CBE leaves interest rates on hold

It’s the last day of the first quarter, ladies and gents, and we have just over a month to go before Ramadan.

It’s also shaping up to be a very busy week on the foreign policy front before a mad-scramble of business news kicks off — we find April and May are traditionally two of the busier months newswise, and you can expect a compression of the news cycle with Ramadan due to start on or about 5 May.

AmCham’s annual doorknock mission kicks off tomorrow in Washington, DC, and runs through Friday. Some 35 senior business leaders are set to meet members of Congress, officials in the Trump administration, media, think tanks and US business leaders. On the agenda: talks on investment and commercial issues. You can check out the list of delegates here, and we’ll have highlights from the road.

President Abdel Fattah El Sisi is heading DC on 9 April, where he will meet with US President Donald Trump to talk military, economic, and counterterrorism cooperation, the White House said in a statement on Friday. The two presidents will also discuss regional developments and “Egypt’s longstanding role as a lynchpin of regional stability.”

The announcement came as Foreign Minister Sameh Shoukry met with the House Appropriations Committee chair Rep.Nita Lowey as he wrapped up a two-day visit to the US capital, according to a ministry statement. Lowey and Shoukry discussed the US’ military aid program for Egypt, which The Donald’s outline for his 2020 budget suggests should remain intact. Shoukry also met with other members of Congress.

UN Secretary General Antonio Guterres is in Cairo tomorrow and is expected to meet with El Sisi as part of a Middle East tour that started in Tunisia on Friday, reports Ahram Online. Guterres’ main priority for the meeting is the situation in Libya, but his trip will see him pay a visit to Al-Azhar mosque and meet Grand Imam Ahmed Al Tayeb.

SIGN OF THE TIMES #1: H&M is apparently launching an online store in Egypt via its local franchisee, according to a brief mention in a longer story on the Swedish fast-fashion retailer’s ongoing global turnaround.

SIGN OF THE TIMES #2: It wasn’t a bad first quarter at all. The first quarter of 2019 has essentially been the antithesis of last year’s Emerging Markets Zombie Apocalypse for global stocks and key commodity markets, Reuters says. “It may seem a little incongruous when bond markets are screaming recession warnings, but it’s all good when the world’s two biggest economies are trying to mend their differences and major central banks are going all soft and cuddly again.” Key indices are soaring, oil prices have jumped 30%, and bonds are also seeing a strong quarter. Currencies — save for a few EMs — are on the mend, too, bringing together a “remarkable” set of conditions for the quarter.

The EGX30 is up 12.5% YTD heading into the last session of this quarter.

SIGN OF THE TIMES #3: It’s been a bad year for global M&A, with worldwide dealmaking activity year-to-date down 17% from the same period last year, according to data from Dealogic quoted by the Wall Street Journal this weekend. “Global political tension and slowing economies abroad” are to blame, the Journal suggests.

Why we’re not in a dotcom bubble: With a horde of US tech IPOs heading to market (provided said market holds up…), we’re not likely to see a repeat of the corporate flops of 1999, the WSJ suggests: Companies going public this time around are larger, older and (in many cases) have real business models.

Lyft went public this past Friday, with its shares finishing up nearly 9% in its Nasdaq debut. Workplace messaging app Slack, Uber, Postmates and Pinterest are all looking to follow suit this year.

Britain’s exit from the EU and the ongoing US-China trade dispute still pose threats to global trade. Bloomberg is out with some handy infographics showing which countries are most exposed to the deteriorating trade relationships between the largest economic blocs in the world.

In other international news worth knowing this morning:

• Saudi’s Aramco will be meeting with investors this week to sell its debut international bond. Proceeds will fund in part its USD 69.1 bn acquisition of a stake in chemical company SABIC. (Reuters)
• KSA allegedly hacked Amazon boss Jeff Bezos’ phone and gained access to private data. Bezos is also the owner of the Washington Post, which has been critical of KSA after the murder of columnist Jamal Khashoggi. (CNBC)
• Turkey is holding local elections today and the individual who runs the country could face a tough time with voters in Ankara and Istanbul, polls suggest. (Reuters)
• Facebook’s Mark Zuckerberg thinks the internet needs global rules on “harmful content,” election integrity, privacy and data portability, he writes in an op-ed for the Washington Post.
• Apple has cancelled its AirPower wireless charging mat in what is being called a “rare reversal.” (TechCrunch)

Jean Claude Van Damme will join Mike Tyson in making an appearance in the upcoming film “Hamlet Faron” (Pharaoh’s Campaign) alongside Egyptian actress Ruby. Van Damme is expected in Egypt on or about 10 April to shoot his scenes, according to Egypt Independent.

PSA- Look for a mix of sun and clouds and a chance of blowing sand today with a high of 20°C. The mercury will start rising tomorrow, climbing steadily into the low 30s by the weekend as our customary two weeks of spring end.

President Abdel Fattah El Sisi’s decision to raise wages for civil servants dominated the airwaves last night. Hona Al Asema broadcast the announcement, which will see the minimum salary for state employees rise to EGP 2,000 from EGP 1,200 starting 1 July (watch, runtime: 4:22). We have chapter and verse in this morning’s Speed Round, below.

El Hekaya’s Amr Adib also weighed in, saying the wage increase is the first of many to follow (watch, runtime: 3:15). He also spoke of an ongoing dialogue between the government and retailers to limit future price increases. The state will also increase the supply of meat, chicken, and vegetables ahead of Ramadan to contain inflationary pressures.

On a similar note: Member of the importers' division at the Federation of Egyptian Chambers of Commerce Ahmed Shiha claimed that the whole nation was taken by surprise by the wage increases during a phone-in with Masaa DMC’s Eman El Hosary (watch, runtime: 4:39). El Hosary questioned Shiha on the prospect of price hikes following the decision. Shiha reiterated the view that it’s up to the state to step in, promote competition, and control the prices of basic commodities.

Also getting some quality airtime on Masaa DMC was the completion of the Rod El Farag axis linking northeast Cairo with the Alexandria desert road. El Hosary hailed the project as the “the largest suspension bridge in Egypt and the widest in the world” (watch: runtime: 3:39).

Central Bank of Egypt surprises as it leaves interest rates unchanged: The Central Bank of Egypt’s Monetary Policy Committee (MPC) left key interest rates on hold last Thursday, going against expectations that it would cut rates by as much as 100 bps. The MPC left the overnight deposit and lending rates at 15.75% and 16.75% respectively and also left on hold its main operation and discount rates at 16.25%, the CBE said in a statement (pdf).

This wasn’t what (most) pundits were expecting: After last month’s surprise 100 bps rate cut, most economists had expected that last week’s meeting would see the central bank cutting rates again ahead of Ramadan, the next round of subsidy cuts, and the summer and back-to-school season. Buoyed by the unexpected gift of the US Federal Reserve’s signal that it was done raising rates, Enterprise’s poll of analysts saw six out of 10 economists suggesting the MPC would have breathing room for a cut thanks to an appreciating EGP and improving fundamentals. Bloomberg’s poll suggested the same, with only Reuters’ survey suggesting the MPC would leave rates on hold.

So, who called it? From the Enterprise poll: EFG Hermes’ Mohamed Abu Basha, Shuaa’s Esraa Ahmed, Naeem’s Allen Sandeep and Multiples’ Omar El-Shenety all said the MPC would leave rates on hold.

So, why no rate cut? The central bank cited accelerating inflation in February, weakening global economic activity, trade tensions, weakened global financial tightening, and increases in oil prices for its decision to keep rates on hold. The decision “is consistent with achieving the inflation target of 9% (±3 percentage points) in 4Q2020 and price stability over the medium term,” the statement reads.

Inflation, EM volatility narrowed the window for monetary easing: February’s accelerating inflation narrowed “the margin of positive real rates ahead of upcoming subsidy cuts,” EFG Hermes’ Abu Basha told Reuters. Abu Basha also pointed to recent volatility in emerging markets, which he said has stalled the rally of the EGP and “slightly increased risk aversion.”

The “astonishing” decision to keep rates on hold may undermine the positive impact on the economy of February’s rate cut, Sigma Capital’s Dina Rofael tells Bloomberg. “When a central bank takes a decision to cut, it should be a cycle. To have an impact on the economy, there should be more than one cut taking place, one after the other.”

Forget about a significant recovery in capex spending until the fall: Last month’s rate cut was seen as a “good start” but not quite enough to encourage businesses to start borrowing for capex. Beltone Financial’s Alia Mamdouh had said at the time that the cut “will improve business sentiment, particularly with local investors, but we believe another cut will remain key for a material impact on unlocking capex lending potential.”

MENA fund managers are bullish on Egypt, Dubai: Around half of Middle East fund managers say they are looking to increase their allocations to Egypt and Dubai over the next three months, a Reuters poll picked up by Zawya found. Sentiment is up for Egypt and Dubai, despite the latter being one of the world’s worst-performing markets last year. The EGX is up more than 11% so far this year, putting it ahead of most of its regional peers, the newswire notes. Around 40% of those polled also said they would decrease allocations to Qatar.

Egypt to take EUR-denominated eurobond issuance to market next month: The Finance Ministry is planning to sell up to EUR 1.5 bn-worth of eurobonds in mid-April, unnamed government sources told the domestic press. Next month’s issuance constitutes the EUR-denominated portion of the USD 5 bn issuance the ministry had announced last month; Egypt has already issued a USD 4 bn tranche on the Luxembourg Stock Exchange. The ministry will also kick off a 3-4 day promotional roadshow ahead of the issuance, the sources said, without providing further details. Finance Minister Mohamed Maait had said in January that the ministry is looking to offer up to USD 7 bn in FX bonds in 1Q2019, and more USD- and EUR-denominated bonds by the end of 2Q2019.

Advisors: BNP Paribas, Natixis, Bank of Alexandria, and Standard Chartered were tapped to manage the EUR-denominated portion of the issuance. JP Morgan, HSBC, Goldman Sachs, and Citibank had advised on the USD-denominated issuance. The National Bank of Egypt and Banque Misr are “assisting with the offerings.” The ministry also picked Al Tamimi & Co. as domestic legal counsel and Dechert LLP as international legal counsel for all the offerings.

The minimum wage is going up for state employees — but apparently not for the private sector. The public sector minimum wage will rise 66% to EGP 2k per month from the current EGP 1,200 per month on 1 July, President Abdel Fattah El Sisi announced during a 36-minute speech during an event yesterday honoring women (skip to 18:43 for his remarks on the minimum wage). The new minimum wage covers all public sector employees regardless of whether they’re subject to the Civil Service Act. “This was supposed to come out on 30 June, but I said this matter cannot wait,” El Sisi said.

The private sector appears not to be included in the new minimum wage. Reuters notes in a story that the move applies to “all workers,” but our take on the speech is that it covers state employees. Dissent welcome.

Either way, the private sector should be required to follow suit. As we’ve said before, EGP 1,200 is not a liveable wage — and we put our money where our (admittedly very big) mouths are on that one. Our take is that the National Council on Wages has the power to legislate that — any lawyerly types out there want to agree or disagree with us on this?

This puts us in the rare situation of agreeing with the Egyptian Federation of Trade Unions, which is urging private employers to follow suit with the wage rise.

El Sisi also outlined civil service wage hikes for the upcoming fiscal year: Bureaucrats covered by the Civil Service Act will receive a 7% raise in FY2019-20, while state employees working in state organizations not governed by the act will get a 10% bump, El Sisi added. The minimum raise increment will be EGP 75 this year, higher than last year’s EGP 65 minimum. All public sector employees will be eligible for a one-time EGP 150 bonus.

The wage hike will add EGP 30.5 bn to the state’s annual salary budget,according to a Finance Ministry statement (pdf). Higher paid government employees, whose wages already exceed the minimum, will also see their wage floors increase at a lower scale, but on a par with the lowest paying jobs. The two next jobs in line, for instance, will see their paychecks rise to EGP 2,150 and EGP 2200 — up from EGP 1850 and 1870, respectively.

Pensioners will also receive a boost at a cost of EGP 28 bn to the state: Pensions are due to rise by 15% from 1 July, taking the minimum monthly payout to EGP 900. The ministry projects that this will cost the government an extra EGP 28.5 bn per year.

The news is getting pickup in the international press, with Reuters, the Associated Press and Fox News picking up the story.

El Sisi also promised his administration would provide better vocational training and more incentives for women to join the labor force through amendments to the Public Service Act. The president also promised to tighten legislation against gendered violence and harassment; to come up with a bill designed to help indebted women; and to study the legal framework governing women’s marital rights. Al Masry Al Youm has a word-for-word excerpt from El Sisi’s speech.

Gov’t sees EGP staying strong in 2019-2020 budget: The government is basing its 2019-20 budget on the average exchange rate set by the CBE between 1-15 March, according to a Finance Ministry statement. The average exchange rate for the EGP against the USD during the period was 17.46, a finance ministry official told reporters, according to Reuters’ Arabic service. The EGP has strengthened in recent weeks, hitting a two-year high mid-March on the back of improved tourism, exports and remittances, among other factors. The government approved last week the draft FY2019-20 state budget, setting GDP growth at 6% by June 2020, the budget deficit at 7.2% and primary surplus at 2%.

IPO WATCH- Giza Spinning and Weaving pushes IPO to 3Q2019: Privately-owned Giza Spinning & Weaving Company has pushed to September at the earliest its sale of up to 40% of its shares on the EGX, Managing Director Fadel Marzouk said, according to the local press. Marzouk said the company is waiting for better market conditions for the transaction. The company had initially announced it was looking to IPO last November, but news reports later put the listing date in December 2018. Proceeds from the garment exporter’s IPO will be used to finance a EGP 250 mn project to expand its yarn and garment production capacities.

Advisors: Beltone Financial is serving as global coordinator and bookrunner and Matouk Bassiouny is legal counsel to the issuer.

MOVES- CBE pushing for leadership shakeup in banking sector? The Central Bank of Egypt is actively shaking up the C-suites of Egyptian banks ahead of the introduction of its new Banking Act, an industry official told the local press. The proposed legislation, which the CBE drafted earlier this year, is expected to impose term limits on bank managing directors. Bank Audi Managing Director Mohamed Abbas Fayed and National Bank of Kuwait MD Yasser Ismail Hassan have both stepped down in recent days.

The news comes as the CBE appointed our friend Amr El Garhy, the former minister of finance, as non-executive chairman of Misr Iran Development Bank, according to a separate local press report. The central bank also seated two new managing directors of Misr Iran’s BoD.

MOVES- Mohamed Barakat (LinkedIn) has joined Baker McKenzie Cairo’s corporate mergers and acquisitions practice as a counsel, the law firm said on Thursday. Barakat is a partner at Baker McKenzie’s Washington office, where he chairs the North American Middle East practice. He holds a JD from the University of Illinois at Urbana-Champaign, and a master’s in finance from the University of Wisconsin-Milwaukee.

Competition authority launches polls on Uber-Careem tie-up: The Egyptian Competition Authority (ECA) has launched two opinion polls for drivers and users of ride-hailing apps to analyse the effects of Uber’s recent USD 3.1 bn acquisition agreement with Careem, according to two separate ECA statements (a driver’s survey and a rider’s survey). The short surveys ask a handful of yes / no questions to assess what respondents effect the merger could do to service quality, price, driver income, market entry barriers, etc. The ECA voiced concerns last week that the agreement may be a “significant impediment” to market competition and has previously threatened to separately slap each of the companies with an EGP 500 mn fine if the merger went ahead.

Egyptian accounting standards change: Investment and International Cooperation Minister Sahar Nasr issued on Thursday amendments to the Egyptian Accounting Standards to bring the standards in line with IFRS 9 and IFRS 15 regulations, according to a ministry statement.

EARNINGS WATCH- B Investments posted net profits of EGP 194 mn in 2018, a 46% increase from the EGP 133 mn net profit reported in 2017, according to the company’s earnings statement (pdf). This was driven by a 43% rise in revenues, which increased to EGP 245 mn in 2018 from EGP 172 mn the previous year. B Investments is an active growth capital investor managed by BPE Partners.

Arabia Investments Holding reported a net profit after tax of EGP 72.7 mn in 2018, compared to a net loss of EGP 180.3 mn in 2017 as the company delivered its best-ever full-year results, according to the company’s earnings release (pdf). The company, noting it has a new anchor shareholder and management team, also said it has “resolved EGP 300+ mn of legacy dues.”

CORRECTION- We mistakenly said in Thursday’s issue that CIB and the Arab African International Bank are arranging a EGP 1.7 mn loan for Wadi Degla Holdings. The correct size of the loan is EGP 1.7 bn. The story has since been corrected on our website.

Leading the conversation on Egypt over the weekend was the release of prominent activist Alaa Abdel Fattah after five years behind bars. Abdel Fattah, who was imprisoned for violating the 2013 anti-protest law, will be required to spend the night at a police station for the next five years, Reuters reports. The Washington Post, the Associated Press, and ABC also picked up the story. Journalist Hisham Gaafar was also granted “conditional release” by the Cairo Criminal Court, according to Anadolu Agency. Gaafar, who was detained following accusations that he was a member of the Ikhwan, will have to report a police station several times a week.

Other stories featuring Egypt worth a skim:

• Surprise: Kramers aren’t happy the gov’t is onto them: The Supply Ministry’s drive to cut off subsidy beneficiaries it has determined as being undeserving is stirring up crowds of angry citizens, Reuters reports.
• A group of opposition parties is urging Egyptians to vote against proposed constitutional amendments, Reuters reports.
• The nth hypothesis on why the new capital will flop: The new administrative capital is being developed with a target of becoming like American suburbia, rather than looking to adequately accommodate Egypt’s poor, Rod Sweet writes for the Global Construction Review.

President Abdel Fattah El Sisi’s announcement of a higher minimum wage for civil servants topped the front pages of all three state-owned newspapers this morning (Al Ahram | Al Gomhuria | Al Akhbar). El Sisi declared the move in a speech during yesterday’s national ceremony honouring women.

Drone deliveries may soon become reality (but not if you live in the city): Ecommerce companies are looking to the suburbs to bring drone-based home delivery systems into the mainstream, Wall Street Journal tech columnist Christopher Mims writes in a piece on the legal and urban obstacles to having coffee ‘drone-delivered’ to your door before it gets cold. There are currently only a few operators licensed to use drones for delivery around the world. Safety concerns and the inability of large, densely-populated cities to accommodate the service are complicating those companies’ licensing runs. But suburbs are providing both a reprieve for lawmakers and an incentive for businesses to offer drone deliveries.

Iceland was quick to allow commercial drones to hover over its sparsely-populated, rural landscape, Mims notes. Iceland’s ecommerce platform Aha, a subsidiary of globally-focussed Flytrex, is projected to have its China-sourced drones cover more than 1000 households by June. The company’s parent has also tested its service in the suburbs of North Dakota. Another company on the forefront of the not-so-distant shift in delivery infrastructure is Alphabet Inc’s subsidiary Wing. Wing debuted in the US and Australia, and its most recent trials brought coffee and other necessities to 160 households in Canberra.

Five years ago, Jeff Bezos promised that drone delivery is coming “in five years.” Although we haven’t heard much from Amazon since then, “drones have become bigger, faster and more powerful,” Mims says. The main obstacle to adoption today is how fast commercial drone delivery is signed into law.

Shoukry in Tunisia ahead of Arab League Summit: Foreign Minister Sameh Shoukry landed in Tunisia on Friday for a weekend of meetings in preparation for the upcoming Arab League Summit, which begins today, according to a Foreign Ministry statement. The meeting is expected to reach a consensus over Syria’s membership in the league, which was suspended at the beginning of the war in 2011. Shoukry met with his Jordanian and Iraqi counterparts ahead of the summit to discuss cooperation and regional affairs, according to a separate statement.

Seventeen solar plants in the Benban solar power park have been connected to the national grid, said the head of electricity sector projects in Upper Egypt, Ahmed Fathy, according to local reports. Fathy did not disclosed the production capacity of the connected plants. Benban will produce 1.8 GW of energy when completed.

State grain buyer GASC received five offers yesterday for Indian, Chinese and Vietnamese rice during its tender, though no additional details were provided on the offers, reports Reuters. The rice is expected to be delivered in two batches, with the first arriving in the first half of June.

Saudi, Emirati and Omani investors have indicated interest in purchasing land included in the project to convert 1.5 mn feddans of desert land into agricultural projects, according to statements from the CEO of the Egyptian Countryside Development Company Ater Hanoura, reports Al Shorouk.

LG Electronics is planning to launch three new production lines to produce refrigerators, automatic washing machines and microwaves, with total investments of USD 17 mn, according to a ministry statement (pdf). The announcement came following a meeting between Trade Minister Amr Nassar and LG Egypt CEO Don Kwak to discuss the company’s expansion plans and efforts to increase exports. The refrigerator production line should be up and running by the end of the year with 50% of its products planned for the domestic market and the rest for exports. The washing machines production line is expected to be launched at the beginning of next year with USD 3 mn. The third production line is also expected to be launched sometime next year with USD 2 investments.

Upmarket real estate developer SODIC aims to invest EGP 3.7 bn in construction projects in 2019, up from EGP 2.4 bn last year, CEO Magued Sherif said on the sidelines of the Cityscape conference that took place last week. Sherif said he sees unit prices going up 10-15% this year, and noted the company is studying expanding in the Delta region and Upper Egypt. In a statement last month, SODIC said it aims to invest about EGP 5.17 bn and lock down EGP 7.20 bn in customer contracts.

Electronics manufacturer Unionaire Group is reportedly planning to expand its activities into real estate, and is looking to work on a commercial project in the new administrative capital, Al Mal reports. No further details were provided on the project or the company’s expansion plans.

EgyptAir will begin operating flights between Cairo and Kigali, Rwanda’s capital city, as of 27 April, Al Shorouk reports. No details were provided on the frequency of flights on the new route. Sources in the company also reported that EgyptAir received its first Boeing 787 dreamliner as part of a USD 6 bn deal signed in 2018 for the purchase of 45 planes, according to Egypt Independent. The long-range aircraft is expected to service flights to Shanghai, China, Tokyo, New York and Bangkok.

The Holding Company for Maritime and Land Transport and Geyushi Motors, the local agent of China’s Yutong, signed on Thursday an agreement that will see Geyushi supply 125 buses at a cost of c.EGP 356 mn, Geyushi Motors Chairman Mohy El Din Geyushi told the local press.

Mass transit app Swvl has increased its operational lines in Cairo, Giza and Alexandria, now servicing more than 650 routes with more than 1 mn monthly bookings, according to statements from CEO Mostafa Kandil reported by Al Shorouk. Kandil also added that the company has started operations in Kenya, as its first foray into international markets.

Industry and business associations have suggested doing away with the quota specifying a 25% minimum seat allocation for women in the House of Representatives as part of the constitutional amendments, according to a local press report. Their view boils down to the idea that all House reps should be elected and not just be put in place to fulfill a quota. The associations also opposed an article giving the president the right to directly appoint a VP without popular elections. We noted earlier this month that there appears to be emerging consensus in the House to oppose the women’s quota.

The Damanhur Criminal Court sentenced on Thursday three men to prison over a train accident in Kom Hamada in February 2018 that left 15 dead and 40 injured, according to Egypt Today. The switchman was sentenced to 15 years while two signalers were sentenced to a year with hard labor. Last month, a train accident in Cairo’s Ramsis Station left at least 20 dead and 40 injured, prompting a bill that would raise the maximum punishment of criminally negligent manslaughter to capital punishment.

The Supreme Media Council has banned “Damn Men,” a weekly talk show in which women celebrities “comment on their experiences with men,” saying it threatens social values and incites against men, according to Gulf News. The show, which aired on Al Nahar and Al Qahera Wal Nas, “included words that outrage public morality and constituted prejudice against men as well as underestimating them,” the council said in a statement.

The Alexandrian Criminal Court on Saturday handed out jail terms to 30 men accused of forming a terrorist cell affiliated with Daesh and plotting a suicide attack, according to Reuters. Of the 30, 18 received life sentences and 12 were given between 12 and 15 years.

Egypt took part in Earth Hour yesterday, switching off lights at the pyramids, the new capital, Salah Al Din Citadel, Bibliotheca Alexandrina, and other major sights for 60 minutes, AMAY reports. Earth Hour, a global event organized by the World Wide Fund for Nature, has encouraged some 7,000 cities across 187 countries to switch off non-essential lights from 8:30-9:30 pm on their local clocks. The event falls on 30 March of every year.