Incentives for mid-sized businesses to go legit?

Forty years ago today, we made peace with Israel as President Anwar El-Sadat and Israeli PM Menachem Begin signed a peace treaty in Washington, DC. Two generations of children have been spared war as a result. Check out the New York Times’ coverage from the day the treaty was signed, go look at this great collection of behind-the-scenes shots of Sadat and Begin, newly released by the National Library of Israel, or view the Jerusalem Post’s collection of images from the day two months later that Sinai was returned to Egypt.

Back in the present day: Bulgarian President Rumen Radev and a delegation of some 30 companies are in Cairo today for business talks, Egypt Today reports.

Lest you need a reminder: it’s interest rate week as the CBE’s monetary policy committee meets on Thursday to decide on benchmark rates. Adding new predictions from leading research houses to our poll of analysts, we now count seven of 11 houses as calling a rate cut of up to 100 bps.

The counterpoint: A Reuters poll yesterday had eight out of 12 economists expecting the central bank to keep rates unchanged. The CBE’s overnight deposit rate is 15.75%, while its overnight lending rate is 16.75%.

A random thought that should have corporate Egypt crossing its fingers ahead of Thursday’s decision: Inflation has fallen to a 10-year low in emerging markets, prompting many central banks to cut interest rates “in a sharp reversal of last year’s trend.” In other words: If there’s a cut this week, it may not be the worst thing in the world for our attractiveness to the carry trade. And this at a time in which “the yield curve between [US] two-year and five-year notes inverted further than it had been and is now approaching levels at which the Fed has in the past cut rates.”

Also happening this week:

• Constitutional debate wraps on Thursday: The House of Representatives will hold its final round of consultations on proposed constitutional amendments on Thursday. The amendments would extend presidential terms and bring back the upper house of parliament, among other things, if they pass in a referendum expected as early as mid-April.
• The expo component of Cityscape Egypt runs Wednesday-Saturday.

It was a mixed day in the markets yesterday: European and US markets steadied yesterday following Friday’s sell-off, with most key indices finishing only slightly in the red. German business confidence data exceeded expectations, easing losses on some indices and contributing to modest gains in others. This has led the FT to suggest that investors panicked too much about the possibility of a global recession last week.

EM and Asian investors were unimpressed: The MSCI Emerging Market Index fell 1.2% yesterday, continuing a slide that began on Friday. The EGX followed suit, down 1.2% at the closing bell yesterday. Asian markets are all over the place this morning: Markets in China and Hong Kong are off about 2%, while the Nikkei is up 1.6% at dispatch time.

Things on our mind (or that we simply like) this morning:

Oil majors want to become utilitiesas “technology and climate change force energy providers to rethink their strategies,” the FT tells us. The piece was prompted by news that Royal Dutch Shell is rebranding its retail power business as Shell Energy and will switch 700k households to renewable power.

Asian economies will be bigger in 2020 than the rest of the world combined, the Financial Times says, predicting that the “Asian Century” effectively begins next year.

Hey, look at me. I’m a venture capitalist in the New York Times on how VCs are discovering the joys of traditional PR as they look to claim a piece of the hype surrounding the many upcoming tech listings such as Airbnb, Pinterest, Uber, Lyft, Postmates, Peloton and Slack.

Apple announced a TV app, news app, gaming service and credit card at its event last night. The news is front-page everywhere this morning (FT | WSJ | Reuters | Bloomberg | the Verge | iMore) or you can learn more about Apple TV+, Apple News+, Apple Arcade and Apple Card.

We’re not sure we like it, but as inveterate Jeep people, the new Gladiator certainly caught our attention. Check out reviews (from late last year — we’re late to the party) from Car and Driver and Top Gear.

Among the handful of international news stories worth knowing about today:

• The Donald de facto green-lit an Israeli annexation of the Golan Heights yesterday as he signed a proclamation with Israeli PM Bibi Netanyahu recognizing Israeli sovereignty over the Syrian territory, the NYT reports. Arab League Secretary-General Ahmed Aboul Gheit denounced the move, saying that US actions do not change the area’s status under international law.
• Nike got slapped with a EUR 12.5 mn fine by the European Commission yesterday for blocking cross-border sales of branded merchandise belonging to different European football clubs, Reuters reports.
• Lawmakers in the UK have voted to take Brexit out of the hands of PM Theresa May, narrowly voting to allow MPs to “set a timetable for debate and subsequent votes on alternative outcomes for Brexit,” CNBC reports.

PSA- Go cook something from the NYT’s recent In Praise of Sauce. We’re debating between roasted chicken thighs with peanut butter barbecue sauce and broccoli and scallions with Thai-style vinaigrette.

A cabinet infographic highlighting positive economic indicators stole the show on the airwaves last night: Al Hayah Al Youm’s Lobna Assal drew attention to the investment figures, which showed that total public and private investments in reached EGP 721.1 bn in FY 2017-18, up from EGP 514.3 bn the previous year. Foreign direct investment, meanwhile, jumped 84.7%, reaching USD 7.72 bn in FY 2017-2018, up from USD 4.18 bn in FY 2013-2014 (watch, runtime: 04:02).

Why do these numbers matter? Investment means job opportunities, higher GDP and higher incomes, economist Abdel Moneim El Sayed said on Hona Al Asema (watch, runtime: 04:35).

Investment isn’t the only indicator to see improvements: A recent Fitch Ratings report, upgrading Egypt’s long-term foreign-currency issuer default rating to ‘B+’ with a ‘stable’ outlook also earned some airtime last night on Amr Adib’s El Hekaya (watch, runtime: 05:10).

‘Tis the season: The Tax Authority is making its employees work late hours until the end of this month to meet its deadline for finalizing individual tax returns, Hona Al Asema’s Lana Gebril said (watch, runtime: 01:24). Turnout to file tax returns has seen a 20% increase this year compared to last year, Deputy Head of the Tax Authority Mohamed Maher Shehata told Gebril (watch, runtime: 03:46).

EXCLUSIVE- Gov’t closing in on tax incentives to convince medium-sized enterprises to go legit: The finance and trade and industry ministries are approaching an agreement on tax incentives for medium-sized enterprises to encourage them to join the formal economy, a senior government official told us. These entities — which the SMEs Act would define as outfits with capital of between EGP 1 and 100 mn — could be required to pay as little as half the taxes they owe from before going legit. The act would also streamline the process of acquiring licenses to encourage more businesses to join the formal economy, our source said.

We obviously think this is really smart policy and hope lawmakers agree.

So how will medium-sized companies be taxed? Companies with capital of between EGP 1 mn and EGP 20 mn will be required to pay 50% of taxes owed retroactively with a cap of EGP 200,000. The cap for companies with capital between EGP 20 mn and EGP 50 mn would be set at EGP 400,000, while the cap for those with capital between EGP 50 mn and EGP 100 mn would be set at EGP 800,000.

And what about after they go legit? Companies that are incorporated would pay the standard 22.5% tax on profits, while businesses running behind individuals would be subject to the standard progressive income tax system.

Small and micro enterprises could get separate incentives, as we previously noted. These could include forgiving back taxes when going formal and only paying a flat tax and raising the minimum required revenue to register for VAT. The Finance Ministry has concluded drafting the act and will review it before putting it up for public debate ahead of introducing it to the House of Representatives.

FinMin to announce final specifics of healthcare tithe this week: The Finance Ministry will announce this week its final framework for the 0.25% levy businesses will be required to pay this year to finance the national healthcare system under the Universal Healthcare Act, according to a domestic press report citing unnamed government sources. Among the questions the business community will be looking to have answered:

• Whether the levy is on the top or bottom line
• Whether it is tax-deductible (in the event it is a levy on the top line)
• The basis of calculation for specific outliers

The big one is whether the levy is on the top or bottom line. The current setup would require the companies to pay a 0.25% tithe on top-line revenues, but word on the street is the government is considering amending the Universal Healthcare Act to make the levy on net profit instead.

Background: The state’s EGP 600 bn health insurance plan will be rolled out incrementally over the course of 11-13 years, but the ministry is expected to start collecting taxes (including the 0.25% tithe) to fund the scheme this fiscal year.

M&A WATCH- Investec is doing due diligence on Spinneys Egypt ahead of a potential acquisition, Al Mal reports. If concluded, the transaction would be Investec’s first acquisition in Egypt. Five private equity firms, including Ezdehar, had been looking to acquire Spinneys from Abraaj Group following the PE giant’s collapse last year.

Advisors: Pharos Holding was said in September to have been sell-side advisor on the transaction, with Matouk Bassiouny reportedly on board as legal counsel.

DISPUTE WATCH- Petroceltic files for arbitration over dispute with EGPC: UK petroleum company Petroceltic has filed an arbitration case against state-owned Egyptian General Petroleum Corporation at the World Bank International Center for Settlement of Investment Disputes, the company said in a statement. Petroceltic said last month that is was planning to call for arbitration over USD 30 mn in overdue payments. However, the company has expanded its list of grievances in its latest statement, claiming that its investments have not been given fair treatment and that it has not been able to dispose of them due to “unreasonable and discriminatory” actions on EGPC’s part. “We do not think we are being treated fairly and this is a clear contravention of the agreements entered into by the UK and Egyptian governments,” Chairman Angelo Moskov said. “The present situation is unacceptable and needs to be resolved as a matter of urgency.”

LEGISLATION WATCH- House okays tougher punishment for inciting terrorism: The House of Representatives’ Constitutional Committee has agreed to an amendment to the Anti-Terrorism Act that steps up punishment for inciting terrorism to 10 years in prison, Al Dostor reported. The amendment applies to incitement made via verbal, written or other means, including social media platforms. It also stipulates that those who incite terrorism at worship houses, government entities, in public spaces or against members or property of the army or police would face at least 15 years in prison. The Madbouly Cabinet approved last month proposed changes to the Anti-Terrorism Act that aim to cut off sources of funding to terrorists and confiscate their assets.

You’re going to need to slap a new, electronic sticker on your car: Traffic authorities will require vehicle owners to put an EGP 50 electronic sticker (presumably an RFID thing) on their cars when they renew vehicle licenses or license a new car, an unnamed source tells Al Mal. The sticker encodes each vehicle’s data and is meant to help monitor traffic violations and reduce car theft. Cabinet had previously introduced amendments to the Traffic Act that would set new rules for licensing and hike fines for traffic infractions, as well as require the installation of a GPS tracker as a condition for licensing four-wheel drive vehicles.

The government is mulling setting up a fund to support mortgages for middle-income earners, according to a cabinet statement released following a meeting yesterday between Prime Minister Moustafa Madbouly, Central Bank Governor Tarek Amer and Housing Minister Assem El Gazzar. The suggestion for the fund was well received at the meeting and the PM has asked relevant officials to prepare a detailed vision for it, the statement added.

EARNINGS WATCH- Pioneers Holding’s net profit, revenues rise: Pioneers Holding reported a net profit after minority interest of EGP 1.23 bn in 2018, up from EGP 1.14 bn last year, according to an EGX disclosure. Revenues for the year were up to EGP 8.46 bn from EGP 8.24 bn in 2017.

Green bonds: An explainer: The Egyptian government is considering its maiden green bond issuance at a time when the nascent asset class is gaining global popularity. The World Bank issued the first ever green bond back in 2007 in a move it claims has “fundamentally changed” the relationship between investors, climate scientists and policymakers by reorienting the capital markets towards sustainable development projects. After a slow rate of issuance in 2018, Moody’s predicted in January that USD 200 bn worth of green bonds will be issued this year, citing greater involvement by US non-financials and policymakers’ increasing attention towards sustainability. Bloomberg is out with an explainer giving us the lowdown on how this eco-friendly asset class functions.

How do green bonds work? Green bonds finance specific projects that are designed to have a positive environmental impact. Businesses in industries including energy, transport, construction and water can all issue green bonds. The definition of what is and isn’t ‘green’ can be ambiguous due to the absence of any internationally-recognized standards. China, for example, currently includes so-called ‘clean coal’ in its green bond standards (something that may soon be changing) while the EU does not. Investors do not generally sacrifice returns by choosing green bonds: most carry an investment grade credit rating and are priced similarly to normal bonds. Prices may actually be more favorable than conventional debt in the secondary market due to their relative scarcity.

In the international press this morning: Egyptian prosecutors have referred 28 suspects to court in two separate cases on charges of joining local affiliates of Daesh and Al-Qaida, after allegedly plotting attacks against security forces and the high state prosecution headquarters in Cairo, reports The AP. Of the 28 accused, 17 are in custody but no date has been set for the trial.

Also making the rounds:

• Human rights: The events surrounding Malak El-Kashef, a transgender woman arrested earlier this month and now being detained in a men’s prison, puts the spotlight back on LGBTQ rights in Egypt, says Haaretz.
• Egypt is attempting to revitalize its once great cotton industry through the introduction of modern machinery and upgrading 11 plants. The Arab Weekly explores the effects such changes may have on demand for extra-long staple cotton.
• Proximity unites people, apparently: The Arab Weekly views the densely populated Shubra district of Cairo stands as a bastion of religious tolerance.
• A Forbes contributor features an interview with Egyptian travel blogger Yara Yehia, co-founder of YouTube channel “Hezaha w Safer.”
• Sudanese refugees in Egypt face myriad challenges and long to return home, Voice of Africa reports.
• It’s a long time to wait to be proven right: Archaeologists have confirmed the existence of a mysterious ship known as a baris, nearly 2500 years after ancient Greek historian Herodotus claimed its existence. Fragments of the unusually shaped boat were recently found near the ancient, sunken port city of Thonis-Heracleion, Art Net reports.

Egypt is committed to enhancing economic and security ties with China: President Abdel Fattah El Sisi’s meeting with Chinese Defense Minister Wei Fenghe topped the front pages of all three state-owned newspapers this morning (Al Ahram | Al Gomhuria | Al Akhbar). Egypt is committed to supporting China’s Belt and Road initiative and enhancing economic and security ties with Beijing, El Sisi said.

How did we come to accept paper (and now intangible crypto currency) as legit forms of payment? Although we all pay for products and services with our debit/credit cards or cash on a daily basis without a second’s thought, it has certainly crossed many of our minds how and when the human race began to place so much value in a piece of plastic or paper. The history of money doesn’t begin with actual paper bills: it began with barter and slowly evolved into ‘commodity money’ and specie (coins), which gave way to commodity-backed IOUs, transformed into ‘fractional reserve banking’ and credit money, moved all the way to abandoning the gold standard, and finally culminated in what we call today plastic or digital money. After trying countless systems and currencies and grappling with different theories, we finally came to accept money as “an idea, rather than a thing.”

Fun fact: ‘Shell money’ — in the form of cowry shells — not gold, is actually the most successful form of currency, and one that was used for the most expansive period of time. This six-episode season from YouTube-based web series Extra History runs through the history of money and similar interesting tidbits of knowledge. Start with the first episode (runtime: 8:14), and binge through the rest.

Egypt has brokered a ceasefire between Israel and Hamas which went into effect at 10PM yesterday, a Palestinian official told Reuters. Hamas media also confirmed the ceasefire, which brought a day of clashes to an end. Israel launched air strikes across the Gaza Strip after a rocket attack wounded seven people in central Israel.

President Abdel Fattah El Sisi met with the Chinese defense minister Wei Fenghe to discuss bilateral economic and security cooperation, according to a presidential statement. El Sisi pledged Egypt’s support for China’s Belt and Road initiative and spoke about the country’s ongoing infrastructure and energy projects. Defense Minister Mohamed Zaki met separately with Fenghe on Sunday to discuss how bilateral military and security cooperation can enhance regional stability, Ahram Online reports.

An Egyptian delegation travelled to Washington on March 20-22 to take part in the Egypt-US Military Cooperation Committee (MCC) meeting, according to a press release from the US Department of Defense. Delegations from the respective countries discussed counter-terrorism strategies, border security and opportunities for broader cooperation during the three-day meeting. The MCC is the primary forum for coordination of defense strategies between the two countries.

The government is in talks with Hassan Allam Holdings to construct two water desalination and sewage treatment plants at a cost of EGP 2 bn, according to the local press. Final studies are currently underway to determine the cost of selling the water to the government.

State grain purchaser GASC announced that they would be reverting to a delayed payment schedule on the upcoming wheat tender, fulfilling payments to suppliers within 180 days, a government source and traders told Reuters. GASC had made immediate payment on their January and February tenders this year, but the return to deferred payments will likely drive prices up for the upcoming tender, which is expected to take place later today for an unspecified quantity of wheat, according to Reuters Arabic service.

Egypt’s imports of wheat, corn and rice will increase by 0.8%, 1% and 25% year-on-year in MY2019-20, according to the US Department of Agriculture. The report forecasts wheat imports to hit 12.6 mn metric tonnes (MMT), corn imports to increase to 9.5 MMT and rice imports to reach 500k MMT in the next marketing year, which runs from July 2019 to June 2020. It notes that local production of wheat and corn will also increase by 4% and 6% respectively due to an increase in cultivated land. Local rice production will similarly increase by 7%, however, due to restrictions on cultivation of water-intensive crops, the production increase will be primarily driven by planting higher-yielding rice varieties.

Real estate developer Tatweer Misr has partnered with New Jersey Institute of Technology and Ocean County College — two American higher education institutions — for its planned American university project in Bloomfields compound in New Cairo’s Mostakbal City, CEO Ahmed Shalaby said, according to Al Shorouk.

Secondary school students across 26 governorates were unable to access their exams through the Education Ministry’s e-platform for two days in a row due to a system failure, AMAY reports. Minister Tarek Shawky said the problem was caused on the back of too much web traffic, since 2 mn tried to access a server designed to accommodate 600k.

Luxury real estate developer Palm Hills is considering purchasing a 100-200 feddan land plot in New Mansoura City under a public-private partnership, Real Estate Portfolio Director Tarek El Ghamrawy told reporters. El Ghamrawy did not disclose further details on what the developer intends to do with the land.

State-owned Holding Company For Tourism and two of its subsidiaries are planning to purchase the privately-owned Carnelia Beach Resort in Marsa Alam for USD 10 mn, sources familiar with the matter told Al Mal. The three companies set up a EGP 100 mn new company for the purchase, in which the holding company owns a 10% stake, and its subsidiaries the Egyptian General Company for Tourism and Hotels (EGOTH) and Misr Hotels own 45% each.

Telecom Egypt has reintroduced its voluntary early retirement program, and is targeting enrolling 2,000 of its employees this year, the company said in a bourse disclosure (pdf). Eligible employees who apply for the program can receive one-off and monthly cash payments, as well as three-year medical insurance plans for themselves and their families. The move is part of the state-owned landline monopoly’s plans to cut costs.

Snack maker Edita Food Industries is currently in talks with the International Finance Corporation (IFC) over a loan of up to USD 35 mn to finance the company’s operations and expansions in Morocco, and refinance part of its debt, Edita said in a bourse filing (pdf).

Administrator of the US Agency for International Development (USAID) Mark Green launched on Monday a new USD 37 mn farm productivity project called Feed the Future, PR wire APO Group says. The project aims to increase productivity across Egypt’s agricultural value chain. Green stressed that “helping our partners to improve agricultural productivity is one of our very highest priorities.” USAID also gave the University of Alexandria a USD 30 mn grant to develop a center of excellence in water research, making it the largest funded project in the university’s history, reports the local press. Green also met with Investment Minister Sahar Nasr to discuss projects to develop infrastructure and the social safety net in Egypt, according to an Investment Ministry statement.

Pioneers Holding is looking at a partial or complete exit from some of its 60 units, and plans to increase its stakes in some of its other subsidiaries to maximize shareholders’ value, Al Mal reports. The company is currently developing future plans of its subsidiaries. Pioneers is in the process of increasing its stake in Electric Cable Egypt to 90%, from a current 48.5%.

Egyptian singer Sherine has not been banned from performing overseas by the Musicians’ Syndicate, according to a source within the union, Egypt Independent reports. The artist is currently subject to a performance ban in Egypt following public comments she made last week.

Saturday evening saw the launch of the first clean energy cruise ship to travel between Egypt and Sudan, MENA news agency reports. Powered by wind energy, the four-level ship departed from Lake Nasser and is due to arrive in Wadi Halfa in northern Sudan tomorrow.