Tuesday, 7 May 2019

FinMin said to be studying cap on healthcare tithe

TL;DR

What We’re Tracking Today

Welcome to one of the slowest news days of the past year, ladies and gentlemen.

We hope your first day of fasting passed smoothly yesterday — only have 29 more days to go. In the meantime, the Associated Press brings us a rundown of key facts about the holy month that you can forward to foreign friends who ask basic questions: “Not even water?”

All quiet on the news front: We should get April inflation figures on Thursday, but apart from that our diary is looking fairly empty for the rest of the week.

US stocks made a “big comeback” yesterday after opening deeply in the red on fears that the China-US trade war is taking a turn for the worse. Weekend tweets from The Donald threatening new tariffs sent the market into an early tailspin, but traders shrugged off concerns as the session wore on. Analysts suggested that “the fact the stock market is near all-time highs and has been performing well may have provided some latitude for Trump,” CNBC reports. See also coverage in the Wall Street Journal. Trump is apparently upset that China “reneged on [earlier] trade commitments” in the course of negotiations, the New York Times says.

But emerging markets need to brace themselves for a hit, the pundits warn. Regardless of what happens this week, yesterday was a warning that investors are going to be looking to shed risk in the coming period, BNY Mellon’s Liz Young said in a particularly cogent appearance on Bloomberg yesterday (not posted to the website as of dispatch time this morning). The riskoff and the prospect that the USD will strengthen amid trade turmoil are together bad news for EM, Young said, adding that BNY still likes emerging markets “in the second half of this year.” EM strategists at SEB in Stockholm and Societe Generale in Singapore agree that the brewing trade tensions “throw a monkey wrench into the EM trade,” Bloomberg reports (more here and here).

Egyptian shares posted their biggest decline so far this year in very light trading yesterday, with all but three constituents of the EGX30 closing in the red. Saudi Arabia also closed down yesterday, but look for one theme in the coming months: Investors getting out of Turkey and into KSA. How much of the excess liquidity spills into Egypt is the open question.


Central bankers in Lebanon are on strike over threatened cuts to public spending, the Financial Times writes, with an open-ended walkout that started on Saturday “forcing the country’s stock exchange to close and commercial banks to limit cash withdrawals on Monday.” Reuters has extensive coverage here.

Also on strike: Uber drivers in seven major US cities, who are planning to walk off the job for two hours on Wednesday morning ahead of the ride-hailing company’s IPO on Thursday, according to Reuters. The drivers are taking action against what they claim are unfair working conditions, a taxi union said.

As a species, we are truly horrible for the planet. Only a “‘transformative change’ in every aspect of how humans interact with nature” will prevent as many as 1 mn animal and plant species from going extinct. “Nature everywhere is declining at a speed never previously seen and our need for ever more food and energy are the main drivers,” the BBC reports, citing a new UN study out yesterday. See the New York Times and Nature for more. We have an extended take in our Worth Reading this morning.


The celebrity news world is abuzz with the arrival of Prince Harry and Meghan Markle’s first child. The newborn boy is now seventh in line to the British throne, the New York Times notes. Newborns in the royal family are usually the subject of “uncommon fascination,” but the Duke and Duchess of Sussex’s son is also significant due to his being “the first multiracial baby in the British monarchy’s recent history.”


What we’re tracking today, the Ramadan Edition:

A pre-iftar reading list to kill time between your post-workout shower and the breaking of the fast:

  • Required reading for all dog owners, current and future: There is no such thing as a “good dog,” only “good dog owners.” Among the simple commandments for happy dogs and owners: Socialization, training, exercise, love, and trust. (Outside)
  • People stay in jobs for a long time because they “fit” with their workplace culture and because they share their employers’ values, Michael Skapinker writes in his latest column for the Financial Times, riffing on a study coming out of the Stanford Graduate School of Business.
  • Do you *really* want to become a manager? The Know Your Team blog has six reasonable questions any person should ask before deciding they want to become a boss at any level.
  • Alyssa Milano’s improbable journey from child star to A-List activist, in the Washington Post.

RAMADAN PSA #1- Bank hours at 9am-2pm for employees; doors are open from 9:30am until 1:30pm for customers. The trading day at the EGX runs 10:00am until 1:30pm.

RAMADAN PSA #2- The weather takes a turn for the better today, with sunny skies and a high of 30°C in the forecast after the hot mess that was yesterday. Look for pleasant weather to continue through Saturday, our favorite weather app suggests.

So, when can we eat? Maghrib is at 6:36pm CLT today in Cairo. You’ll have until 3:30am tomorrow morning to caffeinate / finish your sohour.

Enterprise+: Last Night’s Talk Shows

Nothing to see here, ladies and gents. The talking heads are on hiatus for the month of Ramadan. While we are eternally grateful for the month-long break from listening to them drone on, we’ll still keep one eye on the airwaves to bring you anything worth noting.

Speed Round

Speed Round is presented in association with

EXCLUSIVE- FinMin studies setting a ceiling on healthcare tithe next year: The Finance Ministry is studying a proposal that would set a limit on the healthcare tithe paid by businesses to fund the new universal healthcare system, a senior official from the Finance Ministry told Enterprise on Monday. Under the measure now being considered, businesses would still pay the 0.25% levy on revenues, but the payment would be capped at an amount equivalent to 1.5% of total net profits, the source said.

The proposal would also see lossmaking companies making a basic contribution. Any company making a loss on its books will have to pay an EGP 1,000 healthcare tax for the year. Sole proprietorships (companies owned and operated by one person) making a loss would have to pay a minimum tax of EGP 100. The ministry decided against exempting loss-making companies from the tax as it could “open the door for tax fraud,” the source added.

A concession to appease the business community: The proposal was drafted as a sop to the business community, which had been advocating for the 0.25% levy to be transformed into a surtax on pre- or post-tax profits. This proposal is expected to reduce their tax burden, the official said. He hinted that this year’s take from the healthcare tax had fallen short of projections. “We were unable to explore these amendments for the current fiscal year as the timeframe of implementing the tax has not allowed us to,” he added. If enacted, these proposed amendments to the healthcare tax would go into effect in FY2019-2020.

BUDGET WATCH- Let the horse-trading begin: The Education Ministry wants an additional EGP 11 bn in FY2019-20 budget. The annual public jockeying to increase the government’s budgetary earmarks for education has begun, with the Education Ministry asking the Finance Ministry for an additional EGP 11 bn, House Planning and Budgeting Committee Chair Yasser Omar tells the local press. The additional allocation would bring the ministry’s budget to EGP 110 bn. The Finance Ministry has demurred, the domestic press adds, leaving the heroes from the House of Representatives to mediate between the two ministries. The rather breathless piece cites an unnamed committee member as saying the House will back the Education Ministry.

On a less sensationalist note: It’s not entirely clear whether the current budget allocation meets the constitutional requirement for education spending. The constitution requires the government to spend the equivalent of 7% of GDP on education and 3% on healthcare. A government source had previously told Enterprise that the draft FY2019-20 state budget should meet the constitutionally mandated minimums. According to Omar, the spending requirements for next fiscal year are calculated based on the current fiscal year’s GDP, making the current allocations constitutionally sound. However, the unnamed committee member claims that the current earmark falls short at the equivalent of 2.6% of GDP.

REGULATION WATCH- Tweaks to regulations on how preferred shares (or preference shares, if you prefer) work: The General Authority for Freezones and Investment (GAFI) has issued regulations for issuing preferred shares when establishing a new company or increasing the capital of an existing stock or shareholding company, it said in a statement. The regulations include a requirement for companies to stipulate in their articles of association the privileges enjoyed by preferred shareholders. The regulation caps preference share voting rights at 2:1 and stipulates that the granting of 2:1 voting rights need to be approved by an extraordinary general assembly.

What’s preferred stock? Preferred stock can entitle holders to extra votes, additional dividends or special treatment when a company is liquidated, among other things. So far as we can tell, companies were given the ability to create preferred stock as part of changes to the Companies Act (law 159 of 1981) back in January 2018.

REGULATION WATCH- Regulators are considering lowering fees on stock market transactions in an ongoing effort to mitigate the effect of a rising stamp tax, which is set to increase to 0.175% from 0.15% on 1 June, sources close to the matter told Al Mal. The Financial Regulatory Authority, the EGX, Misr Central Clearing, Depository and Registry and the Investor Protection Fund are all looking at ways of keeping fees in check, the newspaper suggests. The FRA last year approved a minor cut to transaction fees for brokerage houses and custodians to offset the annual stamp tax increase.

Correction: 7 May 2019.

An earlier version of this article incorrectly stated that stamp tax will increase on 17 May.

Intro Energy inaugurates 5 MW solar power plant in Sharm El Sheikh: Intro Group subsidiary Intro Energy, along with co-developer Gila AlTawakol Electric and technical partner Schneider Electric, have inaugurated a 5 MW solar power plant in Sharm El Sheikh, according to an emailed statement (pdf). The facility, which was set up under the feed-in tariff system, “brings online c. 10 GWh of electricity and serves over 2,000 residential units, reducing annual carbon emissions by 3,506 tons.” Intro Energy and its partners are currently working on plans to increase the facility’s capacity to 40 MW. The 5 MW marks the first step “toward the construction of a comprehensive, large-scale presence as a platform for renewable energy solutions in the region,” Intro Group Chairman Mamdouh Abbas said.

The government sold USD 1 bn worth of USD-denominated treasury bills at an auction on Monday, according to the central bank’s website. The one-yearbills were sold at an average yield of 3.897%. The auction will be settled today.

EARNINGS WATCH- EGX-listed Global Telecom Holding (GTH) reported a net profit of USD 51 mn in 1Q2019, up 61.2% y-o-y from USD 32 mn last year, the company said in a statement (pdf). Reported revenues fell 1.6% y-o-y to USD 688 mn, while organic revenues rose 12.8% y-o-y. Organic revenues only account for sales and output growth generated by the existing business, and excludes earnings from takeovers, disposals and mergers and acquisitions. CEO Vincenzo Nesci said the fall in reported revenues was due to “adverse currency movements” of the PKR against the USD. The growth of the company’s customer base was maintained through the quarter, with total customers reaching 107.3 mn.

MOVES- Hayrullah Hakan Gürdal has been appointed as Chairman of Suez Cement Company,succeeding Omar Mohanna, the company said in an EGX disclosure (pdf).

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The Macro Picture

EM governments face dramatically higher interest burden amid borrowing spree: Interest owed by emerging-market governments has risen dramatically over the past decade as borrowing levels soar, the FT writes. Statistics published by the Institute of International Finance (IIF) shows that debt-to-GDP levels among developing economies has risen to 49.7% in 2019 from 34% in 2008. Total debt owed by emerging markets has risen more than 500% since 2002. As of this year, EM governments are USD 15 tn in debt, up from just USD 2.9 tn 17 years ago. “The dramatic increase in the stock of government debt over the past decade has resulted in a big jump in government interest expenses in some jurisdictions which could mean more pain for future taxpayers while crowding out vital public investment,” Emre Tiftik, deputy director of global policy initiatives at the IIF, said.

Worryingly, these figures don’t include off-balance sheet liabilities such as pensions, public / private partnerships and credit guarantee programs. “When you incorporate those, these figures might become more scary,” Tiftik said.

It’s not so bad for Egypt, according to the IMF’s crystal ball: Egypt’s debt-to-GDP ratio is set to decline over the coming years, despite a substantial rise in interest payments, according to IMF forecasts released in April. The government’s interest bill is projected to rise by around EGP 140 bn to EGP 575.7 bn between fiscal years 2017-18 and 2022-23. However sustained economic growth will mean that our debt interest-to-GDP ratio will fall to 6.0% from 9.9% over the same period.

Egypt in the News

The Ramadan news slowdown is upon us, blessing us with a relatively quiet morning for Egypt in the foreign press. Perhaps the only Egypt-related story worth noting is

Worth a read is this New York Times piece looking at how the Trump administration’s stance on the Ikhwan and Libya has shifted under pressure from Egypt, Saudi Arabia, and the UAE. According to the Gray Lady, US President Donald Trump had been mulling designating the Ikhwan as a terrorist group within days of assuming the presidency, but was reined in by former advisors such as Defense Secretary Jim Mattis and Secretary of State Rex Tillerson. El Sisi, the newspaper says, “found himself pushing on an open door” when he urged Trump to revive the move when the two met last month at the White House.

Elsewhere, Egypt’s decision to turn down Trump’s so-called “Arab NATO” is dissected in this Modern Diplomacy story in which Mohamed Maher says the decision was due to regional tensions, differing priorities, and a lack of formal structure.

On The Front Pages

El Sisi urges better water rationing, meets EU development chief: President Abdel Fattah El Sisi calling on his government to step up efforts to conserve water leads the front pages of two of Egypt’s main dailies, Al Ahram and Al Gomhuria, this morning. The president’s meeting with Neven Mimica, the European Commissioner for International Cooperation and Development, is front and center on Al Akhbar.

Worth Reading

Human activity could wipe out 1 mn animal and plant species in the coming decades, a landmark UN report has found. The 1,500-page report, which is based on thousands of scientific and government sources, is the most comprehensive study of its kind ever undertaken, forensically examines our impact on the planet’s biodiversity. According to its findings, changes in land and sea use are having the biggest direct impact on our ecosystems, while the exploitation of organisms, climate change, and pollution are also exacting a heavy toll. Rising populations, increasing consumption, technology, and governance are some of the most impactful indirect causes.

We’re going to have to step up our game if we’re going to prevent widespread ecological destruction: Global environmental targets will not be met if we maintain our current trajectory, the report says. The 2020 Aichi targets to limit damage to biodiversity are likely to be missed, and current goals for 2030 will not be achieved unless the international community acts to fundamentally transform our economic, social, political, and technological systems.

The summary of the report was published in Paris on Monday, and the full document will be released later this year.

The report is everywhere in the global press: Washington Post | New York Times | Associated Press | Reuters | Bloomberg | BBC.

Worth Watching

How humans “harnessed thin air to feed bns” — and created chemical warfare in the process: The human population has grown at a dizzying rate over the past century, due in large part to advancements in agricultural technology. As it became evident in the 19th century that nitrates and ammonia (found in manure) are key to increasing agricultural output, German scientists went to work to find sustainable sources of the gases, Bloomberg tells us. Fritz Haber and Carl Bosch eventually developed a process to convert the nitrogen found in air into ammonia, which significantly increased humans’ ability to grow food. The history behind fertilizer production gets interesting around the start of WWI, when Germany began using the Haber-Bosch process to make explosives — essentially making the chemists the founding fathers of chemical warfare (watch, runtime 5:16).

Diplomacy + Foreign Trade

Egypt has reportedly brokered a ceasefire in Gaza, with the assistance of the UN and Qatar, the BBC reports. The truce comes following a flare-up in violence over the weekend after Palestinian forces fired rockets into southern Israel.

El Sisi talks migration, terrorism with EU development chief: President Abdel Fattah El Sisi discussed terrorism and illegal migration issues yesterday with Neven Mimica, the European Commissioner for International Cooperation and Development, according to an Ittihadiya statement.

Energy

Electricity ministry explores cooperation with Sweden

Deputy Electricity Minister Osama Asran met with Swedish Energy Minister Andres Ygeman to discuss potential cooperation in developing smart grids and power transmission facilities, reports the local press.

Manufacturing

Saudi’s Al Fanar considering setting up two factories in SC Economic Zone

Saudi Arabia’s Al Fanar is mulling investing USD 200 mn in establishing two factories to produce cables and electric circuit breakers in the Suez Canal Economic Zone, Al Fanar Energy CEO Gamal Wadi told the local press. The company has been in talks with officials and begun feasibility studies.

SPP Pumps to partner with gov’t on pumps factory in Egypt

India’s Kirloskar Brothers subsidiary SPP Pumps is considering entering a partnership with the government to set up a factory to manufacture pumps, General Manager Mohamed Hassan tells Al Mal. The factory is expected to obtain 50% of its raw materials from local sources. No further details on the project were provided.

Real Estate + Housing

Mariout Hills announces EGP 2.4 bn “eco-city” on Egypt’s north coast

Mariout Hills Development is launching their first “eco-city” on Egypt’s north coast, with estimated investments of EGP 2.4 bn during the project’s first phase, Chairman Ahmed Hassan announced, according to the local press. The development, which comprises residential units as well as medical tourism, sports, and educational services, will be powered by solar energy with potable water through condensation units.

Automotive + Transportation

Egypt to issue temporary licenses for electric vehicles

The Interior Ministry will begin providing electric car owners temporary license plates and registration until it introduces permanent licensing for the vehicles, the ministry said in a statement. We noted last December that a government committee is working to prepare a legislative framework for the vehicles, including a single mechanism in government offices for licensing.

The Market Yesterday

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EGP / USD CBE market average: Buy 17.10 | Sell 17.20
EGP / USD at CIB:
Buy 17.10 | Sell 17.20
EGP / USD at NBE: Buy 17.10 | Sell 17.20

EGX30 (Monday): 14,205 (-2.1%)
Turnover: EGP 312 mn (63% below the 90-day average)
EGX 30 year-to-date: +9.0%

THE MARKET ON MONDAY: The EGX30 ended Monday’s session down 2.1%. CIB, the index heaviest constituent ended down 2.1%. EGX30’s top performing constituents was Oriental Weavers up 0.4%. Yesterday’s worst performing stocks were Ezz Steel down 6.5%, Egyptian Iron & Steel down 5.5% and Emaar Misr down 4.8%. The market turnover was EGP 312 mn, and regional investors were the sole net sellers.

Foreigners: Net Long | EGP +23.0 mn
Regional: Net Short | EGP -25.8 mn
Domestic: Net Long | EGP +2.8 mn

Retail: 56.0% of total trades | 51.6% of buyers | 60.5% of sellers
Institutions: 44.0% of total trades | 48.4% of buyers | 39.5% of sellers

WTI: USD 62.54 (+0.97%)
Brent: USD 71.07 (+0.31%)

Natural Gas (Nymex, futures prices) USD 2.52 MMBtu, (-1.79%, Jun 2019)
Gold: USD 1,282.30 / troy ounce (+0.08%)

TASI: 9,043.22 (-1.48%) (YTD: +15.54%)
ADX: 5,146.13 (-1.54%) (YTD: +4.70%)
DFM: 2,733.45 (-0.70%) (YTD: +8.05%)
KSE Premier Market: 6,190.64 (+0.34%)
QE: 10,296.59 (-1.58%) (YTD: -0.02%)
MSM: 3,905.24 (-0.70%) (YTD: -9.68%)
BB: 1,437.61 (+0.08%) (YTD: +7.50%)

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Calendar

May: 50 Egyptian companies are set to visit Libya to discuss trade, investment and reconstruction.

May: An IMF delegation will be in town to conduct its final review of the reform program ahead of the disbursement of the sixth and final tranche of Egypt’s USD 12 bn IMF loan.

14 May (Tuesday): Egyptian Private Equity Association annual sohour. Four Seasons Hotel, Cairo.

23 May (Thursday): Central Bank of Egypt’s monetary policy committee will meet to review interest rates.

1H2019 (date TBD): Investment Minister Sahar Nasr will head a delegation of businessmen into Mexico City to explore cooperation avenues with the Latin American country.

June: International Forum for small and medium enterprises (SMEs).

June: Egypt will host the first economic forum for Union for the Mediterranean (UfM) countries to promote trade and investment in the 43 member states.

June: President Abdel Fattah El Sisi to attend US-Africa Business summit in Mozambique.

4-5 June (Tuesday-Wednesday): Global Entrepreneurship Summit, The Hague, the Netherlands

5-6 June (Wednesday-Thursday): Eid El Fitr (TBC).

11-12 June (Tuesday-Wednesday): Offshore Congress MENA, InterContinental Semiramis, Cairo.

16-17 June (Sunday-Monday): Mega Projects Conference, Egypt International Exhibition Center, Nasr City, Cairo.

16-18 June (Sunday-Tuesday): Middle East & Africa Rail Show, Egypt International Exhibition Center, Nasr City, Cairo.

17-18 June (Monday-Tuesday): Seamless North Africa, Nile Ritz-Carlton, Cairo.

17-19 June (Monday-Wednesday): Cairo Technology Week, Hilton Heliopolis, Cairo.

18-19 June (Tuesday-Wednesday): US Federal Open Market Committee will hold its two-day policy meeting to review the interest rate.

19-20 June (Wednesday-Thursday): Pharos Holding Annual Investor Conference, El Gouna, Egypt.

23 June (Sunday): Cairo Arbitration Court hearing for Amer Group vs. Antaradous for Touristic Development.

28-29 June (Friday-Saturday): G20 Global Economic Summit, Osaka, Japan.

30 June (Sunday): June 2013 protests anniversary, national holiday.

July: Customs officials from Egypt and the US will sit down to discuss “procedural and administrative matters” as part of the Trade and Investment Framework Agreements (TIFA).

11 July (Thursday): Central Bank of Egypt’s monetary policy committee will meet to review interest rates.

19-21 July (Friday-Sunday): LED Middle East Expo, Egypt International Exhibition Center, Nasr City, Cairo.

23 July (Tuesday): 23 July revolution anniversary, national holiday.

30-31 July (Tuesday-Wednesday): US Federal Open Market Committee will hold its two-day policy meeting to review the interest rate.

7-11 August (Wednesday-Sunday) Eid El Adha (TBC).

22 August (Thursday): Central Bank of Egypt’s monetary policy committee will meet to review interest rates.

29 August (Thursday): Islamic New Year (TBC), national holiday.

2-4 September (Monday-Wednesday): The Big 5 Construct Egypt, Egypt International Exhibition Center, Nasr City, Cairo.

8-11 September (Sunday-Wednesday): Sahara Expo, Egypt International Exhibition Center, Nasr City, Cairo.

9-12 September (Monday-Thursday): The 9th Annual EFG Hermes London Conference, Arsenal Emirates Stadium, London.

17-18 September (Tuesday-Wednesday): US Federal Open Market Committee will hold its two-day policy meeting to review the interest rate.

26 September (Thursday): Central Bank of Egypt’s monetary policy committee will meet to review interest rates.

6 October (Sunday): Armed Forces Day, national holiday.

10-13 October (Tuesday-Sunday): Big Industrial Week Arabia 2019, Egypt International Exhibition Center, Nasr City, Cairo.

23-24 October (Wednesday-Thursday): Intelligent Cities Exhibition & Conference, Hilton Heliopolis, Cairo.

23 October-1 November (Wednesday-Friday): CIB PSA Women’s World Championship, Great Pyramid of Giza, Cairo.

28 October-22 November (Monday-Friday): World Radiocommunication Conference 2019, Sharm El Sheikh, Egypt.

29-30 October (Tuesday-Wednesday): US Federal Open Market Committee will hold its two-day policy meeting to review the interest rate.

3-5 November (Sunday-Tuesday): Electrix 2019, Egypt International Exhibition Center, Nasr City, Cairo.

9 November (Saturday): Prophet Mohammed’s birthday, national holiday.

10-14 November (Sunday-Thursday): GeoMEast International Congress and Exhibition, Marriott, Cairo.

14-17 November (Thursday-Sunday): Machtech Expo, Egypt International Exhibition Center, Nasr City, Cairo.

14-17 November (Thursday-Sunday): Transpotech Expo, Egypt International Exhibition Center, Nasr City, Cairo.

14-17 November (Thursday-Sunday): Airtech Expo, Egypt International Exhibition Center, Nasr City, Cairo.

December: Egypt will host for the first time the Pack Process trade expo for the Middle East and African region.

3-6 December (Tuesday-Friday): Cairo WoodShow, Egypt International Exhibition Center, Nasr City, Cairo.

9-11 December (Monday-Wednesday): Pacprocess Middle East Africa, Egypt International Exhibition Center, Nasr City, Cairo.

9-11 December (Monday-Wednesday): Food Africa 2019 Expo, Egypt International Exhibition Center, Nasr City, Cairo.

10-11 December (Tuesday-Wednesday): US Federal Open Market Committee will hold its two-day policy meeting to review the interest rate.

26 December (Thursday): Central Bank of Egypt’s monetary policy committee will meet to review interest rates.

9-12 January 2020 (Tuesday-Sunday): PLASTEX, Egypt International Exhibition Center, Nasr City, Cairo.

25 January 2020 (Saturday): 25 January revolution anniversary / Police Day, national holiday.

11-13 February 2020 (Tuesday-Thursday): Egypt Petroleum Show, Egypt International

Exhibition Center, Nasr City, Cairo.

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