…and we’re back: IMF funding coming this month + interest rates left on hold

Happy New Year, friends, and welcome to 2019. We’re delighted to be back in your inboxes this morning after our end-of-year publication break the first half of this week.

Don’t expect a rush of news before the week of 13 January. It’s prime vacation time this week and well into next ahead of Coptic Christmas on Monday, 7 January.

That said: It’s business as usual at the House of Representatives with the exception of a day off on 7 January, so you can expect news on the legislative and regulatory front.

Custom duties on fully assembled cars imported from the European Union fell to 0% yesterday under a trade agreement with the European Union. Domestic assemblers had been angling for protection against the move, arguing that what they see as unfair competition from EU, Turkish and Moroccan vehicles endangers assembly jobs here.

Egypt assumes the rotating presidency of the African Union this year.

Where did the EGX end 2018? The benchmark index was down 13.2% for the year, sapped largely by the ravages of the Emerging Markets Zombie Apocalypse that was the story of 2018 on the equities front.

We were not the worst-performing regional market. The Dubai Financial Market was down more than 26%, while the Muscat Securities Market wrapped 2018 off 15%. Qatar was the region’s top gainer in 2018, rising more than 20% as the blockade became the new normal there. Saudi Arabia, the region’s largest market, was up nearly 7% for the year.

US indexes closed 2018 with their steepest annual declines since the global financial crisis, the Wall Street Journal notes.

Big gainers in the US of A last year: Merck (+36%) led the Dow while chipmaker AMD (+80%) topped the S&P 500.

Big losers in the US last year: Goldman Sachs led the Dow down as its shares shed more than a third of their value (General Electric would have claimed that honor had it not been kicked out of the index at mid-year, the Financial Times notes), while Coty shed more than 60% on the S&P.

So what does 2019 hold for companies and investors alike? Some of the best prognosticating we’ve read in the past few days:

• Forecasting the world in 2019. (Financial Times)
• Major themes set to shape markets in 2019. (Financial Times)
• The future might not belong to China. (Financial Times)
• Wall Street whiplash — five questions for investors. (Financial Times)
• Investors on edge after stocks’ biggest yearly loss since 2008. (Wall Street Journal)
• Money managers to watch in 2019. (Wall Street Journal)
• Investors are still cautiously optimistic about 2019. But here’s what could go wrong. (New York Times)
• Why 2019 could be very good for stocks, after the worst year in a decade. (CNBC)
• UAE minister says he expects rift with Qatar to continue. (Bloomberg)

The FT thinks real estate prices in Egypt will be stable this year. In a look ahead at property prices in EMEA in 2019, the FT quotes an analyst who notes that “there is a huge amount of supply due to come to the market in 2019, but prices are likely to remain stable due to strong demand from a rapidly growing population and the fact that most purchases are in cash. Other factors likely to support the current prices are high inflation and rapid increases in petrol prices, leading to the rising cost of construction materials. The current oversupply is also likely to prevent the major developers from launching new projects, which will further support the current prices. Two areas expected to see plenty of activity over the next couple of years include the New Capital, to the east of Cairo, and the area surrounding the new Grand Egyptian Museum in Giza.”

In miscellany this morning:

Elizabeth Warren is the first Democrat to throw her hat into the race for the US presidency in 2020. Warren, who even critics / rivals including Michael Bloomberg admit is both a strong speaker and exceptionally intelligent, rose to prominence with a critique of capitalism and a loud call to clamp down on the ‘excesses’ of Wall Street through more regulation. A video launching her exploratory committee presents her as a champion of the beleaguered American middle class (watch, runtime: 4:20). The story is getting heavy play in the global business press: FT | WSJ | NYT. The Times, meanwhile, looks at “which Democrat matches the moment” as “2020 candidates line up.”

Yes, large chunks of the American federal government are still closed. US Democrats intend to try to end the shutdown when they take over the House of Representatives on Thursday, but face a battle in the Republican-controlled Senate.

Netflix pulled an episode of ‘Patriot Act with Hasan Minhaj” in Saudi Arabia after a complaint from Riyadh over an episode that criticized Crown Prince Mohamed bin Salman. The episode (the next-to-last in the season) remains available in Egypt.

The third season of Stranger Things will be out on 4 July, 2019. That’s a Thursday, for those of you looking for a great excuse to create a three-day weekend…

The performance of Egypt’s energy sector last year and its expected growth this year was the most popular topic on the airwaves last night.

Output from the Zohr natural gas field is expected to reach 3 bcf/d this year, Oil Ministry spokesman Hamdy Abdel Aziz told Al Hayah Al Youm’s Lobna Assal. The development of Zohr and several other fields, including the Nooros and Atoll, helped Egypt achieve natural gas self-sufficiency and halt LNG imports last year, Abdel Aziz noted (watch, runtime: 03:42). Egypt’s gas resources and its plans to construct a pipeline with Cyprus make it the ideal candidate to become the region’s premier energy hub, former EGPC deputy head Medhat Youssef told Hona Al Asema’s Lama Gebril (watch, runtime: 04:39).

The military production and endowments ministries have begun outfitting mosques with water-saving taps to cut down on water consumption, Military Production Minister Mohamed El Assar said on Al Hayah Al Youm. The taps, which retail for EGP 40 apiece, reduce consumption by up to 75%, El Assar said (watch, runtime: 08:47). This comes in line with the Irrigation Ministry’s efforts to make the most out of the country’s water resources by reducing consumption, Irrigation Minister Mohamed Abdel Atti said on Masaa DMC (watch, runtime: 03:07). The minister also discussed the pros and cons of desalination as a means of increasing water resources (watch, runtime: 03:28).

Public Enterprises Minister Hisham Tawfik had a chat about Eastern Company’s upcoming stake sale, which he reminded Hona Al Asema’s Lama Gebril was postponed until the company’s share price recovers from its plunge late last year (watch, runtime: 02:49).

Egypt to receive the fifth tranche of IMF facility this month: The country will receive the next USD 2 bn tranche of the IMF’s extended fund facility this month, Ittihadiya said in a statement quoting Central Bank of Egypt Governor Tarek Amer’s note to President Abdel Fattah El Sisi. The tranche was expected by the end of December, and its delay came amid rumors the government was pushing back on the timeline for a requirement that it further liberalize fuel prices, a key condition of the IMF reform program.

The Central Bank of Egypt left key interest rates on hold last Thursday, citing global monetary policy tightening, trade wars and volatility in the oil market. The bank’s monetary policy committee left the overnight deposit and lending rates at 16.75% and 17.75%, respectively, and also left on hold its main operation and discount rates at 17.25%, the CBE said in a statement (pdf). Economists surveyed in our Enterprise poll ahead of the meeting had suggested that the MPC would leave rates on hold to help maintain foreign appetite for Egyptian treasuries, among other factors.

Central bank sets new, lower inflation target: To ‘safeguard’ macroeconomic stability, the CBE said it’s looking at an inflation target of 9% (±3 percent) on average for 4Q2020, down from 13% (±3 percent) in 4Q2018. Headline inflation dropped to 15.7% in November from 17.7% the previous month, falling back into the government’s targeted range of 13% (±3%). A recent decision to scrap a discounted customs exchange rate for non-essential goods may send inflation back up in coming months though, as could subsidy cuts expected by the middle of 2019 as the current fiscal year ends or the next begins.

(Speaking of which: Egypt will leave the customs exchange rate for essential goods unchanged at EGP 16 for January, the Finance Ministry has said. Customs on non-essential and luxury goods will be calculated at a rate of EGP 17.9739. Ahram Online has the story.)

GDP, unemployment stable: Real GDP growth stabilized at 5.4% in 2Q2018, the first flat quarter after consecutive quarters of growth. Flat growth came as private domestic demand and net exports declined, according to the statement. The unemployment rate also stabilized at 10% in 3Q2018.

Egyptian economy to grow 6% this year, driven by infrastructure projects, says Beltone: The Egyptian economy is expected to grow at a 6% clip this year, with the expansion of GDP largely driven by major infrastructure projects, Beltone Financial’s sector head of financial services, Nancy Fahmy, told Bloomberg TV (watch, runtime: 5:26). According to Fahmy, the research house sees inflationary pressures persisting throughout the year due to the fourth round of subsidy cuts and the potential indexation of oil products according to global prices. Inflation is expected to gradually decelerate to reach 17% towards the end of the year, she said, noting that the slow reduction of inflation is expected to result in a slower pace of monetary easing. The CBE is unlikely to cut interest rates until 4Q2019, according to Fahmy.

Which industries to watch (and avoid) this year: Beltone sees a fair share of “uncertainty” in the real estate and banking sectors this year, but views the healthcare and consumer sectors positively. Fahmy noted that shares of Ibnsina, Integrated Diagnostics Holding (IDH), and GB Auto are all expected to perform well this year. GB Auto and Ibnsina both trade on the EGX, while IDH (the company that owns Al Borg and Al Mokhtabar labs in Egypt as well as operations in Jordan, Sudan and Nigeria) trades on the London Stock Exchange.

Smart government policy: Takaful and Karama handouts will be contingent on school attendance: The Social Solidarity Ministry will make families’ cash benefits under the Takaful and Karama welfare programs contingent on their children maintaining a school attendance record of at least 80% of the year, Deputy Minister Nevine El Kabbaj told Youm7. El Kabbaj said families that fail the meet the requirement will face a 30% cut in benefits for a first offense. The penalty will increase to 60% and 90% for the second and third offenses, respectively. Families will be able to get back to full benefits if their kids’ attendance returns to 80%. The conditions will first be implemented in Cairo, Assiut, and Damietta as of February and will eventually be expanded to the remainder of the country, El Kabbaj said.

Background: The government has used the popular Takaful and Karama programs as instruments of social change. As of this month, families enrolled in the welfare programs will only be able to claim cash benefits for a maximum of two children per family, Prime Minister Moustafa Madbouly had said in November.

LEGISLATION WATCH- FRA completes first draft of Consumer Credit Act: The Financial Regulation Authority finished writing the first draft of its proposed Consumer Credit Act, FRA Deputy Chairman Khaled El Nashar told Al Mal. The proposed law differentiates between retailers offering sales on installment and consumer finance houses: All consumer finance companies will be subject to the act, while retailers will fall under it only when on-installment sales break the EGP 25 mn mark. The legislation, drafted after industry consultations, will now be subject to internal scrutiny at the FRA before it is passed to the Council of Ministers for review.

Sarwa Capital applies for sukuk issuer license: Consumer- and structured-finance player Sarwa Capital has submitted a request to the Financial Regulatory Authority (FRA) for a license to issue sukuk (sharia-compliant bonds), Al Mal reports. Sarwa would become the first Egyptian player to hold a sukuk license if its application is approved. The FRA had set the regulatory framework for licensing and establishing special-purpose vehicles to issue sukuk last month. Under the framework, issuers are permitted to invest only in sectors compliant with sharia law and their activities will be limited to investing on behalf of sukuk holders who are paid on a profit / loss basis rather than a fixed coupon rate. Sukuks were introduced through recently passed amendments to the Capital Markets Act that will also see the launch of short selling, futures, and green bonds, among other instruments.

Egypt is printing money at a slower pace: Egypt’s M2 money supply grew 14.04% y-o-y at the end of November to EGP 3.58 tn, according to CBE data. That pace is slower than the previous two months — broad money supply grew by 15.4% and 16.3% in October and September, respectively.

What is M2, anyway? Think of it as a broad measure of how much money is circulating in the economy. M2 includes currency in circulation as well as both local- and foreign-currency saving and time deposits. Investopedia has more.

EFG Hermes topped the EGX’s brokerage league table for December with a market share of 21.9%, according to figures released by the EGX (pdf). Beltone Financial came in second last month with a 14.2% market share, followed by CI Capital (5.5%), Pharos Securities (4.8%) and Pioneers (4.4%).

Have talks broken down between Emaar and the new capital authority? Bloomberg reported on Monday that talks between Emaar and the New Administrative Capital Company (NACC) to develop a 1,500 feddan mixed-use project in the city have broken down. The business information service quoted NACC Chairman Ahmed Zaki Abdeen as saying Emaar wouldn’t accept the EGP 3,500-4,000 per sqm price of land in the district. Separate reports, however, emerged a day later citing statements from the UAE-based property developer denying the news. The two sides appear to have been in disagreement since last year. If the reports are true, Emaar would be the second party in recent weeks, after China Fortune Land Development, with which NACC failed to reach agreement on price.

M&A WATCH- Khalil launches bid to take Raya private: Raya Holding founder Medhat Khalil has submitted a mandatory tender offer for 36.7% of Raya, the Financial Regulatory Authority said in a statement to the EGX (pdf). Khalil is bidding for c. 46.3 mn shares at EGP 9.4 a share, bringing the transaction value to EGP 435.2 mn. The authority is currently reviewing the MTO, which it had ordered Khalil to execute in October, and will make a decision within 15 working days. Khalil was said to have been in talks with two separate banks for EGP 700-800 mn to finance the bid, which he valued at the time close to EGP 500 mn.

M&A WATCH- Heliopolis Housing could sell Al Nasr stake: State-owned Heliopolis Housing and Development (HDD), one of the first companies set to pilot the state’s new privatization drive, could sell a 20% stake in Al Nasr Real Estate Development worth some EGP 48 mn to Zahraa Maadi Investment, according to a regulatory filing (pdf). Zahraa Maadi’s share price climbed 7% after the announcement.

Three Vietnamese tourists and their Egyptian tour guide were killed in a bomb attack near the Giza Pyramids on Friday, Reuters reports. At least 10 other people were also injured, including nine Vietnamese nationals and an Egyptian bus driver. Prime Minister Moustafa Madbouly told reporters the bus driver deviated from a secure, pre-planned route. The prosecutor general has ordered an investigation into the incident, a first of its kind in over a year. No group has claimed responsibility for the attack, but the Interior Ministry said security forces killed 40 suspected terrorists in three separate operations across the country the next day. The ministry did not clarify whether the operations and those killed were directly tied to Friday’s attack.

The “immediate fallout” from the attack on the nation’s still-recovering tourism sector will likely be limited, the National says, despite the timing of the incident being less than ideal. Tourists continued to visit the pyramids, seemingly unshaken by the attack, say AFP and EuroNews. Thomas Cook suspended Hurghada-Cairo trips in response to the attack and said it will continue to monitor the situation closely, according to Reuters. Bloomberg and the Associated Press also had the story.

Egypt is pushing to break the 2010 high water mark for tourism, with reports in late November suggesting this winter was shaping up to be a particularly solid season.

MOVES- SCZone gets two new deputy chiefs: President Abdel El Fattah El Sisi has named Mohamed Marey and Mohamed Beraya as new deputy heads of the Suez Canal Economic Zone, according to a decree published in the Official Gazette (pdf). The new officials succeed Mahfouz Taha and Mohamed Abdel Aziz.

An administrative court will hear on Saturday Beltone Financial’s appeal against a six-month suspension handed to its investment banking arm by the Financial Regulatory Authority. The FRA last month rejected Beltone’s appeal of the decision.

A government committee mandated with defining Egypt’s informal economy is set to meet for the first time this month, state statistics bureau CAPMAS head Khairat Barakat said, according to Al Mal. The committee includes CAPMAS, the CBE, the SME Development Authority, and the Planning Ministry. The survey was first proposed back in September and comes as the Madbouly government angles to convince the World Bank and the IMF to agree to include the informal economy in calculations of Egypt’s GDP.

Bond issuance plans to be made clear this month: Finance Minister Mohamed Maait said last month that the government would unveil its international bond issuance plans for 1Q2019 in January.

Coverage of Egypt in the international press has been muted since Christmas Day, with the most significant coverage being accorded to an IED attack on a bus near the Pyramids carrying Vietnamese tourists that killed four. Coverage of the attack quickly faded, but it overshadowed a Financial Times feature by Heba Saleh on the Grand Egyptian Museum that had been published just prior to the attack. The museum is set to open in 2020.

Also making the rounds:

• Monkey business: An Egyptian woman has been sentenced to three years in prison on ground of public obscenity for touching a monkey’s private parts, the Daily Mail reported.
• Loving China: The Chinese-built Free Egypt Experimental School is becoming a top choice for Menoufia parents — who’ve been applauding its facilities and affordable fees, Chinese state news agency Xinhua says.

For the first time in weeks, the front pages of Egypt three main state-owned newspapers are not running identical stories. Al Ahram’s top story this morning is President Abdel Fattah El Sisi’s phone call with US President Donald Trump yesterday, while Al Akhbar and Al Gomhuria are running with Prime Minister Moustafa Madbouly’s meeting with Finance Minister Mohamed Maait and Planning Minister Hala El Said to discuss spending priorities for the upcoming fiscal year.

El Sisi, Trump talk politics, diplomacy, security: President Abdel Fattah El Sisi and US President Donald Trump discussed in a phone call yesterday regional developments and Egypt’s efforts to fight terrorism, Ittihadiya said in a statement.

Egypt paid UAE’s Dana Gas USD 35 mn in arrears on Saturday, bringing total receipts to USD 199 mn, according to a company press release. Dana Gas also received an additional USD 9.3 mn from condensate sales. The payments have brought arrears owed to the company to their “lowest since 2011, though the Company is hoping for further improvement in payments so as to reduce the level to zero as agreed.” The company also said the payment will allow it to complete final preparations to begin drilling at its first offshore deepwater exploration concession in North El Arish. Egypt has pledged to fully repay amounts owed to international oil companies by the end of 2019.

JinkoSolar and Schneider have completed a 55kW off-grid solar power project in Sinai to provide 35 families with electricity, according to a company statement. Before the project, the families of Abu Ghuraqd village used diesel generators, which gave them access to power only 8 hours per day and caused both noise and air pollution.

The Oil Ministry will complete in March new mazut and diesel fuel storage facilities in Sidi Kerir with the help of Saudi’s Aramco, Minister Tarek El Molla said, without providing further details. The construction of the facilities will mark the first time for Egypt to store refined crude belonging to companies that are not owned by the state.

The General Authority for Reconstruction Projects and Agricultural Development has signed an agreement with China’s New Hope to set up a USD 20 mn poultry farm along the Wadi El Natroun-Alamein road, said Beheira Governor Hesham Amena.

The New Urban Communities Authority (NUCA) has granted 50k square meters to Orascom Construction to establish a factory for concrete products in New Alamein, according to local news. The cost of the three-year project has not been disclosed.

Multi Glass Manufacturing is planning to set up a EGP 200 mn factory in 6 October to produce transparent and tinted glass, Chairman Mohamed Fathi said. The new factory’s planned annual output is 1.5 mn units.

The first phase of the USD 2 bn Chinese textile industrial complex in Sadat City is set to be completed by year end, according to a Trade and Industry Ministry statement (pdf). Phase one, which is expected to house 100 factories, was initially due for completion by the end of 2018.

Cleopatra Hospitals Group (CHG) is planning to sign a long-term lease agreement for a 50-bed East Cairo hospital by February, according to a statement (pdf). The hospital, which is located near Cleopatra Hospital, is expected to “serve excess demand” for Cleopatra’s services. The leasing agreement will bring CHG’s total number of hospitals to six and “will further diversify the Group’s service offering and allow us to continue delivering on our long-term strategy anchored on patient safety and quality services,” said CHG CEO Ahmed Ezzeldin.

MNB Pharmaceutical Company is planning to invest EGP 230 mn in a new meds production facility in Borg El Arab, Chairman Mohamed Bazazo said. The first phase of the factory will come online by January 2021, and will be fully commissioned in 2025, according to Bazazo. The company plans to direct most of the factory’s output toward exports.

Orascom Development Egypt (ODE) has sold three of its properties in the Red Sea Makadi resort for EGP 856 mn, according to a company press release. The agreement included the sale of Royal Azur, Club Azur Hotels, as well as a plot of land in the area that the company owns. Proceeds will be used to reduce the company’s debt balance.

Sharm El Sheikh International Airport received on Saturday the first Serbian flight since 2012, Egypt's ambassador to Serbia Amr El Goweily said, according to Ahram Online. This came after Air Serbia reintroduced charter flights to Hurghada last year.

An Antiquities Ministry archaeological mission unearthed on Sunday a number of Roman-era clay sarcophagi in Damietta’s Tel Al Deir antiquities site, Supreme Antiquities Council head Mostafa Waziri said, according to a ministry statement. The mission also discovered 700 pottery vessels and amulets.

The government will inaugurate this month phase 4A of the EGP 32 bn Cairo Metro Line 3, National Tunnels Authority central administration head Tarek Abu El Wafa told Al Shorouk. The 4 km phase link four stations in New Cairo — Harun, Heliopolis, Alf Maskan, and Shams Club.

The National Authority for Tunnels (NAT) will sign before mid-January a USD 1.2 bn low-interest loan agreement with the Export-Import Bank of China (China Exim) to fund the East Cairo electric rail line, according to a Transport Ministry statement. The new 67 km line will link Salam City with 10th of Ramadan City and the new administrative capital. China Exim had agreed in 2017 to cover the full cost of the project, after it was set to provide only USD 739 mn.

EFG Hermes Leasing and HSBC Egypt have agreed to allow SMEs access to EGP 400 mnin leasing and financing servicesduring 2019, according to an EFG statement. The agreement, aimed to provide SMEs with low interest rates as well as medium- and long-term funding to support both capex and cash flows, comes as the government rallies behind SMEs as a major driving force for economic growth. “We are very excited for this [chance] to combine our experience with that of HSBC Egypt to deliver innovative financing solutions for various SMEs in the local market,” EFG Hermes Leasing’s CEO Ahmed El Kholy said.

Egypt’s exports grew an estimated 10% y-o-y to USD 22.6 bn in 11M2018 from USD 20.4 bn in the same period last year, according to a Trade Ministry statement. Egypt expects the end-of-year total to reach USD 25 bn, Minister Amr Nassar said. Agriculture exports also increased 4.5% last year to reach 4.9 mn tonnes, up from 4.74 tonnes, an Agriculture Ministry statement noted.

An appeals court has upheld a two-year sentence and a EGP 10k fine handed last year to activist Amal Fathy on charges of violating public decency for posting a Facebook video recounting her experience with [redacted] harassment, Al Shorouk reports. The ruling means Fathy could be arrested anytime, pending her appeal to the Court of Cassation, which is the country’s top appeals court. The story received wide coverage in the foreign press, with reports from Reuters and France’s AFP, along with a high-pitched criticism from Amnesty International — who called the verdict an “outrageous injustice.”

President Abdel Fattah El Sisi has ordered the establishment of a committee to fight sectarian violence, according to a decree published in the Official Gazette (pdf). The committee, which is mandated with drafting a strategy to prevent and confront terrorist attacks against minorities, will be led by military and military intelligence representatives, as well as officials from the Administrative Control Authority and homeland security.

A cabinet committee approved the legalization of 80 churches on Friday, nine of which are pending the completion of documents to be fully legalized, according to a Cabinet statement. The government passed a new law back in 2016 on church construction in an effort to ease the process of obtaining a license to build a church.

The Armed Forces have inaugurated the first electronic platform for military conscription, according to a statement. The platform will provide all citizens, whether at home or abroad, with direct access to conscription services amid government efforts to push for digitization to boost efficiency and promote transparency.

Leading Egyptian equestrian Sameh El Dahan won last week an international show jumping competition in Liverpool, according to Equ News.

Mohamed Salah, alongside Liverpool teammate Sadyo Mane and Arsenal’s Pierre-Emerick Aubameyang, has been shortlisted for CAF’s African Player of the Year Award, according to the federation's website. Salah was the first Egyptian footballer to claim the award last year, and could now rival the back-to-back records of African legends El Hadji Diouf, Samuel Eto’o and Yaya Toure if he wins this year.

British football club Aston Villa dropped Egyptian defender Ahmed Elmohamady from the team’s starting lineup, after scoring an own goal and conceding a penalty in recent games, Ahram Online reported. Villa’s fans are calling for the club to transfer Elmohamady to another team this month due to his performance.

The Supreme Media Council has suspended Mo4 Network’s CairoScene and ElFasla after it received complaints that the websites were not properly licensed, according to Youm7. Members of the Journalists’ Syndicate had submitted a range of other complaints about the content of the network’s websites to the council, including “insulting the Egyptian passport.”