPC last left rates on hold at its November meeting, citing accelerating inflation as the key reason for its move. “The fall in the core reading illustrates structural inflation is well-tamed and falling aggressively. This signals domestic demand is weak and can benefit from a policy rate cut over the coming few months,” CI’s Farahat said.

The key there is “over the coming few months,” and before you get excited about the prospect of an interest rate cut by year’s end, remember that the November inflation figures don’t reflect the government’s recent decision to scrap the discounted customs exchange rate for non-essential imports — a decision that could potentially send inflation up by as much as 1 ppt, Swaify said.

Market reacts: The EGX30, Egypt’s benchmark stock market index, rose 2.8% on Monday, registering its biggest one-day gain in two years on the back of the drop in inflation, Reuters reported. “We do believe as long as inflation numbers are under control, the government will not be pressed to increase interest rates, helping liquidity to circulate into local investments,” Tariq Qaqish, managing director for asset management at Menacorp Financial Services in Dubai told the newswire.

Egypt’s economic progress is “remarkable,” but high interest rates remain the biggest hurdle to investment in the real economy, Emirates NBD Senior Portfolio Manager Marwan Haddad told Bloomberg TV. “It’s very tough for anyone sitting in Egypt to let go of a 20% return” by parking cash in banks and government instruments and instead choose to put money in investments that might not pan out, Haddad notes. Recent government policies including scrapping the discounted customs exchange rate for non-essential imports will encourage investors to look at the market again, but businesses are waiting for the central bank to resume its easing cycle. Haddad says he is optimistic that Egypt will be “one of the few markets globally that might have an interest rate cut next year” (watch, runtime: 2:31).

Competition watchdog gives Apple 60 days to end ‘anti-competitive’ restrictions in Egypt: The Egyptian Competition Authority (ECA) has given global tech giant Apple 60 days to end restrictions on parallel imports by its authorized resellers. As we noted yesterday, the authority alleges that Apple is violating the Competition Act by barring its regional distributors from selling to its Egyptian distributors has limited “intra-brand competition,” which the ECA takes as seriously as competition among rival companies. The ECA will take legal action against Apple and its regional agent ABM if the practice isn’t wound-down by then, Masrawy reports, citing a statement from the Official Gazette.

Apple is not the first high-profile international company the ECA has gone after: Uber and Careem have been on the receiving end this year of sharp warnings against a (so-far unconfirmed) merger the authority has claimed would harm competition.

PM vows to end delays in payment of export subsidies: Prime Minister Moustafa Madbouly has vowed to resolve the issue of overdue export subsidy payments and keep track of delays with the help of the finance ministry, Edita Chairman and Food Export Council Head Hani Berzi told Al Mal. The PM made his remarks at a meeting with exporters on Monday.

Background: Exporters claim the Trade Ministry has for over two years fallen short of its promise to pay out 8-12% of the value of exports to companies through its Export Subsidy Fund. It disbursed EGP 504 mn last month though after exporters, who claim they’re owed up to EGP 12 bn, released a statement urging the government to take action. The Federation of Egyptian Industries (FEI) had proposed tax and custom breaks as an alternative solution.

LEGISLATION WATCH- Retailers and restaurant owners beware: You will soon face new regulations and licensing requirements. The House of Representatives’ general assembly has given a preliminary nod to the content and naming of the Madbouly government’s proposed Retail Stores Bill, Youm7 reports

The bill includes new regs and a grace period for unlicensed businesses to get their acts together. The proposed bill outlines licensing requirements, imposes conditions on the opening or change in location of a store, sets out insurance requirements, outlines inspection regulations, and would impose new regulations for restaurants and other F&B outlets. The bill allows currently unlicensed stores one year to apply for a commercial license. Military-owned outlets would be exempt from the law.

INVESTMENT WATCH- EBRD to invest EUR 2.5 bn in Egypt over two years: The European Bank for Reconstruction and Development (EBRD) is planning to commit up to EUR 2.5 bn-worth of projects in Egypt over the next two years, EBRD President Sir Suma Chakrabarti said on Sunday, according to Masrawy. The institution, which has lent Egypt north of EUR 4.5 bn since first adding Egypt to its footprint, is looking at projects in the new administrative capital and the Suez Canal Economic Zone, Chakrabarti said. He also noted that the bank is eyeing Banque du Caire’s IPO as part of the state privatization program, but has appetite for the banking sector as a whole and is not specifically intent on buying into BdC. The EBRD plans to invest some EUR 1.2 bn in Egypt next year, Managing Director for the Southern and Eastern Mediterranean Janet Heckman had told us last week.

INVESTMENT WATCH- MAF to invest USD 500 mn in Egypt next year: Majid Al-Futtaim Group (MAF) is planning to invest USD 500 mn in Egypt next year, Executive Regional Manager Herve Majidier told Al Mal. The company is aiming to open 15-18 new Carrefour outlets of varying sizes including branches in Beni Suef, Aswan, Sharkiya and Gharbiya. Majidier expects to open two or three outlets before year-end.

Egypt lands USD 3 bn to help finance essential imports: The International Islamic Trade Finance Corporation (ITFC) will lend Egypt USD 3 bn before the end of next year to be used for imports of petroleum derivatives and basic commodities, ITFC CEO Hani Sonbol told Al Mal. This is the second facility of that size the Madbouly government has landed from ITFC in recent months. In September, the two sides also signed a USD 3 bn facility, including USD 1 bn to finance the purchase of basic goods and foodstuffs.

FRA postpones hearing on Beltone appeal to 17 December: The Financial Regulatory Authority has postponed to Monday, 17 December is hearing on Beltone Financial’s appeal hearing of a six-month suspension handed to its investment banking arm, according to Al Mal. The hearing was first scheduled to take place on 26 November only to be postponed to yesterday. The FRA suspended Beltone’s investment banking arm last month, alleging there were “irregularities” in the IPO of structured- and consumer-finance player Sarwa Capital’s IPO, which Beltone managed. The firm has denied any wrongdoing. The Administrative Court is also expected to speak on a separate appeal by Beltone this coming Saturday, 15 December.

Egypt raised USD 1.1 bn from the sale of one-year USD-denominated T-bills at an average yield of 3.747% in an auction on Monday, the CBE said, according to Reuters.

Egypt is expected to be among the world’s top recipients of remittances in 2018, with inflows from Egyptians working abroad expected to reach USD 26 bn by the end of the year, up 14% y-o-y from USD 18.2 bn last year, according to the World Bank’s Migration and Development Brief (pdf). Remittances are projected to account for 10.8% of Egypt’s GDP this year, up from 5.5% in 2017. The increase in flows to Egypt leads outpaces the growth in the same gauge for the wider MENA region, which is expected to come in at 9.1% this year.

The cost of sending home remittances in the MENA region remains higher than the global average despite declining slightly to 7% in 3Q2018 from 7.4% in 3Q2017, the report notes. The global average in 3Q2018 was 6.9%. However, costs are considerably lower when sending from GCC countries to Egypt than, say, from high-income OECD countries to Lebanon. “Even with technological advances, remittances fees remain too high, double the [Sustainable Development Goals] target of 3 percent,” says World Bank Senior Vice President Mahmoud Mohieldin.

Would someone please (pretty please?) ‘disrupt’ this industry? Are transaction fees that high in an industry that is this digitalized not an unjust tax on the poor? Modern-day usury, almost? Not to get all socialist-nationalist on all of you this morning, but why are central banks around the world not regulating this a little bit more tightly?

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Elsewedy Electric and Arab Contractors will sign tomorrow final contracts for a USD 3 bn, 2.1 GW hydroelectric dam in Tanzania

IDC will be hosting a gathering headlined CyberSecurity Strategies in the Banking Sector tomorrow at the Four Seasons Nile Plaza. You can register for the event here.

Get briefed on Egypt’s tourism reform program when Tourism Minister Rania Al Mashat speaks at AmCham on 13 December. Members and their guests may register here.

The Autotech auto exhibition starts this Friday, December 14, at the Cairo International Exhibition and Convention Center.

SWF expected before the end of this month: The bylaws and regulations for Egypt’s in-the-works EGP 200 bn sovereign wealth fund should be ready by late December after Cabinet has completed its review, Planning Minister Hala El Said said. Media reports had previously suggested the fund will move into ‘setup phase’ within a month of finishing the bylaws and naming a chief executive. El Said is hoping a CEO will be selected by mid-January. The selection committee has so far interviewed 12 candidates from a shortlist of high-powered names.

Egypt and Cyprus will sign by the end of the month an MoU on the building of a USD 1.5 bn subsea power cable to link Egypt’s electricity grid with Cyprus, Minister Mohamed Shaker said, The interchange agreement is part of a USD 4 drive to connect Egypt’s grid to countries in Africa and in Europe, including Greece.

The government will announce the second phase of its privatization program before year-end, Public Enterprises Minister Hisham Tawfik said. The committee overseeing the state privatization program is also scheduled to hold a meeting next month to look into how market conditions developed since the privatization program was put on ice last October amid the emerging markets selloff.

Pitch for a spot in Fintech Cairo: Global seed program organizer Startup Bootcamp and Pride Capital have launched Fintech Cairo. The six-month accelerator program will select 10 companies from a pool of applicants. Our friends at Pharos Holding, along with Bank of Alexandria and the German development agency GiZ are proud supporters and sponsors of the program. You can submit applications here. The deadline for submissions is 31 December.

Still topping coverage of Egypt in the foreign press is an investigation into explicit images allegedly made by a Danish photographer atop the Khufu Pyramid, DW, New York Post, 10 daily and Sputnik News all picked up the story.

Authorities have released a British student arrested on spying charges after he unwittingly took a photo of a military helicopter as the commercial aircraft on which he was traveling touched down in Egypt, the Guardian reported.

Egypt has placed restrictions on the sale of yellow reflective vests, a symbol of the French protests, to avoid copycat protests during next month’s 2011 anniversary, the Associated Press reports.

Egypt’s relations with the rest of Africa are again the overarching theme in the three main state-owned dailies this morning (Al Ahram | Al Akhbar | Al Gomhuria). Also on the front pages today:

• The House of Representatives gave preliminary approval to a bill that would regulate retail shops (Al Ahram — we have more in Speed Round, above);
• Prime Minister Moustafa Madbouly discussed with Supply Minister Ali El Moselhy and Agriculture Minister Amr Abu Steit setting up logistics centers to help bring down the prices of foodstuffs (Al Ahram);
• Some 15.5 mn Egyptians have been screened for Hepatitis C under the state’s nationwide survey (Al Akhbar).

We bring you our next installment of the “Is GDP a good measure of wellbeing” debate: In a nutshell, no, saysJoseph Stiglitz in his op-ed last week. Ten years ago, the International Commission on the Measurement of Economic Performance and Social Progress issued its report, Mismeasuring Our Lives: Why GDP Doesn’t Add Up. The report found GDP to be a deeply flawed metric of economic performance and social progress, spurring an international movement of academics, policy-makers, and governments to rethink the metric. The Better Life Index came out of this project: a range of alternatives that better reflect wellness and its catalysts.

New studies highlighted by Stiglitz both support his claim and signal a shift in the conventional wisdom of GDP. Last week, the sixth World Forum on Statistics, Knowledge, and Policy produced a report headlined Beyond GDP: Measuring What Counts for Economic and Social Performance. In addition to exploring topics not previously discussed — including trust, insecurity, inequality, and sustainability — the report explains how poor metrics contributed to deficient policy. For example, if policy-makers had better metrics, they might have been able to anticipate the negative and long-lasting effects of the 2008 financial crash and steered clear of austerity policies that lowered national wealth.

GDP is not for the people: Stiglitz goes further to say that political outcomes often reflect the insecurity of ordinary citizens, which is itself fueled by a narrow range of policies focused on GDP. For example, pension ‘reforms’ force citizens to bear more risk, or labor market ‘reforms’ that weaken employees’ bargaining power. Better metrics would not only properly weigh the costs against the benefits of such reforms, but they would identify problems before they spiral out of control.

2019 could be a year of M&A for fintech: Fintech may be starting to mature enough that a wave of consolidation is inevitable, particularly as big industry players resort to acquisition to speed up their entry to the sector. Analysts polled by Bloomberg for a piece headlined Experts Predict the Five Big Fintech Trends of 2019agree that there are enough startups to make M&A viable in the industry — and that most are small enough for acquisitions to be widely feasible.

2018 was a landmark year: Fintech was all the rage in 2018, sometimes even superseding market expectations with startups like Stripe having been valued higher than the market caps of 249 S&P 500 companies. Fintech saw record levels of investment inflows this year globally, with 1,400 investments being made, CB Insight’s Lindsay Davis tells Bloomberg TV (watch, runtime: 4:29), describing the year as “a banner year for fintech.”

Challenger banks were big thing in 2018: Low- and no-fee trading startups and robo advisors were popular in 2018, but the big winner globally were challenger banks — online-only retail banks that are smaller than traditional banks and that run on mobile apps with low or no fees said Davis.

President Abdel Fattah El Sisi met with Asian Infrastructure Investment Bank (AIIB) President Jin Liqun yesterday to discuss cooperation in infrastructure projects, especially in the renewable energy and transport sectors, according to an Ittihadiya statement. El Sisi also met with COMESA Secretary General Chileshe Kapwepwe to discuss enhancing regional cooperation in development and other areas, according to a separate statement.

The Oil Ministry will issue the first tender for 10 exploration blocks in the Red Sea within two weeks, once it has completed its seismic mapping of the area, Minister Tarek El Molla announced, according to Al Masry Al Youm. Tendering concessions there to the private sector is one of the ministry’s key agenda platforms to expanding investments in the sector.

The first phase of the USD 60-70 mn power interconnection project with Sudan is expected to go live in January 2019, Electricity Minister Mohamed Shaker said, according to Al Mal. The two countries will exchange 200-300 MW of power in the first phase, which had Shaker had indicated would not go online for another six months. The second phase is slated for completion in 1Q2020 and will see an exchange of up to 600 MW.

Hassan Allam Holding is joining forces with Washington-based Nexford University (NXU) to invest in the development of young Egyptian talent, the construction and engineering group said in a statement (pdf). Through the partnership, Hassan Allam will sponsor MBA programs for 40 of its employees along with 10 other Egyptians at Nexford. “As a key player in the Egyptian market for over eight decades, investing in human capital is part and parcel of our sustainable growth strategy,” said Amr Allam, Co-CEO of Hassan Allam Holding. “Directly helping people in the community in which we do business gain important career-advancement skills is fundamental to our nation’s growth story.”

The Mortgage Finance Fund (MFF) is expecting a second tranche of USD 50 mn from the World Bank loan in the next two months, Managing Director Mai Abdel Hamid told Amwal Al Ghad. The bank has disbursed so far USD 257 mn of the USD 500 mn loan, which aims to help middle- and low-income Egyptians by providing favorable lending rates of 7% and 8% and longer tenors.

EgyptAir is set to receive the first of its six previously ordered 787 Boeing Dreamliners in March, Boeing Middle East President Bernie Dunn told Youm7 during an interview at EDEX 2018. EgyptAir Chairman Ahmed Adel met with a delegation from Boeing International to expand the national flag carrier’s fleet last July. EgyptAir then went on to sign one of its biggest transactions to upgrade its fleet, together with the six 787 Dreamliners, according to Mubasher. President Abdel Fattah El Sisi also held talks with Boeing International President Marc Allen to further discuss fleet expansion for both EgyptAir and the Armed Forces, back in late September.

The House of Representatives’ Transportation Committee discussed yesterday a draft law to regulate land transportation ahead of referring it to the general assembly next week, according to Youm7. The draft law aims to improve public transport systems and expand services to new governorates.

Former Customs Authority head Gamal Abdelazim will stand trial before a criminal court for accepting bribes amounting to EGP 750,000 in exchange for allowing the entry of goods without paying custom duties, according to Reuters. A date for the trial has yet to be set.

Defense Minister Mohamed Zaki met yesterday US Secretary of Homeland Security Kirstjen Nielsen to discuss military and security cooperation, according to an Armed Forces statement.

UNESCO declares “Aragoz” to be intangible cultural heritage: UNESCO has added Egypt’s Aragoz — “the puppet with the red cap and acid tongue has satirized politics and social life for centuries” — to its list of Intangible Cultural Heritage in Need of Urgent Safeguarding. The Aragoz is an old form of Egyptian theater using traditional hand puppetry which used to be performed by groups of traveling performers, moving from one folk celebration to the next across Egypt.

You can now study the business of sports in Egypt: ESLSCA University Egypt signed an agreement with the Spanish Premier League (La Liga) Business school to offer sports business management courses, the university said in a press release (pdf). March 2019 will see the launch of this collaboration beginning with a sports marketing course. Lectures and seminars will be taught by specialized experts from La Liga. Course participants will be afforded the chance to attend La Liga’s Open Week in Madrid, meeting teams and attending lectures given by experts in the field.