A third of Egypt’s population now lives in poverty

We’re starting to see signs of renewed momentum in the state privatization program: State investment bank NI Capital is moving ahead with selecting private sector investment banks to quarterback the stake sales of e-Finance and Sidi Kerir Petrochemicals, and new details are emerging on the Alexandria Container and Cargo Handling Company’s secondary offering. We have chapter and verse in this morning’s Speed Round, below.

Do we have Fawry’s upcoming IPO to thank? E-payments platform Fawry is well on its way to its EGX debut, with the private placement and retail offering both currently underway. Fawry’s initial public offering, which will be Egypt’s first since last October, will be a litmus test for the country’s anemic IPO market ahead of other planned offerings.

Foreign Minister Sameh Shoukry is heading to Greece and Cyprus today for what appears to be a one-day visit to talk cooperation and regional issues with top officials, according to a ministry statement. Shoukry is scheduled to meet with Greek Prime Minister Kyriakos Mitsotakis and Foreign Minister Nikos Dendias, as well as Cypriot President Nicos Anastasiades and Foreign Minister Nikos Christodoulides.

The two-day National Youth Conference starts today at the new administrative capital.

It’s interest rate day in the US of A: All eyes will be on Washington today and tomorrow as the US Federal Reserve holds the meeting that could see the first interest rate cut since 2008. The chance of a surprise seems slim, with markets 99.99% certain that a 25 bps cut is in the cards. The USD maintained two-month highs against a basket of currencies yesterday in anticipation of the Fed meeting.

Central banks may have to resort to more drastic measures if governments fail to provide fiscal stimulus in the event of a severe economic slump, Simon Kennedy and Craig Stirling write in Bloomberg. Why? Restarting bond-buying programs is unlikely to have the effect that it did in 2008. Oxford Economics estimates that major central banks would have to buy up assets worth more than 20% of GDP to cope with just an average downturn.

What are the options? The Fed and the European Central Bank could take a leaf out of the Bank of Japan’s book and start buying up equities and exchange-traded funds — a radical and potentially dangerous policy experiment. Otherwise, negative interest rates — which bring a host of problems of their own — could become the new normal if governments continue to hold out on fiscal stimulus.

Three names remain in the race for top IMF job: World Bank CEO Kristalina Georgieva, former Dutch finance minister Jeroen Dijsselbloem, and Bank of Finland Governor Olli Rehn are the final three names competing for Christine Lagarde’s old job as IMF managing director, the FT reports. The job is likely to go to one of Dijsselbloem and Rehn, both of whom have support among Northern European countries. France has voiced support for Georgieva but IMF bylaws that prevent anyone over the age of 65 from getting the job would need to be changed for Paris to get its way.

Five banks face USD 1 bn currency-rigging lawsuit in UK: A group of five US and European banks are facing a USD 1 bn class-action lawsuit in the UK over allegations that they manipulated the global foreign-exchange market, Reuters reports. Investors claim that JPMorgan, RBS, UBS, Barclays, and Citi rigged the currency markets between 2007 and 2013, and should compensate pension funds, businesses, and hedge funds. Global regulators have so far handed out more than USD 12 bn in fines since 2013 to financial institutions found guilty of FX market manipulation.

China is running out of patience with Hong Kong protests, and has voiced strong support for Hong Kong leader Carrie Lam as anti-government protests continue to rock the territory. A spokesman for the Hong Kong and Macau Affairs office accused demonstrators of committing “evil and criminal acts,” while a spokeswoman described the violent clashes as “horrendous incidents.” The eight-week-old protests were sparked by an extradition bill that would have enabled Hong Kong citizens to be extradited to China to face trial. The BBC and the Guardian have more.

An unexpected pay gap: American mn’aire women are earning more than their male counterparts, recent Internal Revenue Service (IRS) data compiled by Bloomberg shows. IRS data from 144.2 mn tax returns showed that women with seven-figure salaries earned an average USD 2.506 mn, compared to USD 2.477 mn for men.

The latest ingenious solution for rising divorce rates? Get men home by midnight. The governor of Ismailia seems to have drawn a connection between his governorate’s increasing divorce rates and its male population’s attachment to street coffee shops (qahwas). Governor Hamdy Othman is now making it mandatory for Ismailia’s qahwa owners to close their doors at midnight during the winter, but will grant the Cinderella-men a one-hour curfew extension during the summer, reports Youm7. The newspaper made no mention of the grounds of Othman’s decision, but stated that the governorate has one of the nation’s highest per capita divorce rates.

Capmas’ release of the income and expenditure survey results, and rising tax revenues were the talk of the town on the airwaves last night.

Egypt’s poverty rate rising to 32.5% is not all that surprising or unexpected, economist Bassant Fahmy told El Hekaya’s Amr Adib. Commenting on state statistics agency Capmas’ FY2017-2018 income and expenditure survey, Fahmy said that the average citizen is not expected to feel the positive impact of reforms yet at this point, and that reducing the poverty rate requires increasing investments and putting in more work to prop up manufacturing and trade (watch, runtime: 10:28). We have more details on the survey results in this morning’s Speed Round, below.

Tax revenues grew by 17% in FY2018-2019 to EGP 660 bn, up from EGP 566 bn in FY2017-18, according to Finance Ministry figures announced at a presser yesterday. Hona Al Asema’s Lama Gebril phoned economist Moustafa Badra, who said the increase is a result of a widening taxpayer base and a parallel “improvement in the [overall] mechanism of tax collection” (watch, runtime: 14:34).

Finally, an inflation infographic by the cabinet’s Information and Decision Support Center charting its fall over the past four years got some airtime on Al Hayah Al Youm (watch, runtime: 2:55). Annual headline inflation fell to its lowest June level in four years last month (8.9% nationwide and 9.4% in urban Egypt). This was compared to 11.5% in June a much higher 30.9% in June 2017.

LEGISLATION WATCH- Brace yourself for a brand new income tax law: The government is working on a new income tax law during the current fiscal year, and expects to have an initial draft ready within two months, Finance Minister Mohamed Maait said at a press conference yesterday. Maait did not provide any further details on the new legislation, but the ministry said in a statement following the press conference that there will be no changes to income tax rates.

Background: We reported in May that the government began drafting significant changes to the Income Tax Act, and even had plans to replace the legislation altogether. Tax Authority boss Abdel Azim Hussein told us that no changes to tax rates or brackets were on the horizon. The reforms would instead impact how tax appeals are handled, the ministry’s internal tax committees, and the procedures for filing tax returns. They may also include introducing a new chapter in the tax code for the treatment of online businesses, new powers to combat tax evasion, and a review of how tax incentives are structured.

Amendments to the VAT law are also in the works: The government will form a committee to amend the VAT law, Maait said, adding that there would be no changes to the VAT rate — a point the ministry reiterated in a statement following the presser. Maait’s assurances contradict a Reuters report from earlier in the day, which claimed to have seen a document suggesting that the government will review the general VAT rate in the current fiscal year.

Background: This is the first thing we’ve heard on VAT since the ministry’s VAT department head Sayed Saqr told us in May that it is planning to begin charging and remitting VAT on download sites. The Finance Ministry is currently compiling a list of websites that charge for book, movie, and song downloads, all of which will come under the scope of the VAT law, he said. The government wants to add around 500k new VAT taxpayers by 2020 and raise revenues from the tax to EGP 364.6 bn this fiscal year. VAT revenues stood at EGP 309 bn last fiscal year, Maait said yesterday, according to Al Mal. An official told us in April that the Finance Ministry plans to impose VAT on all e-commerce platforms and social media ads. Companies including Amazon’s Souq, Jumia and OLX would be required to charge VAT on all online sales.

Egypt’s poverty rate in FY2017-2018 stood at 32.5%, according to Capmas’ income and expenditure survey, the highlights of which were announced at a press conference yesterday. The poverty rate was at 27.8% in the last edition of the report, which measured living conditions and consumption patterns in 2015, head of the statistics bureau Khairat Barakat said at the presser, according to Al Mal. This rate includes individuals living at below the now-adjusted poverty line of EGP 735.5. The poverty line was previously factored in at EGP 482 a month.

Also the average Egyptian household now makes EGP 58.9k a year, up from EGP 44.2k in 2015, the new survey found. Household spending rose to EGP 51.4k per annum from EGP 36k in 2015. Households also receive an average of EGP 2,000 in food subsidies a year, up from EGP 860 in 2015.

IPO WATCH- Pharos-RenCap consortium lands financial advisor job in e-Finance IPO: Our friends at Pharos have been chosen to act as joint global coordinators alongside Renaissance Capital in the anticipated stake sale of government-owned fintech company e-Finance, Pharos’ Managing Director and Head of Investment Banking Noha Ghazaly told Enterprise. The fintech company will make its EGX debut under the second wave of the state privatization program. Zaki Hashem & Partners will act as legal advisors, while Baker Tilly will be preparing the fair value report.

Gov’t looking to make EGP 700 mn from the offering: The stake sale’s targeted absolute value has been set at EGP 700 mn, Ghazaly tells Enterprise, but the exact size of the offering will depend on the fair value report, which will determine how much of the company needs to be sold to bring in the targeted profits. The government’s plan was to sell a 10-15% stake in the company. The IPO will take place through a capital increase as no shareholders are presently looking to exit or sell down their stakes.

IPO timeline is still undetermined: The timeline for the IPO has yet to be decided and depends on how the IPO preparation process goes, but the company should be ready by early 2020, Ghazaly tells us. Companies selected to IPO under the second wave of the state privatization program could begin listing as early September, Public Enterprises Minister Hisham Tawfik said in June.

IPO WATCH- ACCH to offer 20% stake under state privatization program: Alexandria Container and Cargo Handling (ACCH) will offer 20% of its shares at EGP 15.6 apiece as part of the government’s long anticipated IPO program, according to Al Mal. Sources said that 15% of the company’s shares will be allocated to institutional investors in a secondary offering and the remaining 5% will be offered publicly on the EGX. EFG Hermes and Citi, who are advising for ACCH, concluded roadshows in London and Dubai last month and will soon visit the US.

The EBRD has expressed interest in ACCH: The European Bank for Reconstruction and Development (EBRD)’s Managing Director for the Southern and Eastern Mediterranean Janet Heckman said earlier this month the bank has its eye on the ACCH secondary offering as part of its plans to expand its private equity portfolio in Egypt. It said it was committed to investing north of EUR 1 bn in Egypt in 2019, including buying into companies in the state privatization program.

Advisors: Zaki Hashem & Partners will act as the shareholders’ local counsel for the stake sale, while White & Case will take on a role as international counsel.

Background: Share sales under the privatization program are not expected to take place before September, Public Enterprises Minister Hisham Tawfik told us earlier this month. Eastern Tobacco piloted the program with the sale of a 4.5% stake earlier this spring. It is widely believed that Enppi will be the first company to go public.

IPO WATCH- NI Capital to select quarterback for Sidpec stake sale in September: State investment bank NI Capital will announce in September the winning bid out of seven offers it received from investment banks to advise on the planned sale of an additional 23% stake in Sidi Kerir Petrochemicals (Sidpec) as part of the state privatization program, sources close to the matter tell the local press. Reports emerged earlier this week suggesting that the state investment bank would make the announcement “within days,” but the sources now say that NI Capital will only begin receiving the banks’ bids on 5 August.

Who’s in the running? NI Capital had invited the private sector to bid for the job earlier the month. Pharos, EFG Hermes, CI Capital, Beltone’s investment banking arm, Arqaam, HC Securities, and Renaissance Capital are expected to throw their hats in the ring for the quarterback role.

EARNINGS WATCH- Sidpec’s net profit fell 33% y-o-y in the first six months of 2019, the company said in a bourse filing (pdf). The company posted profits of EGP 453 mn in 1H2019, down from EGP 680 mn during the same period a year earlier. Sidpec attributed the fall to a decrease in average selling prices and the appreciation of the EGP. The slump in profits comes as the world’s largest petrochemical producers struggle with slowing global demand. Sabic this week became the latest chemical giant to feel the effects of a slowdown that is hitting industry profits across the world.

Sidpec picks NBK as loan advisor: The company has picked National Bank of Kuwait as a financial advisor for the USD 1.2 bn loan it wants to expand its new propylene and polypropylene plant.

BofA sees “mildly more flexible” USD / EGP rate on the horizon: The USD / EGP rate could be “mildly more flexible” over the coming period as Egypt’s FX reserves are high and our carry trade remains “high enough,” Bank of America Merrill Lynch said in a report out this week. The bank says recent comments from the Central Bank of Egypt on potential volatility in the currency “are to be interpreted as preparation to medium-term normalization of the FX regime.” The EGP broke the EGP 17 / USD 1 barrier in May, at which point it had risen 5.7% against the greenback since the beginning of the year, making it one of the world’s best-performing currencies. The rally was driven primarily by continued USD inflows into government debt instruments and a pickup in tourism receipts.

The usual suspects continue to be Egypt’s risk factors: The bank points to “a financing gap, reform slippage due to the socio-political backdrop or a hasty IMF program exit, reversal of portfolio flows, high inflation, loss of competitiveness, political instability, eroding REER competitiveness, and security issues” as the main risk factors to our economic stability. However, the bank notes that “reform momentum is intact” and that macro stabilization has continued. The government is probing a potential non-loan program with the IMF to push ahead with structural reforms over the next couple of years, Finance Minister Mohamed Maait had said last month.

EXCLUSIVE- Cabinet approves final amendments on auto manufacturing incentives package: The Madbouly Cabinet has approved final amendments to the Customs Act that will provide customs discounts to car manufacturers in return for increasing their use of local components, two government officials told Enterprise. The updated amendments split customs breaks into three tiers according to the percentage of local content used, streamlining previous plans for a more complex five-tier system. Customs discounts will be awarded according to the following rules:

• Manufacturers sourcing less than 45% of their components from local companies will pay an effective customs rate of 20% instead of 40%, provided they commit to increasing their use of local components;
• Manufacturers using domestic sources for 45% of their components will pay a 5.6% customs rate on imported components;
• Manufacturers sourcing more than 45% of their components domestically will get the choice of paying the 5.6% rate on individual components or paying an effective customs rate of 15-20%;

• A customs rate of 2% will be applied to capital goods and machinery.

Background: The government scrapped the so-called automotive directive last summer due to opposition in the House of Representatives and among auto importers. The package of incentives was designed to allow local manufacturers, whom industry backers argue support tens of thousands of skilled direct and indirect jobs, to better compete with EU, Moroccan and Turkish imports that receive customs breaks here in Egypt. The strategy was sharply opposed by our EU trade partners — particularly Germany, whose chancellor Angela Merkel is said to have addressed the issue directly at the highest levels of government in Egypt.

Dana Gas confirms possible Egypt exit: Dana Gas is studying the possibility of selling its Egypt assets to focus on its “massive resources” in the Kurdistan Region of Iraq (KRI), but will continue its operations until then normally, Head of Investor Relations Mohammed Mubaideen confirmed to CNBC Arabia yesterday (watch, runtime: 10: 56). Unnamed sources told Reuters earlier this week that the company has hired investment bank Tudor, Pickering, Holt & Co. (TPH) to advise it on the sale of the assets, which are worth more than USD 500 mn. Al Arabiya also interviewed Mubaideen yesterday (watch, runtime: 06:19).

Why the exit? “It’s a strategic decision to focus on the massive resources in the KRI,” Mubaideen told CNBC. The Emirati company said on Sunday (pdf) that its share of hydrocarbon reserves at Pearl Petroleum Company’s Khor Mor and Chemchemal Fields in the region have jumped 10% to around 1 bn boe, perhaps making them the biggest gas fields in Iraq. One of the sources speaking to Reuters said that focusing on a single region could make the company more attractive to investors ahead of a potential listing on the London Stock Exchange.

The company will continue to operate as normal in the meantime: “We’re committed to our operations in Egypt,” Mubaideen said, adding that the Abu Dhabi-listed energy producer is planning to invest in drilling in the El Matareya concession in the Nile Delta. The company announced on Sunday that it is abandoning its Merak-1 well in the North Arish concession after failing to find commercial hydrocarbons, but will continue exploration efforts in the concession.

No one has officially told us anything: The Oil Ministry has not received any official notice from the company about plans to exit the country, ministry sources told Amwal Al Ghad.

Background: Dana holds stakes in five onshore exploration and production concessions in the Nile Delta and one offshore block in the eastern Mediterranean. Dana Gas’ production climbed 6% y-o-y in 1Q2019 to 68.7k boe/d from 65k boe/d during the same quarter last year, partly due to an increase in production from its Balsam 8 field in Egypt, the company said in April. Egypt last month paid the Emirati company USD 38 mn in overdue arrears, reducing its outstanding receivables to USD 125 mn, the lowest level since 2011.

INVESTMENT WATCH- US’ CEVA looking to invest USD 2 bn in new capital medical complex: The US’ CEVA Animal Health is expected to sign in September a USD 2 bn agreement with the New Administrative Capital Company for Urban Development (NACCUD) to build a medical complex in the new capital, NACCUD Managing Director Mohamed Abdel Latif told Hapi Journal. A source close to the matter confirmed the news to Enterprise, but did not explain how or why a veterinary company is building a medical complex for humans. A final agreement has yet to be reached, but the project could potentially be implemented via a JV with the NACCUD, Abdel Latif said. The education and health ministries have already agreed to collaborate on the project, which will include medical, pharmaceutical and dentistry colleges, he added.

Another USD 2 bn project in the pipeline: NACCUD is also mulling an offer it received in July from Formula Group to set up an international rally venue in the new capital with at least USD 2 bn in investments, Abdel Latif said, adding that a number of related projects to be built in the vicinity are currently being negotiated.

Other offers are on the table: Offers from Egyptian, Emirati, Saudi, British, and Korean investors are also being looked at, Abdel Latif said, adding that some of them will be announced within the coming weeks. An offer from Saudi German Hospital Group to build a 120-feddan medical complex will be decided on in the coming month.

LEGISLATION WATCH- Draft Insurance Act grants sweeping new powers to market regulator: The Financial Regulatory Authority (FRA) will be granted sweeping new powers to regulate the insurance industry under the final draft of the Insurance Act, Al Masry Al Youm reports. The watchdog would vet all candidates applying for board positions in insurance companies, have the power to create new companies and issue licenses, and create new M&A regulations. It would also become responsible for regulating private insurance funds, and will establish a committee to focus on providing insurance for SMEs. The bill will be discussed by the FRA board at its next meeting.

Background: The FRA has largely kept minimum capital requirements for property and life insurance companies unchanged in the final draft of the new Insurance Act, sources had told the local press. The latest draft also reverses an article that banned any insurance company shareholder from acting as chairman or CEO. The bill will still double the ceiling for life insurance payouts to EGP 80k, from EGP 40k currently.

MOVES- Prime Minister Moustafa Madbouly has tapped co-head of the General Authority for Investment (GAFI) and former Investment Ministry consultant Mohamed Ahmed Abdel Wahab as GAFI’s new chief executive, according to a ministry statement. Abdel Wahab succeeds Mohsen Adel, who completed on Sunday his one-year stint at the helm of the authority.

The foreign press didn’t have much to say about Egypt this morning aside from two headlines worth a skim:

• Body found at Elneny’s Egypt home: The body of a man believed to have died while attempting to steal electrical cables was recently found at the home of Arsenal midfielder Mohamed Elneny in El Mahalla, the BBC reports.
• Sinai band uses jerry cans to make music: The Bedouin Jerry Can Band (Firqat al-Jarkin al-Badawiya) uses curious instruments, including jerry cans left behind as remnants of war, to play traditional Sinai folk music, Al Monitor’s Yahya Sakr writes.

A new 3D printing technique could become a core manufacturing trend of the future allowing objects to be crafted in seconds. Carbon, a startup focused exclusively on crafting polymers, took inspiration from Terminator 2’s T1000 to invent a printing technique using the power of light and digital projections. Carbon CEO Joseph DeSimone talks to the FT’s Richard Waters about his company’s potentially revolutionary technology in this podcast (listen, runtime: 28:00).

El Sisi, Jordan’s Abdullah II hold talks on Mideast peace plan: President Abdel Fattah El Sisi and Jordan’s King Abdullah II discussed yesterday stepping up efforts to resume Middle East peace plan negotiations, according to an Ittihadiya statement. Both leaders reiterated their vision of the pre-1967 borders and a Palestinian capital in East Jerusalem as a solution for the Palestinian-Israeli conflict. Their talks come as Jared Kushner is set to be back in Egypt soon to drum up support for his “Peace to Prosperity” plan.

El Sisi holds talks with Sudan’s Hemeti: President Abdel Fattah El Sisi met with deputy chief of Sudan’s military council General Mohamed Hamdan “Hemeti” Daglo in Cairo on Monday to discuss developments in Sudan, according to an Ittihadiya statement. El Sisi reiterated Egypt’s commitment to providing “strategic support” to Sudan as it attempts to recover from months of political turmoil. Civilian leaders and military generals in Sudan signed a power-sharing agreement on 17 July to form a joint ruling body while the country prepares for elections in 2022. Hemeti has been accused of facilitating a brutal crackdown on opposition protesters last month. AFP also reported on the meeting.

More investment, cooperation planned between Egyptian and Chinese companies: The Chinese Council for Promoting South-South Cooperation (CPSSC) intends to increase trade and investment between Egyptian and Chinese companies, CPSSC Chairman Lyu Xinhua said at the Chinese-Egyptian Business Forum in Cairo on Sunday, Xinhua reports. Some 19 Chinese companies and 20 Egyptian firms came together for the forum, which focused on investments in Egypt’s industrial, education and developmental sectors.

The SME Development Authority will sign next month a EUR 27 mn grant agreement with the European Union to promote employment in 11 governorates susceptible to illegal immigration, said the authority’s head of human and social development sector Medhat Massoud, according to Masrawy. Separately, the authority will receive within days the first EUR 15 mn tranche of another grant to support cultural development in six governorates, Massoud said.

Egypt wants to double its crude imports from Kuwait to 4 mn bbl a month next year, official sources told Al Rai. The government has reportedly asked to renew its three-year oil supply contract when it expires, but has requested more favorable payment terms which would extend the grace period to 16 months from 9 months. Egypt also imports 1.2 mn tonnes of petroleum products under the current contract.

BP is planning to begin the third development phase of its North Alexandria concession by the end of the year to bring the field’s production to 1.5 bcf/d by early 2020, a source from the Egyptian Natural Gas Holding Company told the local press. The third and final phase will see an early 350 mcf/d of gas linked from the Raven field to production. The field will ultimately add 850 mcf/d to the concession’s output.

The New and Renewable Energy Authority (NREA) has asked for a three-month extension to the expiration date of bids it received in a tender to build a 250 MW wind energy plant in the Gulf of Suez’s Ras Ghareb, sources told the press. The NREA asked the three bidding companies — Siemens Gamesa, Germany’s Senvion, and Denmark’s Vestas — to allow the authority more time to examine their offers. The project is expected to cost EUR 260 mn and will be funded by Germany's KfW bank, the European Investment Bank, the French Agency for Development, and the EU.

El Araby Group aims to open a EGP 600 mn washing machine factory in 4Q2019 as part of plans to build 12 factories in Beni Suef by 2022, Vice President Ibrahim El Araby told Al Mal. The factory will eventually produce 1 mn washing machines per year, half of which will be sold on the local market, while the other half will be earmarked for exports.

German tourist bookings to Egypt increased by 66% so far this year, Peter-Mario Kubsch, owner of German travel agency Studiosus said, according to Al Shorouk. German cultural tourists are returning to Middle Eastern and North African (MENA) countries, and demand for bookings to Egypt is expected to sustain an upward trend, the owner of the Munich-based agency said.

Defense Minister Mohamed Zaky met yesterday with US Defense Secretary Mark Esper in Washington, DC to “discuss a wide range of mutual interests, from counterterrorism to maritime security to capacity building,” according to a US Department of Defense statement.

Mo Salah ranked #26 on Instagram Rich List 2019: Mohamed Salah is the highest ranked celebrity from the MENA region to be featured on the Instagram Rich List 2019. Hopper HQ puts the list together based on how much a user can charge for a single sponsored post on Instagram. Salah’s 30.4 mn Instagram followers could allow him to charge as much as USD 165k per post.