Mercedes-Benz plans new car assembly plant in Egypt

It looks like we’re going to have a short work week: Thursday will be a day off for the public sector in observance of Revolution Day / Police Day, which falls on Friday, according to a Cabinet statement on Thursday. This makes it likely financial markets will follow suit, but there was no word from the central bank or the stock exchange at dispatch time this morning.

There can be no better way to start (what could be) a short work week than with good news on the FDI front: Mercedes-Benz is announcing it could resume production in Egypt, and we got welcome news on the investment front from both the EBRD and the OECD. We have chapter and verse in this morning’s Speed Round, below.

France’s Minister of the Economy and Finance, Bruno Le Maire, is in Cairo today to meet with President Abdel Fattah El Sisi ahead of French President Emmanuel Macron’s visit to the capital at the end of the month, according to the French Embassy in Cairo. La Maire is also scheduled to discuss economic cooperation with Prime Minister Moustafa Madbouly and members of the Cabinet’s economic group. We have more on Macron’s expected visit in this morning’s Egypt in the News section, below.

Guess who’s not coming to town? As the bickering on Capitol Hill rumbles on, US President Donald Trump has canceled House Speaker Nancy Pelosi’s planned tour of Egypt, Afghanistan and Belgium, citing the continued government shutdown, Reuters reports. In response, the top House Democrat accused Trump of endangering the lives of US troops stationed in Afghanistan by making her visit public. Popcorn, anyone?

(Speaking of the shutdown: 1) it is starting to hit US growth, the head of the NY Fed warns and 2) The Donald may be offering an olive branch of a form, saying he will extend some protection against deportation to undocumented immigrants if he gets a few bn in funding for his border wall.)

Foreign Minister Sameh Shoukry is attending an Arab economic summit that kicks off in Beirut today against the usual backdrop of regional bickering. The emir of Qatar will also be attending the Arab Economic and Social Development Summit, Reuters reports. Several Arab leaders have said they will not be participating.

Our friends at AmCham will be hosting today ICT Minister Amr Talaat at their monthly luncheon. You can register for the event here.

A two-day conference on reforming religious discourse in Egypt kicked off yesterday, Ahram Online reports.

The best thing we’ve read about what has really led to two months of protest in Sudan: Sudan must reform or seek a bailout to pull its economy out of a nosedive, writes Patrick Werr at Reuters, suggesting that in our southern neighbor, as elsewhere, it’s the economy, stupid: “The government has run up enormous budget deficits by subsidising the cost of fuel, bread and other products. To cover this deficit, it has expanded the money supply. But that has served to debase the currency, causing inflation to soar and the value of the Sudanese pound against other currencies to plummet — in turn pushing up the cost of subsidies and widening the deficit even further.”

In other Sudan news, the country is set to receive USD 300 mn and 1.12 mn tonnes of fuel courtesy from the UAE, as continued protests take their toll on the country’s economy, according toBloomberg.

Emerging market stocks were up Thursday after news that the US may begin lifting tariffs on imports from China. The bounce came despite the US Treasury later denying the reports, Reuters and Bloomberg note. The short-term boost to EM equities did nothing to stop a slide in developing currencies against a strengthening USD.

Less upbeat on EM: The FT warns against the pileup of foreign currency debt in emerging markets, saying higher funding costs and a slowdown in global growth may make debt service challenging, making “the pace of accumulation” concerning, says Emre Tiftik, an economist with the Institute of International Finance. This could make it difficult for some markets to invest in productive sectors, and yet more borrowing is on the horizon.

Hedgies, beware: The industry contracted last year for the first time since the financial crisis, although the decline of assets under management was significantly less in 2018 than 2008 (USD 100 bn compared to USD 461 bn), the Financial Times reports. Although the industry has boomed over the past 30 years, 4Q2018 saw outflows of USD 22.5 bn, which a leading data provider attributes to “several factors, most notably investor reaction to steep losses in traditional asset investments and the sharp spike in equity market volatility leading to redemptions.”

PSA- It’s a foggy morning across the country, from the northern coast to the northern tip of Upper Egypt, the meteorological authority said yesterday. Expect daytime highs of 18-19°C and overnight lows of 7-8°C in Cairo and Alexandria.

That 30+°C weather you were warned last week to expect? Not happening this week, according to our favorite weather app.

News that Mercedes-Benz plans to go back to assembling cars in Egypt after a four-year hiatus featured on Hona Al Asema (watch, runtime 06:40). The announcement comes shortly after the Egyptian government settled a c.EGP 700 mn (USD 39.2 mn) dispute between the Customs Authority and an Egyptian importer of Mercedes-Benz cars. Auto industry analyst Hamdi Abdel Aziz said the news underlines that the economy is on the right track. We have more in this morning’s Speed Round, below.

SIS boss Diaa Rashwan might run for the leadership of the Journalists’ Syndicate, he told Amr Adib on El Hekaya (watch, runtime 07:30). Rashwan said he would be making a decision within hours and doesn’t believe it would be a conflict of interest to head both the State Information Service and the syndicate representing rank and file journalists.

Adib highlighted a report by Business Insider that praised EgyptAir (watch, runtime: 23:10). “I flew 7 hours in EgyptAir economy class and it showed me even the most basic flag carrier can be better than most American airlines,” Harrison Jacobs wrote. “While I wouldn’t say it was the best airline I’ve ever flown, it was enjoyable, on-time, comfortable, and with no extra fees. Color me pleasantly surprised.”

Adib also hosted self-styled Indiana Jones Zahi Hawass to talk about his extended search for Cleopatra’s tomb and a recent misunderstanding that led the press to believe the discovery had already been made (watch, runtime 04:56). Hawass said that the discovery would be the greatest in the world.

Port Said has announced that utility services will be cut for buildings that fail to abide by a government order to paint red brick buildings. Adib is urging the government to issue a unified set of instructions to standardize the move to eliminate confusion (watch, runtime 10:50). Ministry of Local Development Spokesman Khaled Kassem told DMC that governors will form local committees to coordinate with relevant parties and implement the decision (watch, runtime 06:03).

The House is looking to incorporate the rights of domestic workers in amendments to the Labor Act on which it is currently working, Rep. Galela Othman told Masaa DMC (watch, runtime: 06:19).

Pilgrimage prices will go up c. 5% this year to reflect a hike in hotel prices in Saudi Arabia, CBC reported (watch, runtime 01:15).

INVESTMENT WATCH- Mercedes-Benz plans new car assembly plant in Egypt: German car manufacturer Mercedes-Benz could “start” a new assembly plant in Egypt, Mercedes-Benz brand owner Daimler said in a statement on Friday. The plant will be built by a “local business partner” and in collaboration with the Egyptian government. The statement does not provide further details on the expected timeline or investment value of the facility. Industry watchers told Al Masry Al Youm that the company will likely resume operations through Egyptian German Automotives (EGA), focusing on four-wheel drive vehicles.

A welcome shot in the arm for the investment climate:  “Egypt is an attractive and competitive location for production and supporting logistics … With our broad-based product portfolio, our electric initiative as well as our expertise in respect of modern mobility concepts, we are ready to support the Egyptian authorities in related projects,” Markus Schäfer, member of the Divisional Board of Mercedes-Benz Cars said in the statement. Daimler sold its stake in 2015 in the Egyptian German Automotive Company, suggesting at the time that margins were better importing fully-assembled vehicles as preferential custom duties for European cars were coming into effect and the USD shortage was mounting.

Ittihadiya welcomed the announcement, saying it is “a step that reflects the improvement of the investment environment and the performance of business in Egypt.”

OECD to declare Egypt an investment-friendly destination: The Organization for Economic Cooperation and Development (OECD) is intending to raise Egypt’s rating from yellow to green, marking it as an investment-friendly destination, the Investment and International Cooperation Ministry said in a statement. The statement does not provide further details on whether the upgrade is contingent on any action from Egypt. Minister Sahar Nasr met last week with OECD Secretary General José Ángel Gurría Treviño, who said the organization was interested in supporting Egypt as it chases more European investment.

INVESTMENT WATCH- Egypt was the single largest recipient of EBRD investment in 2018: With EUR 1.15 bn invested in 19 projects nationwide, Egypt was the single largest recipient of investment from the European Bank for Reconstruction and Development (EBRD) in 2018, according to an EBRD statement out on Thursday. The EBRD doled out a EUR 205 mn loan to the Cairo metro, a EUR 148 mn loan to reduce pollution in the Kitchener Drain area of the Nile Delta, and a USD 7 mn loan to Obour Land to support its expansion, the bank noted. “Continuing to support the financial sector, EBRD extended its trade finance lines to Banque Misr and to Arab African International Bank.” Overall, the bank’s investment in 2018 totaled EUR 9.5 bn in 395 projects.

M&A WATCH- Egyptian-Lebanese investor acquires 25% of TechnoScan: An unnamed Egyptian-Lebanese investor bought 25% of radiology and diagnostic imaging center TechnoScan in a USD 2 mn transaction, the local press reported. Saudi Arabia’s Elaj Group was said to have been in the “final stages” of acquiring 75% of TechnoScan in September.

Advisors: Matouk Bassiouny & Hennawy acted as buy-side adviser, while selling shareholders were advised by Haitham Farouk.

MOVES- Hazem Samor appointed new chairman of Nozha Int’l: Hazem Mohamed Samor was named chairman of Nozha International Hospitals on Thursday, according to a bourse filing (pdf). Samor succeeds his late father Mohamed Beyoumi Samor, who passed away earlier this month.

M&A WATCH- Helwan Cement to sell white plant to Emaar for EGP 694.5 mn: Helwan Cement reached an agreement to sell its white cement plant to Emaar Industries for EGP 694.5 mn, according to a bourse filing (pdf) by its parent company Suez Cement on Thursday. Helwan Cement will split off the company owning the plant, which will then be sold off to Emaar. The transaction was announced in September.

Advisors: Suez Cement was advised by EFG Hermes (financial advisor) and Zulficar and Partners (legal counsel).

Arabian Cement signs agreement with SolarizEgypt for EGP 100 mn solar facility: Arabian Cement Company (ACC) and SolarizEgypt signed on Wednesday a EGP 100 mn agreement to set up a solar power plant at ACC’s cement plant in Suez, according to an emailed statement (pdf). The solar power installation will provide about 4% of the plant’s power needs. ACC is positioning the agreement as an industry first. QNB Al Ahli will finance the power plant through the European Bank for Reconstruction and Development’s Green Economy Financing Facility. SolarizEgypt will build and operate the facility for 25 years under a build-own-operate-transfer basis.

LSE selects eight Egyptian companies as part of Inspire Africa 2019: In its latest bid to drum up potential listings in the Middle East and Africa, the London Stock Exchange has named eight Egyptian companies to its list of Companies to Inspire Africa 2019, which it says highlights Africa’s most dynamic businesses. Who made the list? Carbon Holdings (widely believed to be looking at LSE as part of its planned IPO), Cairo Three A, Eagle Chemical Group, KarmSolar, Fawry, and German Medical Healthcare Corporation were among those highlighted in the report. Some 360 companies from 32 countries made the list. All are privately held and must have annual turnover of less than USD 1 bn to make the ranking. You can browse the full report online here.

Depressing stat: Men account for more than three-quarters of those employed by the 360 companies ranked this year.

STARTUP WATCH- Six tech startups to join CIT Ministry’s TIEC Incubator: The CIT Ministry’s Technology Innovation & Entrepreneurship Center (TIEC) selected six tech startups that won the 21st round of its startup competition Start IT to join it incubator, TIEC said in a statement. Those tapped include garment industry-focused IoT platform Garment IO, cloud POS platform El Zatona, recycled fashion app Green Fashion, and dating app Harmonica.

Egypt was the fastest growing “ecosystem” of 2018 with 22% of all transactions in the region, up 7% from 2017, according to MAGNiTT’s annual 2018 MENA Venture Investment Report. Having said that, we would be remiss if we did not point out the challenges in growing market.

Sometimes, startups fail,as MENA Bytes reminds us in its interview with Mahmoud Abdel-Fattah, the founder of now shuttered Egypt-based price comparison website Bkam. Abdel-Fattah discusses why his app, which was downloaded over 50,000 times, failed and what lessons he learned. Primary reason for failure: Got too bogged down satisfying a non-committed investor. Biggest lessons learned: Don’t go at it alone and find a co-founder, keep fundraising, and spend on growth.

Shahid Law Firm launches Egypt’s first startup-focused legal department: Our friends at Shahid Law Firm have launched Venture, a startup-focused department to offer legal services through an online platform, according to an emailed statement (pdf). “This department will invest in the growth and development of a startup through providing a suite of legal services tailored towards the needs of each startup it engages, using a cost-efficient model and advanced technology. Venture by Shahid will also leverage its extended network of investors and lenders to startups in need of funding.” Venture offers packages to startups based on projections of equity investment for each business, the statement notes.

LEGISLATION WATCH- The executive regulations to the Ride-Hailing Apps Act will likely introduce a new levy of EGP 2-5 per trip, a source close to the committee drafting the regs told Masrawy. Expect the ride-hailing companies to pass the cost to their customers. Sources from Uber and Careem speaking to Al Mal criticized the proposed levy as unnecessary, saying that consumers are already overburdened. It remains unclear when the executive regulations will be issued: last we heard, they should have been out by the end of last year. The bill passed the House of Representatives in its controversial final form in May of last year and was signed into law shortly thereafter.

LEGISLATION WATCH- Final draft of amended Customs Act now with industry group for review: The Federation of Egyptian Industries (FEI) is reviewing the final version of proposed amendments to the Customs Act, Mohamed El-Bahy, head of the federation’s taxes and customs committee, told Youm7. The FEI’s feedback goes to the Finance Ministry before the text of the bill is sent to cabinet and then the House of Representatives for final sign-off. The proposed amendments would create a fast-track for customs clearance, a “whitelist” of trusted importers, and broaden the Customs Authority’s discretion.

Egypt shines in Times Higher Education emerging-markets universities rankings: Egypt has made strides in university education and shown “rapid higher education progress,” particularly at the governorate level, according to the Times Higher Education’ Emerging Economies University Rankings 2019 report (paywall). Egypt ranked seventh overall with 19 universities on the list, up from only nine in 2018. The report not only praised Egypt’s high number of university students, but the country’s policy of partnering with global schools to open local campuses. Suez Canal University was the top-ranked university in Egypt and 114th on the list, followed by the American University in Cairo at #122. Mansoura University (137), Beni Suef University (148), and Kafr El Sheikh University (156) followed.

INVESTMENT WATCH- Vicat to invest EUR 30 mn in Egypt: France-based cement producer Vicat Group’s Egypt arm is planning to invest an additional EUR 30 mn in Egypt, CEO Tamer Magdy said, according to Al Shorouk. Magdy did not provide further details on the company’s investment plans. Vicat, which entered the Egyptian market in 2003 through acquiring a 40% majority stake in Sinai Cement, had expressed its interest in 2017 in expanding its projects and investments in Egypt.

CLARIFICATION- Qalaa will not sell shares in ARC and TAQA Arabia when they IPO: Qalaa Holdings is planning to go ahead with an IPO of Arab Refining Company (ARC, the largest shareholder of the Egyptian Refining Company) and TAQA Arabia as early as 2020, but will not sell down its own stake in either company, a company official told Enterprise. At the same time, Qalaa Holdings plans to increase its stake in ERC, but not through a capital increase at the Qalaa Holdings level. Instead, the company will increase its indirect stake through a financing arrangement which is currently in advanced stages of negotiation, the firm said. As for the company buying a part of Qatar Petroleum’s stake in ERC, Qalaa Holdings wanted to clarify that is not looking to acquire Qatar Petroleum’s full stake in ERC.

Human rights were back in the spotlight over the weekend after Human Rights Watch published its World Report 2019 on Thursday. The organization attacked what it claims is a pattern of authorities using counterterrorism measures to crack down on dissent. It also criticized the March 2018 presidential elections and repeated accusations of forced disappearances. This comes as a Cairo criminal court renewed on Thursday the detention of a woman interviewed by the BBC in a report on forced disappearances, Reuters reports. The woman, who had been released last week, had claimed her daughter had been forcibly disappeared; the daughter later appeared on television with popular nighttime talk show how Amr Adib to deny she had been disappeared.

Pressure on Macron to bring up labor rights? Ahead of French President Emmanuel Macron’s visit to Egypt at the end of the month, France 24 notes that unspecified activists are calling for him to raise an alleged 2016 crackdown on labor at Alexandria Shipyard. The shipyard is working with France’s Naval Group.

Terrorists have reportedly kidnapped a Christian man traveling in a taxi in North Sinai, 30 km west of Arish, the Associated Press reports. Security officials have subsequently identified the man as Adeeb Nakhlah, 45-year-old police forensics expert. The kidnapping resulted in a firefight with security forces, which reportedly led to the death of one of the kidnappers, security forces said.

Other headlines worth noting in brief include:

• Much ado about nothing? CBS News correspondent Scott Pelley put out and then deleted a tweet in which he claimed the Egyptian government had issued an arrest warrant for him after his 60 Minutes interview with President Abdel Fattah El Sisi. CBS has confirmed Pelley deleted the tweet after being told no warrant had been issued, NBC reports.
• Don’t count on natural gas thawing the cold peace between Egypt and Israel, writes David Rosenberg in an oped for Haaretz.
• Why is Egypt restoring Jewish monuments? It’s all about cozying up to Washington, writes the South Florida Sun Sentinel.
• Egyptian national Abdallah al-Desouki was one of three terrorists killed in southern Libya during an operation that also resulted in the death of a senior al-Qaeda operative, Reuters reports.

Econ and business news dominated the front pages of the country’s three main state-owned dailies (Al Ahram | Al Akhbar | Al Gomhuria) this morning. Egypt will participate in an economic summit that kicks off in Beirut today, where talks will focus on sustainable development, electricity connection projects and efforts to combat poverty in the region, Al Ahram reported. Al Akhbar noted that the Finance Ministry working on a comprehensive strategy to cut public debt and improve services. Meanwhile, Al Gomhuria highlighted government efforts to eradicate homelessness.

Saudi imposes temporary ban on Egyptian onions: Saudi Arabia’s Environment, Water and Agriculture Ministry imposed a temporary import ban on Egyptian onions on Thursday, according to a statement by the ministry. “The ban decision was made after it was proven that Egyptian onions exceeded the global residue limits of pesticides,” the statement read. Egypt has sent a request to Saudi officials demanding an explanation for the ban, according to Al Shorouk. Saudi Arabia had reinstated imports of Egyptian agriculture goods, including strawberries, back in April after it, the UAE and other regional countries imposed bans for quality concerns. The ban was lifted after Egypt imposed more stringent controls on the use of pesticides and water quality.

On the flipside, Sudan began importing some 18 Egyptian goods again after a prolonged ban dating back since 2017, Youm7 reports. The blanket ban on all goods, which had seemed more like a tactic to further other agendas, was repealed back in November.

Expect EAEU trade agreement by year-end, says Nassar: Egypt and the Eurasian Economic Union (EAEU) will sign a trade agreement by the end of 2019, Trade and Industry Minister Amr Nassar announced during the first of round of talks on Friday, Al Mal reports. The two sides will meet once every three months in a bid to hash out a final agreement before the end of the year. The initial framework agreement was signed in November by Nassar and Eurasian Economic Commission Trade Minister Veronika Nikishina, paving the way for the initial round of talks.

President Abdel Fattah El Sisi ratified a USD 500 mn funding agreement with the World Bank to fund Egypt’s education reforms, which was published in the Official Gazette on Thursday, Ahram Online reports. Under the agreement, which was reached in April of last year, Egypt will receive the funding over the span of five years.

EGAS has exported around 80 bcf of gas in FY2017-18, exported in 10 shipments, according to a report by the company picked up by Al Shorouk. Egypt’s total production of natural gas reached 2.1 tcf in FY2017-18, with an average output rate of 5.8 bcf/d.

Italy’s Eni is expected to finish drilling the 14th well at Zohr natural gas field by the end of January, an EGAS source tells Al Shorouk. The company is currently drilling 12 wells to increase the field’s well count to 20, which is projected to increase production to 3 bcf/d by the end of 2019.

Natural gas production from the Mediterranean’s western Burullus field will begin in 2020, according to an Oil Ministry statement.

Electrical engineering company Intelligent Micro Solutions (IMS) has partnered with an EU-based and a US-based company to build USD 50 mn-worth of solar plants in Wadi El Natrun and Beni Suef, IMS president Magdy Saleh tells Al Shorouk. The partners will fund the plants, on which construction will begin in 2H2019, through a mix of debt from international banks and equity from the two unnamed companies. IMS had been in talks last year with several financial institutions to arrange USD 500 mn in financing for solar power plants in Egypt.

The Supply Ministry expects to establish an exchange market for industrial and agricultural commodities this year, Assistant Supply Minister Ibrahim Ashmawy said, according to Al Mal. The exchange will initially allow five commodities — flour, iron, oil, corn and cement — to be traded.

Compass Investment-owned Bonyan for Development and Trade has launched The Walk of Cairo, “an outdoor lifestyle destination” in Sheikh Zayed that will include shopping outlets, food and beverage retailers, a wellness center, and family entertainment facilities, according to an emailed statement (pdf). The outdoor complex is designed by Chicago-based architects Skidmore, Owings, & Merrill. No details were provided on the investment value.

Egypt’s real estate sector is benefiting from growing demand and investments, but is still suffering from weak consumer purchasing power, real estate experts told Housing Minister Moustafa Madbouly at an industry gathering last week. Supply increased in 2018, but the number of units sold decreased as a result of lower purchasing power, Tatweer Misr CEO Ahmed Shalabi said.

New administrative capital-focused real estate player Pyramids Developments has launched its EGP 750 mn Grand Square business center in the new capital, CEO Hisham El Kholy tells Al Masry Al Youm. The project is slated for completion in 2020 and offers commercial, office and clinic spaces.

Global Travel International (GTI) will begin operating four weekly direct flights between Hurghada and Macedonia, Serbia and Slovenia starting May until October 2019, local press reported. Talks are also ongoing to bring in flights to Sharm El Sheikh, but no agreement has been reached yet.

Egypt came in 7th in a Fitch Solutions report ranking regional IT market attractiveness amid government efforts to push for digitization,according to the National. The report noted the increasing importance of IT for the Egyptian government, which is investing in digitizing its services and developing tech-focused investment zones. “However, retail PC demand (in Egypt) will remain muted owing to uptake of smartphones and cannibalisation of use cases,” Fitch Solutions said. According to the report, which surveyed 12 markets, rising oil prices and economic diversification efforts were behind the IT industry’s growth, which could attract up to USD 2.7 bn across the region in 2022. The UAE came in first place, while Kenya came in last.

EgyptAir has resumed air freight service to New York for the first time since the downing of the Metrojet flight back in 2015, a source at the company told Reuters on Thursday. “(The United States) was apprehensive after the incident, and this may be normal for it, but security procedures and precautions are greater now. It saw there is no (more) need for it (suspension of air freight),” the source added. The move followed a meeting last month between US Secretary of Homeland Security Kirstjen Nielsen and Civil Aviation Minister Younes Al Masry, where Nielsen declared that Egypt’s airports are now safe to ship cargo to the US.

The Red Sea Ports Authority is mulling reissuing its tenders for two multi-purpose cargo and container storage facilities at the Safaga and Nuweiba ports, worth USD 80 mn each, authority head Ayman Saleh told Al Shorouk. The authority signed an MoU in 2017 with the China Road and Bridge Corporation (CRBC) for USD 1.35 bn-worth of port development projects, including the two storage facilities, but CRBC has yet to carry out feasibility studies or present offers for the projects.

The African Export-Import Bank (Afreximbank) signed on Friday a USD 170 mn credit facility agreement with Orascom Investment Holding to aid the company’s expansion in Africa, according to an Afreximbank statement (pdf). The agreement comes as part of the bank’s strategy to promote trade and investment among African countries, Afreximbank President Benedict Oramah said.

Matouk Bassiouny acted as legal adviser to NBK Capital Partners in its investment in Kuwaiti classifieds app 4sale, which is owned by Falcon Group, according to an emailed statement pdf). King and Spalding served as international counsel. No further details were provided on the investment.

El Sisi orders painting Egypt’s red brick buildings under “unified” color scheme: In a bid to counter what he has termed the “uncivilized image” presented by Egypt’s unpainted red brick buildings, President Abdel Fattah Sisi has ordered that they must be painted using a unified color scheme, according to Ahram Online. Failure to oblige could result in legal action, Prime Minister Moustafa Madbouly informed Egypt’s governors.

NI Capital has been named International Finance Magazine’s “Fastest Growing Investment Banking Advisory Firm” for 2018, according to an emailed statement (pdf). “Our Investment Banking division has made rapid strides in the field; propelling the Government sponsored IPO Program and contributing to the progress of the greater reform program set for the country,” NI Capital CEO and Managing Director Ashraf Ghazaly said.