Egypt gets fifth IMF tranche

** The Enterprise 2019 CEO Week continues this morning as we touch base with some of Egypt’s leading CEOs about the questions that will define the coming 12 months across all industries. The conversations replace our industry news roundups, which will return next week.

The format: Each CEO answered roughly the same set of questions, tailored only for their industry. The interviews have been condensed and edited for clarity and are presented in “as told to” format — that’s journalism speak for “in their own words.”

Today’s participants are:

• Elwy Taymour, co-founder, group chairman and CEO, Pharos Holding
• Riad Armanious, CEO, Eva Pharma

So far this week, we have heard from:

• Osama Bishai (CEO, Orascom Construction)
• Hend El Sherbini (CEO, IDH)
• Amr Allam (Co-CEO, Hassan Allam Holding)
• Mohamed El Kalla (CEO, CIRA)

It’s PMI Day: The Markit / Emirates NBD purchasing managers’ index for January is due out at 6:15am CLT. You can download the summary report here when it arrives. The indicator, which measures non-oil business activity in Egypt, was stuck in contraction territory for the fourth month in a row in the December survey.

El Tayeb preaches inclusion, tolerance at interfaith summit: Al Azhar Grand Imam Sheikh Ahmed El Tayeb called on the Middle East’s Muslim population to “embrace your brothers the Christian citizens,” Reuters reports. Speaking at an interfaith summit in Abu Dhabi alongside Pope Francis, El Tayeb stressed that Christians are “citizens with full rights and responsibilities,” and are not a marginalized minority.

Don’t be too optimistic about the emerging market rally continuing throughout 2019, Satoru Matsumoto, fund manager at Japan’s Asset Management One, tells Bloomberg. Despite a dovish Federal Reserve spurring a recovery in EM stocks and currencies, Matsumoto warns that 2019 will not see the bullishness of 2017.

JP Morgan thinks the Fed’s new tone may push back the next recession a bit, suggesting that the Fed pulling back from rate hikes means “2020 might not be a year to think about recession,” Bloomberg notes.

It’s going to be all KSA, all the time ahead of its upgrade to emerging market status: Forget about the backlash that followed the killing of columnist Jamal Khashoggi: Global and GCC-based investors bought Saudi stocks at record levels in January, snapping up shares worth c. USD 1.2 bn, Bloomberg reports. And everyone wants a piece of the action: Nasdaq Dubai will launch futures on the FTSE Saudi Arabia Index later this month under a licensing agreement with FTSE Russell to launch derivatives on FTSE Russell’s Saudi Arabia equity indexes, the exchange said in an emailed statement (pdf).

But is it really the time to buy Saudi ahead of its upgrade later this year? “Investors jumping at Saudi stocks now are finding high prices and an economic scenario that doesn’t corroborate expensive valuations,” the top dogs at FIS Group write in a report cited by Bloomberg. “Speculation around huge foreign inflows are based on naive assumptions about how index providers and ETF issuers trade through such events, and we believe those waiting for ‘dumb passive money’ in Saudi will be kept waiting come fall 2019. Following index inclusion, we expect to see a fair degree of selling pressure as state affiliated Saudi investors use the inclusion as a liquidity event for chunks of their Saudi equity portfolio.”

All of this is coming as Saudi Crown Prince MbS is running into resistance from his own bureaucrats, the Wall Street Journal claims. Pushback caused MbS to postpone the IPO of oil giant Aramco, to delay privatization plans, to slow the pace of investment in tech companies, and to scale back plans to build the world’s largest solar-generation hub.

Miscellany worth knowing about this morning:

• Something is missing here: An opinion piece in the FT gives Egypt only a passing mention as it looks at what Turkey needs to do to become a regional gas hub.
• Shares of Google’s parent company were hammered overnight after the company reported declining advertising prices and rising costs. (CNBC)
• Analysts are slashing their forecasts for US corporate earnings as companies succumb to pressure on margins. (FT)
• Bernie and Chuck want to curb share buybacks, writing in an opinion piece for the New York Times that “corporate self-indulgence has become an enormous problem for workers and for the long-term strength of the economy.”
• Slack has filed to go public with a direct listing, meaning the workplace messaging company won’t raise new money, but will make it possible for investors to trade shares on the public market. The move was successfully used by Spotify last year. (WSJ)

Another year, another Super Bowl, another ad show: Halftime ads have as usual occupied the attention of the US journosphere. If you’re feeling bored and want something to buy, the Washington Post has given its rundown of the top 10 ads.

PSA- Break out your summer clothing this morning? Look for the mercury to be in the 30-31°C range in the capital city today — and it may be accompanied by sandy winds, according to the Egyptian Meteorological Authority. Expect the temp to plunge to a daytime high of 18°C tomorrow with a chance of rain, our favorite weather app warns.

The airwaves gave us a mixed bag of nuts last night, with the talking heads touching on several topics without offering much by way of analysis.

The IMF signing off on the disbursal of Egypt’s fifth USD 2 bn loan tranche (the details of which we have in Speed Round, below) came up on Al Hayah Al Youm (watch, runtime: 03:43) and Hona Al Asema (watch, runtime: 01:58) but did not inspire much discussion or analysis.

The talking heads’ analysis of the proposed constitutional amendments didn’t inspire insightful discussion, either. El Hekaya’s Amr Adib listed the proposed amendment of constitutional articles (watch, runtime: 09:14), while Rep. Dalia Youssef explained to Masaa DMC’s Eman El Hosary the process of pushing the amendments through (watch, runtime: 07:59).

Tax collections during 1H2018-19 hit 107% of the Tax Authority’s targets, authority head Abdel Azim Hussein said on Hona Al Asema (watch, runtime: 04:22).

Would importing a car yourself be cheaper than buying through distributors? Self-styled automotive industry expert Mohamed Hassan claimed that going rogue and importing a car on your own would help you save EGP 50k (watch, runtime: 10:26), while industry veteran Alaa El Sabaa (who runs the eponymous distributor and is a member of the Federation of Egyptian Chamber of Commerce’s auto division) says doing so would see you pay higher fees than distributors do (watch, runtime: 06:17).

Egypt will get the fifth tranche of its USD 12 bn IMF facility any day now: The International Monetary Fund’s executive board has signed off on the institution’s fourth review of Egypt’s economic reform program, giving the green light to the disbursal of the fifth USD 2 bn tranche of the USD 12 bn Extended Fund Facility, the IMF said in a statement. The tranche, which the Finance Ministry said will arrive “within the coming days,” will bring the total Egypt has received to USD 10 bn.

Background: The IMF’s approval came a little over a week after IMF Managing Director Christine Lagarde sang our praises, but the decision was reportedly delayed amid concerns from the IMF on how Egypt would implement a new fuel pricing strategy. The government announced last month it would bring the mechanism into effect in April. The mechanism will first apply to 95 Octane fuel and then be rolled out to other, more popular grades. The formula will see prices fluctuate within 10% of international averages.

LEGISLATION WATCH- Could MPs’ newfound interest in constitutional change see less funding for health, education? The House Planning and Budgeting Committee appears to want to ride the coattails of constitutional amendments introduced earlier this week, Al Mal, saying MPs are drafting a second package of changes that could change how constitutionally mandated spending minimums on health, education and scientific research are calculated. The amendments would define spending minimums as “percentage of gross domestic product” (GDP) rather than “gross national product” (GNP), the newspaper says, citing remarks by committee chair Yasser Omar.

Why this matters: It could see less money flowing into healthcare, education and scientific research. Egypt’s GNP per capita (in PPP terms) was about USD 11.4k in 2017 while its GDP per capita (also in PPP terms) was about USD 10.5k the same year — implying the earmark would have gone down by about 8% in 2017 had the change been in effect then. GNP, also known as gross national income, “starts with GDP and adds residents' investment income from overseas investments, and subtracts foreign residents' investment income earned within a country.”

Other changes to budgeting, default tax system: The amendments would also change how the state budget is drafted (the piece doesn’t explain how) and define Egypt’s taxation system as following not a “progressive” model but an “optimal” one.

Proposed constitutional amendments could see president hold office until 2034, reconstitute Shura Council as “Council of Senators”: The constitutional amendments currently being considered at the parliament have a transitional clause that would, if passed, allow President Abdel Fattah El Sisi to run for two additional presidential terms after his current term ends in 2022, Reuters reports. This change would effectively give the president the opportunity to hold office until 2034, Al Bawaba and Reuters’ Arabic service note. The amendments would extend the presidential term to six years instead of the current four, among a host of other changes that include bringing back the Shura Council and restoring the office of the vice president.

The changes would also add a “Council of Senators” as Egypt’s upper house of parliament, effectively bringing back the Shura Council. The presidency would appoint one-third of the 250 members of the Council of Senators, Reuters says, citing a draft of the amendments it has seen. That’s in line with past practice at the Shura Council. The changes would also give the office of the president new power to appoint judges and the prosecutor general, according to the reports.

The House is pushing ahead with discussion of the potential amendments and will sit for an informational session to understand the changes and procedure, House Speaker Ali Abdel Aal said, according to Al Mal. The parliament’s general assembly will discuss today the amendments, which must be approved by a two-thirds majority in parliament before being put to a public referendum.

EXCLUSIVE- Egypt is mulling whether to hedge against rising prices of strategic commodities starting July, a senior government official told Enterprise. The government in talks with international banks to hedge against volatility in the prices of strategic imports including petroleum and wheat, starting from the coming fiscal year. Exact plans will be sent to the House of Representatives on 31 March to include them in the FY2019-20 budget, the official said, if the hedging plan ultimately gets the green light. The move would aim to ensure Egypt meets its budget deficit target next year. The official added that a number of international banks have already approached the government with offers, but did not name them. Last month, the government pulled back from fuel hedging contracts it had been exploring with two banks; the move came as crude prices moved lower than annual budget projections.

INVESTMENT WATCH- Eni looking to invest up to USD 1 bn in solar power projects: Italy’s Eni has resumed negotiations with Egypt’s Electricity Ministry to build 1 GW of solar generation capacity at a total investment cost of up to USD 1 bn, ministry sources told the domestic press. Eni could start with a 50 MW plant under the independent power producer (IPP) framework, followed by a 250 MW plant under the BOO (build, own, operate) framework, the sources said. The Italian company is currently seeking license from state utilities regulator Egyptera to build the generation stations. Negotiations between Eni and Egypt over renewable energy projects began last year.

INVESTMENT WATCH- The EBRD has earmarked USD 100 mn to support SMEs run by Egyptian women, Regional Principal Manager for SMEs Reem El Saady told Al Mal. The first stage of this initiative will see USD 20 mn disbursed to the National Bank of Egypt and agreements with QNB and AlexBank have already been signed, El Saady, said without specifying their value. EBRD has invested a total of EUR 1.5 bn in 19 projects nationwide making Egypt the single greatest recipient of its funding in 2018.

M&A WATCH- Emaar Misr says not looking to acquire MNHD: Emaar Misr for Development has denied it is in talks with Madinet Nasr Housing and Development (MNHD) to acquire the company, according to an EGX filing (pdf). This came as media reports claimed that the Emirati real estate company was looking to acquire MNHD. MNHD also issued a similar statement denying having opened channels with Emaar Misr. The rumors come a week following the collapse of talks between SODIC and MNHD.

Some drivers for ride-hailing companies are threatening to strike: Some drivers for ride-hailing companies Uber and Careem are reportedly planning a strike from 20-24 February to demand a larger share of fares, a requirement that clients provide more personal data to the companies, and better fares for trips to unpaved neighborhoods. Drivers also want the right to decline up to five trips per day without impacting their rating on the service and the right to know the destination ahead of the trip — and they want the companies to stop using promo-codes, Al Mal reports.

In other words: They want to offer the same service as white cabs, at higher prices?

Inspired a grassroots campaign headlined “let it rust” that calls on people not to purchase new cars, the drivers are calling their strike “Let it go broke.”

Background: The House of Representatives passed the Ride-Hailing Apps Act last year and the executive regulations had been expected by the end of 2018. We reported last month that the latest point of contention sees the industry pushing back against a ‘new’ proposal for a EGP 2-5 per-ride levy.

EXCLUSIVE- Gov’t looks to slash fees for e-vehicle licensing, registration: The government is mulling whether to cut licensing and registration fees for electric vehicles (EVs) to encourage their use, a senior government official told Enterprise. The process currently costs consumers up to EGP 10k, a fee the official suggested is often higher than for comparably sized gasoline-powered cars. The Madbouly government is considering the measure as part of a package of incentives to create infrastructure to support EVs, the source said.

Background: The move comes as the government looks to convince EV manufacturers to set up shop in Egypt as part of a policy shift that we note last month was designed to add EVs to Egypt’s transportation mix. The House also ratified on Sunday a decision to exempt EVs from custom duties and slash duties on hybrids.

FRA is inching toward a green light for the launch of a futures exchange: The Financial Regulatory Authority (FRA) finalizing decrees that will make possible the launch of futures in Egypt, the market regulator said in a statement. The creation of a futures market comes after amendments to the executive regulations of the Capital Markets Act issued last July opened the door to the introduction of new financial instruments. Among them: short-selling, futures and commodities exchanges, as well sukuk and green bonds.

EARNINGS WATCH- CIB posts record full-year 2018 earnings: Our friends at CIB delivered a 27% y-o-y increase in net income of EGP 9.6 bn in 2018 on revenues of EGP 20.4 bn, which rose 37%. CIB’s capital adequacy ratio also rose 6% y-o-y to 19.1%, which is above the minimum regulatory requirement. Commenting on the bank’s earnings, management said CIB’s “robust performance in 2018 was largely driven by the Bank’s nimble management of its balance sheet. Treasury investments have been the crux of 2018 and a key factor driving the balance sheet dynamics for CIB.”

Looking ahead, management “remain[s] confident about CIB’s ability to endure market variations. We also reinstate CIB’s comfortable capital position to accommodate the increase in minimum regulatory requirements starting 2019, while maintaining a reasonable buffer for any unfavorable change that may occur in interest or exchange rates.” You can read CIB’s full earnings release here (pdf).

Sidi Kerir Petrochemicals’ net profit rose 14.7% y-o-y in 2018 to EGP 1.3 bn compared to EGP 1.13 bn in 2017, the company announced in an EGX filing (pdf). Revenues were up 15.7% y-o-y, rising to EGP 5.8 bn from EGP 5 bn the previous year.

EgyptAir Holding recorded net income of EGP 951 mn in 1H2018-19, more than double the figures of the same period in 2009/2010, the Civil Aviation Ministry said.

MOVES- Renaissance Capital has appointed Nancy Adel Fahmy (LinkedIn) as vice president of financial services research, according to an emailed statement (pdf). Fahmy will be based in Cairo covering financials for Egypt, North Africa and the GCC. She joins after a 12-year run with Beltone.

Orange Egypt and E-Finance to provide digital services for gov’t: Orange Egypt and E-Finance have signed a cooperation protocol to provide digital services, including pension and subsidy payments, for the government, Orange Egypt CEO Yasser Shaker told the domestic press. The move comes amid government efforts to push for digitalization and financial inclusion to boost efficiency and transparency.

COURT WATCH- Court delays hearing in EUR 150 mn lawsuit against Peugeot Citroen: A Cairo court has delayed to 17 March a hearing in a lawsuit by Arabian Investments, Development and Financial Investment Holding Co. (AIND) subsidiary Cairo for Development and Cars Manufacturing (CDCM) against Peugeot Citroen, according to a statement from AIND to the EGX (pdf). The hearing was originally scheduled for November of last year, but has since been delayed twice. CDCM filed the case after the French automaker ended a four-decade-old partnership, giving the local rights to the brands to a venture between Mansour Group and Dubai-based Scope. The plaintiffs are seeking EUR 150 mn in damages.

Egypt Building Materials Summit takes place on Thursday at the Nile Ritz Carlton. The event brings together construction industry investors, developers, policymakers, service providers and consultants, and over a dozen of keynote speakers.

Egypt will assume the presidency of the African Union on 10 February, according to an Ittihadiya statement.

This year’s Egypt Petroleum Show (EGYPS) will kick off on Monday, 11 February at the Egyptian International Exhibition Center. Senior executives from global oil majors, alongside high-ranked energy government officials, will be in town for the three-day exhibition — which will see international pavilions from 13 exhibiting countries.

The Central Bank’s Monetary Policy Committee will meet to decide on interest rates on Thursday, 14 February.

Suez Canal Authority boss Mohab Mamish will be in Moscow on 17 February to complete some of the legal procedures relating to the USD 7 bn Russian Industrial Zone (RIZ), Al Mal reports. President Abdel Fattah El Sisi has ratified the agreement that was signed in May last year.

A Russian expert committee will visit Sharm El Sheikh and Hurghada airports in the second half of February to run a final security sweep ahead of a decision on flight resumption, AMAY reports.

FinMin to present debt control strategy to El Sisi in March: The Finance Ministry will present the final, reviewed version of its comprehensive public debt control strategy to President Abdel Fattah El Sisi in March, Finance Minister Mohamed Maait said.

The El Sisi administration’s efforts to reduce unemployment and create jobs is on the front page of Egypt’s three main state-owned newspapers this morning (Al Ahram | Al Akhbar | Al Gomhuria). Al Ahram also takes note of Al Azhar Grand Imam Sheikh Ahmed El Tayeb’s attendance of an interfaith summit in Abu Dhabi with Pope Francis.

Riad Armanious leads one of the regional pharma industry’s fastest growing companies as he aims to transform his family’s company, founded in 1919 by his grandfather, from a regional generic manufacturing powerhouse into a research and development focused player. Armanious (LinkedIn) also serves the industry as a whole on trade associations and export councils and was the only Egyptian on the World's Economic Forum's 2018 list of 100 global leaders under 40.

For the company, 2018 was the year of research and development. It’s the year we launched our research and development institute, the Mounir Armanious Research Center (MARC). We’re very proud of MARC because it reflects our vision for the future.

It was a tough year for the industry, but it was a year of change for the better.

2019 will be the year we focus our effort on international expansion. Eva Pharma is trying to move towards becoming a more specialty-based and innovative company. We signed a lot of international agreements in 2018, which we will see come into effect as part of our global expansion plan in 2019. We currently operate in 41 countries, but we’re looking to expand — with a big focus on Africa, where we see a lot of potential for a company like ours.

We signed a few out-licensing agreements with global organizations to take some of our products to Europe. We already have reach in Eastern Europe, so we’re focusing now on Western European countries. We have approval to export to the European Union — which isn’t to be taken lightly — but we’re now also looking to move into commercializing and registering products in the EU.

In terms of turnover, we’re talking about 25% growth in 2019. We plan to increase that to 50% by the end of 2021 by focusing on respiratory, inhalation and utilization products as well as specialized dosage forms that are currently not produced in Egypt.

The biggest challenge this year will be the global climate. The US-China trade war complicates the scene very much. Brexit complicates things for us, too, because while there is one agency that regulates our industry across 28 states in the bloc, now nobody understands how the UK will be regulated if Brexit happens. This is just an example of how we’re seeing further fragmentation of regulation, which goes against globalization — we’re actually seeing deglobalization through inefficient regulations. The more regulations you have to maneuver, the more time the process takes and the more costly it all becomes, leaving less space for innovation. Deglobalization is one thing that’s very painful for someone who’s passionate about bringing innovation to patients.

Egypt so far has been doing well, but is our competitiveness increasing? Are we developing in terms of manufacturing, efficiency, and logistics competency? We’ve done a lot in terms of political stability and in security, but we need to see more on manufacturing and logistics if we want to increase our exports as a country. We would need logistics routes to transport products, and strategic and easily-accessed maritime and air links, for example.

We need lower interest rates this year. I’m sure many other people have already said that, but we need lower interest rates for innovation — not just to protect smaller companies. I’m all for helping SMEs because that’s definitely proved effective in terms of economic development. But you also need to finance, give tax breaks or offer financial incentives for innovation-based projects taken on by companies outside of the SME scope.

Innovation doesn’t happen because of goodwill or good intentions — it happens because of good economics as well as the right ecosystem factors. We need economic incentives for innovation because it’s important, not just for prestige, but as a competitive driving force of growth. You can grow in two ways: Either due to the ability to grow your size in the market or due to competitiveness in innovation.

Our industry also needs dynamic pricing to match the dynamic or liberalized exchange rate.

Biologics (therapeutics or diagnostics) will be among the biggest opportunities in the industry. One of the areas we’re currently investing in is vaccines. Viruses mutate based on local conditions, so the more specific your vaccines are to local viruses, the more effective they are. We’re investing in vaccines, and avian flu vaccines in particular. We’re also working on getting one of our facilities FDA-approved, which would be the first one of its kind in the country. It’s not easy, but it comes with its rewards, so, that’s something we’re looking to complete in 2019.

We’re also investing in manufacturing facilities in Africa as part of our plans to become a more active African player as opposed to just national.

There’s also major potential in the universal health coverage campaign that Egypt is rolling out. It’s an ambitious plan to ensure that 100% of Egyptians are eventually covered, starting with the governorate of Port Said in July 2019. We understand, of course, that it will take a number of years for the program to cover the country in its entirety, but we expect it to significantly change the dynamics of the market as it expands access to healthcare and increases market shares. That’s why we’re all investing in it: When you have more patients covered, you need much bigger volumes and lower prices, which is good for the country and, most importantly, patients.

On the compensation front, we will see an average increase of over 20%. We’re trying to reverse Egypt’s brain drain by ramping up salaries so that they’re more globally competitive. If we want to become a global company, we have to be globally competitive as well. In general, we have a big increase coming up, as well as promotions. We also have a lot of positions being opened to serve our innovation and globalization plans.

Our business has absolutely been constrained by high interest rates. I’m not an economist, but I expect and hope they will come down a little. We’re investing a lot in our development to expand our presence globally and adding more manufacturing lines.

Inflation was a huge issue for us. Inflation affects you on the cost base because we’ve been increasing salaries over 20% over the past two years and will be doing the same for this year. Inflation affects morale and variety — humans like choice, and inflation curbs choice, which decreases quality of life.

I expect tourism to outperform this year, while real estate will underperform. We’ve been inflating the bubble for some time now. I think the lower end of the real estate market will be resilient and the upper end is usually more resilient, too.

We’re mostly investing in Egypt — in getting our facility to be FDA ready, and we’re investing in innovative products. We’re also investing in companies to become part of our group; for example we have a subsidiary in Hamburg, Germany. We’re also investing in an acquisition in Germany, and we’re investing in Sudan and Ethiopia.

If I were to start a new business today, it would be in artificial intelligence in genomics.

The most common question is get from outside parties is: “Are you optimistic?” As a person, I am, but I hope to see us make decisions based on data rather than emotions. But I’m optimistic about the economic reforms, which speak loudly of better times to come in Egypt. We have a lot of the pillars needed for a competitive manufacturing base or an export base — we just need coordination on a national level. Coordinating what needs to be done through national policy and stringing the parts into long-term vision can bring about positive outcomes, but the components are already there. The fundamentals are there.

What question will we be asking at the end of next year? I hope we’ll be asking ourselves: Are we more innovative as a country? That’s an important question because it’s future-looking and that’s what we should be focused on.

Elwy Taymour is a veteran of the finance industry and the son of one of the man who helped create the sector on a hot August day in 1980, not long after President Anwar Sadat opened the door to private sector participation. With over 26 years in the industry under his belt at home and abroad, Taymour (LinkedIn) cut his teeth in brokerage and investment banking at Merrill Lynch and EFG Hermes. He was a vice president at Auerbach Grayson & Co. in New York, where he was responsible for selling assets in regional markets as well as running the syndication desk for all GDR transactions in the US market. Taymour is also a veteran of LinkDotNet, where he was chief financial officer, and was founder and managing director of ArabFinance, the online trading platform.

2018 was a year of anticipation and of gearing up for growth. For Pharos, we built a proper base for growth in anticipation of what is coming for us in 2019. It was an important year in terms of putting in place the right organizational structure, which mostly entails hiring the right caliber of people. 2018 was definitely more stable than, say, 2016 —we had a better vision of where things are going, which made us better able to prepare.

2019 will be a year of transformation for the company. We’re anticipating growth, and we’re adding new and more interesting lines of business. We’re anticipating better market conditions. So, for us as a company, it will be transformational — one in which we will go from just being an investment bank to a non-banking financial services provider. We’re moving into very interesting things — microfinance, leasing, private equity, and renewables — that can add value to the market. We’re also investing more in technology, as opposed to brick and mortar business: Everything will be more dependent on AI, machine learning, and algorithms, which will help us make the right decisions. The conventional approach of just going to villages, neighborhoods, and suburbs to get to know the people there and lend money is going to be replaced. It’s a growing pie.

Our biggest challenge this year is also our biggest opportunity. We see the opportunity clearly, but the challenging part is moving quickly.

On the performance on the wider economy I think it’s going to be better despite the challenges. Inflation is still high, and that eats away at growth, but that will hopefully start abating this year 2019. I think our estimate is that probably sometime in 2Q or 3Q0219 you will find that inflation — which has been persistently over 20% — is going to go down or stabilize, not necessarily to the single digits, but in the 13-14% range. So we’re quite bullish about Egypt in general in 2019.

And Egypt will benefit from the turnaround in sentiment on emerging markets — we will be able to kick start the privatization program. I think the government is looking to get the program off the ground in 1Q2019, which is reasonable. The program itself is pretty substantial; some of the 20 companies in the first wave are quite large and will be a significant addition to the market. Investors will start looking at Egypt once again after its market had shrunk significantly, both in terms of market size and traded volume per day. There will likely be an uptick in private sector IPOs, as suspended plans begin to see the light again. If more private sector IPOs come to the market alongside the privatization program — and companies start trading significantly — the market will start to look appealing again to EM investors.

M&A obviously come with IPO activity. So as market conditions improve and there’s more movement, the M&A scene will also improve.

For 2019, we’re basing our compensation policy mainly on merit and market norms. We conducted a market study to get an idea of how we should be compensating our employees, but we also look at merit to see who deserves salary adjustments, not just one-off increases. If they’re overachievers, they should receive the normal annual raise increment, plus probably a multiple of what they’re taking.

Has our business been constrained by high interest rates? For sure. If the interest rates were at 9%, for example, that would have been much better from our standpoint than having to pay the bank some 20%.

But we do expect rates to come down in 2019. As inflation starts to abate — probably by 2H2019 — the central bank will start to ease its monetary policy, and we expect rates will go down this year. There will still be a few inflationary shocks this year, between the lifting of energy subsidies and some lingering tightness in EMs in general. But things will likely get better by the second half of the year.

I am investing in my business — shoring it up not just in terms of money, but also human capital, in addition to the new lines of business we’re looking to get into. We’re looking to start our private equity business, through which we will be investing in things such as renewable energy, and fintech companies. These ventures are related to what we already do, but remain new, so we’re exploring things that we do not quite understand yet — perhaps not as much as other people do.

How much of an issue was inflation in 2018? Inflation eats away and suffocates the business. As a company largely dependent on human capital, we have to pay salaries that will retain talent, so inflation prompts salary adjustments that eat into our margins. We also rely on USD-based tools like Bloomberg and Reuters screens, so the EGP devaluation caused these costs to shoot up on our balance sheet. The currency float was necessary, but costs and profitability were affected.

I like non-banking financial services in 2019. Some 70% of Egypt’s population is unbanked, and providing services such as loans for this large slice of the pie is quite significant. This market will continue growing at an increasingly fast rate. Tourism will also pick up where it left off in 4Q2018 and will do quite well this year.

Who will have a challenging 2019? Businesses that are heavily dependent on imported inputs will continue to suffer. The banking sector will also suffer somewhat with the new tax treatment of income from treasury bills; many banks are investing significant portions of their balance sheets in T bills, and their profitability will take a hit with the new treatment. Obviously, number three is real estate; there is an oversupply in the market, recovering from that will take some time.

Good things have been done in terms of regulating the market, but we are a bit behind in other aspects. I am singling out digitization. We’re talking about an economy that’s looking at digitization to serve the underserved, right? We’re looking at mobile lending and payments, e-wallets, all of these nice buzzwords that everybody wants to use. I think we are not moving as fast as should be the case. If you look at places like Africa, for instance: Kenya, Uganda, Nigeria, and South Africa are all years ahead of us when it comes to digitization. So, there’s an issue there.

Egypt is going through a period of change. We’re starting to finally see this period bearing fruit. I am quite happy with Egypt versus other economies in the region; we’re growing faster than many of them, so I’m happy to be investing in Egypt. I look at other countries and see that Egypt, in terms of growth prospects, is better. When you find the Chinese coming to invest in Egypt, that should tell you something.

If I were to start a new business today, I would probably look at tourism. I don’t know anything about it, but I see there’s a massive opportunity going forward. I think Tourism Minister Rania Al Mashat has been doing a great job — she’s seeing the industry as a money maker, and she’s looking at the sector as a whole instead of just picking out bits and pieces. It is unfathomable to me that Egypt’s tourist arrivals fail to cross the 14 mn mark, whereas places with a fraction of Egypt’s population are getting more visitors.

Emerging market sentiment greatly impacts our industry: We depend a lot on EMs, in general. Our industry as it stands right now is significantly dependent on global money moving in and out of EMs. Whether Egypt is doing well or not is important, but at the end of the day, money is not going to come if EMs are not in the limelight. That’s the problem.