Is Uber being blocked in a test case for regulation in Egypt?

Two questions are preoccupying us this morning as we settle into the week:

• How much are we going to have to pay under the 0.25% levy on revenue the government is imposing on the private sector to fund a new national healthcare system?
• Is Uber being blocked in Egypt?

We look at both questions in this morning’s Speed Round, below.

Meanwhile, French President Emmanuel Macron is in Cairo today to meet President Abdel Fattah El Sisi. Macron visited Upper Egypt yesterday. Look for economic ties, regional cooperation, migration and the war against terror to feature on the agenda. Again, we have more in Speed Round, below.

The EGX led Mideast shares higher yesterday on news that telecom giant Veon is looking to take private the EGX-listed emerging markets telecom operator Global Telecom Holding, which has operations in Algeria, Bangladesh and Pakistan, Bloomberg notes. “Egypt is finally catching up with the risk-off trade emerging markets are witnessing,” EFG Hermes’ senior macro strategy analyst Mohammed al-Hajj told Reuters. More on that, too, in Speed Round, below.

But EM inflows remain weak, the IIF says: Investors are continuing to avoid making new investments in EM assets outside of China, according to a report from the Institute of International Finance (IIF). The institute says that EMs — including key economies such as India and South Africa — have failed to see a healthy rebound of inflows following the 2018 market sell-off.

But 2019 may not be hideous: Overall market sentiment is positive, the IIF says, writing that anecdotes abound for a recovery in EM non-resident portfolio flows. “Against the backdrop of the violent EM sell-off last year… the combination of solid growth and a cautious Fed should be positive for risk assets,” they write.

Read that against two of the best “2019 will be a bad year” stories that we’ve seen this month,both published yesterday in the Financial Times:

Will we see a rerun of a market meltdown, just like in 2016?The story makes it clear to us all that our fate this year rests heavily on US and Chinese macroeconomic policies and the prospects of a trade war. And unlike in 2016, when a similar basket of factors “unleashed a major extension of the equity bull market,” it’s not likely this time around. We may not be heading for a “global recession and major bear market” right now, but we’re equally unlikely to see a “return of the golden period that followed 2016.”

Another tech bubble could be about to burst, Rana Foroohar warns in the salmon-colored paper, likening what’s happening today in Big Tech to the dotcom boom and bust at the turn of the century. “Then, as now, we were at the late stages of a credit cycle, with too much money chasing too little value. And then, like now, investors were counting on a spate of hot IPOs to pour a little more kerosene on markets that were clearly over-inflated.” Her concerns are very developed-market-focused, but worth reading even here in EM.

Global tech news is blowing up our newsfeed. Among the highlights and lowlights:

• Facebook is going to somehow integrate WhatsApp, Instagram and Facebook Messenger, according to the New York Times. Even if that’s on the back end, the implications for user privacy are … mildly concerning?
• Big guns going after Slack ahead of its IPO: Workplace messaging app Slack is facing a narrower “window of opportunity,” Richard Waters writes for the FT, raising concerns that service (which happens to power conversations here at Enterprise) faces headwinds from Microsoft Teams and Google Hangouts.
• Apple will report its earnings tomorrow, and the Wall Street Journal thinks the road ahead for our favorite tech company is rockier than it would first appear after it recently re-stated its guidance.
• Seven lessons from Generation Z for surviving in a tech-obsessed world, per Christopher Mims in the Wall Street Journal. (For those keeping score, Gen Z are kids born 1996 onward.)

Want to head back to graduate school? We’re not sure we’d be doing an MBA if we were turning back the hands of time — synthetic biology or computer science would be more lucrative, an MFA more emotionally satisfying — but if biz school is your bag, the FT has got you covered with its FT Global MBA ranking 2019. The top five schools:

• Stanford (US)
• Harvard (US)
• Insead (France)
• Wharton (US)
• Ceibs (China)

Check out the landing page for the package or skip straight to the rankings.

French President Emmanuel Macron’s visit to Egypt dominated the airwaves last night.Macron kicked off his trip with a visit to Aswan’s Abu Simbel temple with his wife, which El Hekaya’s Amr Adib said is a positive step towards promoting Egypt’s tourism industry (watch, runtime: 07:11). The French president is expected to meet with President Abdel Fattah El Sisi in Cairo today to sign agreements worth around EUR 1 bn, Al Hayah Al Youm’s Khaled Abu Bakr noted (watch, runtime: 03:45). The story also earned some airtime on Hona Al Asema (watch, runtime: 02:09).

Sudanese President Omar Al Bashir’s arrival in Cairo yesterday was also on the talking heads’ radars last night. Sudan’s Ambassador in Cairo Abdel Mahmoud Abdel Halim stressed to Al Hayah Al Youm’s Lobna Assal the importance of strong ties between the two neighbors (watch, runtime: 06:14). We have more on this in Diplomacy + Foreign Trade, below.

The EGP strengthened slightly against the USD yesterday, prompting speculations from commentators about what it all means. Former Banque Misr deputy chairman Sahar Damaty attributed the change to increased investor confidence in Egypt after IMF Managing Director Christine Lagarde praised our economic reform program, but noted the future trajectory of the currency is difficult to anticipate (watch, runtime: 5:06). QNB CEO Mohamed El Deeb said there is greater appetite among investors for Egypt’s debt instruments, which caused the EGP to rally (watch, runtime: 5:19).

We hate to burst your bubble, but the weakening of the USD has nothing to do with us: The USD slid on Friday after The Donald agreed to a temporary end of a government shutdown. A US Federal Reserve meeting later this week where the US is expected to keep interest rates on hold could also have a thing or two to do with the decline, Reuters noted earlier this week.

Last week’s World Economic Forum in Davos also came up on Al Hayah Al Youm with host Khaled Abu Bakr congratulating the Egyptian delegation on their efforts to promote Egypt as a success story and investment destination (watch, runtime: 02:33).

EXCLUSIVE- Reading the fine print on 0.25% healthcare tax — who pays what: With the tax season fast approaching, the Finance Ministry has outlined the fine print on the 0.25% healthcare tithe it will collect this year to fund the new national healthcare system under the Universal Healthcare Act.

(And yes, the tithe is 0.25%, not 0.0025% — the Finance Ministry confirmed to Enterprise earlier this month that the taxman will take EGP 2.5 out of every EGP 1,000 in sales revenues. The tax rate that originally ran in the Official Gazette was incorrect, and the ministry has since issued a correction.)

As it stands, all companies are to pay the flat 0.25% tax on revenues this year except under certain circumstances and in some sectors, a senior government source told Enterprise. The Finance Ministry will set up a tax formula for these outliers on a case-by-case basis. The ministry has also preemptively set up special committees to handle issues arising from the tax, the source added.

So, who qualifies for some relief from the tax?

Companies making losses: If your bottom line is red, you won’t have to pay the tax this year.

Commissions, fees and dual revenues: For services and commissions — including financial advisory, consulting or brokerage — the ministry is trying to avoid taxing both the client and the service provider on shared revenues from the same project or activity. So if both the client and the provider earn revenue from an activity, they will split the 0.25% tithe between them, according to a formula that has yet to be revealed by the ministry.

Hotel management companies and hotel owners will also be able to avoid double taxation of the same revenue when a second party is brought on to manage a resort. Joint venture projects will also be subject to a similar arrangement, whereby multiple companies will split the 0.25% tax between them.

What about foreign companies? Foreign companies operating in Egypt (with or without a local subsidiary) will pay the full 0.25% tax on revenues earned in Egypt, the source said. It has yet to be determined whether they will pay the tax in foreign or local currency.

Change could be in the office for next year: The tax rate will be amended next year, the source added. An actuarial study is currently being conducted to determine what the new healthcare tax will be. He said that the ministry is exploring the possibility of taxing net profits instead of revenues. Companies could be categorized by the size of their net profits, with each category paying a different rate.

For the full breakdown of taxes under the Universal Healthcare Act, you can check out our primer here.

EXCLUSIVE- What’s going on with Uber? Multiple people we have surveyed since Sunday morning have reported that Uber, the global ride-hailing app, has been unusable in the Greater Cairo Area in recent days. One user was unable to sign into a previously functional account, while most of those complaining have reported extended periods in which no rides (represented by small car icons) were visible on screen. Others were unable to enter a destination for their desired ride.

Twitter is on fire with similar complaints, with dozens of Uber users taking to the social media service in the past 48 hours to complain about service outages, difficulty logging in and difficulty getting rides.

Competitor Careem appears to be operating normally. We found no Careem users with unusual complaints in person or on Twitter. A number of grumpy Egyptian clients of Uber reported on Twitter that they had taken to using Careem instead.

We reached out to representatives of Uber seeking comment, but have yet to hear back.

Is a regulatory issue at play? It’s entirely possible this is a technical glitch that has lasted for nearly 24 hours. But one source close to the industry, who declined to speak for the record, drew a line between the outage and what the source said is ongoing friction over unspecified “changes” to the still-not-released executive regulations to the ride sharing law. The House of Representatives passed the act last year and the executive regulations had been expected by the end of 2018. We reported last week that the latest point of contention sees the industry pushing back against a ‘new’ proposal for a EGP 2-5 per-ride levy.

Court to rule on Uber / Careem appeal on 23 February: All of this comes as the Supreme Administrative Court reserved to 23 February its decision in an appeal by Uber and its competitor Careem against a lower court ruling ordering the suspension of their operations, according to Al Mal. The ride-hailing companies’ appeal claimed that the delay in issuing the executive regulations of is “obscuring” their legal status.

Uber and Careem have also been warned against merger talks. The Egyptian Competition Authority told the two that a prospective combination of their businesses could violate Egypt’s competition act. Neither company has confirmed the merger talks, originally reported by Bloomberg, are in fact underway.

This is a disaster, right? Not necessarily. Uber and rival Careem are test cases for a new regulatory reality in Egypt. Amid ride sharing, new concentrations of corporate power and the emergence of new (to Egypt) non-bank financial services, regulators are working overtime to sort out the rules of fair play in an Egyptian context. It is easy, in an emerging market, to position any new regulation as government overreach (at best). But the simple fact is that the regulatory ‘renaissance’ through which our economy is passing is not unlike waves of regulation that have swept developed markets since the ‘progressive era’ in the United States at the turn of the last century. Those waves have banned child labor, established workplace health and safety regulations, defined what is and isn’t monopolistic behavior — you name it.

So we shouldn’t be running for the exits if Uber is, indeed, being blocked? Not yet. Speaking for our 2019 CEO Poll (coming soon, by the way), Matouk Bassiouny founding partner John Matouk told us that regulatory change and enforcement would be among “the” stories of 2019: “New laws are out and the regulatory authorities working through that very proactively as they assert their role. This is ultimately a very healthy thing. We’re going through a very natural grey area period until there’s clarity and visibility on where the private sector stands in terms of the new laws and regulations and their interpretation and implementation by the regulatory authorities. Once the dust settles and clarity and visibility are provided, investors will start coming in.”

Uber is one of those investors: The company, whose CEO has met President Abdel Fattah El Sisi on two occasions, chose to launch its bus service in Egypt.

M&A WATCH- Veon might be taking EGX-listed Global Telecom private: Global Telecom Holding’s (GTH) majority shareholder Veon is considering taking GTH private, the company said in a bourse filing (pdf). GTH’s board has postponed a general assembly originally called to discuss an EGP 11.2 bn rights issue to take time to consider the new developments, GTH said in a separate statement (pdf).

The FRA is monitoring: The Financial Regulatory Authority is monitoring the situation and will see what mechanism Veon will use to take the company private and consequently will decide if it will be able to vote in the general assembly on the decision or not, the market regulator said in a statement to the bourse.

Possible scenarios: Veon will need to make a mandatory tender offer at a price range between EGP 5.31-7.90 per share, Shuaa Securities said (pdf) in a research note on Sunday. If the move to take GTH private does not go through, GTH would have to proceed with the capital increase or restructure its debt, according to Shuaa.

Market reacts: GTH’s shares jumped 10% on the EGX yesterday, the biggest leap in three months, Bloomberg notes. The shares’ value has been slashed in half over the past year. The GTH news, and the prospect of fresh money available in the market from a take-public bid, sent the EGX30 up 2.3% by the close of trading yesterday.

Background: Amsterdam-based Veon Holdings withdrew a mandatory offer in April last year to purchase the 42.3% of GTH that it doesn’t already own after failing to get regulatory approval. GTH intended to use the proceeds from the now-postponed rights offering to meet the company’s financial obligations through to the end of 2019, including loans from its main shareholder. Yesterday’s statement noted that Veon plans to support the company’s “immediate funding requirements” vis-a-vis its debt obligations and interest payments to bondholders.

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Beltone confirms it wants to settle with the FRA: Beltone Financial has filed open talks with the Financial Regulatory Authority (FRA) and will drop its case against the regulator as it seeks a way out of its current impasse, the investment bank said in a bourse filing (pdf). The Administrative Court received on Saturday a report from the Board of State Commissioners recommending it reject Beltone’s appeal against a suspension handed to the investment bank’s IPO unit by the FRA.

FRA sets its own terms for settlement: Beltone will first have to reach a settlement with subscribers to the Sarwa Capital IPO last fall who had filed a complaint with the regulator. Then it can re-file its settlement request with the FRA, sources told Al Mal, where a committee would review the case before recommending to the regulator’s board whether to accept a settlement agreement.

Background: The FRA suspended late last year Beltone’s investment banking IPO unit for six months over alleged “irregularities” in its management of Sarwa Capital’s IPO, which saw the structured- and consumer-finance player’s shares nosedive by 11% on their EGX debut. The authority also ordered Beltone’s brokerage arm to raise its insurance cover to EGP 50 mn and maintain it at that level for a year. The company denied the allegations and has pursued legal action against the FRA’s decisions. Its plea to the FRA’s appeals committee has been turned down.

INVESTMENT WATCH- Nestlé is planning to invest about EGP 1 bn in Egypt in the next five years, Nestlé North Africa CEO Moataz El Hout said, according to reports in the local press. The company has seen sales growth of more than 25% in 2018 and expects growth of over 20% to continue this year across all lines of business, El Hout said. Nestlé inaugurated last week a EGP 250 mn factory for its coffee brand Bonjorno, which the Swiss food giant plans to position as an export hub for the region.

REGULATION WATCH- Gov’t working on incentives to promote electric vehicles: The government is working on a new policy framework to encourage the use of electric vehicles (EVs) based on instructions from President Abdel Fattah El Sisi, according to a Cabinet statement. The framework will include financial incentives to convince international EV assemblers and manufacturers to set up shop in Egypt. Prime Minister Moustafa Madbouly has also directed his government make certain charging docks are installed in new cities and in select gas stations around the country.

There’s reason to level up EV infrastructure: The statement notes that that Germany’s Federal Minister of Economic Cooperation, Gerd Müller, will be in Egypt soon with a delegation that includes a team from Mercedes-Benz. The carmaker expressed interest in assembling EVs in Egypt during a meeting held last month between El Sisi and senior Mercedes-Benz global exec Markus Schaefer. The company also announced last week its likely return to passenger car assembly in Egypt after a years-long hiatus.

El Sisi’s directive stresses natgas as a substitute for fuel oil: The government is also looking to promote natural gas-powered vehicles, saying it will be easier on the state’s fuel subsidy bill than standard fuels. Some 260k vehicles are running on natgas today, the government said, and the Oil Ministry is also working alongside the SMEs Development Authority to convert 10k passenger cars and taxis to natgas through state-owned Natural Gas Vehicles Company (Cargas) and Gastec.

REGULATION WATCH- FRA to finalize Leasing and Factoring Act regulations by end-March: The Financial Regulatory Authority (FRA) is set to finalize by the end of March the executive regulations for the Leasing and Factoring Act, sources familiar with the matter said. The authority will outline in the coming two months new rules for tax treatment, as well as an internal governance mechanism for leasing and factoring businesses. The FRA has recently set solvency standards for companies and a framework for them to appeal FRA decisions.

Background: The recently ratified 84-article legislation regulates leasing and factoring as non-banking financial tools. It introduces a fixed capital base and a borrowing threshold for players in the field, limits them to leasing and factoring upon establishment, adds clauses to regulate SME financing and mandates the country’s economic courts with resolving legal issues — among other things.

EARNINGS WATCH- AMOC earnings tank in 2Q2018-19: Alexandria Mineral Oils Company’s (AMOC) net profits fell 93% y-o-y to EGP 25 mn during 2Q2018-19, making it the company’s worst quarter in a decade, according to Shuaa Securities (pdf), which noted that the state company’s profits fell 90% below expectation. Company revenues were up 35% y-o-y to EGP 3.7 bn.

What now for the IPO? While Shuaa offers no comment on the impact this would have on AMOC’s planned listing of a 20% stake as part of the state privatization program,AMOC shareholders decided earlier this month to hold off on the float until the company returns to profitability. The government is currently deliberating whether to offer AMOC during the second wave of companies or withdraw it from the privatization program completely.

Macron express concerns over human rights before meeting with El Sisi: French President Emmanuel Macron said Egypt’s human rights record today is worse than it was during the Mubarak era, Reuters reports. The French president, who visited the Abu Simbel temple in Aswan yesterday, is expected to meet with El Sisi today to discuss economic cooperation and regional affairs. Macron is also expected to bring up individual cases of jailed activists, the newswire notes. In the days leading up to Macron’s visit, major global news outlets had pointed out that the French president would be under pressure to address Egypt’s human rights record.

Econ cooperation is not expected to be affected by any of the above, Bloomberg notes. We had a rundown on what to expect out of Macron’s visit in yesterday’s issue. Business agreements worth as much as USD 1.1 bn are on the table during the visit.

Cairo Airport takes lead in FinMin “one-stop shop” customs initiative: The Finance Ministry’s “one-stop shop” program for settling custom payments will be piloted in Cairo International Airport’s logistics center, authority head Kamal Negm said, according to Al Watan. The Port Said customs office will follow on 31 March, with the ministry planning to have the program rolled out nationwide by 30 June 2020.

On a blessedly quiet morning, one of the few stories on Egypt getting traction in the foreign press is the opening of the Rafah border crossing for one day. Egyptian authorities allowed Palestinian coming from Egypt to enter the Gaza Strip, Palestinian news agency Wafa reports.

President Abdel Fattah El Sisi’s sit-down with his Sudanese counterpart Omar Al Bashir is leading the conversation in Egypt’s three main state-owned dailies this morning (Al Ahram | Al Akhbar | Al Gomhuria). The trio of newspapers stress on the apparent harmony in Egypt and Sudan’s outlook on key issues, including the Grand Ethiopian Renaissance Dam. Al Akhbar and Al Ahram also take note of French President Emmanuel Macron’s arrival in Egypt,

Why would any company choose to have co-CEOs? The co-CEO model is highly unusual and unpopular with shareholders and governance specialists — both because of the expenses incurred (hefty pay packages are doubled), and the potential it brings for clashes at the top. So why would anyone use it?

A calculated risk: This brief FT profile of Martin Gilbert and Keith Skeoch, formerly heads of Aberdeen Asset Management and Standard Life, respectively, and now the co-CEOs of Standard Life Aberdeen, goes some way towards answering that question. They emphasize the importance of complementarity and the need for shared responsibility in their positions, arguing that the complexity of integrating their two businesses following the GBP 11 bn merger that took place 18 months ago made this unorthodox power-sharing mechanism not only desirable, but necessary.

Teamwork makes the dream work: Gilbert and Skeoch note that they made it a point to divvy up their respective areas of responsibility, but both run point on top-tier matters including strategy and monitoring the company’s performance. “Both deny that there is a dominant partner and say all decisions are made jointly. When rare disagreements occur, they say, the executive who has responsibility for that area of the business has the final call.” Their unusual management structure opens up interesting questions about the efficacy of other models and the need to examine alternative approaches to internal governance — particularly as part of conversations around M&As.

President Abdel Fattah El Sisi and Sudanese President Omar Al Bashir met in Cairo yesterday, where they discussed boosting bilateral relations, including electricity connection and railway projects, according to an Ittihadiya statement. The talks also addressed latest developments on the negotiations over the Grand Ethiopian Renaissance Dam, Ahram Gate reported.

Bashir downplayed protests back home, sayingthey were being exaggerated by the media, according to Reuters. “This is an attempt to copy the Arab Spring in Sudan, these are the same slogans and appeals and the very wide use of social media sites,” the Sudanese leader said. He had previously thanked Egypt for supporting stability in Khartoum, marking a shift in strained relations between the two neighbors in the few months leading to the protests.

The House of Representatives’ Energy Committee has given its approval for the construction of the gas pipeline between Cyprus and Egypt, Al Masry Al Youm reports. The pipeline will allow natural gas from the Aphrodite gas field to be transported to Egypt’s liquefaction facilities at Idku and Damietta, and re-exported as liquefied natural gas.

China’s Export-Import Bank (EximBank) will disburse within a month USD 105 mn tranche from the USD 1.2 bn it agreed on with Egypt for the construction of a light railway running between Egypt’s new administrative capital and 10th of Ramadan city, Al Mal reports. The funds will cover a portion of the cost of the project’s civic works.

State grain buyer GASC has received four offers for Chinese, Vietnamese and Indian rice in its first international rice tender in 2019, traders told Reuters. GASC is seeking rice for shipment between 20 March and 20 April and / or 1-30 April, the newswire noted.

The House of Representatives has approved legislation that will see the Electricity Ministry grant the Nuclear Materials Authority and the Egyptian Black Sand Company exploration, drilling and mining rights, Al Mal reports.

The House of Representatives approved in principle yesterday a temporary bill that outlines mechanisms for settling building code violations, Al Shorouk reports. The legislation, if passed, would permit authorities to reach settlements on structures that meet structural integrity requirements and that are not built on state-owned or agricultural land, or land that is subject to the Antiquities Protection Law. The law, which would expire after three months, is expected to get the House’s stamp of approval alongside the Unified Building Code this month.

The Egyptian Airports Company is planning to increase Borg El Arab Airport’s annual capacity to 6.2 mn passengers by 2021-2022, company head Tarek Fawzy said, according to Al Mal. The airport currently receives 3 mn passengers a year.

Ebtikar for Financial Investment’s Vitas received a micro-financing license and will focus on projects that need up to EGP 100,000 of funding, parent company B Investments said in a bourse disclosure (pdf). B Investments established Ebtikar in June 2017 as a vehicle to invest in the non-banking financial services sector.