Constitutional changes pass referendum

(We’re off for the break and back on 2 May)

Almost 90% of voters backed the constitutional amendments in this week’s three-day referendum, the head of the National Elections Authority announced yesterday. Just over 44% of some 61 mn eligible voters turned out. We have more in this morning’s Speed Round + Last Night’s Talk Shows.

It’s the second and final day for the Arab Federation of Exchanges’ two-day annual conference and the second and final day of the SME governance workshop hosted by the Egyptian Private Equity Association and the IFC.

President Abdel Fattah El Sisi is heading to Beijing for China’s Belt and Road Forum, which begins tomorrow and ends on Saturday. El Sisi is scheduled to meet Chinese President Xi Jinping and Russian President Vladimir Putin during the summit, which will be attended by 40 heads of state.

The Nasdaq and S&P 500 closed at record highs yesterday, with the usual readers of tea leaves suggesting this reflects optimism about an “improving global economy” (just a few weeks after the media was trumpeting the IMF’s warnings to the contrary) and signs that the much-ballyhooed 1Q2019 earnings apocalypse “may not come to pass.” The news is getting plenty of ink at the Wall Street Journal, Financial Times and Reuters.

The passive revolution is reaching critical mass in debt markets, too. “The amount of assets held in exchange-traded bond funds has pushed past USD 1 tn, capping a near fivefold increase since the financial crisis, and underscoring a radical reshaping of the world’s debt markets.” Equity ETFs “continue to dominate the USD 5.6 tn assets industry,” Financial Times adds, but the rise in fixed-income ETFs suggest investors have “become increasingly comfortable using such vehicles as tools for trading, and to build up broad bond portfolios.” You can look at the origins of the bond ETF revolution here in the salmon-coloured paper in a piece penned by former Mideast correspondent Robin Wigglesworth.

Early retirement might not be all it’s cracked up to be, according to a Debbie Downer of a Wall Street Journal piece. Research suggests that health problems intensify after early retirement and abate after policies encouraging work are introduced. Lack of physical activity, social isolation, and financial insecurity are just some of the possible characteristics of early retirement that can wreak havoc on a person’s health. Read this alongside the NYT’s piece on the need to rethink retirement, which notes that in a world in which folks are living longer, “A 30-to-40-year retirement is very different than a 10- or 20-year retirement.”

Also: Why “finding your passion” is such terrible advice, wherein the New York Times pours cold water on a generation of guidance counsellors and self-help gurus with its very sensible caution that just like toddlers learning how to walk, we need to accept the “hard truth … that we’re pretty bad at most things when we first try them.”

Randomly noted: It’s grandparents vs. parents in the battle over how much screen time the kiddies should get, courtesy the Wall Street Journal.

The Darwin Awards: More than 250 people died between 2011 and 2017 while stepping in front of the camera for a selfie. Outside magazine has an oddly engrossing take.

*** Enterprise is taking a few days off. We hope you are, too. We’ll be back in your inbox at the usual hour on Thursday, 2 May.

The EGX and banks are closed tomorrow through Monday (25-29 April) in observance of Sinai Liberation Day, Coptic Easter and Sham El Nessim. Markets will then close again on Wednesday, 1 May, in observance of Labour Day.

A very Happy Easter to all those who are celebrating. And forgive us, mothers-in-law everywhere, for we shall not partake of fiseekh or ringa the next day.

Look for the EGX and banks to move to shortened Ramadan hours on or about Monday, 6 May, which the National Astronomy Institute suggests will be the first day of the Holy Month.

We’ll have pleasantly hot weather over the break, with the mercury set to rise from 30°C today to 36°C on Easter Sunday before settling in to a range of 32-34°C through the first week of Ramadan. Feels like the start of summer to us.

Yesterday’s referendum results — which we recap in full in this morning's Speed Round, below — were the topic of the night on the nation’s airwaves. Al Hayah Al Youm broadcast National Elections Authority Chairman Lashin Ibrahim’s final announcement (watch, runtime: 2:31).

Voter turnout rate was higher than in both the 2012 (32.9%) and 2014 (38.6%) constitutional referendums, Youm7 Managing Editor Mahmoud Saad El Din told Al Hayah Al Youm’s Khaled Abou Bakr (watch, runtime: 2:15). Saad El Din took pains to note that the number of valid votes cast this week was higher than in the 2018 presidential race.

Women deserve their quota: Abu Bakr’s co-host, Lobna Assal, interviewed the National Council for Women’s Rania Yehia, who talked up the role of women in the referendum. The host also welcomed the new 25% quota for women in the House of Representatives introduced by the changes (watch, runtime: 38:31). Al Siyasa Al Dawliya Editor-in-Chief Ahmed Nagy then chimed in to laud the role of women in Egyptian society (watch, runtime: 1:37). Nagy also noted that 2019 marks the 100th anniversary of a women’s empowerment movement in Egypt sparked by the 1919 revolution.

An infographic released by cabinet yesterday that recapped Egypt’s recent credit rating upgrade by Fitch Ratings and Moody’s also got some air time on Al Hayah Al Youm. Both agencies gave the country props (tap or click here for Moody’s graphic or here for Fitch). Hona Al Asema’s Lama Gebreil phoned Egyptian Center for Economic Studies director Abdel Moneim El Sayed for his two cents (watch, runtime: 5:23).

We have a new constitution: Some 88.83% of participating voters cast ballots in favor of amending the constitution, chairman of the National Elections Authority Lashin Ibrahim announced at a press conference yesterday evening. The turnout rate was one of the highest in the past decade, he said, with 44.3% of the 61 mn eligible people turning out to vote. A little over 27.2 mn votes were cast, of which around 3% were spoiled. “These [changes] are effective from now as your constitution,” Ibrahim said, before claiming that Egypt is now “consolidating democracy.”

President Abdel Fattah El Sisi took to Twitter following the announcement, praising Egyptians for “dazzling the world with their awareness of the challenges” facing the country.

What happens now?

• Presidential terms will be extended to six years with a two-term limit. In practical terms, that means voters next head to the polls to choose a president in 2024. Under a transitional clause, El Sisi will have the option of standing for a third and final term, potentially allowing him to remain in office until 2030.
• We get a senate: A 180-member upper house of parliament will be reinstated as a senate (replacing the disbanded Shura Council). As was the case with the Shura, one-third of members will be directly appointed by the president. The senate will be responsible for approving government policy and ratifying international treaties.

Other constitutional changes:

• The return of the office of vice president could see Egypt with one or more VPs;
• Women are guaranteed 25% of all seats in the House of Representatives;
• The president will have new powers to appoint judges and the prosecutor general;
• The army’s position as the protector and guarantor of the state, the constitution and the people is now enshrined.

You can read our full breakdown of the amendments here.

The referendum results are all over the foreign press this morning, with many stories being particularly balanced in their coverage (see: France24, FT and Deutsche Welle). Bloomberg describes the “hyped” referendum campaign as “three days of festivities,” while the New York Times says the amendments are “new muscle” for the president, focusing on the allegations of vote buying and the opposition to the changes. Wire stories from the Associated Press and Reuters have also been picked by the NYT and the Washington Post. You can also find coverage in the Wall Street Journal, Euronews, Voice of America and the Guardian.

Moody’s upgrades credit ratings of five local banks, with stable outlook: Moody’s has upgraded our friends at CIB along with Banque du Caire, the National Bank of Egypt, Banque Misr, and Bank of Alexandria’s credit ratings, the agency said in a statement. The first four banks saw their long-term local-currency deposit ratings improve to B2 from B3, while Alexbank rose to B1 from B2. The agency changed its local currency deposit outlooks for all banks to stable from positive. The banks also saw their long-term foreign currency deposit rating upgraded to B3 from Caa1.

Moody’s has also upgraded the banking sector’s macro profile to Weak from Very Weak, following last week’s sovereign credit upgrade to B2. This reflects the strengthening economic fundamentals and improving operating conditions in the banking sector.

Egypt’s macro profile is being held back by low income levels, high unemployment and tight credit conditions, Moody’s said. Credit remains restricted due to a high concentration of borrowers, legal gaps for secured lending and a growing number of high-risk SME loans.

INVESTMENT WATCH- Sawari Ventures to deploy c.USD 70 mn across North Africa over four years: Egyptian venture capital firm Sawari Ventures plans to invest close to USD 70 mn in high-growth tech and tech-enabled companies in Egypt, Tunisia and Morocco over the next four years, partner Wael Amin tells Disrupt Africa. Sawari raised its latest fund, which closed with commitments of USD 35 mn in December, from institutions including the European Investment Bank, the UK’s CDC, the French Development Agency’s private-sector financing arm Proparco, the Dutch Good Growth Fund (DGGF), the National Bank of Egypt, Banque Misr and Banque du Caire.

Amin sees strong investment prospects for the region, with governments beginning to see the economic value of startups in driving job creation. While the startups themselves are powered by talented entrepreneurs and the promise of digital transformation looms large across the region, he says that what is really lacking is the capital that allows startups to innovate and grow. Sawari likes: finance, education, healthcare, energy and logistics.

Funding for startups in Egypt is growing at a notable rate, even when compared with regional leaders Kenya, Nigeria and South Africa, according to Partech Africa’s 2018 report. Total startup funding in Egypt in 2018 rang in at USD 67 mn, up from USD 36.9 mn in 2017. Last year saw 19 funding rounds close, up from 14 in 2017. Both the 2017 and 2018 reports note that Egypt is closing the funding gap with the regional leaders, which collectively have attracted 78% of startup funding invested in Africa in both years.

Everybody loves fintech, the report suggests — specifically plays on financial inclusion.

You can read the full report here (pdf).

If we’re going to be big in fintech, we first need to embrace regtech and govtech, says World Bank’s Mohieldin: Arab governments and regulators need to catch up quickly if they’re going to keep pace with innovations in fintech, Mahmoud Mohieldin, senior vice president at the World Bank, said at the Arab Federation of Exchanges’ annual conference, which we attended yesterday. That means developing a tech foundation for regulatory processes in the financial industry, he said, while governments need to both put in place locally relevant policies while continuing to digitizing their economies, he said.

Reps from international bourses stress smart regulation to encourage more listings: Market regulators need to strike a balance between regulation and deregulation to maintain companies’ interest in listing on stock exchanges, panelists representing Nasdaq, the S&P, Dow Jones, and World Federation of Exchanges said during the conference. Meyer Frucher, vice chairman at Nasdaq Group, said stock exchanges can add value for companies through top-notch trading facilities and a broader range of services, which he said is instrumental to attracting businesses to the capital market despite the additional regulatory burden. Frucher warned against cases where regulators “get lazy” and fail to provide the right conditions.

That’s not to say regulation is the boogeyman: Relaxing regulatory requirements for companies seeking to list on stock exchanges is not necessarily the way to go when looking to prop up capital markets, CEO of the World Federation of Exchanges Nandini Sukumar said. Whichever way you slice the cake, companies that list are better regulated, more accountable, and more visible, Sukumar said, suggesting that increased disclosure requirements for unlisted companies could also be beneficial.

Are exchanges doing it right for SMEs? Supporting SMEs and bringing them into capital markets will only happen with the right support from policymakers, said EBRD’s head of equity capital markets Hannes Takacs. “There is interest from SMEs [to list] but they need someone to take them by the hand,” Takacs said. SMEs lack familiarity with capital markets and there’s not enough research available on the companies, making it difficult for investors to get transparency on the market. Regs are also currently based on a “one size fits all” mentality, which sometimes squeezes out SMEs.

Investors are “missing out on future IBMs” by not kicking the tires of small-ticket SMEs, Takacs said. This gap requires a new breed of informed investors who can take calculated risks and invest in high-growth, but high-risk, SMEs, added Rachana Bhusari, VP-SME at the National Stock Exchange of India. Regulators play a role in creating the right conditions that facilitate SMEs’ access to financing, but these companies must also understand that improved corporate governance as part of being a listed entity will open the door down the road for better financing options.

AI and fintech in the future: Artificial intelligence is set to change fintech and how banks and the non-bank financial industries operates, panelists agreed. On the one hand, AI will create more cost-effective channels for financial institutions to reach unbanked populations, said Chief Global Transaction & Digital Banking Officer at CIB Mohamed Farag said. On the other hand, AI and fintech will turn conventional financing into a dinosaur, added Ahmed Darwish, head of product at EFG Hermes’ valU. Those in the finance industry will thus need to find a way to add value to the system using AI or by otherwise creating an edge, said our friend Ahmed El Alfi, cofounder and chairman of Sawari Ventures.

MOVES- The always-on-point Mohamed El Erian (LinkedIn) has been appointed as a part-time senior adviser at Gramercy Fund Management, according to a press release. A four-time member of Foreign Policy’s Top 100 Global Thinkers and author of When Markets Collide and The Only Game in Town, is chief economic advisor at Allianz and was previously CEO and co-CIO of PIMCO. Gramercy is a USD 6 bn EM investment manager which “offers both alternative and long-only strategies across all emerging-market asset classes.”

MOVES-  Management expert Sherif Kamel has been appointed president of the American Chamber of Commerce in Egypt for the next two years, reports Ahram Gate. Kamel holds a PhD from the London School of Economics and served as the founding dean of the School of Business at the American University in Cairo.

MOVES- Banque du Caire Chairman and CEO Tarek Fayed has been named to the Union of Arab Banks’ (UAB) board of directors for a term ending in 2022, Masrawy reports. Banque Misr Chairman Mohamed El Etreby remains vice chairman of the board.

EARNINGS WATCH- Etisalat Misr reported revenues of c.EGP 3.5 bn (AED 755.3 mn) for 1Q2019, a 16.7% increase compared to the same period last year, the company said in its earnings report (pdf).

The MENA region is collectively investing nearly USD 1 tn in energy from 2019-23, the majority of which is being channeled into the power sector, the Arab Petroleum Investments Corporation (Apicorp) says in its 2019 MENA Annual Energy Investment Outlook (pdf). The total investment figures are 5% higher than Apicorp’s estimates in 2018, including a 7% y-o-y increase in planned investments and a 1% y-o-y increase in committed investments. “The surge in planned investments signals a healthier investment climate supported by robust macroeconomic growth and reconstruction needs. It also reinforces the commitment of many countries to push through ambitious visions and medium-to long-term energy sector strategies.”

Upstream gas, power, and petrochem investments reign supreme in Egypt: Egypt is expected to prioritize investments in upstream gas and power to meet rising demand, whereas the general trend in the region will see “a greater transition towards gas, downstream and petrochemicals sector, and significant renewable energy additions.” Egypt is also doubling down on investment in petchems, accounting for nearly half of the USD 33 bn in committed investments in the sector across the region. The remaining petrochem investments are concentrated in Saudi Arabia, Iran, and Oman.

Where does the private sector fit into all of this? “Substantial output is required from the private sector” to support the development of the energy sector, which “finds itself competing with governments’ multiple priorities,” Apicorp says. Non-government investments in the energy sector increased to 22% in 2019, while government-led investments have narrowed slightly to 78%, from 80% last year. Private sector investment in Egypt has risen to account for 28% of total investment in the country’s energy sector. This figure trails behind regional peers such as Tunisia and Morocco, which “rank the highest with the private sector accounting for 68% of total planned and committed energy investments, followed by Jordan at 46%.”

The results of the nation’s referendum on constitutional amendments dominates the discussion on Egypt in the international press as we head into this holiday weekend. We have more in Speed Round, above.

The African Union summits held in Cairo yesterday to discuss developments in Sudan and Libya top the government-owned dailies this morning (Al Ahram | Al Gomhuria | Al Akhbar). We have more in Diplomacy + Foreign Trade, below.

African leaders gave Sudan’s ruling military council a three-month ultimatum to “implement democratic reforms” during a summit in Cairo yesterday, according to an Ittihadiya statement. The African Union had originally given the country a 15-day deadline to transfer power to civilians or face suspension from the organization. A suspension would hamper Sudan’s efforts to improve its international reputation and access economic aid needed to keep the country afloat, the newswire noted.

President Abdel Fattah El Sisi also chaired a separate AU Troika summit to discuss the current situation in Libya. El Sisi, together with the Congolese, Rwandan and South African presidents, called for an immediate ceasefire between the warring factions in the country.

State-owned Assiut Oil Refining Company (ASORC) is building a USD 450 mn facility to produce high octane fuels with a total capacity of 660k tonnes a year, ASORC head Mahmoud El Shaboury said. El Shaboury didn’t specify a time, but added that the project is currently 40% complete. Assiut National Oil Processing Company — a company founded last year by ASORC, the EGPC and other government-affiliated entities — is also gearing up to break ground on a USD 1.9 bn hydrocracking facility, but is still in the early design and financing phase. We noted earlier this year that the Oil Ministry is working to improve the quality of produced fuels, which will see the government spend USD 9 bn on upgrading refineries.

Electricity Minister Mohamed Shaker met yesterday with the head of the Japan Bank for International Cooperation (JBIC) to discuss cooperation between the two entities, according to a cabinet statement. No further details of their discussion were disclosed.

The Supply Ministry has warned local farmers it will not purchase wheat with moisture levels beyond what is allowed, it said in a statement picked up by Reuters yesterday. The ministry said cold weather and other climate change-related factors have resulted in higher levels of moisture in some of the crop sold to the government.

Cotton prices are expected to reach EGP 2.7k per qintar this season,up from 2.4k last year, head of the Egyptian Cotton Exporters Union Azza El Qabari said, according to Al Mal. Egypt is expected to plant 200k feddans of the crop this season (1.4 mn qintars), down from 336k feddans (2.5 mn qintars) last year. The cotton cultivation season began in mid-March and will continue until June.

Eight mills in Egypt have stopped rebar production following a decision by the Finance Ministry to impose a 15% duty tax on steel imports, reports Argus. The decision aims to reduce the reliance on steel imports and encourage local manufacturing, but local producers suggest they cannot remain competitive with the increase in production costs.

The General Authority for Freezones and Investment (GAFI) is setting up a JV with unnamed private sector companies to act as an industrial developer for land that will house textiles and readymade garment manufacturing facilities, according to Al Mal. This comes as the Port Said Investors Association is currently looking into establishing a textiles public freezone for Chinese companies.

A Greco-Roman era tomb was discovered in Aswan yesterday by an Egyptian-Italian archaeological mission working at the Aga Khan Mausoleum area, a senior official in the Antiquities Ministry told Ahram Online. The tomb was found largely intact with several coffins, 30 mummies and other artifacts.

Transport Minister Kamal El Wazir met yesterday with a delegation from Chinese telecoms and electronics manufacturer Huawei to discuss ways to integrate communications technology into the transportation sector, according to a ministry statement.

Prime Minister Moustafa Madbouly called for the opening of a Banque Misr branch in Somalia during a meeting with the Somali foreign minister on Sunday, Mogadishu-based outlet Shabelle reports. Madbouly emphasized that the presence of the state-owned lender in Somalia would be beneficial to financial and trade relations between the two countries.

Banque du Caire is planning to set up a company specialized in banking security and money transfer services through its employee contribution fund, according to Masrawy. The company will have initial capital of EGP 5 mn, and will be 70% owned by the fund and 30% by an unnamed government body.

Five consortiums of local and international companies have submitted financial and technical offers to set up the necessary infrastructure to protect the USD 30 bn Dabaa nuclear plant from groundwater in the first major tender for the plant by Russia’s state-owned nuclear company Rosatom, according to Al Mal. The consortiums included Orascom Construction, Arab Contractors, Bachy Soletanche Limited, and partnerships between Petrojet and APCC, and Hassan Allam and German Power. News of the tender comes days after the Nuclear Power Plants Authority (NPPA) compiled a list of Egyptian companies that could subcontract with Rosatom to work on the plant.

The National Bank of Kuwait has appointed deputy managing director and board member Yasser Al Tayeb as the acting CEO and managing director following the departure of Yasser Ismail Hassan, sources inside the bank tell Masrawy.

The Central Bank of Egypt signed on Monday an MoU with AfreximBank and the Egyptian Banking Institute on technical training for staff in African central and commercial banks, according to Al Masry Al Youm.

Former Squash world number one Ramy Ashour publicly announced on Monday his retirement from the professional game. Ashour, who has struggled with injuries for years, is widely recognized as one of the most talented players on the professional circuit, having won a total of eight world championships at the junior and senior levels.

The government is working on a plan to enlist the private sector to renovate and lease out some 150 ailing early 20th century buildings in Cairo, Alexandria and Port Said, Public Enterprises Minister Hisham Tawfik said during a business conference, according to Reuters. The Insurance Holding Company, which owns some 150 buildings “classified as historic,” has already wrapped up its studies of the plan, which will follow the model pioneered by private sector outfit Al Ismaelia for Real Estate Investment. Al Ismaelia has bought 23 buildings in Downtown Cairo. “They take the buildings, they settle with individuals or companies who are renting these apartments, they do the necessary renovations, inside and outside, and they simply rent them to the private sector,” Tawfik said. “And they are making some decent returns on their investment.”