Foreign holdings of Egyptian debt break above USD 17 bn

Egypt greeted the death of Islamist former president Mohamed Morsi with a collective shrug, but it remains this morning the defining story about our country in the outside world, driving the narrative from North America to Europe.

Where is the “Shut Up Your Mouse” woman when you need her? The usual suspects are braying (note the dateline if you’re clicking on that last one), led by the nutter in Turkey, who “cast doubt on the official explanation” for Morsi’s death. “I don’t believe this is a natural death,” Erdogan said at symbolic funeral prayers for Morsi in Istanbul.

World leaders remain relatively mute on Morsi’s death on Monday after suffering a heart attack in a Cairo courtroom, but the UN’s human rights office (no fan of Egypt for some time now) joined Erdogan in calling for an independent investigation, spokesman Rupert Colville said in a statement. Human Rights Watch wasn’t far behind, and Iran issued a statement offering condolences and wishing “success for the great Egyptian nation.”

Meanwhile, in the world most of us inhabit:

Pharos’ annual investor conference (pdf) will kick off today in Hurghada. The two-day event will bring together investors, IPO prospects and more than 40 listed companies for meetings with institutional investors.

Meanwhile: Cairo Technology Week will wrap up tomorrow, marking the end of this week’s series of tech-heavy events. The week also saw the IDC CIO Summit 2019 for the Middle East, Africa and Turkey and Seamless North Africa fintech and ecommerce conference, at which CBE governor Tarek Amer made public statements about the sales of United Bank and Banque du Caire.

Is the Fed about to cut interest rates? Not this time, says El Erian: The US Federal Open Market Committee (FOMC) will announce today its decision on interest rates as it wraps its two-day meeting. Emerging market economies, some of which have begun cutting interest rates this year, are hoping for a rate cut, but markets sage and Allianz chief economic advisor Mohamed El Erian thinks they’ll be left waiting another month: “The first cut will probably not take place this week but rather at the next FOMC meeting scheduled for 30-31 July,” he writes in a must-read piece for Bloomberg. “It is likely to amount to a 25-basis-point reduction as part an open-ended cycle of rate cutting, with a smaller probability of a 50-basis-point ‘one and done’ approach,” he says.

El Erian suggests that the Fed wants to stick to its “dovish” narrative on rates signalled by Fed Chairman Jerome Powell at the beginning of the year, meaning a rate cut is coming. But at the same time, the Fed’s own data on the FOMC’s views about where interest rates should go could point to a rate hike, which is sending mixed signals to investors, according to the Wall Street Journal. In the face of a turbulent maco climate and “a fluidity” in the US economy, “the Fed will wish to retain as many policy options as possible, even if there is some risk of disappointing markets that are pressing for upfront signals of very dovish Fed measures,” El Erian says.

Meanwhile, European Central Bank chief Mario Draghi signaled in a speech yesterday that further rate cuts and fresh stimulus could be in the cards as soon as July. The Donald wasn’t happy about the idea of EU stimulus, taking to Twitter to accuse Brussels of “unfairly” manipulating the EUR, and warning that it had been “getting away with this for years, along with China and others.” The Financial Times has more.

Dude, this isn’t a reality TV show: The Donald also said yesterday he would like to “demote” Fed Chair Jay Powell, CNBC reports. A step below “You’re fired,” at least…

Facebook has unveiled its latest plans for world domination: The social media monolith plans to launch a new global currency, Libra, which the company says would allow bns of users to make purchases and low-cost money transfers around the world. Libra will launch as a standalone app and on WhatsApp and Messenger by 2020. It is the most significant move yet to bring blockchain technology into mainstream use, with Facebook claiming its primary goal is financial inclusion.

Zuckerberg apparently wants his currency to eventually challenge the USD, extending the social media giant’s power over not just our data and access to information, but a global means of exchange. To achieve this, the company is looking to apply the same processes used to introduce hard currencies in the past, Bloomberg writes.

Members of Congress have some minor reservations about the idea… Several US legislators have cast doubts on whether a company with such a troubled history of handling data and protecting privacy should be given the power to control a global currency, Axios notes.

The move is being backed by 28 companies, including Visa, Mastercard, Lyft and Spotify, but traditional banks and large tech groups are not yet on board. The FT, Reuters and the Guardian all have more.

In miscellany this morning:

• 7.4 tons of Venezuela’s gold landed in Uganda on a Russian charter in March — and promptly disappeared, exposing what the Wall Street Journal calls an “underground economy many suspect is helping Nicolas Maduro cling to power.”
• The Qatar Investment Authority is ramping up investment plans in emerging and developed markets in what the Financial Times is calling a “return to form” after it pulled USD 20 bn from overseas markets to shore up its accounts after the statelet opened its conflict with Egypt, the UAE and Saudi Arabia.
• Qatar is still dodging allegations that it bought the World Cup after disgraced former UEFA President Michel Platini was taken into custody yesterday as part of a French probe into allegations that FIFA officials took bribes from Qatar in the statelet’s bid to host the World Cup in 2022.

On the topic of football: We have just two days to go before the African Cup of Nations 2019 kicks off in Cairo Stadium on Friday at 10 PM CLT. Look for a daytime high of 38°C when you’re lining up to enter the stadium, cooling to 24°C overnight.

PSA- Are you a landlord with a rental property? The cops want you to register online — now. Landlords can now use an Interior Ministry portal to register properties they rent out, the ministry said in a statement. Landlords who fail to register leased properties with the police could face up to a year in prison and fines of as much as EGP 10k under amendments to the Anti-Terrorism Act approved by Cabinet in February.

Local, regional and international reactions to the death of former President Mohamed Morsi continued to get attention on the airwaves last night.

A war of words between Human Rights Watch and the State Information Service (SIS) over a series of tweets by the organization’s MENA director Sarah Leah Whitson was the main point of discussion on Al Hayah Al Youm with Lobna Assal last night (watch, runtime: 03:25). Whitson criticized the government for alleged “criminal negligence” following Morsi’s death, prompting the SIS to accuse her in a statement yesterday of spreading lies.

A meeting between President Abdel Fattah El Sisi and his Belarusian counterpart, President Alexander Lukashenko, also earned some airtime last night on Al Hayah Al Youm (watch, runtime: 03:50). El Sisi also met with a delegation of Belarusian businessmen. The two countries also signed three MoUs, including one to set up a joint business council to boost trade and investment, Hona Al Asema’s Lama Gebriel said from Minsk (watch, runtime: 08:12). We have more on this story in this morning’s Diplomacy & Foreign Affairs section, below.

EXCLUSIVE- Foreign holdings in Egyptian debt break north of the USD 17 bn mark: Foreign investors’ holdings of Egyptian government debt rose to north of USD 17 bn, recently appointed CBE board member Fakhry El Fekky told Enterprise. Another government source put the figure at USD 17.6 bn as of the end of May. Finance Minister Mohamed Maait had said that holding as of end of April stood at USD 16.8 bn.

Is the carry trade being outstripped by long-term investors? New inflows have been biased toward medium and long-term bonds that have maturities between three and seven years, the officials told us. The Finance Ministry is working to drum up appetite for longer-term debt in a bid to ease its reliance on short-term issuances and reduce its need to refinance. It hopes to increase the average maturity of Egypt’s debt to five years by 2022, Deputy FM Ahmed Kouchouk said in February. Inflows from short-term carry traders have been instrumental in the EGP’s appreciation this year.

Look for confirmation on this later this month when more detailed figures on inflows are released as part of the central bank’s regular balance of payments report.

Egypt considers KRW-denominated bond issuance: The Madbouly government is considering issuing bonds denominated in South Korea;s KRW, Deputy Finance Minister for Capital Market Operations Khaled Abdelrahman told Reuters. The issuance would join Yuan-denominated (insensitively called “Panda”) bonds and Yen-denominated “Samurai” (Samurais are cool) bonds as possible options for an Asian FX bond issuance in the next fiscal year that starts in July. “We are looking at either a Panda, Samurai or Korean currency issuance,” Abdelrahman said. The Finance Ministry stated in April its intention to issue yen and yuan-denominated bonds in an attempt to diversify borrowing sources as part of its new debt strategy.

DISPUTE WATCH- Veon in final stages of talks with the government over EGP 2.2 bn tax settlement for GTH: Telecom group Veon is in the final stages of talks with the Madbouly government to finalize a EGP 2.2 bn tax settlement that would end a dispute between the Tax Authority and its subsidiary Global Telecom Holding (GTH), a source with knowledge of the talks told us. The local press reports that the talks are focused on the payment scheme of the settlement, with the government wanting to receive the bulk of the payment before the end of the month. The ministry wants GTH subsidiary Ring Distribution Company to pay off its outstanding real estate taxes, after the Tax Authority launched a court appeal to demand payment.

When can we expect an agreement? Yesterday’s report suggests that a settlement could be signed next week. Our sources told us last week that the agreement could be done and dusted by the middle of the month.

INVESTMENT WATCH- China's SAIC Motor, Al Mansour Auto to manufacture MG in Egypt: Al Mansour Automotive will manufacture MG cars in Egypt with China's SAIC Motor through a joint venture, according to Xinhua, which appears to have broken the story. The JV should get to work during “the next 12 months,” Mansour COO Ankush Arora is quoted as saying. The report neither provided an investment value nor made it explicitly clear whether the cars will be manufactured or assembled (or both). Mansour, which became the exclusive local distributor of MG last year, will also launch the new MG ZS electric SUV “in the coming five months,” Arora added. We heard in March 2018 that SAIC, which took over the UK brand in 2011, was looking into the possibility of opening a plant in Egypt and had been looking for a local partner on the venture.

Good timing? The JV agreement comes days after we reported that the government is working on new incentives for car assemblers and manufacturers. The incentives could include a mix of customs discounts on components as well as potential capex drawbacks, among other measures. The move could help short up Egypt’s anemic auto exports: Egypt’s auto industry sold only USD 24.7 mn worth of product outside the country’s borders in 1Q2019, according to Capmas figures cited by the press.

M&A WATCH- ODH to use proceeds from Tamweel sale to pay down debt: Orascom Development Egypt (ODE) will use EGP 313 mn in cash proceeds from its sale of Tamweel Group to pay down debt, it said in a disclosure to the stock exchange (pdf). B Investments’ Ebtikar for Financial Investment announced earlier this week that the consortium — comprising Ebtikar, TCV1 and Acquirement for Investment — had completed the acquisition of ODH’s 87% stake after receiving all required approvals. The sale will see Ebtikar take a c.45% stake in Tamweel Group. B Investments holds a c.20% stake in Ebtikar.

Background: The stake sale had been in the making since the second half of 2016, when ODH announced (pdf) that it would offload the assets as part of a plan to cut its EGP 1 bn in debt. Tamweel Group is made up of four companies operating in mortgage finance, factoring, leasing, collection and insurance brokerage. The company is valued at EGP 360 mn.

STARTUP WATCH- Glovo returns to Egypt, resumes services in Cairo: Spanish on-demand delivery startup Glovo has U-turned on its decision to exit Egypt and has relaunched service in parts of Cairo, MenaBytes reports. The company is yet to make a public statement, but the app is reportedly working in some areas of the city. Service will reportedly be rolled out to Maadi and Heliopolis in the coming weeks before a launch in Alexandria, according to information shared on social media.

Background: News broke in early May that Glovo was exiting the market and had sent messages to its employees and couriers in Egypt informing them of the decision to shut down. This came immediately after it secured a EUR 150 mn series D funding round led by Lakestar. The app then began directing users to Otlob, the food delivery app owned and operated by Germany’s Delivery Hero, which is also a part owner of Glovo.

The Egyptian Competition Authority soon after accused Glovo and Delivery Hero of anti-competitive practices and ordered Glovo to resume operations in Egypt within 30 days.

EFG, CI and AAIS take out short-selling licenses: The brokerage arms of EFG Hermes, CI Capital and the Arab Arfrican International Securities are now licensed short sellers, according to a Financial Regulatory Authority statement. The move comes after Arqaam Securities became last week the first to take out a license.

Background: The Financial Regulatory Authority (FRA) issued regulations last February for short selling on the EGX, allowing brokerage firms to act as market makers by finding lenders and borrowers of stocks. Investors looking to open a short position will need to put down 50% of the value of the securities borrowed, and brokerages will be required to park 20% in fixed-income instruments while the position is open. The EGX published last month a list of stocks approved for short selling.

Israeli gas could start flowing to Egypt’s LNG plants as soon as next month at an initial rate of 150 mcf/d, rising to 700 mcf/d within two years, according to a domestic press report citing an unnamed government official. The news comes after a USD 500 mn settlement this week resolved a dispute longstanding dispute with the Israel Electric Corporation and will give the operators of Israel’s Leviathan field, Delek Drilling and Noble Energy, clear access to global export markets.

Damietta-bound? Look for the Leviathan gas to move through the Arish-Ashkelon pipeline to Damietta, one of two Egypt’s two LNG facilities as the Idku facility still has no link with Israel. The Arish-Ashkelon pipeline is set to be used to supply Alaa Arafa’s Dolphinus Holding with the first shipments under the USD 15 bn agreement signed last year. The shipments were planned to begin in 1Q2019 but sources told Bloomberg in March that the date had been pushed to mid-2019 as the pipeline still required further maintenance.

An Israeli investment still in the cards? We had noted last March that Delek was looking to acquire a stake in either the Idku or Damietta liquefaction facilities as part of its drive to “broaden its export footprint.”

REGULATION WATCH- Cabinet outlines new land tender mechanism for mixed-use developments in new communities: The Madbouly Cabinet outlined in a statement on Monday the New Urban Communities Authority’s (NUCA) new regulatory framework to handle requests for the allocation of land for mixed-use projects. Under the mechanism, two NUCA-commissioned departments will begin selecting land available for new city investors. This came as Prime Minister Moustafa Madbouly instructed the government last month to offer “as many industrial land plots as possible.” NUCA’s board of directors approved the framework last this past March, and Housing Minister Assem El Gazar gave a rundown of its specifics then.

What are the new regs? The framework will require NUCA to allocate land based on both investor preference and each city or town’s development priorities. It will mandate a specialized committee to determine and continuously update land prices. Land allocation requests will also have to be accompanied by feasibility and solvency studies, and investors will be required to make a 10% “commitment deposit” within a 30-day notice window (or 60 days if paying in USD). Investors who back out will lose half of their deposits. The new rules will prioritize USD payments.

MOVES- Attijariwafa Bank has appointed Hicham Seffa (LinkedIn) as managing director to succeed Halla Sakr, who has been named chairman pending approval from the CBE, Al Mal reported.

Corrected on 19 June 2019

Halla Sakr title was corrected from CEO to Chairman

It’s still all about Morsi in the foreign press today: Shadi Hamid writes in The Atlantic that Morsi was “incompetent, polarizing and managed to alienate nearly everyone outside the Brotherhood.” Still, the instability of his reign was a product of a democratic transition rather than because of his failures as a leader, he argues. In the NYT Mona Eltahawy remembers Morsi as someone who “rarely wore [power] comfortably… looking like a man caught up in something much bigger than him,” while the FT’s Heba Saleh writes that the Ikhwani’s “swift rise and crashing fall exposed the faultlines in Egyptian society.”

“Morsi played his part in wrecking Egypt’s hopes,” reads an editorial in the Guardian, adding that the predictability of his death makes it a “truly shocking” event. Bobby Ghosh says in Bloomberg that Morsi’s incompetence in office will mean that he is relegated to “a footnote in Egypt’s history.” Jared Malsin meanwhile warns in the WSJ that his death may provoke renewed activism within the banned Islamist group.

Obituaries and opinion pieces aside, there was wide press coverage of the former president’s burial yesterday: Reuters | NYT | Washington Post | Time | BBC | The Guardian

Elsewhere, Deutsche Welle does a hatchet job on a Turkey-style migration pact between us and the EU: Egypt is using the presence of Syrian refugees in the country to further its own political agenda with Europe, migration expert Ramona Lenz tells Deutsche Welle. Egypt, she says, is capitalizing on the EU’s willingness to do anything to prevent refugees and migrants from making it to European soil, while the EU looks the other way in the face of allegations of human rights violations. This is referring to a plan championed by European leaders for a Turkey-style agreement that would see Egypt and other North African countries step up efforts to halt migration across the Mediterranean in return for aid.

El Sisi talks cooperation with Belarusian president in Minsk: A meeting between President Abdel Fattah El Sisi and Belarusian President Alexander Lukashenko, in which they discussed ways to strengthen ties topped the front pages of all three government dailies this morning (Al Ahram | Al Akhbar | Al Gomhuria).

Egypt has one of the fastest growing populations in the world: Egypt will have to support an extra 60 mn people in the next 30 years as the population rises to 160 mn by 2050, UN findings show (pdf). The report has Egypt among the nine countries expected to show the largest population increase between now and the middle of the century. Data forecasts Egypt’s population to rise to almost 121 mn people by 2030, and most alarmingly, for it to more than double in size to 225 mn by the end of the century.

The global population will reach 9.7 bn by 2050: India will see the largest growth, with Nigeria, Pakistan, the Democratic Republic of the Congo, Ethiopia, Tanzania and Indonesia also likely to increase significantly.

And by the end of the century, the planet will likely need to sustain some 11 bn people. Yes, 11 bn.

President Abdel Fattah El Sisi has termed Egypt’s population boom a “challenge as critical as terrorism.” We already face severe resource shortages, with climate change and housing demands meaning a loss in arable land, and rising sea levels, water shortages and pollution all posing grave threats to health. Capmas has said that if we want a healthy, well-educated, competitive population, our population growth rate must be one-third that of economic growth. Our current GDP growth rate of 5.6% may be robust, but growth averaged 4.07% between 1992 and 2017. The IMF has predicted a labor force of 80 mn by 2028, and neither our current education system or our economy are equipped to handle these new entrants to the market.

What is being done to control it? Although successful government family planning campaigns in the 1990s slowed the population growth rate from 3.5% in the 1970s to 1.7% in the mid-2000s, it was back to 2.11% in 2011 and still hovering around the 2% mark in 2016. Last year, the government launched the five-year, USD 19 mn “Two is Enough” campaign to raise awareness of the economic costs of having more than two children. However, some argue that it fails to address the economic and cultural motivations in Egypt for having large families.

Check out the very first mall in Egypt: Egypt’s first mall was once the place to see and be seen, this Masrawy video shows (watch, runtime: 02:36). Founded in 1923, the Simon Arzt mall in Port Said was the place to go for fashionable imported clothes, people-watching, occasional summertime sunbathing for women on the roof, and emergency stocking purchases (employees could be woken up at any time of the night if a steamship arrived from overseas, one woman recalls). Taking its name from a Turkish-Jewish tobacco merchant, Simon Arzt remained a great historical attraction even after closing in the early 90s. Now, developments are underway by a company that wants to restore it to its former glory.

President Abdel Fattah El Sisi discussed boosting investments and bilateral trade with Belarus PM Syarhey Rumas, according to an Ittihadiya statement. The meeting comes as part of a European tour that will also see Sisi visit Romania later this week. Trade Minister Amr Nassar also met with his counterpart yesterday to discuss the possibility of building a Belarusian industrial zone in Egypt, the local press reported. The ministry signed three MoUs with the country, including one that will set up a joint business council to boost trade and investment that will meet once a year, Hapi Journal reported. The other two memoranda focused on strengthening economic ties, and quality control and product standards.

Russia’s Rosatom and the Nuclear Power Plants Authority (NPPA) will organize a forum in October to introduce local suppliers and contractors to Rosatom’s procurement system and expected tenders in the planned Dabaa project, Al Masry Al Youm reports. Over 600 companies involved or looking to be involved in the project will be invited. We noted in April that the NPPA compiled a draft list of 150 shortlisted local companies that could participate in Dabaa. A final list will be out after a further evaluation of the companies.

Prime Minister Moustafa Madbouly discussed Malaysia’s Edra Power Holdings’ offer to take over one of Siemens’ newly built power plants with the company’s President and Executive Director Datuk Wira Mark Ling, the cabinet said in a statement. Madbouly said Egypt welcomes reaching an agreement that would serve its interests and reduce liabilities and at the same time doesn’t impact the way the service is provided to citizens. Electricity Minister Mohamed Shaker told Bloomberg last month that Blackstone Group’s Zarou and Edra have both expressed an interest in taking over the operation of the three Siemens-built, combined-cycle power plants inaugurated in July. Bloomberg suggested the transaction could “set the stage for [Zarou or Edra] to assume responsibility for any financial dues on the project.

The Egyptian Natural Gas Holding Company has once again refused another push for cutting natural gas prices for steel and ceramics factories, local press reported, citing an unnamed EGAS officials. EGAS said the current prices are appropriate for different industries. It said factories, who receive about 2.4 bcf/day of natural gas, are working at almost full capacity. Parliamentary sources quoted by local press said the government will continue to turn down requests in the meantime until it finishes studying the issue. Industry has been pressuring the government for years to cut natural gas prices saying that it is affecting their product prices and thus sales which is causing them to work under their full production capacity. The government had promised in 2016 to cut gas prices to USD 4.5 mmBtu from USD 7 mmBtu but didn’t deliver on it, with EGAS describing the decision at the time as a “waste”. Trade and Industry Minister Amr Nassar has said in March that it would currently be difficult to reduce gas prices for steel factories to USD 5 per MMBtu from USD 7.

The Arab Organization for Industrialization (AOI) appears to be planning to manufacture water desalination membranes and has signed a MoU with South Korea manufacturer Sepratek for technical assistance, Masrawy reported. Sepratek will help train Egyptian engineers and provide technical assistance to AOI. The development of desalination plants is a crucial component of Egypt’s water security policy.

Bahraini Industry, Commerce and Tourism Minister Zayed Alzayani suggested linking Bahrain’s “World Diving Park”, the world’s biggest diving park, with Sharm El Sheikh as part of efforts to promote the new park, Al Shorouk reported, citing a Tourism Ministry statement. Tourism Minister Rania El Mashat suggested including Hurghada and Marsa Alam as well.

The Egyptians Abroad Investment and Development Co plans to launch its logistics sector-focused fund next year, CEO and Vice Chairman Hashem El Sayed said. The fund will invest in dry ports as well as other logistics infrastructure. It will be owned by a subsidiary which is currently in the process of being established and licensed. The company’s Egyptians Real Estate Fund — which it previously launched in partnership with Pioneers Holding and Misr Iran Development Bank — was due to be up and running in March after listing on the EGX last year.

Some call it falafel, but we call it ta’amiya. Sometimes it’s made with chickpeas, other times with fava beans, but we love it either way and are totally behind Google celebrating this deep-fried deliciousness with a Doodle today. And no, falafel is not (and never will be) an Israeli dish.