It is now officially budget season, ladies and gentlemen

No April Fools here: It’s the first day of April, starting the clock on 1Q19 earnings season. The resident 11-year-old may go in for pre-noon pranks, but not us. This morning’s edition contains 0% fake news, guaranteed.

The Finance Ministry’s draft 2019-20 state budget is now with the House of Representatives, kicking off the formal budget process. We have highlights of the budget in this morning’s Speed Round, below.

AmCham’s annual ‘Doorknock’ lobbying campaign gets underway this morning in Washington, DC and runs through Friday. Some 35 senior business leaders are set to talk up Egypt in meets with members of Congress, Trump administration officials and others in DC. We’ll have more from the road in the days ahead.

President Abdel Fattah El Sisi and Foreign Minister Sameh Shoukry are in Tunisia for an Arab League summit. Shoukry traveled to Tunisia late last week for preparatory meetings ahead of the summit. Reuters has more.

Keep an eye today on US manufacturing data, the next “checkpoint” for the global doomsdayers, the Financial Times suggests.

There’s no lack of local market data coming up in the next few days:

• The EGX brokerage league table for Marchshould be out today. EFG Hermes extended its spell at top of the table last month.
• The Markit / Emirates NBD purchasing managers’ index for March is expected on Thursday. The index, which surveys non-oil business activity in Egypt, fell to a 17-month low in last month’s reading.
• The CBE’s net foreign reserves position is due out sometime this week. Reserves climbed to USD 44.060 bn at the end of February.
• Total vehicle sales for March, and performance by brand, should be out within days.
• Egypt’s monthly inflation figures, from both the central bank and CAPMAS, are expected on 10 April. Annual headline inflation accelerated to 14.4% in February, up from 12.7% the previous month.

Renaissance Capital will hold its annual Egypt Investors Conference in Cape Town on 9-10 April. The event will see senior management from leading Egyptian companies meet one-on-one with South African investors with AUM north of USD 20 bn.

EM bonds, the gift that keeps on giving: Global funds remain bullish on emerging market bonds, which — having returned 5.3% in 1Q2019 — are on track for their best quarter since 2012, Bloomberg writes. Fund managers are confident that EM debt will continue appreciating as the US Federal Reserve u-turns on raising rates and China’s economy stabilizes. It’s good news for Egypt as the Finance Ministry looks to hit the road with an EUR-denominated eurobond offering this month,

Wait, the world may not be ending? The global financial press has for more than a year now been practically salivating at the prospect of (a) an end to the 10-year-long bull market for US equities (b) the US economy falling into recession or, better still, option (c): the end of the bull run somehow tipping the US into recession.

The world is not ending, Exhibit #1: Enter Gywn Davies writing for the FT, who with finesse and rigor that “the great bull run may be over, but that does not mean that a great bear market will inevitably follow.” Instead, he suggests, there’s a perfectly solid model that “predicts that total US equity returns will be about 4-5% per annum in nominal terms in the next three years — much lower than recently, but still positive.”

The world is not ending, Exhibit #2: “As we move into the second half of the year, this narrative of global growth potentially causing problems here in the U.S. is going to shift to a stabilization of global growth and then more of a focus on things like earnings,” argues the co-head of strategy at PNC Financial Services in an interview with CNBC. China and Europe are bottoming out, he argues, and all the gnashing of teeth about the inverted yield curve in the US is overblown.

The one thing to worry about now: FOMO. Investors are piling into stocks this year because of the fear of missing out on the 2019 rebound in equities, the WSJ suggests.

In international news worth knowing this morning:

• Erdogan hits election setback: The party of Turkey’s Islamist president lost Ankara and appeared ready to do the same in Istanbul despite two months of “relentless campaigning … which he described as a ‘matter of survival’ for Turkey.” (Reuters)
• Algeria’s Bouteflika is hanging on by his fingertips: Algerian President Abdelaziz Bouteflika has replaced 21 of his government’s 27 ministers in a bid to calm demonstrators calling for his resignation, but some are still speculating he could announce his resignation this week. (BBC | Reuters)
• Economic growth in the UAE picked up last year, surging to 1.7% against 0.8% in 2017, but still falling short of estimates. (Bloomberg)
• Zuckerberg’s call for internet regulation raises eyebrows: US lawmakers and industry figures have greeted Mark Zuckerberg’s calls for (presumably pro-Facebook) internet regulation with scepticism. (FT)

President Abdel Fattah El Sisi’s weekend decision to increase the minimum wage to EGP 2,000 for state employees still dominates the airwaves. Al Hayah Al Youm’s Khaled Abou Bakr pointed out that only a “relatively financially healthy” government would agree to bear an added EGP 60 bn (c. USD 3.5 bn) in annual burden, calling the decision “historic” (watch, runtime: 3:22). Abou Bakr and co-host Lobna Assal also cheered El Sisi’s parallel decision to increase minimum pension payouts to EGP 900 (watch, runtime: 3:22).

The automatic fuel pricing mechanism taking effect today, which will see the price of 95-octane held at EGP 7.75 per liter through 2Q2019, was the second most popular topic. El Hekaya’s Amr Adib gave his two cents, setting the stage for his rant with his patented, “I want to talk to you, folks, about an important matter” (watch, runtime: 2:01). Oil Ministry spokesperson Hamdy Abdel Aziz, meanwhile, phoned in with Hona Asema’s Reham Ibrahim to talk technicalities (watch, runtime: 4:27). We have more in the Speed Round, below.

The state’s FY2019-20 budget is now with the House: The Finance Ministry sent yesterday its draft FY2019-20 budget (pdf) to the House of Representatives. The House needs to receive the draft at least 90 days before the start of the fiscal year on 1 July to have it signed into law by the end of June. Cabinet signed off on the draft last week. Among the highlights:

The budget deficit is expected to fall to 7.2% of GDP, from 8.4% in the current fiscal year. The government will allow EGP 445.1 bn in new borrowing in the coming year.

Revenues are forecast to reach 1.13 tn — with tax collection rising 13% y-o-y to EGP 856.6 bn and other earnings up 30% to EGP 277.8 bn.

State spending should come in at EGP 1.57 tn, up 12% y-o-y from EGP 1.40 tnthis fiscal year. Among the highlights:

• Debt service payments, which are projected to rise 6.5% to EGP 569 bn. That’s the largest single spending item in the budet, accounting for just over 36% of total expenditures;
• The public wage bill will rise 11.5% to EGP 301 bn, up by EGP 31 bn on the back of the president’s decision on Saturday to raise the minimum wage by 66%;
• Outlays on subsidies and social welfare payments will climb 3.8% to EGP 327.7 bn even as electricity subsidies fall 37.5% to EGP 10 bn and spending on petroleum products is cut by 42%;
• Government investment will rise 42.2% to EGP 211.2 bn;
• Spending on goods and services will climb 24.6% to EGP 74.9 bn;
• Miscellaneous expenses will climb 19.5% to EGP 90.4 bn, with the majority of the final item’s spending being earmarked for the Armed Forces.

Also in the forecast:

• Exchange rate: The CBE average for 1-15 March (ie: EGP 17.46 to the greenback)
• GDP growth: 6% by June 2020;
• Primary budget surplus: 2%;
• Public debt: 89% of GDP
• Unemployment: 9.1%
• Population growth: 2.3%.

The price of 95-octane fuel will stay unchanged as a new pricing mechanism is introduced: The price of 95-octane will be held at EGP 7.75 per liter through 2Q2019 as the automatic fuel pricing mechanism comes into effect, Reuters reports. The new pricing committee cited a stronger EGP and current Brent prices as underpinning its decision to leave the price at the pumps on hold.

Background: The IMF conditioned the disbursement of the fifth tranche of Egypt’s USD 12 bn IMF loan on the introduction of the mechanism, which will allow the price of 95-octane to fluctuate by as much as 10% in line with movements in the international markets. A committee made up of finance and oil ministry officials will re-price the fuel every three months, factoring in Brent prices and the exchange rate. The government intends to extend the pricing mechanism to 80-octane and 92-octane in the future.

EXCLUSIVE- The Finance Ministry is currently in talks with Asian central banks for sovereign guarantees to issue eurobonds to ensure lower interest rates, a senior government official told Enterprise. Egypt is looking to issue Yen- and Yuan-denominated treasury bonds in the coming fiscal year, the official said. The government aims to issue eurobonds worth at least USD 4-5 bn in Asia within the coming three years amid plans to focus on long-term issuances to restructure its debt strategy. The official also confirmed local reports that a EUR-denominated issuance should be expected this month. 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.

Money supply growth continues to slow: Egypt’s pace of M2 money supply growth continued to slow in February, falling slightly to 11.55% y-o-y from 11.95% in January, data from the Central Bank of Egypt (CBE) shows. The M2 gauge stood at EGP 3.68 tn at the end of February, up from EGP 3.64 tn a month earlier. M2 growth has consistently slowed over the past year, having fallen from 21.36% growth in April. M2 measures liquid assets such as cash, savings deposits and money market securities.

M&A WATCH- Raya board agrees to Medhat Khalil’s MTO: Raya Holding’s board of directors has approved a mandatory tender offer (MTO) from Chairman Medhat Khalil through his El Pharonia Real Estate Investment for nearly 37% of Raya (78.6 mn shares), according to an EGX disclosure (pdf). The MTO kicked off on 11 March at EGP 5.53 per share, a slight premium to the EGP 5.35 at which it had last closed prior to the takeover bid.

Background: The Financial Regulatory Authority had ordered Khalil last year to submit an MTO for Raya or sell down his stake, arguing that he and related parties controlled a combined 42% of the outfit, a level of control that triggers the requirement for an MTO under securities regulations.

Elsewedy-Mitsubishi consortium awarded USD 550 mn EPC contract for Sharjah power plant: A consortium of Elsewedy Electric and Mitsubishi Hitachi Power Systems has won a USD 550 mn engineering, procurement, and construction (EPC) contract for Al Layyah combined cycle power plant in the UAE’s Sharjah, Elsewedy said in a press release (pdf). The 1 GW gas-fired plant is expected to begin generating power by 2020, with Elsewedy in charge of 65% of the works. The company won last year a power plant in Dubai.

The company is also considering expanding to seven new African countries, including Senegal, Côte d'Ivoire and Sierra Leone, CEO Ahmed Elsewedy told reporters yesterday, according to Al Masry Al Youm. Elsewedy said the company is focused on in sectors including alternative energy and technology.

First edition of Startupbootcamp-Pride accelerator kicks off: Pharos’ Pride Capital and global seed program organizer Startupbootcamp launched yesterday the first edition of the Startupbootcamp-Pride FinTech Cairo accelerator program, according to an emailed statement (pdf). Eleven fintech startups have joined the initial six-month program and were selected from a pool of over 100 applicants. “Startups will benefit from hands-on expertise in business model development, mentorship from industry experts, office space in the heart of Cairo, seed-funding — with the current round being fully funded by Pharos Holding — and access to a global network of investors and corporate professionals from across the financial industry.” Our friends at Pharos Holding, along with industry heavyweights such as the International Finance Corporation, German development agency GIZ, Visa, Ayady, AlexBank, Sanad’s Entrepreneurship Academy, and the Export Development Bank, are supporters of the program.

LEGISLATION WATCH- The SMEs Act includes tax and non-tax incentives worth EGP 1.5-2 bn annually to support entrepreneurship and encourage SMEs to go legit, said Hisham Ragab, an advisor to the trade and industry minister. In measures recently approved by cabinet for introduction in the House, businesses with turnover of up to EGP 10 mn will be eligible for a preferential tax rate of 1.25% for a period of time after registering, while those with annual revenues of under EGP 1 mn will be taxed EGP 2-6k. Other measures likely to be included in the package include regulatory changes designed to make it easier to for small businesses to get credit.

The Supply Ministry will begin registering newborns on its subsidy rolls in June, despite having yet to actually remove any Kramers from the system, Minister Ali El Moselhy said, according to the local press. Thus far, Kramers who have been mooching off the subsidy program have only been notified that their subsidy privileges will be revoked, but the ministry has yet to pull the trigger. The ministry appears to still be reviewing appeals by subsidy recipients who claim they were unfairly removed from the state’s welfare program in the second phase of the ministry’s purge, and El Moselhy did not disclose when this process should wrap up. It appears that one-time beneficiaries will only actually be pulled off the subsidy rolls once the entire process of purging subsidy rolls is complete. El Moselhy reiterated that the third and final phase of its purge this month, but has yet to announce a specific date.

Background: The first phase of the purge, which began in 2017, aimed to cut 10% of ration card holders by weeding out fraudsters, while the second phase is meant to remove 40 mn people. The ministry has not yet announced expected figures for the third phase of the cleanse. The ministry had laid out in February new criteria for individuals no longer eligible for welfare benefits, including those consuming more than 650 KW of electricity, paying phone bills in excess of EGP 800 per month, or spending more than EGP 30k on school fees. Around 2 mn newborns were last added in August and September 2018 to 1.2 mn ration cards.

REGULATION WATCH- The government aims to issue next month new regulations for industrial land tenders, said Industrial Development Authority (IDA) boss Magdy Ghazi. The regulations, which are currently being drafted by the Cabinet in collaboration with the IDA, would require investors to complete the construction of facilities and have them up and running within three years of being awarded for land. The authority also aims to set up database of available industrial land to help guide both investors and policymakers.

REGULATION WATCH- No more licenses for tuk-tuk makers: The Industrial Development Authority (IDA) has decided to stop handing out licenses to tuk-tuk manufacturers and assemblers that are looking to expand in Egypt, a Trade Ministry source tells Youm7. The decision comes in light of government orders to curb their use as a means of transport and replace them with seven-seater minivans, the source said. The government said last week that governors were looking into issuing public transport licenses for seven-seater minivans as a replacement for three-wheeled tuk-tuks. Prime Minister Moustafa Madbouly had ordered in December a temporary freeze on licensing the three-wheel vehicles, but the freeze was apparently reversed for a short window in January.

Egypt cracks top-five in global contact center ranking: Egypt was ranked as the fourth most-favored destination to outsource contact centers, according to Ryan Strategic Advisory’s 2019 Front Office Omnibus Survey. The survey polls nearly 500 contact center decision makers in key markets such as the UK, Australia, France, and Germany to gauge the most preferred locations for offshore services. “Egypt has been on the rise for a few years, and this validates the country’s value proposition in contact center nearshore / offshore delivery. Despite many predictions of the BPO space coming to an abrupt end following the Arab Spring events of 2011, efforts on the part of the industry and [the Information Technology Industry Development Agency] to re-invent and aggressively promote Egyptian outsourcing are paying off.”

So, who’s ahead of us? The Philippines topped the ranking, followed by South Africa and Malaysia.

EARNINGS WATCH- Banque du Caire reported a significant 221.5% jump in net profit after tax to EGP 2.5 bn in 2018, up from EGP 800 mn a year earlier, Al-Ahram reports. “The year 2018 was a turning point for the bank’s strategy, with achievements across all departments,” Chairman and CEO Tarek Fayed said. This came on the back of management’s focus on developing BdC’s core banking system and human resource capabilities. The bank has also recently inaugurated a representation office in the UAE. The state-owned bank is part of the lineup in the government’s privatization program.

The National Bank of Egypt reported a net profit after tax of EGP 10.1 bn in FY 2017-2018, according to Al Mal. NBE’s loan portfolio reached EGP 368 bn in June 2018, up 12 y-o-y.

Cheese producer Domty reported a net profit of EGP 154.6 mn in 2018, up from EGP 61.5 mn in 2017, according to the company’s earnings release (pdf). The company’s revenues for the year came in at EGP 2.59 bn, up from EGP 2.25 bn in 2017.

B Investments is proposing a EGP 80 mn dividend payout for 2018 at EGP 0.50 / share, the company announced in its earnings for the year. The company posted net profits of EGP 194 mn in 2018, marking a 46% increase from EGP 133 mn the previous year.

Correction: 1 April, 2019

An earlier version of this article incorrectly said Domty’s revenues for the year came in at EGP 613.4 mn, down from EGP 615 mn in 2017. The company’s revenues for the year came in at EGP 2.59 bn, up from EGP 2.25 bn in 2017.

MOVES- Appointments at state-owned petroleum companies: Oil minister Tarek El Molla has named Adel Elsayed Elsheyoukh as CEO of state oil tanker company MIDTAP, while assigning Ibrahim Aly Abouelenein to top role at Petrogas and Osama Mostafa Al Boghdady at offshore drilling company Osoco, reports the local press.

It’s a slow morning for Egypt in the international press — So slow that the most widely covered story is the Cairo derby between Al Ahly and Zamalek. The match finished 0-0 as both teams struggled with a pitch “so inundated with rainwater that every sliding tackle made a splash,” the National says. Xihnua and KingFut also have the story.

Also making the rounds this morning:

• Fisk is still writing? Amr Waked and Khaled Abol Naga’s expulsion from the Actors’ Syndicate is another example of the government’s curtailing of workers’ rights, Robert Fisk writes for the Independent.
• “Dangerous” Egypt: The daughter of a British couple that died mysteriously while on vacation in Hurghada is still in the headlines in the UK thanks to tabloid the Sun.
• Human rights: Egypt is hosting the annual ACHPR and other international gatherings to distract from the country’s deteriorating human rights situation, David Kode writes for OpenDemocracy.

News that Arab leaders are rejecting Donald Trump’s move to recognize Israeli sovereignty over the Golan Heights topped the front pages of all three state-owned newspapers this morning (Al Ahram | Al Gomhuria | Al Akhbar). The leaders gathered at the Arab League summit in Tunisia yesterday.

Richard Sorge: The story of a formidable, Bond-like WWII Soviet spy: A new book on the life of World War II era Soviet spy Richard Sorge — Owen Matthews’ An Impeccable Spy: Richard Sorge, Stalin’s Master Agent — is the first to tell his story through previously classified intelligence archives, Victor Sebestyen writes for the Financial Times. The work is a fresh Bond-like memoir of one of the finest, most “impeccable” (alternatively dubbed “formidable”) agents in history. Arguably one of the most competent men of espionage to have ever lived, Sorge handed Joseph Stalin the detailed plan of Operation Barbarossa — Germany’s summer 1941 invasion of the USSR — but failed to maintain the dictator’s trust and ended up hanged in Japan for his spying.

Surging demand for batteries is sending us to the deep sea for metals: The FT explores the surge in demand for niche metals used in electric car batteries fueling a race to successfully mine the deep sea, where metal reserves exceed that on land several times over (watch, runtime: 2:24).

Dana Gas received USD 19 mn from its operations in Egypt, including the EGP equivalent of USD 10 mn of receivables from the Egyptian government and another USD 9 mn from the sale of natural gas condensate, the company announced yesterday. Dana Gas’ outstanding receivables from Egypt has now reached USD 140 mn, its lowest level since 2011.

International oil companies have shown significant interest in purchasing the geological data for the Red Sea oil and gas concessions being tendered, Oil Minister Tarek El Molla said in a meeting with Prime Minister Mostafa Madbouly, according to a Cabinet statement. No other details were given.

Kenya-based ZEP-RE (PTA Reinsurance Company) is looking to set up a regional office in Egypt within one year, a source from the insurance industry told Al Mal. There was no mention of the size of the investment, but the source added that Egypt will serve as a hub for the company’s regional operations. ZEP-RE is specialized in reinsurance trading and is headquartered in Nairobi. The company operates in Ivory Coast, Zimbabwe, Cameroon, Zambia and Sudan through a string of representation offices.

Marie Tecnimont is in negotiations with Egyptian chemicals company Kima to handle operations and maintenance for Kima’s new manufacturing facility, Kima 2, according to Al Mal. The Italian company was previously contracted to execute the EGP 11.6 bn plant. We had previously reported that the project is partly financed by a consortium of six banks.

The Teda Investment company has signed agreements with a consortium of eight other investment firms to offer USD 320 mn in financing for projects in Ain Sokhna as part of the Suez Canal development efforts, according to statements from Teda CEO Nahla Emad reported by the local press.

Transport Minister Kamel El Wazir met yesterday with a delegation from the World Bank to review joint projects and discuss further avenues for cooperation to upgrade the safety and security system of Egypt’s railways, according to a ministry statement.

Tarros Med Egypt announced it launched the first regular cargo shipping service between Egypt and Libya on 24 March, according to Al Mal. The service, which will run monthly, leaves from Alexandria and stops in Napoli, Genova, Malta, Tripoli, and Misrata.

Al Marasem Development signed contracts for Sharia-compliant revolving credit facilities worth EGP 1.6 bn with a consortium of six banks to finance its residential project “Fifth Square” in Cairo’s Fifth Settlement, unnamed sources tell Al Mal. The Export Development Bank Of Egypt and Misr Iran Development Bank agreed to lend a combined EGP 425 mn while the Banque Misr agreed to extend EGP 800 mn. ADIB Capital acted as the financial advisor for the agreement.

State-owned NI Capital’s microfinance arm Tamweely is targeting growing its number of branches to 38 across 11 governorates by the year-end, according to a press release (pdf). The company’s expansion strategy for the year also sees its portfolio growing to EGP 700 mn in loans to north of 40k microfinance users. Tamweely also signed an agreement with six local banks, including the National Bank of Egypt and the Egyptain Arab Land Bank, to extend EGP 700 mn in funds for its portfolio.

The Suez Canal Authority has signed an agreement to purchase two new towage vessels with a tow capability of 70 tonnes each from Maersk subsidiary Svitzer, reports Mubasher. The vessels are expected to be delivered within four months.

Suez Canal Container Terminal (SCCT) is expecting to incur losses this year due to its inability to compete amid rising fees in East Port Said Port, CEO Lars Christensen said, according to Reuters’ Arabic Service. SCCT, which is majority owned by Maersk subsidiary APM Terminals, has been making losses of USD 1 mn a month since the beginning of the year. This came as 16 major shipping lines have stopped docking at the port due to the high fees.

A joint Egyptian-French combined naval military activity titled 'Cleopatra-Gapian 2019' kicked off in France yesterday, carrying out drills focused on preventing terrorist acts, protecting cargo ships and searching suspicious vessels, the armed forces said in a statement.

Ja Rule comes to Egypt — are we going to host Fyre Festival 2.0? Rapper, Fyre festival investor, and walking meme Ja Rule, was in town with his wife over the weekend visiting the pyramids and the Great Library of Alexandria, according to online tab CairoScene. We can’t help but hope he wasn’t here to scout a location for the second edition of the disaster that was Fyre Festival.