Meet Dame Minouche Shafik

Let’s kick off the day with some doom and gloom, shall we? Sentiment is a bit glum this morning as global markets face their first trading day of the week. The expectation is that key economic data due this week from the US and “other wealthy nations” including the UK, France and Canada could “enlighten the debate over whether the global economy is in the midst of a temporary dip or headed toward a more serious downturn,” the Wall Street Journal writes.

Asian markets aren’t waiting. They largely sat out Friday’s selldown (which saw the S&P 500, Euro Stoxx and MSCI EM all close down just shy of 2%), but they’re making up for it today: The Nikkei is down more than 3% this morning and shares in Australia and South Korea are also in the red, CNBC reports.

Closer to home: The House of Representatives will hold its final round of consultations on the proposed constitutional amendments today and Thursday, according to Ahram Online. The final amendments should be voted on within the House and ready for a national referendum by mid-April, Speaker Ali Abdel Aal said.

Foreign Minister Sameh Shoukry heads to Washington today to meet with his American counterpart Mike Pompeo, picking talks up where they left off during Pompeo’s January visit to Egypt, according to a ministry statement.

It’s day two of the World Tourism Organization’s regional meeting in Cairo. Tourism Minister Rania Al Mashat spoke yesterday on the need for the industry to modernize, empower women and embrace sustainability, Ahram Online reports. Al Mashat also confirmed that the ministry would abide with a court ruling that overturned a recent government decision to increase umrah fees.

The Cityscape Egypt real estate conference continues today. The associated expo runs Wednesday-Saturday.

Swiss Foreign Minister Ignazio Cassis is in town for talks as he delivers a speech at an event marking 110 years of Swiss-Egyptian trade, Egypt Independent reports.

Also happening this week:

• It’s interest rate week as the central bank decides on Thursday what to do with interest rates. Our poll this month has six of 10 economists projecting a rate cut of 50-100 bps. The CBE’s overnight deposit rate is 15.75%, while its overnight lending rate is 16.75%.

Uber’s USD 3.1 bn Careem takeover is imminent: Uber is about to buy regional rival Careem with a final agreement expected today or tomorrow, the FT reports. Two sources told the paper that Uber would buy out its Dubai-based competitor for USD 3.1 bn — a substantially larger sum than the USD 2 bn valuation bandied about last year. Bloomberg also has the story.

Look for comment today from the Egyptian Competition Authority, which has threatened fines of EGP 500 mn for each of the two companies if they go ahead with the merger, claiming it would be anti-competitive. Fines equivalent 1.9% of the value of a USD 3.1 bn merger for a multinational that’s faced challenges getting traction in many EM? Not a bad price to pay, as one of the smartest PE guys we know suggested recently. ECA chief had a colorful no-comment for Al-Mal yesterday.

Dominating headlines in the west this morning: The verdict of the Mueller investigation is out. The two-year investigation into The Donald’s links to Russia has found that neither the president nor his campaign colluded with Russia in order to sway the 2016 presidential election, the New York Times says. He “did not find that the Trump campaign or anyone associated with it conspired or co-ordinated with Russia in its efforts to influence the 2016 US presidential election,” US attorney-general William Barr wrote in a letter to Congress. Trump was ecstatic. Democrats weren’t.

Every international outlet you can name is picking this up: The FT, the WSJ and The WaPo.

Also worth knowing about this morning:

• Erdogan is promising to go after bankers including JP Morgan for allegedly having tanked the TRY, promising they will “pay a heavy price” after upcoming elections. Bloomberg and the FT have the story.
• Ambitious economic reforms in Saudi Arabia are taking a toll, with big names including Almarai and Fawaz Abdulaziz Alhokair facing challenges on the back of slowing demand and increased costs, the WSJ says.
• The outlook for Britain’s financial sector is the worst since the 2008 crisis, according to a survey that found business falling off a cliff at the country’s 84 top financial firms, Reuters reports.

Apple is holding an event at 7pm CLT at which it’s expected to unveil its streaming service. Watch it here.

No major story dominated the airwaves last night. Suez Canal Authority boss Mohab Mamish led a visit to the Suez Canal Economic Zone yesterday that included a delegation from the House of Representatives’ Industry Committee. The delegation visited various factories and projects, including glass and steel factories as well as the Chinese zone and the Ain Sokhna port. Al Hayah Al Youm had the story (watch, runtime: 01:54).

A recent Business Insider report that listed Egypt as the number one destination bn'aires are traveling to in 2019 also earned some airtime on Al Hayah Al Youm (watch, runtime: 03:05).

In related Egypt-is-Awesome news:The Tutankhamun exhibition in Paris opened its doors to visitors yesterday, attracting more than 300 reporters who showed up to view the 150 pieces on display, Antiquities Minister Khaled El Anany told Al Hayah Al Youm (watch, runtime: 02:20).

Meanwhile, Education Minister Tarek Shawki defended the on-trial electronic system for student exams to El Hekaya’s Amr Adib (watch, runtime: 24:29) after a glitch raised concerns among the public. Shawki also made an appearance on Masaa DMC to discuss the issue, as well as efforts to avoid future problems with the new examination system (watch, runtime: 05:48).

National minimum wage could rise by a third: The government could raise the national minimum wage to EGP 1,400-1,600 a month, from a current EGP 1,200, unnamed government sources said, according to the local press. The exact increment has yet to be determined, but will likely range between 17-33%, the sources say. Also under consideration is doubling the annual raise increment stipulated under the Civil Service Act to 15%, up from a current 7.5%. A committee studying the increases should complete its work within a month. President Abdel Fattah El Sisi instructed his ministers to implement the wage changes as of the first day of FY2019-20. Plans to raise the national minimum wage come after El Sisi discussed potential wage increases during a meeting last week key members of Cabinet.

It’s about time. None of us like rising costs — we run a business, too — but EGP 1,600? Is even that a liveable minimum wage? Argue about how many bureaucrats we really need. But don’t argue that an EGP 1,600 minimum wage is unreasonable in the private or public sector.

What is this going to do to the national budget? Rising expenditure on public wages is unlikely to widen the state budget deficit, since the ongoing reform program should see a new wave of subsidy cuts, which would allow some breathing room. A government source had told us earlier this year that the draft FY2019-20 state budget sees public wages accounting for EGP 294.9 bn of total spending, up from EGP 266 bn in the current fiscal year. Former Finance Minister Amr El Garhy had said last year that every EGP 10 addition to civil servants’ wages would increase costs to the state budget by around EGP 3.5-4 bn.

This comes as the Finance Ministry expects to finalize the upcoming state budget by next week, Minister Mohamed Maait tells Al Masry Al Youm. A preliminary draft of the budget forecasts GDP growing at a 6% clip and the budget deficit narrowing to 7.2%.

Background: The planning and finance ministries had been looking at a potential amendment of the national minimum wage in August 2017, but appear to have shelved these plans. Sources said at the time that any change would affect both the public and private sectors.

Gov’t agrees to set 0.25% healthcare tithe for tourism companies on commission earned: The government has agreed to calculate the 0.25% healthcare tithe for companies in the tourism industry based on the commission these companies earn on certain products and services such as airline tickets, rather than overall revenues, Al Shorouk reports.

Background: There’s plenty of lobbying happening here, folks. A government official had told us last week that the ministry is considering making the levy on all companies a fraction of net profit, not revenue. The state’s EGP 600 bn health insurance plan mandated under the Universal Healthcare Act will be rolled out incrementally throughout Egypt over the course of 11-13 years, but the Finance Ministry is expected to start levying a designated tax to fund the scheme during the current fiscal year.

M&A WATCH- Delek looking to buy stakes in Egypt’s Damietta, Idku plants? Israel’s Delek Drilling is considering acquiring a stake in Egypt’s Idku or Damietta LNG facilities as part of its plans to “broaden its export footprint,” the company said in its annual report yesterday, according to Bloomberg. Delek is also looking into the possibility of “buying capacity at the plants rather than equity stakes, or enrolling their gas liquefaction services.” The move, in whatever form it takes, would be a key step in allowing the Israeli company to begin exporting gas beyond Egypt and Israel. Reuters also had the story.

Background: Delek Group and Noble Energy, which operate the Tamar and Leviathan gas fields, had bought last September a 39% stake in the East Mediterranean Gas (EMG) pipeline with Egyptian partner East Gas, with an eye to sell Tamar and Leviathan gas to Egypt through EMG. Delek Group controlling shareholder Yitzhak Tshuva had also hinted in November that the company is looking to sign further agreements with Egypt “for local needs and liquefaction facilities.” In the time since, doubt has been raised over the capability of Israel’s domestic pipeline infrastructure to handle the quantity of gas agreed in last year’s USD 15 bn gas agreement, which sources said earlier this month has postponed the first shipment of Israeli gas to Egypt to mid-2019.

M&A WATCH- Bank Audi to make bid for NBG’s Egypt arm within a week: Bank Audi has completed due diligence on the Egyptian unit of the National Bank of Greece (NBG) and is planning to make a bid within a week, Al Shorouk reports. The Central Bank of Egypt had granted Bank Audi the green light in January to move ahead with the due diligence. NBG, which owns 17 branches in Egypt, had decided to exit the market last year as part of a wider plan to reduce its overseas presence under an EU-supervised restructuring.

EXCLUSIVE- Government mulls using coded stickers on all imports to curb customs, tax evasion: The government is considering using band rolls, a special type of coded sticker, on all imported products to combat customs and tax evasion and ensure quality standards, a government official told Enterprise. Band rolls have been used on alcohol and cigarettes for a few years, which our source tells us helped curb evasion. According to our source, the band rolls are made of three layers and have a watermark that cannot be forged to ensure the authenticity of the sticker. Using band rolls on electronic products is under study as the first step, with an eye to expanding to all types of imported products, our source says. The move is part of the government’s plans to raise taxes from VAT to EGP 500 bn within two years.

The Mortgage Finance Fund (MFF) will receive c.USD 60 mn from the World Bank this June, Chairman Mai Abdel Hamid told reporters yesterday on the sidelines of the Cityscape Egypt conference. The disbursal comes as part of a c.USD 500 mn loan, of which USD 250 has already been received. The MFF has asked the World Bank for an additional USD 500 mn loan, Abdel Hamid said, expecting it to be approved in July.

CABINET WATCH- Cabinet approves draft law to fight substance addiction among civil servants: The Madbouly Cabinet last week approved a draft law relating to substance abuse among civil servants, taking into account notes from various ministries, it said in a statement. The new draft law requires all civil servants to be prepared for on-the-spot drug tests and expect tests in order to be hired or continue in their position. Civil servants who are found to deliberately avoid the tests could be dismissed from their positions.

REGULATION WATCH- GAFI has new rules on how it allocates land to new projects, Al Mal reports. The formula makes explicit how legal standing, capital, investment costs, technology used, employment opportunities, target export rates, purpose and expansion destinations come into the mix. Companies granted land will have to hold those factors constant for at least two years after the agreement date.

EXCLUSIVE- Our sit-down with Dame Nemat “Minouche” Shafik: Dame Nemat “Minouche” Shafik — director of the London School of Economics and one of the global rock stars of economics (official bio) — was at the American University in Cairo last Wednesday to give the Nadia Younes Memorial Lecture. And if you are an economics nerd living in Cairo and missed it, you must feel like a Red Hot Chilli Peppers fan who just couldn’t make it to the Pyramids a couple of weeks ago. Her talk explored some of the fundamental concepts that impact societal and economic growth, including social mobility, education, the role of women in the workplace, and technology. We sat down with Dame Minouche after lecture for a quick chat courtesy our friends at AUC.

Key takeaways from the Nadia Younes Memorial Lecture:

• The squeezing of the middle class: Inequality in Egypt is low when compared to other nations, thanks in part to the social safety net programs like Takaful and Karama. But while the gap between the rich and poor is smaller, the middle class is shrinking thanks to cuts to subsidies and public sector employment. While services such as health and education are still free, quality is falling.
• The “nouveau poor”: Downward mobility in Egyptian society is exceeding that of the upward mobility.
• Tackling social mobility: Research shows that the first 1,000 days in a child’s life are crucial, so factors like access to healthcare and food quality are essential. Then comes access to high quality education that exposes them to new ideas.
• Untapped Einsteins: Research also shows that patents from inventors from poorer communities are fewer than patents from those from richer communities. “There are mns of untapped Einsteins out there” who were not able to make it because they were not given the opportunity.
• Quality education is needed to adapt to tech changes such as automation. Universities should focus on skills such as analytics and emotional maturity.
• The Egyptian economy could grow 60% if women were given their due. Despite women graduating at higher rates than men, women only make up 16% of the workforce.
• There is no glory in the 40-hour work week. Part time work needs to be more normalized.
• How do good leaders manage uncertaintt? Equal parts preparation and flexibility when things do not go according to plan.
• Cryptocurrency is all hype.

And now without further ado, we give you our exclusive sit-down with Dame Minouche.

Enterprise: On the state of the future of economic development, how far have emerging markets come towards tackling issues such as climate change, income inequality, and gender parity? Are emerging markets doing enough to address these?

Nemat Shafik: I think emerging markets have come a huge way over the decades and that’s clear. There are a set of new challenges around tech change that will raise a new set of challenges. I think the traditional transition through manufacturing as the way to grow and go from a low middle-income country to a middle-income country and then to an advanced economy will alter because of automation and technology. Countries will have to think about ways to leap frog or to do things differently. Also, a lot of manufacturing is likely to return to advanced economies, because it’s really about capital now and not labor costs. And I think EMs and developing economies will have to find their niches in this new set up.

There are some big opportunities and I think the export of services has now become possible in a way we couldn’t have imagined before. So countries like India have built a market capability on exporting computer technology. Even things like architectural services now. You can have an architect mns of miles away design your house for you. So I think you can create opportunities, but that is a different development strategy than it used to be.

E: Are countries prepared for changes including automation and robotics? Are they moving in the right direction?

NS: I think this varies hugely by country. Some countries are beginning to think about the path to the future, while others are still operating on the old model and thinking that traditional manufacturing is the way to go.

Technology both displaces jobs but it also creates jobs. I am not a techno-pessimist. I don't think we’ll all be put out of work. I think new jobs will emerge and the question will be, which countries will create an environment for these new jobs to flourish.

I think competition is hugely important. If you have lots of state-owned enterprises or monopolistic firms, they will thwart innovation and will thwart those new jobs emerging. So I would be very wary of that. And I think creating a level playing field is important for those technologies that exist now so they face competition themselves (just like the debate you’re seeing globally on antitrust and Facebook and Google). If we don’t create real competition, the impact of automation will be job-reducing, while if we allow competition we’ll get a lot of job creation as a result of technology.

E: What trends in technology do you see having the biggest impact on the global economy?

NS: I think Big Data is changing everything, from services, to marketing, to medicine. I think there’s a huge opportunity there. Also, machine learning.

E: Of the myriad issues facing the global economy today, such as Brexit, the US-China trade war, income inequality, rising trade barriers, etc, which do you see is the most pressing for emerging markets and globally?

NS: From a global prosperity perspective in the near term, I think the biggest issue is finding a new agreed set of international trade rules that would create a level playing field, including for China. A trade war would be hugely damaging for the global economy. I think there is a solution where China needs to open up some of its domestic markets, and no longer rely on the fact that it is classified as a developing economy under World Trade Organization rules. And I think it also requires that countries back down from the recent tariffs imposed on China. I think there is [an agreement] to be struck, but I think the question is whether the negotiators are wise enough to find that path. I think in the near term that is the biggest issue.

I should also say that in the medium longer term, climate change will have huge economic consequences, and we’re already seeing it. I think for the first time people in their daily lives are seeing the costs of serious weather changes (eg. rationing water, the damage in infrastructure by shocks from weather). It is one of those issues where there is a shift in public mood and a willingness to tackle the issue. And I think even though it feels like a distant future, we’re feeling the consequences now and I hope that will galvanize leaders to act.

E: What are the most interesting trends you are seeing now in global investment?

NS: The two big new drivers are tech and climate. And there are lots of innovative new responses to climate, be it innovative energy or building materials that are more climate friendly, including innovative food production systems that are less environmentally damaging and are carbon-reducing. So I think those phenomena of digital and green are cutting across everything from food, to medicine, to education.

E: There is a debate in Egypt now on including the informal economy into GDP. Do you think that is sound policy?

NS: There have been attempts in the past by many countries to try and estimate the size of the informal economy, but the problem is that by definition it is informal, it is hard to measure. So the reliability of the data is just very poor. I think what I would focus my attention on is reducing informality itself. Why are all these firms informal? Why don’t they come into the formal system? What are the obstacles and how can you increase formalization? Informality is bad for productivity. These firms can’t get access to credit, they don’t participate in the social safety net, and there is probably some very clear policy reasons why they stay informal and tackling that is much more useful.

E: How do you see the role of multilateral organizations such as the IMF and World Bank in this turbulent economic climate? Should they reassess their standard economic medicine?

NS: I do think they need constant renewal of their intellectual framework. And as the economy changes, and as we have these very big new trends like digital, we need to adjust how we think about things and I think that’s a constant process.

The other issue that’s particularly problematic at the moment is the governance of those institutions and how can they modernize their governance to maintain a global consensus. And at the moment when you have the US and China at loggerheads, it’s very hard to have an effective international system. And I am a huge believer in the importance of those institutions for keeping the world economy stable and prosperous, so i think we need to tackle that issue of governance squarely.

E: What challenges did you face as a woman and as an Egyptian rising to the apex of the economic world?

NS: I’m sure I faced the same challenges that many working women faced. Everybody (especially when you’re younger) has issues with being listened to, having their views taken on board, when your male colleagues get more of a hearing that you do. I faced all these things. I really do think things are changing, and I think that’s because there are so many capable young women now. And they’re so much more aware of their rights, what they can do and what their capabilities are. And their expectations are different. I think the policies in the workplace have not caught up with their expectations and the support systems they need like having access to good childcare and maternity leave so they can have families and still be employees, that needs to catch up with their ambitions and expectations. But I think this generation of younger women will demand that change and I really do believe we are on the cusp of a major transformation in terms of women’s economic and political roles, and so I'm really excited to see what they do.

Sherine’s ban continues to top coverage in the foreign press: The Musicians’ Syndicate’s ban on singer Sherine Abdel Wahab for her critical comments over the weekend continues to dominate Egypt’s coverage in the foreign press. Haaretz, the Guardian, the Daily Mail, the National, and Japan News all took note. Abdel Wahab took to the airwaves on Saturday to appeal to President Abdel Fattah El Sisi for an intervention on the ban (watch, runtime: 1:29).

Other headlines worth noting:

• The “unusual” three-way summit between the leaders of Egypt, Jordan and Iraq is attracting coverage, with the UAE’s The National saying that the decision to meet “shows a level of pragmatism that is not common in the Arab world.”
• Egyptian-Israeli peace treaty turns 40: AFP takes a trip down memory lane to recap the history behind the Egyptian-Israeli peace treaty, which was signed in Washington in 1979.

El Sisi meets Iraqi and Jordanian leaders to talk cooperation: A tripartite summit between President Abdel Fattah El Sisi, Iraqi PM Adil Abdul-Mahdi and Jordanian King Abdullah topped the front pages of all three state-owned newspapers this morning (Al Ahram | Al Gomhuria | Al Akhbar). Discussions between the three state leaders included forming a strategy to confront regional obstacles and restore stability.

President Abdel Fattah El Sisi yesterday welcomed Iraqi PM Adil Abdul-Mahdi and Jordanian King Abdullah for economic talks, according to a presidential statement. The leaders discussed developing joint industrial zones, increasing cooperation in energy and infrastructure, and increasing joint investment, trade and cultural ties.

Prime Minister Moustafa Madoubly met with administrator of the US Agency for International Development (USAID) Mark Green yesterday alongside Investment Minister Sahar Nasr to discuss strategic cooperation and establish developmental priorities for Egypt, according to a Cabinet statement.

MTI Holding is in talks with its international partner Whirlpool to manufacture the latter’s full range of Whirlpool-branded home appliances in Egypt in 2020, General Manager Ghada Omran tells Al Mal. MTI has already begun assembling Whirlpool washing machines in a EGP 150 mn facility, we noted earlier this month. The company currently assembles the machines with a minimum of 25% domestic content, but plans to raise this figure to 45% in six months, Omran added. MTI will earmark its output for export to Morocco, Jordan, Palestine, Tunisia, Algeria, Saudi, Libya, and Iraq, before year-end.

Real estate developer Emaar Misr is still negotiating with authorities over paying fees levied after it changed the purpose of a land plot in Sheikh Zayed to housing, the company said in a bourse filing. The company denied a report by Al Mal newspaper that said the ownership of 80 feddans, which equals 50% of the plot’s total area, was revoked.

The European University in Egypt is in talks with banks, including Banque Misr and the National Bank of Egypt, for a EGP 750 mn loan, Al Mal reports. The university, located in the new administrative capital, will use the funds for the construction and operation of its first phase, which is set to be inaugurated in the coming academic year.

The Arab African International Bank (AAIB) is looking to arrange a EGP 1 bn joint loan for EGX-listed Middle East Glass Manufacturing Company, banking sources told Al Shorouk. The company is planning to use the proceeds to fund expansions to its glass containers factory.

The Suez Canal Authority (SCA) has reportedly reached an agreement with the Finance Ministry that will see the ministry paying off the USD 600 mn the authority owes to state-owned banks, Al Shorouk reports. Under the agreement, the authority will pay off the remaining USD 300 mn it owes to the banks on its own. The SCA has reportedly fallen behind on its repayments since December 2018, with each instalment due six months apart.

Raya Holding’s Aman for Microfinance is planning to double its capital by year-end to EGP 100 mn, Aman’s CEO Ahmed El Khatib said, according to Al Mal. The increase is part of its expansion strategy, as the company is planning to raise its loans portfolio to EGP 500 mn and set up 30 new branches.

The Industrial Development Authority (IDA) and the Customs Authority are set to form a committee tasked with resolving investors’ problems related to customs and imports needed for manufacturing, Al Mal reports. The committee would meet on a weekly basis to review these cases, and would be required to resolve them and put forth suggestions to avoid further issues.

The Transport Ministry has liquidated the Egyptian Company for Ports and Dry Ports for incurring EGP 13 mn in losses since it was formed in June 2017, a source told Al Mal. The company also failed to join one of the bidding consortiums to build the USD 100 mn 6 October dry port, despite competing for the project being one of the chief reasons the government had founded the company in June 2017. The company was 85%-owned by the General Authority for Ports and Dry Ports and 15% by Al Ahly Capital.

Emerging markets telecom operator Global Telecom Holding (GTH) has postponed to 26 June its general assembly meeting to vote for a capital increase of EGP 11.2 bn through a rights issue on the bourse, according to an EGX disclosure (pdf). The company said this came after majority shareholder Veon Holdings rescheduled debt repayments scheduled for May. This is the second time GTH has postponed the meeting.

Lawyer Samir Sabry has called for the closure of the BBC office in Egypt in response to recent “biased” coverage, Egypt Today reports. The BBC hosted an Egyptian officially listed as a terrorist on Friday, prompting criticism from the Egyptian government. The State Information Service has demanded a formal apology from the broadcaster, which it says is becoming a propaganda tool.

The Finance Ministry, the Central Bank of Egypt, and Misr for Central Clearing, Depository and Registry (MCDR) will establish next month a new company that will handle all the clearing and registry of government debt issuances, as well as collect taxes from these issuances, Al Mal reports. The company will be operational before June.