Actis gets some Abraaj funds, but North African assets still in question

MPs should receive today a report from a House subcommittee recapping debate on the package of constitutional amendments on which our elected representatives will vote on Sunday, 14 April. The sub-committee of the House legislative and constitutional affairs committee providing a recap on public hearings MPs held on the amendments, but is making no recommendations on how representatives should vote. The package includes changes that would lengthen presidential terms and restore the upper house of parliament.

Among the domestic events and news triggers you can expect in the next couple of days:

• AmCham’s Doorknock lobbying tour of Washington, DC, continues until Friday. We have a report from the road in today’s Speed Round, below.
• The Markit / Emirates NBD purchasing managers’ index for March is expected tomorrow. 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.
• 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’s annual Egypt Investors Conference in Cape Town on 9-10 April. EGX Chairman Mohamed Farid will deliver the keynote address on expanding the role of capital markets in Egypt’s economy. Tap or click here to view the preliminary agenda for the event (pdf).

The IMF isn’t going full doom-and-gloom but it’s not exactly optimistic either: Global growth is “losing momentum,” fund Director Christine Largade has said ahead of the IMF and World Bank spring meetings on 12-14 April. Speaking at the US Chamber of Commerce HQ in DC, Lagarde warned that growth prospects are being put in a “precarious” position by Brexit and US-China trade friction. Reuters and CNBC have more.

Lyft is crashing: Newly-listed ride-hailing company Lyft is going to need investors to “take a big leap of faith” to support its current valuation, which has already fallen 22% from its post-IPO high, Seaport Global analyst Michael Ward tells Bloomberg. Shares rose by almost 25% to USD 88.68 when the company began trading last Friday, but plummeted 12% on Monday over concerns about the company’s profitability. The stock was down slightly at the close of play yesterday, remaining beneath its USD 72 initial offering price. What’s going on? Investors are shorting the stock to get around lockup periods and it may get worse.

The bigger question here is what effect Lyft’s rough opening week will have on the other tech unicorns preparing to IPO. The listing is regarded by some as a test case for Uber, Pinterest and Slack, which are all planning to go public later this year. “This is a major gut check time for Lyft and the tech IPO world to see how this stock trades given it was the first one out of the box,” Wedbush analyst Daniel Ives wrote to clients yesterday.

But bitcoin is spiking: The cryptocurrency hit a five-month high of USD 5,080 yesterday, prompting Coindesk to suggest that the bear market for bitcoin is over — and that the “case for a longer-term bull market” is starting to look solid. Bloomberg says the “mysterious surge” in the currency yesterday comes after three months of calm and cites an analyst at blockchain investment and advisory firm Kinetic Capital as saying, “I don’t think today is anything special” because the “small” market is “emotional” and “still very much subject to waves of enthusiasm.”

A16Z isn’t a VC firm anymore. Have you noticed that weird disclaimer that suddenly appeared at the start of Andreessen Horowitz’s podcast? It may have something to do with the fact that A16Z isn’t venture capital firm anymore. In his first long-form interview in two years — with Forbes, of all places — co-founder Marc Andreessen says the firm is registering all of its employees as financial advisors and accepting a lot of new regulatory insight, including from the US Financial Industry Regulatory Agency.

Why is the firm that (re)defined what it means to be a VC in the modern era monkeying with its business model? To have more latitude to invest in things other than private companies — including cryptocurrency assets and publicly traded stocks. Writes The Information on the change, “the shakeup could be a way for the firm to adapt to a more competitive landscape in venture capital, in which a growing number of funds chase after the same unicorns. It also could mean that Andreessen Horowitz sees a competitive advantage in making bigger [plays] on cryptocurrencies as some VCs avoid investing directly in tokens. Andreessen was one of the first firms to take a meaningful step into the asset class, launching a USD 300 mn fund for crypto” with Yale’s endowment as an LP.

Read the interview if you’re a VC because it’s Marc Andreessen, dummy.

Read this if you’re not a VC because it’s Marc Andreesen. His iconic firm has at least five of its so-called ‘unicorns’ (potentially worth more than USD 1 bn apiece) going public this year, among them Airbnb, PagerDuty, Pinterest and Slack. A16Z was also an owner of Lyft (above). The Financial Times has a solid piece on the firm and its hard-charging, ‘pro-entrepreneur,’ aggressive-marketing ways.

Bouteflika exits stage left: Algerian president Abdelaziz Bouteflika has resigned following six weeks of mass demonstrations and increasing pressure from the army. Bouteflika served as the country’s president since 1999 and was seeking his fifth term in office when anti-government protestors took to the streets to demand an end to his rule.

What happens now? Your guess is as good as ours, quite frankly, as it remains to be seen whether Bouteflika’s resignation will pacify the crowds and how the state intends on transferring power. In recent days protestors have indicated a desire for more fundamental change, and warned the army to keep out of politics. The story has the full attention of the international press: NYT, WaPo, WSJ, FT and BBC.

Your kid isn’t a videogame addict just because she has a mental breakdown when you turn off the console when it’s time homework or bed. Instead, it has everything to do with how games interact with still-growing brains. The Wall Street Journal explains why — and how parents and kids can come up with rules that allow gameplay while minimizing nuclear meltdowns at bedtime.

Commentary on the World Bank’s latest MENA report stole the limelight on last night’s talk shows. We had the full breakdown of the findings in yesterday’s issue.

World Bank numbers consistent with gov’t figures: Al Hayah Al Youm’s Khaled Abu Bakr pointed out that a big part of the report’s supported the Sisi administration’s core message (watch, runtime: 2:36). He also took note of an ongoing visit to Washington, DC, by a group of senior government officials laying the groundwork for the president’s expected trip to DC on 9 April. We have more on the visit in Diplomacy + Foreign Trade, below.

The bank’s forecasts for GDP growth lean toward the “conservative” side, General Authority for Freezones and Investment (GAFI) head Mohsen Adel told Abou Bakr, who called the GAFI boss up to get his two cents (watch, runtime: 5:48). The government is expecting to achieve higher rates amid falling inflation and more breathing room for expansionary policy. Egypt has already outpaced the bank’s projections with growth rates of c. 5.3% in 1Q2018-2019, c. 5.6% in 2Q18-19, and will soon announce last quarter’s figure. President Abdel Fattah El Sisi’s “strong decision” to raise public wages will also provide an extra push in a timely manner, Adel added.

We are beginning to “tackle structural, legislative, and investment-related” impediments to growth, Banque Misr Vice President Sahar El Damaty said in a separate phone-in with Hona Al Asema’s (watch, runtime: 8:11).The bank’s positive forecasts paint a picture of industrial growth, job creation, and growth in investment and exports, El Damaty added.

M&A WATCH- Limited partners in Abraaj funds have reportedly voted in favor of giving Actis the right to manage the defunct PE firm’s sub-Saharan Africa and Asia funds, unidentified sources tell Al Mal. The vote is not the final step in handing over the funds, which remains contingent on a few pending procedures, the sources say. The story makes no mention of Abraaj’s North African funds. The sub-Saharan Africa fund reportedly has USD 700 mn in assets under management, USD 400 mn of which are uninvested, while the Asia fund has around USD 200, according to the sources.

Actis had reportedly made a USD 1 offer last September to acquire “the bulk” of Abraaj’s emerging market funds. Actis was up against Abu Dhabi Financial Group, as well as a consortium formed by Kuwait’s Agility and New York-based Centerbridge Partners. Actis’ current North African investments include LSE-traded, Cairo-headquartered consumer healthcare multinational IDH. Former portfolio companies include snackfoods giant Edita, fast-food chain Mo’men, and halawa maker Rashidi El Mizan.

EXCLUSIVE- FinMin looks to tax the living daylights out of social media ads, e-commerce players: The Finance Ministry is moving ahead with plans to impose a mix of VAT, income, stamp, and development taxes on social media and e-commerce platforms and internet search ads, a senior government official told Enterprise. The move will see the ministry to draft legislation enshrining the tax treatment of each category of activity and will require amendments to the VAT Act, the Stamp Tax Act, the Income Tax Act, and the E-Commerce Act. The ministry will likely require three months to draft the amendments, which will require signoff from cabinet before going to the House of Representatives for review and approval.

SMART POLICY- The move will businesses operating online the same as their brick-and-mortar competitors.

• Companies running ads on social media platforms, including Facebook, Twitter, and Google, would be obliged to pay a stamp tax of 15-20%, treating social media buys exactly the same as with print ad purchases.
• Companies operating online would pay the standard 22.5% income tax on profits, while sole traders would be taxed at their marginal rate.
• The ministry has yet to determine the value of the development fee it plans to impose on e-commerce activities.
• E-commerce platforms such as Amazon’s Souq as well as Jumia and OLX would be charged 14% VAT on all sales made online.

Background: Taxing social media and e-commerce activities has been on the government’s to-do list since the introduction of the VAT in 2016. Since then, the Finance Ministry has been looking at different ways to tax online ads and retail. A ministry source told Enterprise in September that the ministry was studying how to charge and remit 14% VAT on social media ads. The Finance Ministry also told us in October that it was requiring e-commerce platforms including Souq, Jumia, and OLX to charge VAT on all transactions that would be subject to the tax if sold offline.

EXCLUSIVE- Preferential tax rates in the SMEs Act will give small businesses incentives to go legit, a government official with knowledge of the bill tells us. The plan would see businesses pay tax at a fixed rate over a three-year term regardless of revenue growth, according to the following bands:

• Revenues up to EGP 250k: A flat tax of EGP 1k (instead of EGP 2k)
• Revenues between EGP 251-500k: EGP 2.5k (instead of EGP 5k)
• Revenues between EGP 501k-1 mn: EGP 6k (instead of EGP 10k)
• Revenues between EGP 1-5 mn: EGP 50k
• Revenues between EGP 5-10 mn: EGP 100k.

The tax bands will be reassessed at the end of the three-year term, the source said. Companies will pay the standard 22.5% corporate tax rate after they have incorporated, while sole traders will be taxed under the progressive tax system to which individuals are subject.

Government entities will also be working to issue licenses and ensure SMEs are included in tenders, government auctions, and banking facilities, the source added. The SME tax incentives package will cost the government EGP 1.5-2 bn each year, Trade Ministry Advisor Hisham Ragab told the local press earlier this week.

LEGISLATION WATCH- Retailers face new rules, requirements as gov’t issues executive regs for Consumer Protection Act: Prime Minister Moustafa Madbouly issued yesterday the executive regulations for the Consumer Protection Act, which grant the Consumer Protection Agency (CPA) the authority to impose price controls and censor advertisements, among other powers, according to a cabinet statement. You can also read our rundown on the law’s provisions here.

The regulations introduce several requirements for suppliers and retailers, including requiring suppliers to clearly display information such as a product’s country of origin, contents, uses, production date, and shelf life. Suppliers will also be required to provide two-year warranties on their wares, during which they will be responsible for fixing any malfunctioning products using original parts on their own dime. Consumers will also have the right to return (and seek refunds for) or exchange non-perishable goods within 14 days of purchase.

CPA employees will also be granted powers of arrest within the confines of the act.

Egypt could see its T-bill yields continue to fall in 2019 on the back of positive economic indicators, economists tell Reuters. Slowing inflation and money supply growth, as well as an expectedly tighter budget deficit over the past year were cited by economists. “I predict, by the end of the year, another fall of between 200 and 300 basis points,” said Pharos Holdings COO Angus Blair. Naeem Brokerage’s Allen Sandeep, meanwhile, expects yields to fall by 100 bps by the end of 2019, citing improved risk sentiment and the Fed’s decision to freeze tightening. Agreeing the yields would continue to fall, CI Capital’s Hany Farahat said the only concern would be if oil prices exceed budget forecasts. The government expects oil to cost an average of USD 70 per barrel in FY2019-20.

Egypt will see net capital inflows of between USD 12 and USD 15 bn by the end of the current fiscal year, the Institute of International Finance (IIF) said in a research note (paywall). Inflows will remain positive through to the end of June as foreign investment into government treasuries has notably increased since January, the IIF concluded. “Egypt has weathered recent capital outflows,” it noted, referring to the USD 10 bn in outflows suffered during the April-December 2018 Emerging Markets Zombie Apocalypse. The recovery continued into February and was further supported by the recent USD 4 bn eurobond issuance. The institute predicts additional issuances worth some USD 3 bn before the year-end.

IIF sees the economy growing at a 5.5% clip in 2019, current account deficit narrowing to less than 2% of GDP: The IIF expects GDP growth to accelerate to 5.5% this year, supported by a shrinking current account deficit to less than 2% of GDP. A continued, steady decline in public debt-to-GDP is also on the cards amid the pickup in growth and “gradual fiscal consolidation.” Other promising indicators include the EGP’s recent appreciation against the USD, Egypt’s healthy foreign reserves position, and a good supply of USD by state-owned banks. That said, the EM selloff caused the consolidated balance sheet of commercial banks to witness a USD 11.3 bn reduction in net foreign assets, leading to a net foreign liability position by the end of 2018.

Work needed to attract non-oil FDI: The government has to do more to attract non-energy foreign direct investment (FDI) to support manufacturing and exports. Egypt has trailed behind other emerging markets in growing its ratio of merchandise exports to GDP. This was reflected in the sharp USD 1 bn y-o-y slump in FDI revealed in the recent central bank balance of payments report, which contributed to the BOP entering a USD 1.77 bn deficit in 1H2018-19.

An IMF delegation will arrive in May to give us our final report card: An International Monetary Fund (IMF) delegation will be in town this May to conduct its final review of the Sisi administration’s reform program ahead of the disbursement of the sixth and final tranche of a USD 12 bn extended funds facility, the IMF’s Egypt Mission Chief and Assistant Director for Middle East and Central Asia Department Subir Lall told reporters accompanying AmCham’s Doorknock lobbying tour of Washington, DC.

The IMF believes the economic reform program in Egypt is going well as indicators including growth and unemployment improve and public debt continues on a downward trajectory. “Continued strong macroeconomic policy should help reduce inflation further and create fiscal room for social policies that effectively target the most needy and greater investment in health, education and infrastructure that will benefit the entire population,” Lall said.

Private sector is the focus now: The reforms were designed to support private sector development to spur inclusive growth, Lall said. Sustaining reforms including the competition policy, public procurement, the management of state-owned enterprises and industrial land allocation is essential “to reduce opportunities for rent seeking and to support strong and inclusive medium-term growth and job creation.”

Energy prices to rise 20.6% this year- Beltone: Energy prices will increase by 20.6% this year as the government pushes ahead with implementing the automatic fuel pricing mechanism, Beltone Financial said in a note on Monday. The investment bank anticipates that an increase of this magnitude will result in a 2.5-3.5% rise in inflation later this year. The government on Monday introduced the mechanism which is designed to allow local prices of petroleum products to reflect changes in the global oil market. Prices could rise by as much as 10% every quarter under the new system.

What does this mean for interest rates? Beltone thinks that a single 100 bps rate cut before the end of the year is the most likely scenario, although it cautions that this will “delay possible domestic investment appetite, leaving economic growth relying mainly on mega-project momentum.” However, depending on the inflation figures over the next two months we might well see a 100 bps cut during the next MPC meeting in May.

Up to USD 80 mn in love for renewables and SMEs. SANAD Fund and Green for Growth Fund (GGF) are planning to finance USD 30-80 mn-worth of Egyptian SMEs and renewable energy projects in the coming period, Mohamed Morsy, the Egypt-based manager of impact investor Finance in Motion, told Al Mal. The funds are also seeking domestic financing to support investments, Morsy said, without providing further details. German-based asset manager and self-styled impact investor Finance in Motion pledged USD 100 mn in funding to support SMEs last year.

Correction: 8 April, 2019

An earlier version of this article mistakenly said the funds are planning to invest USD 30-80 mn in the coming period, implying the proceeds will be used in a direct investment. The funds are rather looking to finance USD 30-80 mn-worth of projects. 

Has the export subsidies flap finally settled? The Export Subsidy Fund’s board of directors has agreed to a general strategy framework for reimbursements in an attempt to increase exports and improve the trade balance, according to a Trade Ministry statement (pdf). The new framework, which will come into effect in the upcoming fiscal year, includes allocating 40% of the fund’s budget to cash-based subsidy payments for exporters, 30% settlements with the Finance Ministry, and 30% in logistical and technological support, the ministry said. The new strategy aims to have exports reach USD 55 bn within the coming five years, from USD 24.8 bn currently, Trade Minister Amr Nassar said. The Fund has been allocated EGP 6 bn in the draft state budget for FY2019-20, Finance Minister Mohamed Maait said. Food Export Council member Karim Abou Ghaly told us back in November that he and his fellow members were waiting for the payout of as much as EGP 3 bn.

MOVES- Capital Group Properties has tapped veteran sales executive Mostafa Salahas its chief commercial officer, local press reports. He joined CGP in February, having left his position as CCO of IWAN Developments.

Debt in emerging markets grew last year at its slowest pace since 2001, adding only USD 1 tn or under a quarter of the average increase over the past five years, according to the Institute of International Finance’s (IIF) Global Debt Monitor. The debt-to-GDP ratio in emerging markets came in at 212% in 2018.

But government debt in emerging markets climbed to a record 49.7% of GDP, with the highest in the Asian and Latin American regions. The increased debt service bills “threatens productive allocation of public resources,” despite low borrowing costs, the report notes.

Egypt — along with Lebanon and Brazil — is one of the countries most threatened by public resource misallocation. The IIF did not take this observation further, but added that some USD 1.7 tn in EM bonds and loans (including Egypt’s) will mature in 2019, making it the most costly refinancing year in a decade. Overall EM debt servicing needs will normalize in 2020, the report adds.

Global debt also grew at a considerably slower rate in 2018 than the year before, with only USD 3.3 tn added globally compared to USD 21 tn. The slowdown was primarily driven by Europe and China, with all of the increase coming in 1Q2018 when debt hit a record high of USD 248 tn. It then fell in the second quarter to reach USD 243.2 tn by the year-end, up from USD 239.9 tn in 2017. The global debt-to-GDP ratio, meanwhile, was left roughly unchanged at 317% — still “very high by historical standards,” the IIF emphasizes.

We’ve created an important rice-sampling technique unique to Umm El Donia: A research center affiliated with the Agriculture Ministry has recently been cooking and taste-testing foreign rice samples for suitability in Egyptian kitchens, according to Reuters. The samples are cooked to perfection, then brought to certified food scientists who grade their color, flavor, and aroma. “It is something that doesn’t happen globally,” rice exporter and importer Moustafa El Naggari said. “In other countries, the cooking instructions are simply written on the packet.”

Leading the conversation on Egypt in the foreign press this morning: UN Secretary General Antonio Guterres met with Al Azhar Grand Imam Sheikh Ahmed El Tayeb yesterday, and expressed his solidarity with Muslims around the world in remarks that denounced hate speech, racism, and anti-Semitism, according to the AP.

Also in the international press this morning:

• Australian-Egyptian detained: Australian-Egyptian Hazem Hamouda’s family is urging Australian authorities to secure his release from Tora Prison, writes ABC net.
• Human rights: With photojournalist Mahmoud “Shawkan” Abu Zeid and activist Alaa Abdelfattah released on probation, the CPJ highlights restrictions the two now face. PEN America’s senior director of free expression programs also comments on Abdel Fattah’s situation in a statement.
• The constitutional amendment roadshow: President Abdel Fattah El Sisi’s planned trip to Washington DC next week is intended to shore up American support for his constitutional amendments, writes the Jerusalem Post.
• The Japanese are coming: Japanese peacekeepers will participate in a non-UN mission in Egypt, commanding the Multinational Force and Observers (MFO), which monitors the peace between Egypt and Israel in the Sinai, according to the Times of Oman.
• Is Egypt’s architectural heritage at risk? The heart of old Cairo may struggle to keep its multicultural heritage alive as focus turns to the new capital, an opinion piece in MySinchew says.

On the front pages this morning: President Abdel Fattah El Sisi summoned Prime Minister Mostafa Madbouly, Central Bank Governor Tarek Amer as well as the planning, trade and public enterprise ministers and directed them to improve monitoring and efficiency of state finances. (Al Ahram | Al Gomhuria | Al Akhbar).

In a two-hour special airing next week, the Discovery Channel will open a sarcophagus in Egypt live on air for the first time. Host Josh Gates, who claims not to be scared of the Pharaoh's curse (does this Orientalist stuff still pass?) expects to find physical remains at the lesser known site they’ll be excavating, which is reportedly home to some of ancient Egypt’s higher class residents (watch, runtime 1:00).

The government and World Bank Group leaders have agreed to exchange expertise in investment dispute resolution techniques, according to an Investment Ministry statement. News came during a visit by a government delegation to the institution’s headquarters in Washington to discuss bilateral cooperation. The delegation was led led by Investment Minister Sahar Nasr, Public Prosecutor Nabil Sadek, Central Auditing Organization head Hisham Badawi, and Egyptian Money Laundering and Terrorist Financing Combating Unit boss Ahmed Said Khalil.

Egypt’s agricultural exports fell to USD 1.01 bn from September 2018-February 2019, down from USD 1.07 bn during the same period the previous year, the Agricultural Export Council announced, according to reports in the domestic press. Around 41% of the exports were shipped out to other Arab countries, down slightly from 48% the previous year.

The Military Production Ministry signed yesterday a memorandum of understanding with Belarusia’s Selenergo to manufacture silos and granaries in partnership with the Helwan Machinery and Equipment Company, according to a ministry statement.

The number of Middle East tourists visiting Egypt is expected to increase by 50% to 2.23 mn by 2022 from 1.49 mn, with Saudis leading the growth, reports the local press. Figures from Colliers International suggest that visitors from the rest of the world are also expected to increase, with the number of European tourists predicted to hit 9.1 mn by 2022, up from 6.2 mn last year.

The Communications Ministry has contracted an unnamed international company to run quality of service (QoS) tests on Egypt’s mobile network this month, Minister Amr Talaat tells Youm7.

The 2016 crash of Paris-Cairo EgyptAir flight MS804 was the result of a mechanical fault brought on by poor maintenance, according to a report by the French justice ministry seen by Reuters. The French BEA air accident investigation agency had previously held that the crash was caused by a fire in the cockpit. Egyptian authorities rejected the claims and maintained their position that a bomb may have been the culprit. The flight went missing in May 2016. Reports emerged afterward that smoke was detected on board.

The Suez Canal Authority denied it has reached an agreement with the Finance Ministry to pay off USD 600 mn worth of the authority’s debt to state-owned banks, according to a cabinet statement. The authority maintained the canal brought in historical revenues in 2018.

Dice Sport and Casual Wear is exploring the possibility of an EGP 100 mn medium-term loan from CIB to partially fund its EGP 140 mn acquisition of a factory from Cairo Cotton, reports Al Mal. Dice will fund the remaining EGP 40 mn from its cash reserves.

Elsewedy Electric agreed this week to pay EGP 1.7 bn in dividends to shareholders at EGP 0.8 per share, according to a company statement (pdf). Elsewedy Electric reported in February a 17.3% y-o-y drop in net profit to EGP 1.5 bn in 4Q2018, down from EGP 1.8 bn in 4Q2017, while revenues for the quarter grew 12.8% y-o-y to EGP 12.2 bn from EGP 10.8 bn in 4Q2017.

The Social Solidarity Ministry aims to cover 4.4 mn families under its social safety net programs Takaful and Karama by the end of 2020, sources told the local press. Cash-based social net programs currently cover 20% of families and individuals who need them, the sources said. Egypt is planning to spend EGP 327.7 bn on subsidies and social welfare payments in FY2019-20, a 3.8% increase from the current year.

A criminal court has sentenced to death a member of the police service charged with murdering a Coptic man and his son last December, Reuters reports. The Grand Mufti has signed off on the sentence, which may still be appealed.

Tickets for the African Nations Cup (AFCON 2019) being hosted in Egypt this summer will be on sale in two weeks, the manager of the tournament's organising committee Mohamed Fadl has said according to Ahram Online.

The art works of several up-and-coming Egyptian artists are being displayed in galleries scattered across Cairo, with styles ranging from bronze sculptures to surrealist paintings. Arab News highlights six of the exhibitions.