Is the capital gains on EGX trades going the way of the dodo bird?
Plus: IMF downgrades global growth outlook to 3%

The IMF’s World Economic Outlook October update is here, and it’s pretty much as bleak as everyone expected. The fund revised downwards its global growth projections for this year and the next on the back of challenging macro conditions, including the US-China trade war. We have chapter and verse in this morning’s Speed Round, below.

Prime Minister Moustafa Madbouly is in Washington, DC, to attend the annual meetings of the IMF and World Bank, according to Ahram Online. Investment and International Cooperation Minister Sahar Nasr is also in the American capital for the meetings, which run from 14-20 October. You can check out the meeting website here.

Euroclear agreement coming soon: The Finance Ministry expects to officially sign an MoU with Euroclear while its officials take part in the Washington events this week, the State Information Service said. Egypt’s debt instruments are expected to be clearable through the Belgium-based clearinghouse by the beginning of next year.

The big news of the morning for the buy- and sell-sides is that it looks likely that the (presently suspended) capital gains tax on EGX transactions is going the way of the dodo bird and with it (to a large extent) the stamp tax on EGX trades. More on that in today’s Speed Round, below. We’re widely (and accurately) accused of being pro-business. We say as much on our website: We have opinions, we express them, and they are generally “pro free-market, pro-reform and secular.” But this move leaves a taste in the mouth.

<rant>The potential scrapping of the capital gains tax for EGX investors begs the admittedly uncharitable and self-interested question: Why are those who take positions in publicly traded companies such a special breed that they must be protected from capital gains taxes and stamp taxes, while those who build privately held companies are comparatively wrung dry?

Smart tax policy is widening the tax base by encouraging SMEs to go legit or by moving to tax global giants (such as tech companies) that operate here effectively without paying a piaster in income tax. It is not squeezing blood from stones, nor is it rewarding people who have a shiny gauge to point at (say, the performance of the EGX30) and a willingness to protest (witness the literal protests that accompanied the original introduction of the capital gains tax on EGX transactions back in 2017). As it is, we’re rewarding those who invest in public equities and punishing those who spend years or decades building private businesses that similarly create jobs and contribute to economic growth.</rant>

The two-day ‘Egypt Can’ conference wraps today. The event brings together 65 top investors in Egypt as well as representatives from international financial institutions, the domestic business community and the Egyptian government.

BEBA doorknock mission next month: The British Egyptian Business Association (BEBA) will be heading to the UKby the end of November for their annual doorknock mission, according to the local press.

Key dates for your diaries this month:

• Our friends at AmCham will be hosting Social Solidarity Minister Ghada Wali for their monthly luncheon next Sunday, 20 October. Members can register here.
• The Intelligent Cities Exhibition & Conference will take place at the Hilton Heliopolis on 23-24 October.
• A B2B conference for German and Egyptian companies to talk cooperation will take place on Monday, 28 October in Cairo. Click or tap here to register.
• The US Federal Reserve will meet on 29-30 October to review key interest rates.

As expected, Goldman Sachs’ earnings showed the investment bank had a rough third quarter, with a 6% drop in its 3Q2019 net revenue and three of its four core divisions recording lower revenues during the quarter, Reuters reports. The bank’s investment banking revenue dipped 15% as a result of lower advisory and underwriting fees, while the bank’s investment and lending services saw revenues tanking by 40% during the quarter.

Misery loves company, but JPMorgan isn’t keeping Goldman company this time: The largest bank in the US reported an 8% y-o-y increase in its 3Q2019 profits, marking the seventh consecutive quarter to post a y-o-y rise in profit, according to the Wall Street Journal. “The consumer bank has remained resilient in the face of a potential economic slowdown, and executives have touted the strength of the US consumer compared with big corporate clients. It said deposit balances and consumer lending revenue increased, allowing it to expand margins in the business,” the journal says.

We’ll keep an eye out for Morgan Stanley’s results, which are set to be released tomorrow.

US stocks hit four-week high: JPMorgan’s strong earnings, as well positive figures from UnitedHealth Group and Johnson & Johnson, led to the Dow Jones closing up 0.9%. S&P 500 rose 1% led by health stocks, while the Nasdaq finished 1.2% in the green. (Bloomberg)

In global miscellany:

Investors in Turkish markets are bracing for the possibility of punitive measures from the US that could strike a blow to the country’s financial system, Bloomberg reports. The US congress is urging forceful retaliation against Turkey for its military incursion into Syria, after The Donald had warned that he could “obliterate” the Turkish economy. The Donald and the individual who presently runs Turkey are due to meet in Washington on 13 November.

Liberals, cover your eyes: Donald Trump will coast to victory in 2020, if Moody’s Analytics is to be believed. The ratings agency forecasts The Donald to improve on his margin of victory from 2016 based on how voters feel about their personal finances, stock market gains and the unemployment rate. For those of you sceptical about how the most widely reviled US president in modern history could sweep to a second term in office: Moody’s models have only been wrong once since the 1980 election. (CNBC)

Anyone for a 20-hour flight? No, thought not. Qantas Airways is set to break the record for the world’s longest flight when it trials a direct Sydney-New York route on Friday. Scientists and medical researchers will be on board to monitor the sanity of pilots and passengers alike. (Bloomberg)

Toyota, the IMF, and an overpaid office boy all received attention from the nation’s talking heads last night.

President Abdel Fattah El Sisi met with Toyota Tsusho CEO Ichiro Kashitani yesterday to talk about the company’s future investment plans, Al Hayah Al Youm’s Khaled Abu Bakr said (watch, runtime: 01:15). The meeting also earned some airtime with DMC’s Ramy Radwan (watch, runtime: 03:40).

El Sisi also met with Egyptian expat investors on the sidelines of the ‘Egypt Can’ conference that wraps up today, Radwan (watch, runtime: 01:30) and Abu Bakr noted (watch, runtime: 03:14). El Sisi pledged to maintain communication with Egyptian investors living abroad in an effort to encourage them to invest in their home country (watch, runtime: 01:48).

PM Moustafa Madbouly met with IMF boss Kristalina Georgieva on the sidelines of the IMF and World Bank annual meetings in Washington, DC, yesterday (watch, runtime: 03:25) and (watch, runtime: 10:05). We have all the news from the second day of the meetings in this morning’s Speed Round, below.

Corruption at public sector companies? Abu Bakr drew attention to a case in which an office boy was allegedly found to have been taking a salary of EGP 41k per month without breaching any laws (watch, runtime: 06:53). Public Enterprises Minister Hisham Tawfik made a mea culpa, saying that some state companies have made poor decisions that have also led to losses. Abu Bakr urged the House of Representatives to question Tawfik on the story.

Lebanon is burning. Wildfires that erupted in Lebanon on Monday were still burning in the early hours of Wednesday, Abu Bakr noted (watch, runtime: 03:12). Presidency Media Bureau Chief Rafic Shalala told Hona Al Asema’s Reham Ibrahim that rainfall from yesterday helped put some of the fires out (watch, runtime: 05:48). Meanwhile, Yahduth Fi Misr’s Sherif Amer phoned prominent Lebanese singer Ragheb Allama, who expressed his disappointment in the country’s political leadership (watch, runtime: 07:36).

IMF downgrades 2019 global growth outlook to 3%: The global economy is in a “synchronized slowdown,” IMF Chief Economist Gita Gopinath said in the fund’s latest World Economic Outlook (pdf), which has again downgraded its 2019 growth projections to 3.0% from 3.3% in its April report. Growth is expected to rebound slightly in 2020 to 3.4%, albeit at a slower rate than the 3.6% forecast in April. The IMF attributes the downgrade to a “geographically broad-based” slump in manufacturing and global trade, driven by an increase in tariffs and a contraction in the auto sector caused in part by new emission standards in the Eurozone and China. The latest outlook was released to coincide with the annual meetings of the IMF and the World Bank, which are taking place this week in Washington, DC.

Stimulus in advanced economies and emerging markets has helped mitigate the impact of economic headwinds, including the persistence in US-China trade tensions, which alone could be responsible for shaving 0.8% off global growth in 2020. Without this, we could have instead been looking at just 2.5% growth this year and 2.9% in 2020, Gopinath says.

The problem remains in advanced economies, which are expected to see growth plateau at 1.7% this year and the next. Emerging markets and developing economies will pick up the slack, seeing growth accelerate from 3.9% this year to 4.2% in 2020. “About half of this is driven by recoveries or shallower recessions in stressed emerging markets, such as Turkey, Argentina, and Iran, and the rest by recoveries in countries where growth slowed significantly in 2019 relative to 2018, such as Brazil, Mexico, India, Russia, and Saudi Arabia,” the report says.

What are the forecasts for Egypt? Growth is forecast at 5.5% in 2019, 5.9% in 2020, and 6.0% in 2024. The current account deficit is expected to rise to 3.1% in 2019 before easing to 2.8% in 2020. Meanwhile, the IMF sees inflation rising back to 9.4% by the end of 2019, before falling back to 8.7% by the end of 2020.

How does this square with the IMF’s projections in July? Making a direct comparison between the latest outlook and the forecast given in the fund’s most recent economic review is tricky, given that it uses calendar years for the outlook and fiscal years for the review. Nevertheless, there doesn’t seem to have been a drastic change in thinking over the past three months: the IMF predicted Egypt’s GDP would grow 5.9% during the current fiscal year and see inflation reaching 9.6% by the end of the year in June 2020.

The IMF wants to agree a post-loan program with Egypt to help it continue on its reform path, Managing Director Kristalina Georgieva told Prime Minister Moustafa Madbouly on the sidelines of the meetings yesterday, according to a cabinet statement. She highlighted the need for continued reform of the lower levels of government, and urged Madbouly to continue developing the country’s human capital. The government was originally looking to secure a non-loan agreement by the end of this month, but the IMF refused to open talks until the current program had finished.

FinMin approves plan to kill capital gains tax on EGX trades, cut stamp tax by a third: The Finance Ministry has “preliminarily approved” proposals to scrap plans to introduce a capital gains tax on EGX trades and to slash by as much as one third the stamp tax on EGX trades, Egyptian Capital Markets Association (ECMA) President Mohamed Maher said, according to Al Mal. The ECMA made the proposal to “reduce the tax burden on investors,” he said, and the ideal now moves to cabinet for review. If signed off by the ministers, it would then require approval by the House of Representatives before becoming law.

A big tax cut for investors: The plans as disclosed by Al Mal would, if accurate, lower stamp tax to 0.1% from 0.15% for resident and non-resident investors alike. What’s more:

• Resident investors who lose on an investment in any one publicly traded company in a given tax year would be refunded their stamp tax;
• Same-day transactions by resident and non-resident investors would be exempt from stamp tax;
• The central clearing house MCDR would walk back through transactions each year and refund stamp taxes paid to any investor found to have paid stamp taxes worth more than 10% of their realized profits for the year (we’re really not clear on the mechanism here and will be looking for more detail).

Background: The government planned to impose a 10% capital gains tax in May 2020 covergin gains made trading EGX shares. The proposal had been “temporarily” shelved in 2017 shortly after having been introduced, but was expected to come into effect in 2020 at the recommendation of the IMF. Back in 2017, the tax was put aside in favor of a provisional 0.125% stamp tax on trades that was scheduled to rise to 0.15% and 0.175% over a three-year-period. Parliament, however, voted at the end of the last legislative session to leave the tax unchanged at 0.15%.

Three bidders for 10% stake + management rights to Heliopolis Housing and Development. Three unnamed companies have submitted bids to acquire a 10% stake in state-owned Heliopolis Housing and Development (HHD) in the company before the Monday deadline, an unnamed source close to the matter said, according to Al Mal. The winning company would also take management rights to the outfit. Eight companies were reported to initially by interested in the company, including our friends at SODIC an EFG Hermes as well as private equity firm BPE, Emaar Misr, and Orascom Development Egypt (ODE).

What’s the attraction? HHD has a large, well-located, dispute-free land bank — and faces no mandatory development schedule for the mns of sqm it controls. It also has a history of partnering with the private sector, having announced (pdf) back in 2016 (for example) that it was that it was co-developing with SODIC a 655 acre plot.

Could the deadline be extended? A number of companies that failed to submit bids by the Monday deadline are still interested and want the deadline to be extended, Al Mal’s source said. Local firms are reportedly trying to form alliances with international companies, which caused them to miss the deadline. A company committee met yesterday to discuss the bids, but there is no word as of yet on whether they will agree a new deadline.

This could delay the process. HHD was originally scheduled to compile a shortlist of companies by mid-November before going ahead with a final round in December. And remember, it’s not just about the 10%: Public Enterprises Minister Hisham Tawfik suggested last month that the 10% stake on offer was part of a wider plan to offer for sale a 25% stake in HHD.

Background: HHD had invited earlier this month private investors to bid for a 10% stake with management rights after earlier backing away from a secondary stake sale of as much as 32.25% originally slated for mid-year, with the offering appeared to be scrapped in April. Plans were then resurrected in July to offer a 25% stake in 4Q2019, before Tawfik told us that the transaction was unlikely to close this year.

M&A WATCH- Is a United Pharma acquisition finally going to materialize? EFG Hermes-owned RX Health Care Fund is expected to sign a final agreement to acquire 80% of United Pharma in a transaction worth more than EGP 366 mn by the end of the month, sources close to the transaction told the local press. If the transaction goes through, United Pharma is expected also executed an EGP 100 mn capital increase through a rights issue to shareholders, which would then see RX’s stake in the company rise to 85%. All proceeds from the acquisition and subsequent capital increase will be used to expand United Pharma’s production facility, including adding new production lines and manufacturing new products.

Background: United Pharma has nearly beens old a number of times in the past two years. In January 2018, it rejected ACDIMA’s EGP 320 mn offer on the grounds that it undervalued the company, which it estimated at EGP 600 mn. A year earlier, three Saudi and local investors also made an offer for 100% of the company, which United Pharma refused because it did not want to sell it entirely.

LEGISLATION WATCH- House committee to consult on speeding up customs clearance: The House of Representatives’ Budget Committee will consult with 23 organizations that work with the Customs Authority on customs clearance to speed up the process, House Rep Mervat Alexan tells Al Mal. Representatives will be asked their opinions on legislating a specific time period for customs clearance in an effort to reduce delays. The debate comes as legislators consider a package of proposed amendments that promise to expedite customs clearance, create a “whitelist” of trusted importers, and broaden the discretion of the Customs Authority.

It’s not clear whether setting a time will do anything to quicken the process. Alexan intimated that the reason for the delays stem from the sheer number of organizations involved in customs clearance, suggesting that what really needs to be done to simplify the process is to reduce the number of cooks making the figurative broth.

Background: The measures made it to the House of Representatives at the end of the last legislative cycle which wrapped up in July. The House is set to vote on the amendments during the current legislative session.

Zohr natgas production to exceed 3 bcf/d this month: Production from the 13 wells at the giant Zohr natural gas field is expected to surpass 3 bcf/d by the end of October, up from 2.7 bcf/d in August, Eni IEOC JV boss Luca De Caro said on the sidelines of the Mediterranean Offshore Conference in Alexandria, the Oil Ministry said in a statement. Eni originally estimated that production would peak at 2.7 bcf/d, but the ministry said earlier this year that output would rise above 3 bcf/d in 2019.

More wells on the horizon: Eni plans to drill 11 exploration wells in the Nile Delta, Western Desert and the Gulf of Suez regions this year and nine other wells in the coming year, De Caro said. Eni has also been producing 1.2 bcf/d of natural gas from its Nooros gas field since the end of 2017 when the two phases of the project were completed. High profile representatives from BP, Wintershall DEA, Shell and Edison also attended the conference, which kicked off yesterday.

South African mobile network operator Helios Towers debuted its shares on the London Stock Exchange yesterday, with the IPO reeling in GBP 288 mn (USD 250 mn) in proceeds, according to joint bookrunner EFG Hermes. The final share price for the telecom firm’s IPO was set at GBP 1.15. The company’s share price rose a little over 4% on its first day of trading, Reuters reports.

Advisors: BofA Merrill Lynch, Jefferies International Limited, and the Standard Bank of South Africa Limited acted as joint global coordinators and bookrunners. Renaissance Capital also acted as joint bookrunner, alongside EFG.

STARTUP WATCH- Halan seeks Series B funding for B2B and B2C expansion: Cairo-based tuk-tuk and motorcycle ride-hailing startup Halan is planning to use the funding it receives from its ongoing series B round to expand both its B2C and B2B offerings, including on-demand logistics, courier services, direct sales, payments, and peer-to-peer delivery, co-founder Mounir Nakhla told Disrupt Africa. No details have been provided thus far on the amount Halan expects to raise from the funding round. The company plans to use these funds to become fully operational in Ethiopia by the end of 2019, with an eye to become pan-African. Halan currently operates in 20-25 cities in Egypt and Sudan, and completes several mn rides per month, almost half a mn of which are in food delivery.

Egypt rose five places to #49 on Brand Finance’s 2019 Nations Brand report, making us the fifth fastest-growing national brand in the world this year. Global powerhouses USA, China, and Germany maintained the top three places, while Japan overtook the UK to rank fourth, according to the report (pdf). The ranking measures country brand value based on data sets from three key areas — goods and services, investment climate, and society and social institutions — and then scores each area based on its constituent elements to determine a grade letter for overall brand strength.

Regional trend, weak performance, strong prospects: The UAE and Saudi Arabia were the region’s top performers, ranking 20th and 21st, respectively. The Emiratis also claimed the sixth spot worldwide in country brand strength. Elevent of the 20 fastest-growing nation brands were from the Middle East and Africa, with Ghana’s brand gaining the most regionally and globally in 2019 (67%).

MOVES- Mohamed Abbas Fayed is set to assume his position as CEO of First Abu Dhabi Bank – Egypt (FAB) by early November, he told Al Mal. Fayed had resigned as CEO and managing director of Bank Audi at the end of April after four years in the Lebanese bank. The former Banque Misr executive will replace Ahmed Ismail Hassan.

The path to closing the gender divide is not a straight line. Despite women making substantial gains in entering work fields that would have been virtually closed to them 50 years ago, many other occupations remain stratified along gender lines. This image shows an analysis by the Wall Street Journal of nearly five decades of US demographic and employment data from IPUMS-CPS. The data shows that some of the biggest moves towards equality have happened in law and finance, with women now holding over 50% of the positions in these fields, although senior roles are still overwhelmingly occupied by men. As occupations grow in prestige and pay, they also tend to lose women over time. And unsurprisingly, fields traditionally seen as nurturing are still mainly dominated by women, and those traditionally seen as physically demanding by men.

Detentions of journalists and human rights activists are leading the conversation in the foreign press this morning. The wife of jailed Palestinian-Egyptian activist Ramy Shaath tells France 24 that her husband is a “prisoner of conscience” and urges the authorities to release him. Meanwhile, the Committee for the Protection of Journalists is calling on the government to release Esraa Abdel Fattah, who was reportedly abused in custody after being arrested on Saturday.

Other headlines worth a skim this morning:

• Ancient Egypt: The Associated Press picks up an Antiquities Ministry statement announcing the finding of at least 20 ancient wooden coffins in Luxor.
• Inside Manshiyet Nasr (or not): The New York Post is out with a piece nominally about the Christians of Manshiyet Nasr but ends up focusing on the effects of Islamic militarism on the Coptic community.
• Egyptian royal jewelry exhibition in Dubai: The jewelry of former Egyptian princess Faiza and Queen Nazli will be on display at the “Treasures and Legends exhibition” in Dubai that features historic pieces by renowned jewelry maker Van Cleef & Arpels, according to the National.

Construction channel the B1M (watch, runtime: 05:07) takes a deep look through the highlight reel of plans for the new administrative capital, complete with glossy images. Set to extend over 700 sqkm, the city should be home to 6.5 mn inhabitants when it is fully complete in 2050 and will include several fully serviced neighborhoods as well as hundreds of religious buildings, hospitals, hotels, and a dedicated government quarter. And in case that wasn’t enough, a huge theme park (four times the size of Disneyland California), a central park that is twice the size of New York’s, and an 85 storey tower set to become Africa’s tallest building are also part of the capital’s master plan.

Shoukry calls on int’l community to resolve GERD gridlock: Foreign Minister Sameh Shoukry said that the international community is responsible for helping Egypt, Ethiopia, and Sudan reach an agreement on the timeline for filling the Grand Ethiopian Renaissance Dam (GERD) reservoirs, according to Ahram Online. During a lecture at the Foreign Policy and the United Nations Association of Austria (UNA-Austria), the foreign minister repeated calls for international support to resolve the most recent gridlock between the three countries. Egypt has been actively pursuing international support to resolve the situation since talks fell through earlier this month.

EDF Renewables and Elsewedy Electric have commissioned two solar power plants with a combined capacity of 130 MW in the Benban solar power park, according to an EDF statement. The two companies began operating the plants in August under a 25-year power purchase agreement with the Egyptian Electricity Transmission Company (EETC). The two plants cost a total of USD 140 mn and were partially financed by the European Bank for Reconstruction and Development and the French Development Agency.

Siemens Gamesa has begun building a 250 MW wind plant in West Bakr in the Gulf of Suez, which is expected to increase Egypt’s wind energy capacity by 18% once completed in 2021, operator Lekela Egypt said in a statement. The company will install 96 turbines through a turnkey EPC contract and provide maintenance as part of a service agreement that could run for up to 20 years. The plant will produce over 1,000 GWh per year after completion in 2021, providing power to more than 350,000 homes and increasing Egypt’s wind energy capacity by 18%.

Arab Dairy aims to grow its export revenue by 19% in 2019, compared to 2018 when it made EGP 624 mn in export revenues, export manager Sherif Abdel Moniem told the local press. The company plans to focus on the Asian market to help reach its target.

Delta Steel is planning to bring its new pellet production line online before the end of October, Holding Company for Metallurgical Industries Chairman Medhat Nafie said, according to Al Mal. The new line will raise the company’s output to 250k tonnes of steel per year, up from 50k tonnes currently. That figure could double to 500k by early next year. This is the first of three stages of a USD 45 mn plan to develop Delta Steel.

Pioneer Pharma is planning to invest EGP 300 mn over the next five years to expand the company’s 10th of Ramadan City factory, Chairman and CEO Mohy Hafez told the local press. The company also plans to build a new medicine and supplements factory by 1Q2020 to boost exports.

Housing Minister Assem El Gazzar discussed setting up social housing projects under a public-private partnership (PPP) framework with representatives from several private real estate developers, according to a cabinet statement. The government is set to sell several land plots spanning a minimum of 75 feddans apiece, and the developers want to use 70% of each piece of land to develop independent housing and the remaining 30% for social housing. The Social Housing Fund would receive the social housing portion of the land without charge, and would have three years to complete their work. Private developers would be required to pay regular rates and complete their work within five years.

The Central Bank of Egypt (CBE) has rolled out four new regulations for banks looking to provide funding for companies and NGOs focused on microfinance, Al Mal reported. Banks will now have to update IScore, in addition to the CBE, on their credit limits on a monthly basis, and ensure that the debtor is not borrowing from more than three different institutions at a time. The banks will not be allowed to include these types of loans in the 20% government-imposed, mandatory quota for SMEs. Finally, banks must obtain confirmation from the Financial Regulatory Authority that the borrower is financially able to take on the loan.

The Financial Regulatory Authority and the Central Bank of Egypt (CBE) signed a cooperation agreement to combat money laundering and terrorist financing, Al Shorouk reports. The agreement will see the two work together to bring Egypt’s anti-money laundering systems in the banking and non-banking financial sector in line with international standards.

Dakahlia’s Environmental Affairs Agency has launched an educational campaign targeting primary school children to discourage the use of plastic, according to an Environment Ministry statement. The two-month campaign will also see the agency promote awareness about the ways plastic can harm the environment and the governorate’s agriculture . There has been a push to reduce plastic consumption in several other governorates and Egypt is working on a strategy to stop the production of single-use plastic bags altogether.