Madbouly approves plan to slash EGX trading fees in half

Prime Minister Moustafa Madbouly will deliver a statement at a plenary session in the House today amid increasing parliamentary criticism of his government’s economic policies, according to Masrawy. “My message to this government, including cabinet ministers and provincial governors: Please do not export problems to the president and parliament… and take all measures necessary to improve the living of ordinary citizens,” Ahram Online quoted House Speaker Ali Abdel Aal as saying last week.

The seventh tripartite summit between Egypt, Greece and Cyprus kicks off in Cairo today, and will see President Abdel Fattah El Sisi, Greek Prime Minister Kyriakos Mitsotakis, and Cypriot President Nicos Anastasiades discuss ways to strengthen economic, investment, energy and cultural ties, Greek media reported. Look for talks on developments on the East Mediterranean Gas Forum, particularly in the midst of Turkey’s recent spate of offshore drilling in Cypriot waters. The three countries will also sign a number of energy agreements, said Egyptian Ambassador to Cyprus Mai Khalil.

EAEU trade talks commence today: The third round of negotiations for a trade agreement between Egypt and the Eurasian Economic Union (EAEU) are being held in Cairo today.

A Russian business delegation headed by Trade Minister Denis Mantrov is in town until Thursday for a joint forum to discuss cooperation.

A Porteguese equivalent is also in Suez for investment prospects in the Suez Canal Economic Zone. The Portugese delegation is also interested in setting up shipping line agencies, according to Masrawy.

Good luck to our friends hitting the books at the University of Chicago … in El Gouna. The University of Chicago Booth School of Business kicked off yesterday a two-week corporate leadership program in El Gouna. The program was set up under a USD 6 mn grant from the Sawiris Foundation for Social Development, educational consulting firm Newton Education Services announced in July. Newton received 100 qualified applicants for this year’s edition, of which 30 private sector executives and 20 public sector executives were selected by the university, Newton’s director Nelly Elzayat told Enterprise. The program focuses on leadership and decision-making and negotiating skills, among a host of other topics, and features international speakers and “high-level networking” prospects. You can find out more — and apply for the 2020 re-run — here.

Monthly inflation figures for September are due at the end of the week. Inflation cooled for the second consecutive month in August to 7.5%, marking the lowest reading in six-and-a-half years.

The Information Technology Industry Development Agency (ITIDA) is getting involved in the GITEX Technology Week, which kicked off on Sunday at the Dubai World Trade Center. The event wraps up on Thursday, 10 October.

It turns out private equity takeovers aren’t great for jobs. A major new study by Josh Lerner of Harvard Business School and Steve Davis of the University of Chicago has found that companies experience average job losses of 4.4% within two years of being taken over by a PE firm. Significantly, the effects on the workforce vary depending on the type of buyout: job numbers fall 16% in divisional carveouts and 13% in buyouts of publicly traded companies, but rise 13% after buyouts of privately owned businesses and 10% after buyouts of PE-backed firms. You read the full report here, or alternatively check out Axios’ bite-size summary.

The US does large-scale asset management better than the Europeans. US fund managers control more than double the amount of assets under management (AUM) than that of their European counterparts, according to the Financial Times. The top 20 US funds hold around 35% of the world’s AUM, compared to the top 20 European companies which control just 14%. Part of the discrepancy comes from households’ appetite for risk, which appears to be lower in Europe than it is in the US — around 40% of European citizens have their savings stored in bank deposits, compared to only 10% of Americans. The bigger issue, however, is the fact that Europe’s largest asset managers “tend to rely on selling in-house products via distribution channels that remain confined within boundaries,” and have a difficult time with expansion as a result of the “fragmented” European financial system.

We haven’t heard the last of the US market correction. While the jury is still out on whether the US will enter a recession over the coming year, JPMorgan’s head of cross-asset fundamental strategy John Normand expects the performance of US equities to get worse before it starts getting better. “The message across all indicators is that this correction is about half complete, and should prove much shallower than last year’s,” Normand wrote in a research note, according to Bloomberg.

Household finances could be the difference between growth and recession. The US-China trade war may be deepening, but it is yet to take its toll on employment and consumer spending. President of the Peterson Institute for International Economics Adam Posen has said that the strength of house finances may well be the shield that protects the global economy from plunging into a recession. The Financial Times has more.

The Saudi MSCI upgrade hasn’t exactly been a resounding success. Managers of active EM funds have continued to shy away from Saudi equities after their inclusion in the MSCI EM Equity Index in August, Reuters reports. Copley Fund Research said that that 85% of global active EM funds are yet to invest in the Saudi market due to “high valuations, a relatively small investment universe and reputation risk a year on from the Khashoggi debacle.”

Trump gives thumbs up to Erdogan’s Syria invasion: US forces will stand aside to allow the Turkish army to invade north-east Syria and crush Kurdish fighters, the White House said yesterday, according to the Associated Press. The US had been allied with the Syrian Kurds in the struggle against Daesh, but has now all but handed them over to Ankara, which views the Peoples’ Protection Units (YPG) as a terrorist group.

A few hours later: Trump threatens to “obliterate” Turkey’s economy. “If Turkey does anything that I, in my great and unmatched wisdom, consider to be off limits, I will totally destroy and obliterate the economy of Turkey (I’ve done before!),” he wrote on Twitter. You can’t make this up.

The 2019 Nobel Prize for Physiology or Medicine has been awarded to three American scientists for their discoveries on how human cells can adapt to oxygen availability, a knowledge that can help find solutions to fight anemia, cancer, and other diseases. William G. Kaelin Jr, Gregg L. Semenza, and British Peter J. Ratcliffe will share equally the USD 918k cash award for the 110th prize awarded in the category since 1901.

It was a mixed bag on the airwaves last night:

Egypt is nearly ready to deliver 4 mn sqm to investors at the Suez Canal Economic Zone (SCEZ), Chairman of the SCEZ authority Yehia Zaki said, according to Al Hayah Al Youm (watch, runtime: 02:34). The authority will begin delivery after it’s done with improving the soil and infrastructure, and will announce the winning bids within three months, he said. Zaki also told the press that the first 500k sqm phase of the 5.25 mn sqm Russian Industrial Zone (RIZ) will be delivered to investors by the end of the year. The first phase was originally scheduled to be delivered in March 2020, Zaki added. The announcement coincided with the arrival of a Russian business delegation headed by Russian Industry and Trade Minister Denis Mantrov.

El Sisi meets IFAD boss: President Abdel Fattah El Sisi discussed investment and development with UN International Fund for Agricultural Development (IFAD) President Gilbert F. Houngbo yesterday, Al Hayah Al Youm’s Lobna Assal noted (watch, runtime: 02:00). The IFAD has projects in Egypt aiming to reduce poverty in rural communities with a focus on agriculture development, food security, employment for rural youth, and supporting farmers in cases of climate change affecting their crops.

Egypt’s monorail project is going according to schedule, Transport Minister Kamal El Wazir reassured El Hekaya’s Amr Adib (watch, runtime: 03:30).

REGULATION WATCH- Madbouly signs off on expanding coverage of stock exchange protection fund, slashing membership fees: Prime Minister Moustafa Madbouly has approved a proposal from the Financial Regulatory Authority to expand the coverage of the Egyptian Investor Protection Fund (EIPF) and reduce regulatory fees charged to its members by 50%, the Financial Regulatory Authority (FRA) said in a statement. The EIPF will now insure shareholders against listed companies going bust by paying out a maximum of EGP 500k per client, and its members will pay a membership fee equivalent to 0.01% for each stock market transaction, down from 0.02%.
Those listed companies are now members of the fund alongside brokerages, custodians, and fund managers. The decision would require amendments to the fund’s bylaws.

Background: El Nashar told us last year that amendments that would make it mandatory for all listed companies to make annual payments to the EIPF had made their way to cabinet. The amendments also looked to expand the fund’s coverage to stock market losses resulting from fraud.

Clarified on 13 October 2019

A previous version of this article refered to the reduced fees as “regulatory fees on stock trading” instead of regulatory fees charged exclusively to  members of the EIPF.

IPO WATCH- Gov’t to offer ACCH, Abu Qir stakes before end of the year -Tawfik: The government will offer stakes in Alexandria Container and Cargo Handling (ACCH) and Abu Qir Fertilizers in 4Q2019 after the State Council has completed its review and granted it the necessary approvals, Public Enterprises Minister Hisham Tawfik told CNBC Arabia. The legal procedures have been delayed due to the death of the judge who was in charge of the case, but a date for the offering will be announced soon, he said.

Background: Tawfik told Enterprise in September that the ACCH and Abu Qir stake sales could happen by the first week of October, citing a 20% gain in the EGX as an indication that “the time is appropriate.” The order and size of the stake sales is yet to be determined by the investment banks quarterbacking the sales, but the market expects that both Abu Qir and ACCH could sell stakes as large as 20%.

M&A WATCH- United Oil & Gas’ acquisition of Rockhopper Egypt “progressing well”: Rockhopper Exploration’s sale of its Egypt business to Irish energy company United Oil & Gas is on track to be completed by the end of 4Q2019, Rockhopper said in a statement yesterday. Rockhopper and United had signed a USD 16 mn share purchase agreement in July, which would see the Irish company acquire a non-operating 22% interest in the onshore Abu Sennan oil concession, among other assets. The agreement “will be satisfied” once United makes a cash payment of at least USD 11 mn. BP had previously agreed to provide USD 8 mn to partially fund the acquisition after it entered an offtake agreement for United’s future oil and gas production.

The portfolio: The Abu Sennan concession is located in the Western Desert and contains seven operational fields with 17 producing wells. Current gross production has recently been reported by Rockhopper Egypt at over 5.1k boe/d. In addition to the seven fields in production, the Abu Sennan concession also contains a large exploration area with a significant prospect potential. Kuwait Energy holds a 25% operating interest in the concession, while Global Connect (25%) and Dover Investments (28%) are the other stakeholders.

Orascom Construction has added USD 1.3 bn to its backlog in 3Q2019, up 30% compared to a year earlier, the company said in a statement (pdf). The new projects bring the company’s outstanding consolidated backlog to USD 5.1 bn as of 30 September 2019, compared to USD 4.2 bn last year.

The majority of the new contracts are in Egypt’s railways: Projects in Egypt accounted for 75% of the new awards in the third quarter, led by an Orascom consortium winning the tender to implement the monorails linking Sixth of October City to Giza and Nasr City to the new administrative capital. An Orascom joint venture will also lay all 160 km of track for the electric light rail project, the company said.

Lorax Capital to launch USD 250 mn private equity fund: The Egyptian American Enterprise Fund’s (EAEF) Lorax Capital Partners plans to launch a USD 250 mn private equity fund for long-term investment in Egyptian SMEs, the European Bank for Reconstruction and Development (EBRD) said on its website. “The [Lorax Capital Partners Fund II] will seek to achieve long-term capital growth by making equity and quasi-equity investments primarily in Egyptian small and medium-sized enterprises ("SMEs") and mid-cap companies,” the EBRD said. The bank will make an equity investment of USD 50 mn in the fund. Lorax Capital invests in a range of sectors in Egypt, and holds stakes in Sarwa Capital, Fawry, Misr Hytech, Orchidia, and Nermien Ismail Schools. The local press picked up the story.

STARTUP WATCH- Dubai-based e-learning platform Al Mentor has raised USD 4.5 mn in a series A funding round led by Egyptian VC firm Sawari Ventures, with participation from Egypt Ventures, Endure Capital, and angel investor Mohamed El Amin. This brings its total funding raised to USD 8 mn, Sawari said in a statement (pdf).

Tailored online content for an Arabic-speaking audience: Launched in 2016, Al Mentor provides personal development content to Arabic speakers, with topics that include health, technology, humanities, entrepreneurship and business management. The talks are available to watch without charge, but the courses, which are delivered by mentors, need to be purchased — either as standalone products or in bundles. The company plans to use its funding to further the development of its courses and to expand its roster of mentors.

IMF accused of “reckless lending” to high-debt countries, including Egypt: The IMF has disbursed some USD 93 bn in financing to a number of governments that are classified as having “very high debt,” including Egypt, without requiring a debt restructuring program, making the lending “reckless,” UK-based Jubilee Debt Campaign said in a report out yesterday (pdf). JDC is a charity organization that focuses on global debt research and campaigning to cancel developing countries’ debt in a bid to alleviate poverty. The report notes that the IMF has a policy in place that prevents the fund from doling out loans to governments with an “unsustainable debt situation” without making the financing contingent on a debt restructuring program to make the situation sustainable. However, JDC says that the IMF does not have a specific definition of “unsustainable debt,” which clears the path for governments to receive funding without really remedying the underlying issue. The report also claims that incurring more debt from the IMF puts the economic burden on these countries’ populations by requiring austerity measures.

How does Egypt’s debt situation measure up? Egypt is listed among six countries that have received IMF funding without a debt restructuring stipulation “even though external government debt service as a proportion of both revenue and exports is well above the PRGT [Poverty Reduction and Growth Trust] country thresholds.” The other five countries are Argentina (which alone received a record USD 56 bn facility), Angola, Ecuador, Pakistan, and Sri Lanka. Egypt’s USD 12 bn extended fund facility was doled out as the IMF assessed the country’s debt situation as “sustainable but subject to significant risks,” the report says.

The report makes no mention of the government’s recently implemented comprehensive debt reduction strategy, which the Finance Ministry officially rolled out in March. Under the strategy, the government aims to reduce debt to 80% of GDP by 2022 by extending maturities on government debt and speeding up the inclusion of informal businesses into the formal economy. A senior government official also told us in May that the finance and planning ministries agreed to set a USD 110 bn cap on foreign debt within two to three years. Once we reach that mark, the government will move to cut its foreign borrowing as the financing gap shrinks and economic indicators improve. That cap was placed as the limit for borrowing before the Egypt’s debt becomes unsustainable, according to our source.

LEGISLATION WATCH- Gov’t moves to tighten punishment for abusing state-owned land, trespassing: The House of Representatives gave a preliminary nod yesterday to government-proposed draft legislative amendments to the penal code that steps up penalties for the illegal use of state-owned land, Masrawy reported. The amendments would introduce 2-5 year prison terms and fines between EGP 100k-1 mn for public sector employees found guilty of abusing state-owned land or assisting others to do so. Individuals would be sentenced to life in prison or hard labor in addition to a EGP 1-2 mn fine if they commit fraud. In all cases, the perpetrators would be forced to pay back any ill-gotten gains as well subsidize any necessary repairs or modifications to the land/property.

Trespassing: State employees would also face 2-5 years in prison and fines ranging between EGP 50k and EGP 500k for entering a property illegally. This would increase to EGP 100k-1 mn if fraud is involved.

What happens now? The amendments will go to a final vote as soon as two-thirds of House reps are in attendance.

Telling Egyptian stories through a camera: The above image is part of Mohamed Anwar's “Night Walkers” series, a photo essay that explores life on Cairo streets after sundown. This photograph, along with shots taken by 14 Egyptian contemporary photographers, are part of the Photographers of the Arab World showcase in Paris with a focus on Egypt under this year’s title “Hakawi.” You can check out more samples in Fisheye Magazine.

Protest-related stories continue to garner attention in the pages of the foreign press. Egyptian authorities randomly searching citizens’ phones and laptops on the street is part of a push to curb online dissent in response to recent protests, the Wall Street Journal says. Meanwhile, Al Monitor reports that pro-democracy activists in Jordan are taking note of the recent protests and are reorganizing in anticipation of renewed demonstrations,

Other headlines to keep on your radar this morning:

• Critics are questioning whether the renovation of St. Catherine’s airport is worth the EGP 1 bn investment, according to Al Monitor.
• Halal dating app Harmonica is getting attention in the Arab Weekly after its acquisition by the US’ Match Group.

Is a radical reframing of security the way to beat cyberwarfare? The rise of cyberwarfare has changed the rules of engagement in conflicts between countries, and putting a global framework in place to establish the red lines is easier said than done, the Financial Times says. There have been multiple efforts to do this, including the non-binding 2013 Tallinn Manual, and the Paris Call for Trust and Security in Cyberspace, which was signed last year by 67 countries and some private companies. But some feel that a more radical approach is needed, including a multilateral agreement on a reciprocal declaration of flaws discovered in one another’s systems, rather than looking for ways to exploit them — a sort of nuclear non-proliferation treaty for the cyber world. This would, however, mean a complete overhaul of our approach to cybersecurity, which we’re still a long way away from.

What makes it so difficult to reach a consensus? In essence, states have widely divergent views on cybersecurity. While the US and UK have historically seen cyberwarfare as governed by the principles of international law, Russia and its close allies regard it as being radically different from offline conflict. These states “tend to see cyber measures as part of a broader information war,” says one specialist, who works at a UK think-tank.

Why are private unicorn valuations so out of sync with public markets? Although private valuations of high-flying startups are a widely accepted measure of value on the public market, such valuations often overstate a firm’s true worth, says this Wall Street Journal video (watch, runtime: 04:34). Private investors are frequently enticed by preference shares, which provide special benefits and are more valuable than the common stock typically sold in an IPO. During evaluation, however, all stocks are valued equally, making common stock seem more valuable than it actually is and sending valuations soaring. Private companies are also not subject to the same rigorous accounting practices that public companies must use, and so are able to present investors with non-standard data that makes their finances look healthier than they actually are.

As a result, this year has seen several hotly-anticipated unicorn IPOs fall flat. IPO stock performance is currently at the worst it’s been since at least 1995, Goldman Sachs estimates, and although 2019 was initially expected to be a record year for IPOs in terms of money raised, now bankers and lawyers say this is highly unlikely to be the case.

Twenty-six Egyptian companies qualified for inclusion in the Qualified Industrial Zones (QIZ) export agreement with the US and Israel between January August, bringing the total number of companies under the agreement to 1,030, a Trade Ministry source told the local press. The new companies manufacture readymade clothes, textiles, furniture, and food products. Participants in the 2004 agreement are granted tariff-free access to the US market provided they meet a minimum required amount of Israeli content.

South Korean companies want private sector partnerships in Egypt: Twenty South Korean companies are looking to join forces with Egyptian private sector companies on real estate, tourism, and manufacturing projects, Youm7 reports. Company representatives are in town for a meeting of the Egypt-Korea Business Council scheduled for later today.

Egypt is not fulfilling its renewable energy potential due to public sector inefficiency, the European Bank for Reconstruction and Development’s (EBRD) head of energy for Europe, the Middle East, and Africa, Harry Boyd-Carpenter has said, according to Recharge News. Egypt has the ability to add 2 GW of wind and solar capacity each year, but this is currently unachievable due to an insufficient supply of civil servants dedicated to the sector, he said. The country could easily become a “renewable energy heaven” if it built capacity in its civil service to handle more than one project at a time, Boyd-Carpenter said.

British Principal Verve International President Jeremy Crozier and London’s Capital Drilling CEO Brian Rudd expressed their interest in gold mining and extraction investments in Egypt during a meeting with Oil Minister Tarek El Molla on Thursday, according to a ministry statement. The execs said the recent amendments to the Mineral Resources Act have increased the appeal of Egypt’s mining sector. El Molla separately met with the committee preparing the executive regulations to the new legislation, which he said will aim to remove “all obstacles” facing investors in the sector. The statement made no mention of when the regs are expected to be published in the Official Gazette.

The Housing Ministry will finish at the end of October discussions on allowing the private sector to participate in the state’s social housing program, the local press reported. The ministry is proposing to offer 10k units to real estate developers over the next five years to trial the idea. Companies would have to agree to a maximum sale price, Housing Minister Mai Abdel Hamid said, adding that the Social Housing Finance Fund will not be used to fund the projects.

Heliopolis Housing and Development (HHD) will sell an undisclosed number of land plots in El Shorouk City in an open auction on 29 October, according to Hapi Journal. The plots of land range between one and 30 acres in size and can be used for residential, administrative, or commercial purposes. The auction comes as the company gears up for a secondary offering on the EGX and intensifies its search for a private investor to manage the company.

Hyatt has signed a franchise agreement with ALDAU Development to establish Hyatt Regency Cairo West, a Hyatt-branded hotel expected to open in Cairo in 4Q 2020, the company said in a statement. The hotel will mark Hyatt’s return to the Egyptian capital, and will feature 242 rooms overlooking the Giza pyramids.

EgyptAir has begun operating four flights each week between Cairo and Budapest, according to Egypt Today.

Total car sales in Egypt dropped 6.5% y-o-y in the first eight months of 2019 to 104,717 vehicles, according to figures from the Automotive Information Council (AMIC) cited by Masrawy. The auto industry had shown signs of recovery last year, but sales have fallen each month since January.

Russian rail equipment manufacturer Transmashholding is set to deliver next January the first 50 railcars of 1,300 to be supplied to Egypt under a EGP 22 bn contract, the Transport Ministry said in a statement. Transport Minister Kamel El Wazir inspected a sample car during his recent visit to Russia. A second sample will be tested on Hungary’s railways to receive safety certification from the European Railway Agency before the Russian company begins delivering the cars to Egypt.

Mwasalat Misr has begun operating bus routes between Sixth of October City and Sheikh Zayed to Abdel Moneim Riad and Cairo University stations with a total of 7 lines and 50 buses, the local press reported.

The National Bank of Egypt (NBE) and Qatar National Bank are providing a EGP 1.7 bn syndicated loan to Redcon Construction, according to Al Mal. The money will finance the company’s contracting operations to build multi-purpose towers in New Alamein City.

Former Menoufia governor Hesham Abdel Baset was sentenced to 10 years in prison and handed a EGP 58 mn fine for laundering EGP 28 mn, according to Egypt Today. The Administrative Control Authority (ACA) also separately arrested two officials at an unnamed construction company for allegedly accepting EGP 800 mn in bribes, according to Ahram Online.

The Egyptian Handball Federation signed on Thursday an agreement with the International Handball Federation that will see Egypt host the 2021 World Men's Handball Championship, according to Xinhua. This will be the second time Egypt hosts the event, with the first being in 1999.

Tutankhamun exhibition hitting London next month: King Tutankhamun’s artifacts will be on display at the Treasures Of The Golden Pharaoh exhibition in London’s Saatchi Gallery next month as part of its multi-year, 10-city world tour, according to the Daily Mail. A big crowd is expected at the gallery to see the 5,000 or so items found in the boy pharaoh's tomb in 1922. The exhibition set visitor records in Paris, and was extended for a week beyond its original schedule to accommodate the crowds.