It’s official: Mercedes-Benz will once again assemble cars in Egypt

The Trump administration’s long-awaited Palestinian economic development workshop kicks-off today in Manama, Bahrain and will surely dominate regional headlines toady and tomorrow. Egypt, Jordan, Morocco and the Gulf states will all be attending the event, which is being held to discuss the USD 50 bn economic development plan due to be unveiled by White House advisor Jared Kushner on Saturday.

Egypt has broken its silence on the proposal, with Foreign Minister Sameh Shoukry making a series of measured statements on the Trump plan during an interview in Moscow yesterday. He suggested that Egypt would “listen” and “evaluate” before taking any decisions. We have more in this morning’s Speed Round, below.

Prime Minister Moustafa Madbouly is still in Germany, where he has presided over the signing of several agreements to bring German business to Egypt. Chief among them: Mercedes-Benz and Bosch. Madbouly will attend the Arab-German Business Forum in Berlin today; the gathering runs 25-27June. We have more in this morning’s Speed Round, below.

Also coming up:

• US Fed boss Jay Powell speaks this evening (CLT) in New York in what look set to be some of his most closely-watched remarks so far this year. Is a July rate cut in the offing?
• The G-20 summit takes place this weekend in Osaka, Japan, running 28-29 June. Among the expected highlights: Donald Trump and Xi Jinping are due to have a chat. Check the gathering’s website here.
• Our friends at AmCham will be hosting Electricity Minister Mohamed Shaker at their monthly luncheon on Tuesday, 2 July. You can register for the event here.

The Pharaohs are back in action tomorrow: Egypt will play their second Afcon group game tomorrow when they take on DR Congo at 10pm at Cairo International Stadium. The Pharaohs edged out Zimbabwe on Friday, winning 1-0 in the opening game of the tournament. They could do with scoring a few more goals, as Uganda currently top the group on goal differential. Check the standings here, or visit the Afcon website here.

Trump is running out of things to sanction: US President Donald Trump yesterday announced new sanctions that effectively block Iran’s Supreme Leader Ali Khamenei and eight military commanders from accessing the international financial system, the New York Times reports. The news will likely be greeted by a shrug in Tehran, given that the Iranian leadership has for years avoided international banks. The WSJ and the FT have more.

A drone attack on Abha civilian airport in southern Saudi Arabia by Yemen’s Houthi movement killed one person and wounded 21 others on Sunday, Reuters reports. Egypt’s foreign ministry condemned the attack in a statement, expressing solidarity with Saudi Arabia’s government and people.

Three from the international business press worth a quick look this morning:

• Hassan Heikal would be proud: A group of US bn’aires is proposing a wealth tax on the ultra-rich. Facebook co-founder Chis Hughes and hedgie George Soros are among those calling for a tax on the assets of the wealthiest 0.1% of the United States. You can read their open letter here and check out the FT’s coverage here.
• A robot may not take your job, but it could become your boss. Case in point: the AI that’s already telling customer service reps at an insurance company to talk slower, sound less sleepy and be more empathetic. (NYT)
• Are digital banks challenging HSBC’s dominance in Hong Kong, where “eight new digital-only upstarts have been granted virtual banking licenses” by the Hong Kong Monetary Authority? The new entrants will launch over the next 6-9 months.

In miscellany this morning:

• Sign of the times: Being transgender at Goldman Sachs, on how an employee in the bank’s “buttoned-up communications department became herself at work.” (New York Times)
• It’s OK to feel ambivalent about your children: “Boredom and loss of identity are common emotions among parents. The problem starts when they are left unexpressed.” (Wall Street Journal)
• The land where the internet ends: “To find real solitude, you have to go out of range. But every year that’s harder to do, as America’s off-the-grid places disappear.” Not an Egypt problem in fact, but certainly one in spirit. (New York Times)

Prime Minister Madbouly’s visit to Germany got attention from Al Hayah Al Youm’s Khaled Abu Bakr. The PM’s trip to Germany this week was marked by two major agreements: one with Mercedes-Benz to bring back its assembly line and another with Bosch und Siemens Hausgerät (BSH) to set up an industrial complex in Egypt, Abu Bakr said (watch, runtime: 03:04). We have more on the visit in this morning’s Speed Round, below.

The House of Representatives’ approval yesterday of the government’s FY2019-2020 budget got some airtime from Al Hayah Al Youm’s Lobna Assal (watch, runtime: 06:08). We have more on this, too, in this morning’s Speed Round.

El Sisi at the G20: Japan’s ambassador to Egypt, Masaki Noke, said President Abdel Fattah El Sisi will represent the interests of the African Union’s member countries at the G20 summit in Osaka this weekend (watch, runtime: 00:54).

Healthcare coming to Port Said in July: El Sisi met with relevant officials yesterday to oversee preparations for the first phase of the Universal Healthcare Act to launch in Port Said in July, Lobna Assal said (watch, runtime: 01:56).

El Hekaya’s Amr Adib has the details on a gang that has managed to steal 200 tonnes of crude oil from the government (watch, runtime: 03:38). He also renewed speculation that Russia could finally agree to restore its direct flights to the Red Sea during Foreign Minister Sameh Shoukry’s ongoing visit to Moscow (watch, runtime: 01:42).

Mercedes-Benz to jump back into auto assembly in Egypt through SCZone: Trade and Industry Minister Amr Nassar signed yesterday an MoU that could see Mercedes-Benz resume the assembly of passenger cars in Egypt after a four-year hiatus, according to a cabinet statement. The pact, which Nassar signed during a visit to Stuttgart, Germany, with Prime Minister Moustafa Madbouly, will see Mercedes-Benz set up a plant in the Suez Canal Economic Zone (SCZone). The signing comes days after the Madbouly Cabinet’s dispute resolution committee ruled in favor of an importer of Mercedes-Benz vehicles in its EGP 700 mn dispute with Egypt’s Customs Authority.

The move will improve the company’s market position and boost the Egyptian economy, Mercedes parent company Daimler said in a statement.Jörg Burzer, an executive board member at Mercedes-Benz, said that the agreement would allow the company to “structure our production network even more flexibly and efficiently, and respond even better to the needs of our customers.”

Mercedes-Benz will assemble with a local partner, but the statement does not name the partner or get into specifics on ticket size of the investment or how many cars it could produce.

The German group also raised the prospect of further investment down the road, hinting that it could establish a “logistical hub” in the SCZone and expand its dealer network.

Background: The luxury car maker had shut down its Egyptian assembly line in mid-2015 amid FX shortages. The move came just as completely built-up cars (CBUs, or fully assembled imports) became more cost-competitive in Egypt amid falling tariffs on EU cars, which hit zero at the beginning of 2019. The company had “agreed in principle” in 2017 to resume assembly, and production chain boss Markus Schaefer confirmed this to Prime Minister Moustafa Madbouly earlier this year.

More business with the Germans: Nassar also signed an MoU with Germany’s Bosch und Siemens Hausgerät (BSH) for the company’s planned home appliances factory in Egypt’s 10th of Ramadan industrial city, according to a cabinet statement. The New Urban Communities Authority (NUCA) had agreed last year to allocate 10 acres in the industrial city for the plant. BSH had previously said it plans to establish a EUR 80 mn home appliances factory with a production capacity of 400k units per year.

In other news from Germany: The German government is planning to offer as much as EUR 400 mn to finance technical education, entrepreneurship, and domestic manufacturing in Egypt, German ambassador to Egypt Georg Luy said without providing further details on the loan.

Sidpec stake sale preparations underway: Preparations are underway to kickstart the bookbuilding process of a 30% stake sale in Sidi Kerir Petrochemicals (Sidpec) as part of the state privatization program, Al Mal reports, citing sources “close to the matter.” NI Capital, the state-owned investment bank managing the program, signed contracts with the company last week to advise on the transaction.

NI Capital is yet to invite investment banks to bid for the quarterback’s role, the newspaper says. Meanwhile, Sidpec has received seven bids from law firms and will not be fielding more offers for legal advisors.

Looking ahead: Sidpec is currently building a new propylene and polypropylene plant in Alexandria. We noted in March news that the company was reportedly in talks with local banks to arrange a USD 1.2 bn facility to finance construction.

Look for Abu Qir, ACCH to go first: Abu Qir Fertilizers (advised by Rencap and CI Capital) and Alexandria Containers and Cargo Handling Company (advised by EFG Hermes and Citi) are expected to sell additional shares on the EGX soon, but those transactions have been on hold pending recommendations on timing by the investment banks. ACCH reportedly concluded roadshows in Dubai and London last week and Abu Qir had been set to o proceed with the sale shortly after the Eid break. Eastern Tobacco piloted the program with the sale of a 4.5% stake earlier this spring.

LEGISLATION WATCH- The FY2019-2020 budget has cleared the House. The House of Representatives has approved the FY2019-2020 state budget, which targets GDP growth of 6% and a budget deficit of 7.2%, Reuters reported. The government will aim to reach a primary budget surplus of 2% and reduce public debt to 89% of GDP, with an eye to bringing that figure down to 80% by FY2021-2022. It will also aim to bring the unemployment rate down to 9.1% and sees population growth at 2.3%. The budget will see large fuel subsidy cuts which will reduce expenditure on petroleum products to EGP 52.96 bn, down from EGP 89.75 bn this fiscal year. Electricity subsidies are also expected to drop by 75% to EGP 4 bn, Bloomberg noted.

In other news from the House:

Parliament OK’s data-sharing agreement: The House has finally greenlit an agreement signed in 2016 between Egypt, Morocco, Jordan and Tunisia to improve electronic data sharing, Al Mal reported. Finance Ministry representatives said that consultations with security agencies caused the legislation to be delayed for three years.

Civil service looks set to get pension hike: The House also approved a draft law that would see payouts to pensioners rise 15% across the board and the minimum monthly pension jump to EGP 900 from a previous EGP 750, the local press reported. The measure now requires input from Maglis El Dowla (the State Council), according to a separate press report.

EXCLUSIVE- Euroclear is in Egypt to wrap up procedures that will make EGP-denominated debt “euroclearable”: A delegation from Euroclear is currently in town to ensure Egyptian debt meets the technical requirements to make it clearable through the Belgium-based clearinghouse, two government officials tell Enterprise. The delegation sat down with Misr for Central Clearing, Depository and Registry (MCDR), and Central Bank of Egypt (CBE) representatives to discuss this “technical alignment,” one of the sources said. The first sovereign debt issuance that can be cleared through Euroclear is expected to take place in 4Q2019.

The volumes we’re talking about are significant: The Finance Ministry will be looking to eventually have EGP 1.4 tn-worth of treasuries and EGP 1.1 tn-worth of government bonds eligible to move through the clearinghouse.

Both domestic and foreign investors are queuing up for EGP-denominated debt instruments, the second government official tells us. Egyptian banks are the largest local creditor, with holdings north of EGP 350 bn. Holdings by foreign investors, meanwhile, broke the USD 17 bn (c. EGP 290 bn) mark for the first time, CBE board member Fakhry El Fekky told us last week. The EGP has been one of the best performing so-called “exotic” currencies this year, climbing 6% against the USD since the end of January.

Background: The Finance Ministry signed an MoU with Euroclear last April to make EGP-denominated debt available via the Belgium-based clearinghouse. The move will facilitate settlement for overseas investors — who can currently only access the debt market through a handful of local banks licensed to operate as primary dealers (pdf). Finance Minister Mohamed Maait, who opened talks last September, said that Egypt will not issue yen- and yuan- denominated bonds — or green bonds or sukuk, for that matter — before the next fiscal year to give the government more time to prepare and comply with Euroclear regulatory requirements.

EXCLUSIVE- Public Enterprises Ministry gives gov’t companies green light to hire investment banks for land sales: Several state-owned companies are in the process of selecting investment banks to manage advise them on how to divest unused land, Public Enterprises Minister Hisham Tawfik told Enterprise. Tawfik said the ministry is preparing a list of investment banks the companies can choose from, but did not provide any names. The investment banks will be mandated with preparing and marketing the land auctions, and property will be for sale only to Egyptians and Egyptian entities. The move is part of the ministry’s plan to sell 20 mn sqm of land held by state-owned companies to pay off EGP 38 bn-worth of debt. Tawfik said he expects 15 land plots to go on sale under the program within four months.

Egypt breaks silence on US Mideast economic plan: Egypt will attend this week’s Bahrain conference on Palestinian economic development to “listen to” and “evaluate” the Trump administration’s USD 50 economic plan aimed at restarting the Israeli-Palestinian peace process, Foreign Minister Sameh Shoukry said yesterday, according to Reuters. The gathering runs today and tomorrow in Bahrain.

A measured tone: The ‘Peace to Prosperity’ proposal unveiled by White House advisor Jared Kushner on Saturday has been criticized by politicians and commentators around the Arab world for not finding political solutions to the conflict. But Shoukry struck a measured tone in a televised interview with Russia Today yesterday, in which he refused to criticize the plan or make preemptive demands. “It is important for Egypt to participate to listen to this proposition and evaluate it … but not in terms of approving it,” the news agency quoted Shoukry as saying. “We have the right to evaluate it, view it and develop a vision about it, but the final decision about it goes back to the main stakeholder — the Palestinian Authority.”

Redrawing borders in the Sinai is (as we suspected) a complete non-starter: Shoukry poured cold water on rumors that the US could ask Egypt to give up some of its territory in North Sinai to expand the Gaza enclave. “There will be no renouncing one bit, one grain of sand from the lands of Sinai, which honorable Egyptians were martyred defending,” he told the Russian state broadcaster.

As a reminder: Under Kushner’s plan, Egypt would receive USD 9.1 bn over a decade to invest in transport, energy and water infrastructure projects. The proposal has led to on-the-ground grumbling in Palestine and Lebanon.

The Fed hasn’t cut rates yet, but emerging markets are already feeling the benefits of its “dovish” stance: Emerging-market bonds and currencies posted their best week since 2017 last week after the US Federal Reserve and the European Central Bank gave their strongest hints yet that easing could soon be back on the table, Bloomberg says. The MSCI EM Currency Index saw its biggest weekly gain in almost two years, while EM bond exchange-traded funds (such as the iShares JPMorgan USD EM bond ETF and the Bloomberg Barclays EM Local Bond UCITS ETF) surged.

Investors are searching for yield as returns on US treasuries crater: Yields on safe haven assets (such as US treasuries and German bunds) have fallen in recent weeks as market certainty of renewed Fed stimulus has increased and the US-China trade spat has escalated.

This bodes well for emerging markets. “With yields across the developed world getting back to ridiculously low levels, it makes EM debt assets all the more attractive,” Eric Stein, money manager at Eaton Vance, said. Brett Diment, head of EM debt at Aberdeen Standard Investments, said that any rate cuts by the Fed will create a “pretty good environment” for EM bonds, provided the US avoids falling into recession.

Trade remains the elephant in the room. Rising geopolitical and trade tensions pose the greatest threat to EM assets, fund managers tell Bloomberg. Angus Bell, senior portfolio manager in EM debt at Goldman Sachs Asset Management, doesn’t see the US and China reaching a trade settlement any time soon, while Union Investment Privatfonds is concerned that the increasing number of geopolitical flashpoints could lead to an accident.

Aside from mentions in football stories, there’s little about Egypt in the international press this morning:

• Bloomberg Opinion takes a swipe at Egypt after the death of Mohamed Morsi.

• The LA Times suggests that Morsi’s death serves as a reminder of how far the Ikhwan have faded as a political force.

• Production of Egyptian TV shows dropped this year as regulation, budget cuts and allegations of censorship rose, Yasmin El Benhawy writes for advocacy outfit Open Democracy.

• Egypt is going up against the global antiquities trade more often and more strongly, the National reports, as current attempts to get a rare Tutankhamun bust repatriated show.

Universal Healthcare to debut in Port Said next month: Both Al Ahram and Al Gomhuria were still down this morning, but a meeting between President Abdel Fattah El Sisi and his government to talk about the implementation of the first phase of the Universal Healthcare Act in Port Said in July topped the front page of Al Akhbar, one of the country’s three state-run dailies.

Will financial regulators rein in Zuckerberg’s attempts to upend the global financial system? Mark Zuckerberg may have hoped that Facebook’s new cryptocurrency Libra would be subject to “only the lightest touch” of regulation, but he appears to have underestimated how seriously regulators take the prospect of a new global cryptocurrency, the Financial Times says (watch, runtime: 01:45). France is setting up a G7 task force to see how cryptocurrencies can be governed by regulations that will protect users. Bank of England Governor Mark Carney has said that Libra will be subject to the highest forms of regulation. And across the pond, regulators in the US have said they would need to see a lot more detail before deciding how stringently to regulate the cryptocurrency, having to date heard only vague outlines about the initiative.

Nineteen Russian companies are interested in taking part in Egypt’s USD 7 bn Russian Industrial Zone, Russian Foreign Minister Sergey Lavrov said yesterday in a joint press conference with his Egyptian counterpart Sameh Shoukry in Moscow, Youm7 reported. Russian Industry and Trade Minister Denis Manturov said earlier this year that 20 Russian companies are keen to establish facilities in the economic zone.

The two ministers also discussed preparations for the Russia-Africa Summit scheduled to take place in Sochi this October, according to an Ittihadiya statement. The gathering will be co-chaired by President Abdel Fattah El Sisi and Russia’s Vladimir Putin. In an interview with Sputnik Arabic, Shoukry said Egypt is working hard to improve domestic security in order to restore Russian flights to Egyptian Red Sea resorts.

Oil and gas company Ades International has secured a new two-year contract with an unnamed Egyptian energy company for its Admarine IV jackup rig in Egypt, Morning Star reports. The contract is an initial one-year term, with a one-year extension option.

Jordan has reduced its imports of Egyptian natural gas to 75 mcf/d from 300 mcf/d due to falling demand, a source from state-owned EGAS tells the local press. The kingdom’s demand is expected to range between 75-150 mcf/d, the source said. Egypt began exporting natural gas to Jordan last September under a supply resumption agreement providing as much as 10% of Amman’s natural gas needs. Exports reached as much as 350 mcf/d last March.

The group of SMEs is building a 90-feddan complex for small and medium ready-made garment, food, medical supplies and engineering goods factories in the 10th of Ramadan industrial city, Yasser El Sakka said. The project can potentially cost some EGP 1 bn, which will be financed solely through the federation’s members. It will house 500 units ranging from 300 to 4k sqm in size and will be complete by the middle of 2020. Applicants, who will need to be established companies with certified feasibility studies in hand, would be required to make a 25% down payment and pay the rest over five years at a 5% “decreasing interest rate.” to own a unit. The units are expected to cost between EGP 2 mn to EGP 10 mn.

Egypt’s gold exports surged 132% to USD 328 mn in the second quarter of FY2018-2019, up from USD 141.3 mn the previous quarter, CBE data showed.

Agawany Group’s El Agawany for Industrial Machines is planning to set up a factory to manufacture metal moulding machinery at Port Said’s Sharq at Tafriah at a cost of EGP 500 mn, said Vice Chairman Hamada Agawany. The company is expecting to break ground on the project next year and begin operations by 2022 in partnership with an unnamed foreign investor. The factory will produce 250 machines each year, 80% of which will be exported to Europe and Africa, Agawany said. The company is also planning to inaugurate a separate aluminum machinery factory within two months, he added.

A subsidiary of UAE-based Global Pioneers Group has broken ground on a shopping mall in a multi-use district of the new administrative capital, Chairman Sami Sayed said. The project is expected to cost EGP 750 mn and should be complete in 2020, Sayed added.

The new Berenice International Airport in Marsa Alam is set to open this summer, according to the Egypt Independent. The former military airport was renovated at a cost of around EGP 500 mn. Once operational, it is expected to serve as a key connection point for Marsa Alam, and bring revenues in tourism and investment. We reported last year that it was initially expected to open at the beginning of 2019.

Public Enterprises Minister Hisham Tawfik inaugurated yesterday Steigenberger Hotel in Haram after a EGP 20 mn renovation, the local press reported.

The National Railways Authority (NRA) will sign in the coming days a financing agreement with the European Bank for Reconstruction and Development (EBRD) for the purchase of 100 new locomotives, a source close to the matter tells Al Mal. The authority is expecting to launch a tender by no later than next month. In related news, the NRA is set to sign in August a 15-year maintenance agreement for 1,300 railcars it had agreed to purchase from Russia’s Transmashholding under a EGP 22 bn contract signed last year. The Russian company will set up shop in Egypt to maintain the rolling stock and provide training to laborers over the 15-year term. Egypt is set to receive the first car next March.

Elsewedy Electric has signed a USD 100 mn loan agreement with Banque Misr to finance expansion plans in Africa, sources told the press. Baker McKenzie’s Cairo-based law firm Helmy Hamza & Partners acted as legal counsel to the bank on the agreement, the sources said.

Orascom Construction’s board of directors approved on Sunday a dividend payout of USD 0.30 per share, according to a company statement (pdf). Shareholders holding shares on Nasdaq Dubai will receive the payment in USD, while those holding shares on the EGX will receive the payment in EGP equivalent. The dividends will be distributed on 25 July.

The Supply Ministry is in talks with the Finance Ministry, subsidized bread bakeries, and other key stakeholders over its planned shift from in-kind subsidies to cash handouts, an unnamed source from the ministry’s General Authority for Supply Commodities (GASC) tells Al Mal. The source denied recent reports that there are concrete plans to make the switch as of next month. Supply Minister Ali El Moselhy had previously held meetings with bakery owners to look into a new system whereby subsidy recipients would receive cash handouts, rather than points on their ration cards with which to purchase bread.

The National Press Authority has agreed to raise the price of national newspapers by EGP 1 starting July, Ahram Gate reports. The authority has asked editors-in-chief to present plans to develop their websites and launch monthly subscriptions.

E-commerce in Egypt is expected to grow rapidly, in part because we have the highest number of internet users in the MENA region — although they make up only half the population — according to Admitad MENA’s most recent industry report (pdf). Admitad anticipates “impressive” growth in Egypt’s e-commerce industry due to growing internet use, rising demand for online shopping, and investments in infrastructure that include upgrading our 4k post offices by 2030.