Is Apple looking to invest in Egypt?

Plus: Amer sees (healthy) EGP volatility

Rejoice, for it is the last business day of the week: Banks and the stock market are closed tomorrow, as are government offices, in observance of the 25 January national holiday, which falls this year on Friday. We’re off tomorrow and will be back in your inboxes at the usual time on Sunday morning.

Expect a lot of talk about high prices heading into the long weekend as the House holds hearings. The House of Representatives’ planning committee will meet with government officials from no less than 18 ministries, a number of governors, and 13 university presidents to discuss “solutions” for rising prices, according to a statement by Support Egypt coalition head Abdel Hady El Kassaby picked up by Al Shorouk. The meeting comes after President Abdel Fattah El Sisi launched the “Decent Life” initiative to improve living conditions for those in need.

CI Capital’s MENA investor conference in New York wraps today. It’s the second leg of a two-city gathering that began last week in Cairo. Some 20 EGX-listed companies are participating, including our friends and sponsors CIB and SODIC.

It’s day two of the WEF in Davos today, and the mood among the grand wizards of global capitalism is … subdued, the Wall Street Journal reports: “Political paralysis in major developed economies, frayed trading links and concerns about concentration of corporate power created a jittery mood among business executives at the annual World Economic Forum. While many corporate bigwigs in Davos put on a brave face and said the economy has overcome the short-term challenges that manifested in a major market selloff at the end of 2018, there was a brooding sense that major risks lie ahead.”

The gloominess being prompted by the IMF’s downward revision of its global growth estimate is over-hyped, a Bloomberg opinion piece argues. In a riposte to the hypochondriacs, the article reminds us that the latest revisions are fairly negligible in the grand scheme of things and projections into 2020 remain stable.

Globalization 4.0 is this year’s WEF buzz phrase of choice, but what does it actually mean? Bloomberg gets speculative with a look at what our global economy may be facing in the not-too-distant future. Essentially, the fourth wave of globalization that some believe we are now entering will involve a marked shift towards digitally enabled services, rather than global trading in goods. Opportunities will be opening up in wealthier countries for workers in emerging markets to compete in previously inaccessible skilled service sectors, thanks to new tools and technology.

Will this fuel populism? Almost certainly. The challenges Davos faces in its bid to be open, how to reconcile the inevitable clashes between populism and globalism, and the need to be pragmatic in defense of an open world-trading system are all explored during the video discussion that accompanies the Bloomberg piece (watch, run time: 5:35).

2019 is looking promising for emerging market equities as some of the issues underpinning the Great Emerging Markets Zombie Apocalypse of 2018 ease, EM investment manager Ashmore Group says in a report (pdf). “Stronger expected economic and earnings growth, lighter investor positioning and depressed valuation multiples” could all help set up a decent run for equities in the year ahead, they write.

How will your earnings growth stack up? Solid corporate earnings supported by a weakening USD and stable domestic growth will drive the EM recovery over the long term. Look for EM earnings to rise about 10% (in USD terms) over the next 12 months, the report says, an expectation Ashmore believes is “reasonably prudent and deliverable.”

China and the US are the elephants in the room: Investors are yet to price the risk of continued trade friction between the US and China, which may escalate over the next 12 months. Ashmore is however predicting a negotiated solution sometime this year as political and economic costs rise for both countries.

Egypt gets a special shout-out: “Egypt and Nigeria stand out. In the former case, under powerful leadership the country has completed an IMF programme and devalued the currency. In turn, this has triggered improved economic growth, FDI flows, FX reserves and account balances. As a net energy importer, the volatility of energy prices in 2018 acted to slow the progress in subsidy removal. It also meant inflationary pressure remained high. This prevented the Central Bank from being able to cut interest rates to help kick-start the economy. However, this is a transitory impact and new energy sources coming on stream should reduce this reliance over time. Inflationary pressure has also recently started to print lower which paves the way for more expansionary monetary policy in 2019.”

Meanwhile, the MSCI rally continues: Ashmore’s forecast comes as the MSCI Emerging Markets equities index continues its most prolonged rally in over a year, signaling an increased risk-appetite among investors.

What about your first Oscar? 2019 Oscar nominations are out with Egyptian-American actor Rami Malek nominated for his performance as Freddy Mercury in ‘Bohemian Rhapsody,’ reports the Washington Post. The biopic scored a total of five nominations including one for Best Picture. Director Alfonso Curaón’s ‘Roma’ and 18th Century dark comedy ‘The Favourite’ both picked up ten nominations while Lady Gaga notched a Best Actress nod for her turn in ‘A Star Is Born’ and ‘Black Panther’ made history as the first superhero movie to earn a nomination for Best Picture. We’ll also keep an eye on Spike Lee’s ‘BlacKKKlansman’ come award night about the true story of a black policeman in 1970s Colorado Springs who infiltrates the local chapter of the Ku Klux Klan. This year’s Oscars is still host-less after comedian Kevin Hart dropped out following criticism of old homophobic jokes and tweets.

PSA– Expect blowing sand across Egypt for the next couple of days, the head of the Meteorological Authority Ahmed Abdel Aal said, according to Masrawy. Dusty winds will hit the North Coast today and toll south into Cairo and Upper Egypt. Expect daytime highs of 20-22°C in the capital city through Friday.

With the Cairo International Book Fair continuing to dominate the airwaves, last night’s talk shows did not have much to offer by way of exciting news.

The book fair is important for culture in Egypt and the region as a whole, veteran writer Sekina Fouad stressed to Al Hayah Al Youm’s Lobna Assal (watch, runtime: 05:42).

Masaa DMC’s Osama Kamal zoned in on this year’s new venue design, which will make it easier for bookworms to browse through the massive number of displayed books (watch, runtime: 06:36). Yahduth fi Masr’s Sherif Amer also weighed in on the topic, insisting that technology could never replace books (watch, runtime: 03:11).

Prime Minister Moustafa Madbouly’s meetings with Dana Gas and Apple’s CEOs on the sidelines of the World Economic Forum in Davos earned airtime on Al Hayah Al Youm (watch, runtime: 02:29) and Hona Al Asema (watch, runtime: 05:43). We have chapter and verse for both stories in this morning’s Speed Round, below.

A traveler’s review praising Egypt and Hurghada in particular that was published by US magazine Chronicles, caught Al Hayah Al Youm’s attention(watch, runtime: 05:43).

Apparently, 80% of homeless children are concentrated in 10 of Egypt’s governorates, Assistant Social Solidarity Minister Alaa Abdel Atti told Yahduth fi Masr’s Sherif Amer. Abdel Atti discussed in detail recent government efforts to help homeless children (watch, runtime: 02:30).

Tired of seeing livestock hanging in front of stores? Egypt is working on imposing stricter regulations on retailers amid efforts to ensure better food safety, Food Safety Authority chief Hussein Mansour told Hona Al Asema’s Lama Gebril (watch, runtime: 05:56).

INVESTMENT WATCH- Is Apple mulling an investment in Egypt? Apple Inc is interested in learning more about investment opportunities in Egypt, CEO Tim Cook told Prime MinisterMoustafa Madbouly on Tuesday on the sidelines of the World Economic Forum in Davos, according to an Investment Ministry statement. Cook said the company is open to cooperating with Egypt in educational technology and is open to holding further meetings. Madbouly also invited Cook to visit Cairo and kick the tires on potential investments in the new administrative capital. No details were provided on the nature, timing or value of any potential investment. Attending the meeting were Investment Minister Sahar Nasr, Trade Minister Amr Nassar and Finance Minister Mohamed Maait.

No word on ECA’s warning: The statement did not make clear whether the two sides addressed a warning late last year to Apple by the Egyptian Competition Authority. The ECA alleged that the world’s most valuable device maker may be in violation of antitrust regulations by restricting parallel imports by Apple authorized resellers.

We’re going to see more volatility in the EGP exchange rate, central bank’s Amer says: You can expect to see the long-stable EGP move around a bit against key currencies after the scrapping of a parallel central bank mechanism that guaranteed foreign investors could repatriate FX, CBE Governor Tarek Amer told Bloomberg yesterday. The CBE wound-down last month its parallel foreign exchange repatriation mechanism for new portfolio investment, although those already invested here though the system can continue to use it until they wind down their positions. The mechanism was in place as a confidence-boosting measure but is no longer needed after Egypt rebuilt its reserves in the two years after the float of the EGP.

While the EGP can now move more freely, there’s downward pressure. The scrapping of the parallel mechanism, alongside the Finance Ministry’s scrapping of the discounted customs exchange rate for non-essential imports, could help put downward pressure on the EGP, Capital Economics recently suggested, saying that the next move could see “a reduction of backdoor FX intervention.” The EGP is set to slide modestly against the greenback by year-end, the researchers noted.

Was the CBE propping up the currency? There had been speculation, initially from Capital Economics and soon after by Reuters, that the CBE was pushing state-owned banks to prop up the EGP. Despite last year’s emerging markets selloff, the currency was stuck at around EGP 18 to the greenback.

Amer is adamant the central bank isn’t intervening to protect the EGP: The bank is committed to a liberalized foreign exchange market, but “we have reserves that help us to confront any speculators or disorderly market practices,” Amer said. Reserves are used as a means of supporting the new currency regime, which is also meant to maintain attractive yields for foreign debt holders, he added. Egypt’s improved FX reserves position and a healthier current account — higher remittances, travel receipts and exports, and stable credit rating, as well as a strategy to diversify financing sources — helped the EGP stay upright, he noted. “A lack of financial derivatives in the market had also offered shelter.”

The wider EM sell-off saw us losing some USD 10 bn in outflows, but Egypt has a stock of portfolio investments north of USD 10 bn, Amer also said, adding that January is set to be the first month of net positive inflows for Egypt since May 2018.

Egypt expects to receive the next tranche of the USD 12 bn IMF loan in late January or early February, saying “we’ve agreed on everything. The reform program is on schedule and we are committed to completing it successfully.” Keep an eye here on the agenda for the IMF board’s upcoming meetings for the next clue on a date.

The CBE is pulling out all the stops to maintain foreign reserves: It extended the tenor of USD 2 bn zero-interest deposit from Saudi Arabia that was due last July for another year, but with 3% interest, Al Mal reports. The Central Bank also agreed to restructure the tenor of another USD 2 bn of Saudi deposits that should have been repaid over three yearly installments starting April 2018; payments will instead begin in 2019. That’s good news for foreign reserve watchers, who saw the country’s stock of USD fall in December for the first time since it floated the currency in November 2016. Reserves eased to USD 44.513 bn on the back of year-end interest payments made to foreign t-bill investors as well as interest payments and arrears owed to other countries.

Egypt’s GDP growth rate will slow slightly over the next two years, hitting 5.2% in 2019 before falling to 4.7% in 2020, the United Nations projects in its 2019 World Economic Situation and Prospects report.

Take UN estimates with a pinch of salt: The UN now estimates the Egyptian economy grew by 5.8% in 2018, beating the 3.8% figure the world body had forecast at the beginning of last year.

The IMF, by contrast, sees Egyptian GDP growth accelerating through 2020: Its Data Mapper tool shows the fund predicts growth in Egypt will accelerate from 5.3% in 2018 to 5.5% this year, 5.9% in 2020 and then 6.0% in 2021 and 2022.

Easing inflation: Consumer price inflation will continue its downward trajectory over the next couple of years, the UN report says. The headline rate — which currently sits at 12% — is expected to average 10.7% over the next 12 months before falling to 8.9% through 2020. The UN figures that will prompt the central bank to keep its monetary policy unchanged through much of 2019.

Fiscal reform: The report highlights fiscal consolidation as the major bogeyman of North African economic policymakers. Despite fiscal deficits narrowing slightly, the report notes that the Egyptian government must do more to increase its revenue to avoid damaging the country’s growth prospects.

Consortium including Orascom Construction to build sewage treatment plant in KSA: A consortium including our friends at Orascom Construction along with water supply management company Metito and desalination company MOWAH have signed a sewage treatment agreement in Dammam, Saudi Arabia, according to an emailed statement (pdf). The plant, which will be constructed under a build-own-operate-transfer framework, is expected to have an initial capacity of 200,000 m3/d, which will increase to 350,000 m3/d. Orascom Construction CEO Osama Bishai said, “This project is a continuation of our efforts to build a solid portfolio of water-related construction projects similar to what we have achieved in power generation.” The statement place a value on the agreement.

M&A WATCH- Lactalis-Halawa acquires 100% of Greenland: The domestic partner of French dairy group Lactalis, Lactalis-Halawa Group, has acquired 100% of Americana Group subsidiary Greenland Group, a source with knowledge of the matter confirmed to Enterprise. The transaction, which our source confirms has been executed, valued Greenland at EGP 890 mn, according to Al Mal. Lactalis-Halawa had previously eyed an acquisition of the Arab Dairy Products Company, but was out-bid by Pioneers Holding. Reports had emerged earlier this month that Al Nour for Dairy Industries, a subsidiary of Lactalis-Halawa, was in talks over the transaction. Saudi dairy product manufacturer Almarai had also been looking to acquire Greenland, for as much as USD 75 mn last year, but talks were suspended over a disagreement over Greenland’s value.

Advisers: Al Kamel Law Firm acted as legal adviser to Lactalis-Halawa, while Sharkawy and Sarhan acted as sell-side legal counsel.

M&A WATCH- SPE Capital looks to acquire up to 40% stake in FuturePharma: Emerging markets-focused private equity outfit SPE Capital (Swicorp) is currently in talks to acquire a 30-40% stake in FuturePharma, sources close to the talks tell Al Mal. The transaction is expected to cost SPE up to EGP 400 mn, the source noted. They expected the transaction to close before the end of 1Q2019. SPE has a history of investing in Egypt’s healthcare sector, including OrchidiaPharma, a stake in which it sold to the Egyptian American Enterprise Fund (EAEF) back in 2017.

INVESTMENT WATCH- Egypt gets offers from companies interested in building up to 5.5 GW of renewable power: Egypt has received offers from regional and international companies to build renewable power generation facilities with a total capacity of 5500 MW, Electricity Minister Mohamed Shaker told local press. Tariffs for solar power are set to fall in the upcoming period from USD 0.0275/kwh at the last solar energy tender and about USD 0.03/kwh at the last wind energy tender, Shaker said. The waste-to-energy tariff will be revised after five years, during which it will be fixed at EGP 1.03/kwh.

Shaker said his ministry is encouraging companies to build projects through the independent power producer (IPP) system and sell energy directly to consumers after paying national grid transmission costs. The minister gave no further details, but effectively confirmed earlier reports that suggested the ministry might be ditching the feed-in-tariff program going forward in favor of the IPP. The Electricity Ministry is also considering awarding projects through an auction system to save time.

INVESTMENT WATCH- Dana Gas to invest USD 5 bn in Egypt in the coming few years: Speaking of foreign players that have been vocal about dues owed by the government: Dana Gas is planning on increasing its investments in Egypt by USD 5 bn “over the coming few years,” CEO Patrick Allman-Ward said at a meeting with Prime Minister Moustafa Madbouly at the World Economic Forum. The investment will see the UAE-based company expand its exploration operations in Egypt, he added. The company has invested USD 2 bn in Egypt since 2007, he noted.

Paying off arrears pays off: Allman-Ward made sure to thank the Egyptian government for its efforts in paying off arrears owed to the company. This is a far cry from 2016, when Dana Gas said it was reevaluating its investments in Egypt in light of the government owing it USD 242 mn. The government slashed arrears down to USD 199 mn with a USD 35 mn payment earlier this month.

More good news for the energy sector and FDI watchers: Foreign players are expected to invest USD 10 bn FY2019-20 in oil and gas E&P, Oil Minister Tarek El Molla told local press. Dues to foreign energy companies fell to USD 1.2 bn and are expected to be completely paid by the end of this year, he said.

IPO WATCH- ATICOT looking to list up to 50% of shares in 2019: The Arab Trade, Investment & Cotton Trading Company (ATICOT) is reportedly looking list up to 50% of the company on the EGX in 2019, company chairman Ezz El Din El Dabbah tells Al Mal. The company plans to sell shares over two phases — it will list a 25% stake on the EGX in 1Q2019, with the remaining shares being sold before the end of the year, says El Dabbah. The company is looking to use the proceeds of the IPO, which it had been planning since 2017, to fund a shift toward real estate development and manufacturing and away from planting cotton, which El Dabbah says has witnessed a downturn. The company still plans to retain its cotton line of business as part of a holding company that will operate in cotton, real estate and the cement sector. It has not yet been reported if the company has selected an adviser.

IPO WATCH- Nabq Sinai to offer 25% of its shares in IPO: Nabq Sinai Hotels is planning to sell 25% of its shares in an IPO and is currently in the process of hiring advisers for the transaction, Chairman Hossam Attia tells Al Mal. The company is also in the process of raising its capital to EGP 100 mn from EGP 60 mn to meet regulatory requirements, he said. Nabq Sinai won a court case in 2015 and received a verdict that allows Sinai-based companies to list on the EGX under the condition that they sell shares only to Egyptians.

LEGISLATION WATCH- Regulating all the things: Crowdfunding is now on the FRA’s priority list: Financial Regulatory Authority (FRA) boss Mohamed Omran outlined his agency’s list of legislative priorities in a briefing with reporters yesterday. The FRA chairman says the market regulator is looking to regulate crowdfunding as well as real estate developers and added that it is also looking at changes that would allow the microfinance law to possibly raise individual borrowing limits and ease the funding process. You can also expect insurance coverage for recipients of microfinance to be on the agenda at a cost of 0.0035% of total funding. The FRA is also debating whether to allow insurance companies to make their fiscal year end in December and not in June to bring the sector in line with other industries regulated by the FRA.

Draft Consumer Credit Act is with cabinet: The FRA has sent the draft Consumer Credit Act to cabinet for approval and expects it could clear the House of Representatives before the end of the current legislative season, Omran told reporters. 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 central bank will make a USD 400 mn payment to the African Export- Import Bank (AfreximBank) in June, a source told Masrawy. AfreximBank had said last month it has earmarked USD 2 bn in financing for Egypt through 2019, which will be directed largely towards manufacturing and petrochemical projects.

South Korea to resume direct flights to Egypt: South Korea will be resuming direct flights to Egypt after a lengthy hiatus, Seoul’s ambassador in Cairo Yoon Yeocheol announced during a meeting on Monday with Finance Minister Mohamed Maait, according to a ministry statement. No further details on the flights were provided. Yeocheol and Maait also discussed taxes and customs issues facing Korean companies in Egypt.

MOVES- Misr Iran Development Bank Managing Director Ahmed Amr Tantawy has reportedly resigned from his position on Monday, sources told Al Mal. No reason was given for the departure. The sources added that bank is looking at three candidates to replace him.

Topping coverage of Egypt in the foreign press this morning is an army statement released yesterday saying that Egyptian security forces have recently killed 59 terrorists in the Sinai Peninsula. The army did not disclose the dates or locations of operations, but did reveal that it lost seven of its own men during the same time period. The AP and Bloomberg also have the story.

Other headlines worth noting in brief include:

• A British couple will have to pay GBP 7,500 to TUI, Thomson Holidays previously, for having lied about falling ill during a stay at a Sharm El Sheikh hotel despite a TripAdvisor review by them saying they had an “amazing” experience, Daily Mail reports.
• Countries including Egypt and Ethiopia need to learn to share water equitably and cooperatively as populations keep growing. (Asia Times)

The inauguration of the Cairo International Book Fair dominated the front pages of the country’s three main state-owned dailies (Al Ahram | Al Akhbar | Al Gomhuria) this morning. The Arab League was the guest of honor for this year’s event, Al Ahram highlighted. During his inauguration yesterday, President Abdel Fattah El Sisi stopped by several of the fair’s sections, Al Akhbar reported. Thirty-five countries are participating in this year’s fair, which is set to include almost 800 events, Al Gomhuria noted.

CONTRARIAN VIEW- GCC index upgrades benefit nobody in the long term: Reliance on indexes will delay much-needed economic reform in GCC countries, Karen Young writes for Bloomberg. Saudi Arabia, Qatar, Bahrain, the UAE and Kuwait are all set to join emerging market indexes this year, a process which open the floodgates for investment to pour into Gulf markets. And while the inflows will have benefits, they are no substitute for organic economic growth, she says.

An inhibitor of sustainable growth: Access to easy money via indexes may incentivize states to hold-off on undertaking the kind of deeper structural reforms necessary to foster local private sector growth. Entrepreneurs and young businesses will struggle to compete against the state-backed behemoths, while real political and economic reforms are kicked into the long grass. “Rather than passive inflows, governments need to kick-start direct investment from both foreign and local sources by getting serious about reforms that support new business creation and provide jobs,” Young writes.

Investor risk will increase: Investments will become increasingly susceptible to volatility in the oil markets as energy-dependent Gulf states are included in EM indexes. This is compounded by the fact that GCC debt has risen to account for 30% of all bond issuances in the emerging markets. What’s more, investors are unlikely to take heed and will continue to be “blindly-led by indexes,” she concludes.

What’s trust got to do with it? Trust has changed in a significant way this past year, the 2019 Edelman Trust Barometer reveals, bringing with it the news that people trust their bosses a lot more than they trust either the government or the media. According to this Bloomberg video (watch: run time 1:17), people are increasingly putting their trust in closer relationships, more within their control. Out of some 33k people surveyed globally, 75% trust their employers to do what is right, compared to 57% who put the same trust in NGOs, 56% in business and 47% in the media.

Egypt hosted yesterday the first ministerial meeting of the Africa Renewable Energy Initiative (AREI), which centered on exchanging expertise in sustainable and alternative energy sources, local news reported. The AREI was announced during 2015’s climate change talks in Paris, and is an attempt to see more than 10 GW of renewable energy produced on the continent by 2020 — and an additional 300 GW by 2030.

Elsewedy Electric is mulling investing up to EGP 2 bn in new infrastructure and power generation projects in the new administrative capital as part of plans to contribute to strategic national projects, it said in a statement (pdf). The company had signed last year an EGP 1.23 bn contract to construct a 500 KV substation in the new capital on a turnkey basis.

The New Administrative Capital Company for Urban Development (NACCUD) will issue a tender to implement a waste management system in Egypt’s new administrative capital during 1Q2019, MENAFN reports. The tender will include the installation of a power station capable of converting solid waste into electricity.

The House Energy Committee has approved legislation drafted by the Electricity Ministry which would see the ministry sign a black sand minerals exploration and drilling agreement, Youm7 reports. The bill was submitted to allow the ministry to grant exploration, drilling, and mining rights to the Nuclear Materials Authority and the Egyptian Black Sand Company, which had signed a cooperation protocol last week to use an experimental factory unit in Rashid to treat black sand.

The government-sponsored nationwide campaign to detect and treat Hepatitis C has found the highest number of students testing positive for the virus in Fayoum, according to Egypt Today.

The campaign aims to screen 6 mn students, and has thus far screened 600k.

The Alexandria Traffic Authority has begun licensing three-wheeled tuk-tuks in the governorate’s western-most districts, head of the vehicle stationing department Sherif Roushdy said, according to Al Masry Al Youm. So far, 122 of the governorate’s estimated 25k tuk-tuks were licensed to operate set routes, with licensing fees set at EGP 400. The licensing drive suggests that the temporary freeze on new tuk-tuk licenses, ordered by Prime Minister Moustafa Madbouly last month, may have been lifted.

Planning a fishing trip in Marsa Alam sometime soon? You’ll have to wait till September: Authorities have banned fishing in the Red Sea from February until September to “preserve the bio equilibrium,” General Authority for Fish Resources Development head Ayman Ammar tells Egypt Today. The decision will not lead to hikes in market prices as the Red Sea’s annual contribution of 120k tonnes of fish accounts for a mere 3% of domestic output, Ammar notes.