Is the e-Finance IPO back on this year?

The news here at home is dominated this morning by the Euromoney Egypt conference, which took place yesterday. Among the noteworthy results from an audience poll at the one-day gathering:

• A “clear, transparent and fair regulatory structure” was cited as the most important thing for the government to provide to encourage digitization in Egypt.
• Two-thirds of attendees think the US-China trade war and overall global economic slowdown will only have a limited impact on the Egyptian economy.

External trade environment is “terribly bad” for Egypt -Citi Bank MD: Citi Bank Managing Director and head of Emerging Markets Economics David Lubin seemed to side with the 33% of audience members who see global conditions not boding well for Egypt, saying at the conference that the country is facing a “terribly bad” trade and external demand environment. Lubin also predicted that Egypt’s budget deficit will widen if we continue our reliance on cheap imports and fail to balance real liberalization and financial liberalization.

Egypt’s new sovereign wealth fund is expected to be operational in October, Finance Minister Mohamed Maait told Ahram Online at the conference yesterday. The Finance Ministry will transfer EGP 1 bn in capital to the fund in the coming days, 70% of which is due to be invested in governmental projects, Maait said. We have all the other highlights from the conference in this morning’s Speed Round, below.

The second day of EFG Hermes’ annual investor conference in London gets underway today at the Arsenal Emirates Stadium. The event provides a forum for investors, company executives, and fund managers from Egypt and other frontier and emerging markets to network and discuss investment options with London-based investors.

The Sahara agricultural expo is also on its second day today at the Egypt International Exhibition Center. The expo wraps on Thursday, 12 September.

Oil Minister Tarek El Molla is in the UAE for the World Energy Congress at the Abu Dhabi National Exhibition Center. The WEC is held every three years and brings together global energy sector leaders from governments, the private sector, academia, and media.

CBE Governor Tarek Amer is in the Rwandan capital Kigali today ahead of the start of the 2019 Alliance for Financial Inclusion Global Policy Forum, where he will assume the chairmanship of the AFI’s board of directors.

Egypt, Nigeria, and South Africa are the “three big economic engines of Africa,” Citigroup Managing Director Miguel Azevedo tells Bloomberg, in a piece that highlights rising enthusiasm about the future of Africa’s economy. Credit Suisse’s Vikas Seth believes Africa is where Asia was 20 years ago with a promising consumer market, a thirst for infrastructure investment, and a wealth of natural resources.

Is private equity worth the high costs? The net asset value of private equity funds has grown more than sevenfold since 2002 — roughly twice as fast as global public equities — according to data from McKinsey. At the same time, private equity fee structures drive costs that are higher and less transparent than those on public markets, raising questions about whether these costs are justifiable, Jonathan Ford writes in the Financial Times.

New research suggests that EM equities will be the place to be in the coming years: Emerging market companies will generate inflation-adjusted annual real returns of 5.2% over the next seven years, while the cheapest companies will return 9.8% each year, according to analysis by GMO Investments picked up by the FT. US stocks, meanwhile, will fare considerably worse, with large-cap stocks forecast to fall 3.7% each year over the same period.

This doesn’t mean everything is rosy in EMs: The IMF in July cut its 2019 GDP forecast for EMs to a decade low of 4.1%, down from 4.4% it had predicted in April.

Faleh’s ouster boosts crude prices: Crude oil prices bounced on the news that Saudi Prince Abdulaziz bin Salman was tapped to replace Khalid Al Faleh as the kingdom’s new energy minister, with Brent futures gaining 1.1% and US crude 1.3% in early afternoon trading, according to the FT. Salman also said at an Abu Dhabi conference yesterday that he does not intend to back away from oil cuts with Russia and other OPEC members, saying they will continue “for the long term,” reports the FT. With Saudi oil giant Aramco’s initial public offering on the horizon, there’s all the more reason for the country to push on with its policy of cuts as its highly ambitious USD 2 tn valuation target hinges on higher crude prices.

We now have a VIX for Trump’s tweet effects: JPMorgan analysts have created a volatility index to measure the effect of Trump’s tweets on US market yields, reports Reuters. Named “Volfefe” in reference to that “covfefe” tweet that still makes no sense two years later, the index samples recent tweets and measures their effect on the US interest rates market. The index could “easily” be adapted to equity and currency markets, the analysts said.

Antitrust investigation of Google underway in the US of A: The attorney generals of 50 American states are starting a “a wide-ranging review” of practices by tech giant Google they say could be a step back for competition, damage consumers, and hamper the “continued growth of the web,” according to the Washington Post.

This week’s ominous piece of research into the effects of automation and AI is brought to you by IBM,which through a fairly comprehensive study suggests that 120 mn workers in the world’s 12 largest economies may need to find new skills over the next three years as a result of technological change.

Attention, iSheep: Apple is expected to announce at an event getting underway at 7 pm CLT today three new iPhone models. You can watch the event live at the appointed hour. Bloomberg, TechRadar, and MacRumors have leaks and rumors of what to expect from the new models. Despite anticipation running highand mns expected to tune in for “the annual Silicon Valley ritual,” recent consumer and sales trends are suggesting that “Apple’s newest iPhones might not generate the buzz of years past,” says the Washington Post.

No particular theme dominated the airwaves last night, but the talking heads all continued keeping tabs on President Abdel Fattah El Sisi’s meetings with top officials.

Gov’t administrative reform plan: President Abdel Fattah El Sisi, Prime Minister Moustafa Madbouly, and Planning Minister Hala El Said reviewed the state’s administrative reform plan, which Ittihadiya spokesperson Bassam Rady told Masaa DMC’s Eman El Hosary rests on how to develop and best utilize the “human element” (watch, runtime: 4:23).

Channeling more funds into SMEs: El Hosary also took note of a separate meeting Madbouly and El Sisi held with head of the SMEs Development Authority Nevine Gamea in which the president stressed the need for more funds to be channeled into SME development (watch, runtime: 1:36).

EGP continued to strengthen against the greenback: Over on Hona Al Asema, Lama Gebril made sure to inform viewers that the EGP rally vis-a-vis the USD has not yet come to an end, with the exchange rate falling EGP 0.01 yesterday (watch, runtime: 0:31).

Gov’t denies reports of new taxes: Al Hayah Al Youm’s Lobna Assal, meanwhile, took note of the Finance Ministry’s denial of recent reports that it is planning on increasing stamp taxes on electricity consumption, car licenses, bank transactions, and more (watch, runtime: 0:31). We have the story in this morning’s Speed Round.

The Finance Ministry plans to issue USD 3-7 bn in international bonds during FY2019-2020, Finance Minister Mohamed Maait said on the sidelines of the Euromoney conference yesterday, according to Reuters. “We would love to go for yuan and yen,” he said, adding that the offerings could also include sukuk and green bonds. Egypt held two international bond auctions in FY2018-2019: One USD 4 bn eurobond issuance and one EUR 2 bn eurobond issuance.

The ministry will begin talks with investment banks to advise on the issuances “very soon,” Assistant Finance Minister Khaled Abdel Rahman told Bloomberg, without providing specifics on the timeline.

Egypt’s debt instruments will be clearable through Belgium-based clearinghouse Euroclear by the beginning of next year, Maait told the local press. The ministry originally planned to issue yen- and yuan-denominated bonds last fiscal year but was forced to postpone to give it more time to comply with Euroclear requirements. “We tried last year, but there are a lot of requirements. We couldn’t get all the requirements done. If we can do it this year, we would love to see Egypt going to these markets,” Maait said. The minister also cited delays in pushing out legislation that would establish a new central clearing and depository company that would be mandated with handling all the clearing and registry of government debt issuances.

Egypt’s world-beating yields continue to attract investment: Foreign holdings in Egyptian treasuries rose above USD 20 bn in August, Masrawy reported Maait as saying. Inflows into Egyptian debt have steadily increased this year, rising from USD 13.1 bn at the end of January. Yields on Egyptian debt are among the most attractive in the world

IPO WATCH- Is the e-Finance IPO back on for 2019? The planned initial public offering of state-owned payments platform e-Finance will take place by the end of the year, Chairman and Managing Director Ibrahim Sarhan said at the Euromoney conference yesterday, according to Ahram Online. Sarhan’s statement comes weeks after he told the newspaper that the IPO was not a certainty. A valuation of the company should be completed in October as the company prepares to go public in the coming months, Sarhan told the local press. Sarhan had previously estimated that the IPO would see the sale of 15% of the company’s shares on the EGX, but told the newspaper yesterday that the size is still subject to decisions by the lead advisors.

Does this mean wave two of the privatization program was not postponed? Public Enterprises Minister Hisham Tawfik told us late last month that the second wave of the state privatization program, which includes e-Finance’s IPO, has been postponed to after January 2020. Finance Minister Mohamed Maait neither confirmed nor denied the news, saying only that stake sales are “not easy” but “could happen at any time,” according to Mubasher.

Background: The government is expected to choose between e-Finance and Banque du Caire for its first IPO under the second wave, sources told us last month. Sarhan said at the time that the e-Finance sale was still subject to a two-month valuation study to determine the share price. Reports emerged in the press last week that the IPO’s joint global coordinators, Pharos Holding and Renaissance Capital, plan to kick off a roadshow before Christmas to drum up investor interest. BdC, meanwhile, is only awaiting a decision by stakeholders and regulators and is “internally ready,” CEO Tarek Fayed told us in an exclusive interview earlier this year. Fayed said at the time he expected the IPO to take off by the end of 2019 or early 2020.

FinMin has paid exporters EGP 1.4 bn in subsidy arrears -Maait: The Finance Ministry has disbursed over the past few weeks EGP 1.4 bn in overdue subsidy payments the government has owed to exporters since last year, Finance Minister Mohamed Maait said yesterday, according to Hapi Journal. A number of businesses claimed earlier this week that the ministry had not settled the overdue subsidies and that no contracts have been signed since officials reached an agreement in May to settle the payments. According to Maait, the government is in talks with businesses to deduct the arrears from their taxes, customs or the cost of industrial land, under the new framework outlined by the Trade Ministry in July.

Background: The Egyptian Businessmen’s Association estimated last year that the government could owe exporters EGP 9 bn, while Food Export Council member Karim Abou Ghaly put the figure even higher at EGP 12 bn. The state-run Export Subsidy Fund is supposed to pay out 8-12% of the value of exports to companies, depending on how much local content is used and the export destination.

The Finance Ministry is not planning to raise stamp tax rates, Maait said at the Euromoney conference yesterday, according to Al Mal. The minister denied our report from yesterday that proposed amendments to the Stamp Tax Act would see the tax and fees hiked on electricity consumption, banking transactions, car and driving licenses, and several government documents, among other things.

But when it comes to reforming customs and tax procedures, Egypt has “a lot of work to do” to become a more attractive FDI destination, Maait told Reuters yesterday. The minister told the newswire that his ministry is working on legislation that would unify tax procedures, the first draft of which will be ready for the business community by the end of next month. The Madbouly Cabinet had approved in July proposed legislation that would introduce a series of reforms aimed at simplifying the tax payment process. The bill, if passed by the House of Representatives, would a unified system for filing taxes and pave the way for a new electronic billing and tax payment platform that would help the ministry monitor our tax accounts.

Mercedes-Benz Egypt selects local partner for assembling cars: Mercedes-Benz Egypt will partner with the Egyptian German Automotive Company (EGA) to assemble cars in Egypt, the company said in a statement yesterday (pdf). The contract was given to EGA after meeting the company’s standards and production requirements, the statement said. No details were provided on the value of the contract.

The first car should be completed in the second half of 2020, the German auto manufacturer said, adding that production will focus on SUVs that are not yet available in the Egyptian market. Mercedes-Benz Egypt last week added Abou Ghaly Motors, Ezz El Arab and German Auto Service to its retail network in Egypt.

Madbouly, Nasr talk Egypt’s economic reforms with EBRD delegation: Prime Minister Moustafa Madbouly and Investment and International Cooperation Minister Sahar Nasr met yesterday with a delegation from the European Bank for Reconstruction and Development (EBRD), which is in town for an economic fact-finding mission, according to a Cabinet statement. The two sides looked into Egypt’s planned legislative and regulatory reforms to spur FDI, as well as measures to encourage private sector investments and growth.

In other EBRD news, the bank launched yesterday an initiative to improve labor skills in Egypt’s electrical equipment and cables industry, according to a statement. The program, which is financed through the Swiss State Secretariat for Economic Affairs, will see contribution from the Federation of Egyptian Industries, the Chamber of Engineering Industries, private sector companies, and the government. “The platform will promote skills, human capital policies and national occupational standards by identifying gaps in technical skills and by helping to set up training programmes in coordination with vocational institutions and schools. It will also introduce specific qualifications and certifications of standards.”

“Phantom” FDI accounts for over a third of global investment, and it’s growing: Almost 40% of all global foreign direct investment (FDI) is being funneled into shadowy structures designed to minimize the global tax paid by firms, a joint study by the IMF and the University of Copenhagen reveals. Of the USD 40 tn in FDI moving around the world, some USD 15 tn passes through “empty corporate shells” — known as “special purpose entities.” These allow companies to use FDI to finance subsidiaries, carry out holding activities and manage intangible assets, instead of investing in real business functions that create jobs, boost growth, and increase productivity. And despite international efforts to clamp down on firms shifting profits for tax purposes, phantom capital is growing as a share of overall FDI, having increased from 31% in 2010 to 38% in 2017.

Investment is clustered in a few tax havens: The vast majority of the world’s phantom FDI is in a handful of countries, with Luxembourg and the Netherlands hosting nearly 50%. Collectively, these economies and another eight — Hong Kong, the British Virgin Islands, Bermuda, Singapore, the Cayman Islands, Switzerland, Ireland, and Mauritius — hold over 85% of all phantom investments.

Beneficial to some, harmful to many: The accumulation of so much FDI in so few countries is partly the result of policies designed to attract FDI, the study says. In Ireland, for instance, the corporate tax rate has been cut from 50% in the 1980s to about 12.5% today, growing the country’s tax base, and increasing tax revenues as a share of GDP. In the Caribbean, financial contributions to the local economies by the “corporate shells” count for a significant share of GDP. For other countries, this only results in deprivation of investment and tax revenue. In July, we picked up an investigation by the International Consortium of Journalists that found that many multinationals are using the low tax rates and tax treaties in Mauritius to ship untaxed income out of Africa. Egypt is one of the countries missing out on tax revenue, with officials describing our treaty with Mauritius as having a crippling effect.

The Mabee-Gerrer Museum of Art in Oklahoma has revealed a 3D facial reconstruction of its Egyptian mummy Tutu as part of their centennial celebration, according to the Oklahoman.

It’s another day of miscellany for Egypt in the foreign press, with a small handful of stories to keep on your radar this morning.

Interfaith dialogue: The Abrahamic Teams — a German initiative whereby groups (each one made up of a Christian, a Muslim and a Jew) approach people at schools or events to instigate an interfaith dialogue — is now being implemented in Egypt. But despite good intentions, and the participation of some 60 church schools, interest among Egypt’s state schools and the Coptic Orthodox Church in particular remain low, and encouraging people of different religious denominations to engage in faith discussions is a slow process, Qantara reports.

Other headlines to give a skim:

• Silence among the Sufis: The absence of opposition to the recent demolition of a Sufi mosque in Alexandria suggests the community is putting political expediency above its reverence for shrines, Al Monitor argues.
• Egypt’s involvement in Libya: Egypt has played a key role in mobilizing support for Libyan Gen. Khalifa Haftar for both economic and security reasons, says an opinion piece in DC-based weblog LobeLog.
• A “rare debate” about the military’s economic influence has been sparked by critical videos posted online by construction contractor Mohamed Aly, which have since gone viral, says AFP.

Egypt working to take Sudan off pariah list, Shoukry says: Egypt is working to lobby the US to remove Sudan from its list of terror sponsoring states, Foreign Minister Sameh Shoukry told reporters in Khartoum yesterday, according to Sudan News Agency (SUNA). Sudan has been on the list since the early 1990s. Shoukry, who is the first foreign official to visit the country since a new civilian-led government was put in place on Sunday, met with his counterpart Asmaa Abd Allah, new Prime Minister Abdalla Hamdok, and sovereign council head Abdel Fattah Al Burhan.

Egypt’s exports from Qualifying Industrial Zones (QIZ) increased 14.4% to USD 587 mn in 7M2019 and are expected to end the year at USD 1 bn for the first time since 2011, according to a local press report. The y-o-y increase comes on the back of a rise in textiles and readymade garment exports, which made up 97% of the total figure, head of the Trade Ministry’s QIZ unit Ashraf El Rabie told the newspaper. Participants in the QIZ agreement, which Egypt signed with Israel and the US in 2004, enjoy access to the US market without tariffs provided they meet a minimum required amount of Israeli content.

Egypt has signed an MoU with China to export dates, according to Al Shorouk. A Chinese official said last month that the country was preparing to begin importing dates, as well as pomegranate, honey and onions. Egypt currently runs a large trade deficit with China, accounting for only USD 1.8 bn of the USD 13.8 bn trade volume.

A joint Egyptian-Chinese solar research facility in Sohag was inaugurated on Monday to serve as an experimental lab for solar cell research and development, according to the local press. Egyptian research institutions provided EGP 30 mn towards the facility while the Chinese Ministry of Scientific Research contributed USD 750k. The project is part of a wider agreement between Egypt and China in 2014 for two sides to work together on wind and bioenergy research.

The Egyptian Electricity Transmission Company (EETC) has signed a contract with an Al Kharafi-Taikai-NHVS consortium to construct a substation in East Damietta at a cost of EGP 440 mn, EETC head Sabah Mashaly said. The project will be financed partly through international financiers and partly by the EETC, and will take up to 12 months to complete.

Careem is in talks with the government to provide mass transit services, newly-appointed General Manager Wael Abou El Ela told Al Mal, without providing further details. We are still yet to hear from the Egyptian Competition Authority regarding the USD 3.1 bn Uber-Careem merger earlier this year. The regulator threatened to fine each company EGP 500 mn for violating competition rules following the agreement, and is still studying how it will affect the Egyptian market.

The Finance Ministry is going to “study” the government’s plans to replace tuk-tuks with minivans, Minister Mohamed Maait said yesterday, according to Al Masry Al Youm. Prime Minister Moustafa Madbouly said last week the government plans to crack down on the three-wheelers by having tuk-tuk manufacturers switch their production lines to natural gas-powered minivans. Automotive industry figures this week argued that the plans would negatively affect feeder industries and called on the government to reconsider.

Ride-hailing app Professional Taxi will launch a beta version on iOS in the coming two weeks, according to the local press. The company is also planning to expand its services to Sharkia governorate, 10th Ramadan City and Sadat City in the coming months.

Food producers have begun collecting their payments from retailers electronically through apps such as Fawry, Farm Frites General Manager Ahmed Seddik told the local press. The company has recently signed contracts with a number of electronic payment apps to increase security in transactions as part of its financial inclusion strategy, Seddik said. Juhayna has also signed a EGP 15 mn annual contract with Fawry, which earlier this year launched Fawry FMCG, a new e-payment platform for consumer goods companies, according to Juhayna CEO Seif El Din Thabet. Food producer Dreem also has e-payment agreements with online retailers Jumia and Souq, its export manager Ashraf Mazen said.

Fawry is planning to venture into micro insurance brokerage by early 2020, CEO Mohamed Okasha told the press, without providing much detail beyond saying the service will be provided in partnership with “insurance companies that offer this product.” The Financial Regulatory Authority granted the e-payments platform a license to provide insurance brokerage services earlier this year.

The EGX has taken Global Telecom Holding’s shares off the exchange after the company completed all voluntary delisting procedures, the domestic press reports. GTH’s shareholders approved the delisting during an extraordinary general assembly meeting last month after the company’s main shareholder, Veon, completed a mandatory tender offer taking GTH private.

With restoration complete, two ancient tombs in Luxor open to visitors: Two ancient Egyptian tombs in Luxor have been opened to visitors following their restoration, Egypt’s Antiquities Ministry announced earlier this week. Xinhua has a selection of pictures of the stunning paintings inside the tombs.