Is Egypt paving the way for a weaker EGP?

Did you miss the results yesterday of our 2019 Enterprise Reader Survey? Almost half of you have had a good year doing business in Egypt, while around 40% of you have had the opposite experience. Half you think that business conditions will improve next year, while the number of pessimists among you has more than doubled since last year — 16% expect conditions to deteriorate in 2019. Other highlights:

• Fewer of you expect to beat your competition in the new year than thought you would come out on top when we asked the same question a year ago;
• You’re being squeezed by inflation and high interest rates;
• You’re also less optimistic about prospects for FDI inflows into your specific sectors;
• You’re not as likely to invest as you were a year ago: Last December, the vast majority of you thought your companies would invest more in the following six months. Today, less than half of you are saying the same thing.
• Fewer of you expect to be hiring in 2019 than thought their headcount would grow when we last surveyed you a year ago;
• You’re hoping to keep wage growth under control in 2019 after two years of sharp pay hikes.

Tap here for our full breakdown of the results. Some readers found the images published yesterday morning too small — you can find a larger version suitable for printing here (pdf) or just skim through the graphs below

The Financial Regulatory Authority is expected to rule on 23 December on Beltone Financial’s appeal of a six-month suspension handed to its investment banking arm, Beltone attorney Osman Mowafi said yesterday after the FRA heard the firm’s argument. The closely watched case could have wide impact on everything from how bookbuilding (the process of figuring out how much stock to allocate to which investor, at what price) is regulated in Egyptian IPOs to the mood in the wider investment banking community.

President Abdel Fattah El Sisi’s visit to Vienna continues today. The visit has thrust into the spotlight Egypt’s role in preventing illegal migration to Europe, an issue on which Austria and Germany have pressed Egypt since at least the fall of 2016, as we have previously reported. Both countries have suggested Egypt could land a Turkey-style incentives package. Egypt has already done a lot of clamp down in the flow of migrants and is believed to have been talking with the EU since late summer on a series of incentives. We have more in this morning’s Speed Round, below.

Reminder: The emphasis on migration to Europe comes as Egypt takes over the presidency of the African Union in 2019.

The US stock market is on track for its worst December since the Great Depression, CNBC reports in what has become the business story of the week. The Dow is down 7.8% for the month and the S&P 500 is off 7.6% after slides yesterday, putting them on pace for their worst December performance since 1931, the broadcaster says. This is despite December “typically [being] a very positive month for markets.” Yesterday’s sell-off brought US stocks to their lowest level in 14 months, Bloomberg notes.

What’s going on? Investors are spooked about the global growth outlook and are jittery ahead of the US Federal Reserve’s interest rate decision, due tomorrow after the Fed’s two-day meeting wraps. “It’s a treacherous market right now,” one observer told the WSJ, noting that “investor sentiment has shifted” and that the “‘buy-the-dip’ mentality used to work really well, and prior downturns were short lived. This time it hasn’t happened.” The US retail sector is the bellwether to watch, the FT suggests, noting that shares here are “on course for their biggest quarterly sell-off since the financial crisis” despite a bullish Christmas sales forecast as the sector is at the center of “concerns about the global economy” and The Donald’s trade war with China.

Oil is also taking it on the chin, as is the greenback. US crude closed below USD 50 per barrel yesterday for the first time in some 14 months. What’s more, “Institutional investors have sharply reversed their outlook for the USD in the past three months and expectations have risen that the US stock market will fall in 2019,” according to a quarterly survey of 200 asset allocators in London cited by the Financial Times. “The last few months have spooked investors,” said David Bowers, head of research at Absolute Strategy Research. “People are fastening their seat belts for a pretty bumpy year [in 2019].”

So, what should you expect the US Fed to do tomorrow? The US central bank will likely hike rates for the fourth time this year to 2.25-2.50%, but there are signs that the US central bank will slow the pace of interest rate hikes in 2019.

Also worth a moment of your time this morning:

What do 10 of the world’s largest asset managers predict will happen in 2019? The Financial Times’ fund management desk asked 10 CIOs with USD 21 tn in combined AUM what they expect, and it boils down to a year marked by market volatility, trade tensions and lots of talk about Brexit in a year full of downside for the global economy. (Read)

Goldman Sachs faces criminal charges in Malaysia, which is demanding more than USD 3 bn in fines for the firm’s alleged involvement in a corruption case involvingastate investment fund, the Financial Times. Lax oversight allowed the firm to ignore clear warning signs, the WSJ adds in an investigation. Goldman has fought back, describing itself as a “victim of deceptive Malaysian officials,” CNBC writes. Reuters also had the story.

Tunisian activists took the streets yesterday in Sidi Bouzid, the same town in which the January 2011 self-immolation of a fruit seller named Mohamed Bouazizi helped set off the Arab Spring, Bloomberg reports. Activists modeling themselves on France’s Yellow Vest protesters were demanding lower prices and more jobs.

MUST READ for anyone thinking about binning the 9-to-5 in middle age: When couples retire — and then start a business, via the Wall Street Journal.

Not ready to retire? You can still push back against the 9-to-5 grind, Axios reports

Our nightly talk show report is on hiatus this morning and will be back tomorrow.

Egypt “paving the way” for a weaker EGP with simplified FX policy, says Capital Economics: The EGP will likely weaken by end-2019 as policymakers work to “simplify the country’s exchange rate setup,” Capital Economics said in a research note out yesterday. Recent moves by the Finance Ministry and CBE including scrapping the discounted customs exchange rate for non-essential imports and terminating central bank’s parallel FX repatriation mechanism “are steps in the right direction, [but] highlight that FX policy is still complex,” the research house writes.

Expect the EGP to slide “modestly” against the greenback by the end of next year: The moves come as there has been mounting speculation that the CBE was pushing state-owned banks to prop up the EGP — which Capital Economics was the first to flag, with Reuters following suit last month. This policy, Capital Economics notes, will not be sustainable for much longer and “the next step is likely a reduction of backdoor FX intervention” that will ultimately result in the EGP falling “modestly” to EGP 19 against the greenback by the end of next year.

Where do we stand on interest rates? Capital Economics sees the CBE resuming its monetary easing cycle in early 2019, by which time it expects headline inflation to fall further. The CBE has kept interest rates on hold since May to help contain inflation and slow down outflows of hot money from Egypt amid the emerging markets sell-off.

Real estate slowdown? What real estate slowdown? For some months now, conventional wisdom has held that the top end of the real estate market has looked choppy as analysts have pointed to easier sales terms including low (or no) down payments and longer payment terms. But sales at eight listed real estate developers surged 44% in the first nine months of this year to EGP 40.9 bn, Shuaa Capital said in a research note out yesterday. (Note that this is talking about contracted sales, not recognized revenues — developers typically book revenues only when contracted units are handed over to buyers and / or paid for in full.)

Leading the pack was Talaat Moustafa Group, which saw sales nearly double to EGP 18.3 bn in 9M18 thanks to its Celia project in the new administrative capital. PHD delivered 21% sales growth.

Gov’t says it has no plans to freeze the bank accounts of tax evaders: Cabinet  said in a statement that it is not mulling a move that would grant the Finance Ministry power to freeze the bank accounts of suspected tax evaders. After having reached out to the Finance Ministry, the cabinet said no such instructions were given either in cooperation with the central bank or any other entity. We had picked up a report by Al Mal earlier this week claiming that the Finance Ministry was looking to discuss with the central bank legislation that would allow it to freeze funds in the accounts of alleged cheats.

BMW agent in Egypt considering sale? Bavarian Auto Group, the exclusive agent in Egypt for BMW automobiles, may be looking to shop itself to investors in 2019 according to an unconfirmed report in Al Mal that cites unnamed sources. The daily claims that an unnamed financial advisory firm is working on a fair value report now that could set a floor for talks with a group of interested Arab and Egyptian investors. The unusually structured report suggests that, alternatively, Bavarian could tend to its knitting, but phase out local assembly and focus entirely on completely-built-up imports as customs duties on EU-assembled vehicles fall to 0% on 1 January. This is one of those stories on which we have zero inside track as to its veracity, but the fact that it is circulating suggests industry observers should watch this space.

CIB launches corporate venture capital arm: Our friends at CIB have launched a captive venture capital arm, CVentures, to invest in fintech startups. The new activity is primarily interested in series ‘A’ and ‘B’ rounds and will selectively invest in seed rounds, with a footprint expanding from Egypt to the wider as well as the global fintech space on a selective basis. CIB said in a statement (pdf) that CVentures will “combine the speed and agility of an independent investor with the breadth of CIB’s businesses.”

INVESTMENT WATCH- Investment in Egypt by global oil majors is on track to rise c. 10% this fiscal year, unnamed industry sources told the local press. Total investment by global exploration and production companies should close the state’s 2018-19 fiscal year at c. USD 11 bn against USD 10 bn a year ago in part thanks to the Oil Ministry clearing some USD 5.1 bn in arrears it owed the companies, the story says. Major projects in the pipeline include second-phase drilling in the supergiant Zohr field, with a USD 300 mn tenth well set to be drilled next month, continued work in the North Alexandria offshore concession and the start of production from the first three wells West Nile Delta 9B gas field. The Oil Ministry has recently reached an agreement with the companies to expedite their work on the latter projects. The projects are expected to produce a combined 800 mcf/d of natgas during the current fiscal year.

Background: The news comes as the ministry is set to launch its first tender on the Red Sea, offering 10 exploration blocks within the coming two weeks. The ministry has been pushing what it says will be friendlier terms on production sharing for new E&P agreement starting in 1Q2019 and as the ministry promises that it will repay in full back dues owed to IOCs by the end of 2019. The catch: Smaller global and national players are complaining that while the oil ministry is making good on payments owed to the global majors, smaller outfits are being left with mounting receivables.

Does the collapse of talks on a USD 20 bn Chinese investment call into question Egypt’s attractiveness to foreign investors? The collapse of Egypt’s talks with China Fortune Land Development (CFLD) over the development of a USD 20 bn project in the new administrative capital “raises questions about Egypt’s ability to attract any meaningful FDI,” Bloomberg Mideast Managing Editor Alaa Shahine says. The talks over the large-scale project have reached a deadlock amid a fight over revenue sharing after two years of negotiations, the newswire had reported one day earlier. “We’re unlikely to see Chinese companies take a step back from Egypt because of the relationship between the two countries,” Shahine says, but it is still significant to note that Egypt has been unsuccessful in locking down major FDI outside the oil and gas sectors since the Arab Spring. The need for FDI is also particularly significant for Egypt to secure a sustainable source of FX once the IMF’s USD 12 bn extended fund facility ends next year, he says (watch, runtime: 1:31).

FinMin arranging eurobond roadshow in Europe “soon”: The Finance Ministry is planning a roadshow in Europe “soon” for Egypt’s upcoming USD 4-7 bn eurobond issuance, the Finance Ministry said yesterday (pdf). A ministry delegation will hit England, France, Spain, Switzerland, and Germany, among others, according to the report. The ministry is expected to launch a tender for investment banks to act as joint lead managers for the issuance next month, and is reportedly looking to select at least one Asian bank, a government official had told us earlier this week. Several international banks in the Asian and European markets have expressed their interest in investing in Egypt’s debt, the ministry said.

Background: The ministry had launched a nondeal roadshow in Asia in October that was meant to help Egypt attract new investors to its debt market ahead of the anticipated eurobond sale. A delegation led by Finance Minister Mohamed Maait hit the South Korean capital of Seoul, and also visited Singapore, Hong Kong, China, and Japan. The issuance is expected in 1Q2019, but Egypt has also been waiting on global markets to stabilize before moving ahead with its issuances, government sources had previously told us. Maait had also said earlier this month that the Madbouly government will release details on its 1Q2019 international bond issuances sometime next month.

Illegal migration headlines day one of Sisi’s Vienna visit: Austrian Chancellor Sebastian Kurz praised on Monday Egypt’s successes in combating illegal migration — which he mentioned included zero boats having reached Europe from Egyptian shores since September 2016, according to an Ittihadiya statement. The chancellor’s comments followed discussions with President Abdel Fattah El Sisi during his four-day Vienna visit to attend the High-Level Africa-Europe Forum. Kurz also praised Egypt’s willingness to host mns of refugees, who he said were provided decent living conditions. El Sisi said deepening cooperation with the European Union is key to keeping illegal migration under control. The president did not publicly elaborate.

The issue has made the front page of the Financial Times: The EU has been pushing for a cooperation pact with north African countries, including Egypt, to curb illegal migration. Supporters of the pact are hoping El Sisi will make clear during his trip what Egypt can offer and what it wants in return, the Financial Times notes in a piece that got prominent play yesterday on the newspapers homepage. Egypt has yet to decide whether it’s willing to take in migrants rescued during patrols amid concerns they would threaten national security or be impossible to send home due to lack of documentation, EU diplomats told the FT.

Other points of discussion: El Sisi and Kurz also signed several agreements and MoUs for cooperation in various sectors, including technology and innovation, entrepreneurship and education, Ittihadiya said. The war on terror, prospects for stabilizing Syria and Egypt’s economic reforms also came up during the meeting.

Egypt, EIB to sign final contract for EUR 350 mn metro loan during El Sisi’s visit: Egypt will sign with the European Investment Bank final contracts for a EUR 350 mn loan to finance infrastructure upgrades on Cairo Metro Line 1 during El Sisi’s visit to Vienna, sources told Enterprise.

MOVES- Mineral resources authority gets new boss: Oil Minister Tarek El Molla appointed geologist and former deputy CEO of Egyptian Petroleum General Corporation (EGPC) for Agreements and Exploration Osama Farouk Saied as the new head of the Egyptian Mineral Resources Authority (EMRA), the ministry announced yesterday. The appointment was one of 22 made across the ministry and its subsidiaries. New appointees include Alaa Abdel Fattah Kassem as the new deputy CEO of the EGPC’s agreements and exploration unit.

Egypt’s new framework for short-term bonds, instruments published in Official Gazette: The recent decision by the Financial Regulatory Authority, setting the framework and regulations governing short-term debt instruments, was published yesterday in the Official Gazette, according to VetoGate. The framework specifies the approved issuers and buyers of short-term bonds, sukuks, and other securities, and allows the securities to be made public through the EGX.

Egypt’s Pyramids of Giza makes Uber’s list of “most popular travel destination in 2018,” according to the Uber Newsroom. Topping the list was the Empire State Building, followed by the Freedom Tower also in NYC. The US, Brazil and India were the top three countries when it came to mileage covered with Uber, according to CNN.

WhatsApp published a full-page advert on the last page of state-owned Al Ahram advising its users on security while using the app. The advert includes a summary of basic privacy features available on WhatsApp — such as preventing others from knowing when you’ve read a message and the ability to block certain contacts and also encourages users to report “suspicious” messages they receive via the app. H/t Hossam Bahgat.

Careem launches delivery service in Saudi and the UAE: Careem has launched Careem Now, a separate app that aims to become a full delivery service for anything from food to meds, according to Reuters in a piece that also covers the ride sharing app’s expansion and fundraising plans. Careem Now launched as a food delivery service in Dubai and Jeddah and will roll out to Egypt and Pakistan if it proves successful. Careem believes that “the opportunity for deliveries in the region is even bigger than ride hailing,” CEO and co-founder Mudassir Sheikha has said.

CLARIFICATION- Carbon’s TPC inks equity framework agreement: Tahrir Petrochemicals Corporation and Lagos-based Africa Finance Corporation (AFC) have signed a USD 1.25 bn equity subscription framework agreement for its c. USD 11 bn petrochemicals project, slated to become the largest of its kind in the region, Carbon Holdings said in a statement (pdf). “We are proud to partner with Tahrir Petrochemical Corporation; a breakthrough project in one of the most important petrochemical industries in the region, which we believe will benefit Africa as a whole,” said AFC representative Mr. Sanjiv Gupta. Media reports had earlier presented the framework agreement as a firm commitment of USD 1.25 bn in financing.

The Cairo Economic Court is due to rule tomorrow on an appeal by pharma distributors of an anti-trust fine. The distribution companies (Ibnsina, Ramco, Multipharma and United Company for Distribution and Trade) are appealing an Egyptian Competition Authority fine of EGP 5.6 bn for having allegedly colluded to cut credit periods and slash discounts to small pharmacies. The hearing comes amid speculation there could be an out-of-court settlement of the cases.

The Electricity Ministry expected to sign an MoU with Cypriot officials to begin construction on a USD 1.5 bn subsea power cable to link Egypt’s electricity grid with Cyprus’ sometime this month, Al Mal had reported.

FRA to look into an appeal by Raya’s Khalil on 23 December: The Financial Regulatory Authority (FRA) will hold a hearing on 23 December to review the conditions it set for Raya Holding founder Medhat Khalil’s mandatory tender offer (MTO) to take Raya private, local news reported.

The Central Bank’s Monetary Policy Committee will meet to decide on interest rates on Thursday, 27 December.

Remembering the Salem Express shipwreck off the Red Sea coast some 27 years later: Divers continue to explore the wreck site of the Panama-owned ferry MV Salem Express, CairoScene writes, finding cars, televisions and debris perfectly intact in an underwater time capsule. On 17 December 1991, the Salem Express sailed from Jeddah to Egypt’s Safaga Port with 690 people onboard, mostly Egyptians returning from pilgrimage. Shortly after midnight, the passenger ship sank after running into a coral reef. Some 470 passengers went down with the ship and the remaining passengers were left in frigid water for nine hours before being rescued. Only 178 people survived the sinking, one of Egypt’s worst maritime disasters.

It’s a mixed bag for Egypt in the international press this morning:

Egypt is on a British charity’s warning list of countries in which UK schoolgirls could be subjected to FGM over the Christmas break, according to a Reuters article.

Forced migrant repatriations from Italy to Egypt and Nigeria are peaking, and Italy’s guarantor for the rights of detainees Mauro Palma argues that neither country is prepared for the “prevention of torture,” ANSA reports.

President Abdel Fattah El Sisi’s trip to Vienna is front and center in Egypt’s three main state newspapers, with the primary focus being talks on immigration issues (Al Ahram | Al Akhbar | Al Gomhuria). Also featured on the front pages this morning are updates on the government-sponsored nationwide Hepatitis C screening program (Al Ahram) and the Interior Ministry’s efforts to clamp down on crimes (Al Gomhuria).

Too much screen time can physically change your child’s brain: A study funded by the National Institute of Health suggests that teenagers and adolescents’ heavy use of smartphones, tablets and computer screens can be damaging to their brains, according to Bloomberg. While the findings cannot yet be considered conclusive, the study found that children who spent more than seven hours a day on screens had a thinning brain cortex, the outermost layer that processes information from the physical world (watch, runtime: 1:13).

Egypt’s new ambassador to Sudan Hossam Eissa presented his credentials to Sudanese President Omar Al Bashir on Thursday, according to a Foreign Ministry statement. Eissa, who arrived in Khartoum last month, begins his post as Egypt and Sudan have been working to de-escalate tensions over the Grand Ethiopian Renaissance Dam and trade issues.

Higher Education Minister Khaled Abdel-Ghaffar has canceled a 2015 ministry decision to equate US high school diploma grades to those of Thanaweya Amma, according to Ahram Online. The ministry had previously imposed the equation, which students and parents complained resulted in an unfair reflection of their performance, to allow students with American diplomas to apply to both public and private universities.

The Central Bank of Egypt (CBE) has granted a one-year extension to its tourism rescue initiative for investors and businesses operating in the sector, according to a statement yesterday. The CBE will accept requests to reschedule debt owed by tourism companies for up to three years, and will grant a six-month extension for personal loans taken out under the initiative by those working in the sector. We noted last week that the CBE also extended its loan grace period for South Sinai tourism investors till December 2019.

Al Baraka Bank expects its 2019 profits to decline by 5-7% as a result of proposed amendments to the tax treatment of bank income from government debt, if they are approved, the bank said in an EGX disclosure (pdf). The bank, however, doesn’t expect the decision to reflect in its 2018 financial statements. Abu Dhabi Islamic Bank, CIB and QNB had also said last week that their 2018 financial results will not reflect the impact of the proposed amendments.

Egyptian creditworthiness bureau iScore is planning to expand its operations into Africa and the Middle East during the next three years, CEO Mohamed Kafafi said, according to Al Mal. The agency is looking to either work with Egyptian companies operating in its target markets or directly with these countries’ governments. Talks are already ongoing with an unnamed Arab government looking to work with the state-backed agency.

The government is planning to exclude at least 500k ineligible families from social safety programs by June 2019 to better ensure funds are directed to those in need, officials said. Officials will trim some 200k families from cash subsidy programs Takaful and Karama, and 300k others from other programs. As of last June, the Takaful and Karama programs covered some 2.25 mn families.

The Financial Regulatory Authority (FRA) has released a memo clarifying the Capital Markets Act’s regulations on financial disclosures for listed companies, which must be submitted to the FRA and the EGX one month ahead of general assembly meetings, Al Mal reports.

Groupies, rejoice: Mohamed Salah is gracing the cover of GQ Middle East’s next issue. In the accompanying interview, Salah credits his father for his unwavering support, gives advice to aspiring young Arab athletes, and talks about qualifying for the World Cup. Check out the full photoshoot for the cover story here.