Inflation hits lowest level in almost a decade in October
Plus: Introducing Blackboard, our weekly focusing on the business of education

*** We’re very proud to announce this morning our first Enterprise vertical: Blackboard. We live and breathe financial, economic and business news in Egypt. We love it so much, in fact, that we’re launching a series of specialized editions of Enterprise focusing on specific industries.

Blackboard will run every Monday, appearing in Enterprise after Egypt in the News in the place of our traditional industry news roundups. Its focus: The business of education in Egypt, from pre-K through the highest reaches of higher ed.

Each edition of Blackboard will mix news, deep dives, analysis, raw data (plus context) and a touch of humor with the goal of making industry players think — and of getting non-experts up to speed. Our goal: To give you the inside track, whether you’re an investor or operator in the field or just passingly interested in the topic.

Why start with education? Because in a nation of 100 mn people, one of the most consistent complaints of business leaders at all levels of seniority is the mismatch between the needs of the business world and the skills of new entrants to the labor force. A solution to that problem, and many others, starts with education.

With the generous financial support of our friends at CIRA, we’ll bring you analysis pieces, explainers, interviews, and reports every Monday.

In today’s issue: Blackboard looks at the ramifications of the Education Ministry’s 20% cap on foreign ownership in Egyptian private schools — and it could have ramifications beyond education.

This week’s edition of Blackboard begins right after Egypt in the News, below.

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It’s interest rate week, ladies and gentlemen: The Central Bank of Egypt’s Monetary Policy Committee will meet to review interest rates for the penultimate time this year on Thursday, 14 November. Our poll of economists last week showed had five out of the six calling either a half-point or a 100 bps cut. The CBE cut rates by 250 bps during the past two meetings, bringing the overnight deposit rate down to 13.25% and the lending rate to 14.25%. The main operation and deposit rates currently stand at 13.75%.

The CBE is selling EUR 695 mn-worth of one-year EUR-denominated treasury bills today, according to official data. Yields fell in the last auction of EUR 610 mn to an average of 1.49% in August.

A delegation from Chinese government’s influential consultative body is in town for three days to discuss Egypt’s participation in the Belt and Road Initiative, the local press reports. The visit will conclude tomorrow, but it remains unclear who the delegation is meeting and what’s on their agenda.

The first iteration of the Egypt Economic Summit gets underway tomorrow at the Four Seasons Nile Plaza, according to a press release (pdf). The one-day summit will focus on the domestic economy — with panels looking at banking and finance, ICT, industry, investment, and real estate in the wake of the Sisi administration’s economic reform program. There will be five keynote speeches — including by Hany Sarie Eldin, who will inaugurate the summit as this year’s honorary chair and prominent businessman Mohamed Aboul Enein, who will talk about the outlook for the manufacturing sector. CIB’s Hisham Ezz El Arab will also take part as the head of the Federation of Egyptian Banks.

In international news worth knowing this morning:

Saudi Aramco will allocate up to 0.5% of its shares to individual investors when it begins the IPO process later this month, according to a preliminary prospectus (pdf) released over the weekend, CNBC reports. The offering had been expected to be priced next Sunday, 17 November, but that date has been pushed to 4 December, when the bookbuilding process concludes, the Wall Street Journal says. The share subscription deadline for retail investors will be on 28 November.

But we’re still none the wiser on the total size of the offering. The company said the size of the stake sale and its value will depend on investor interest during the bookbuilding process, and will not be disclosed until early December.

Drone attacks hit profits in 3Q, bringing investment risks into focus: Aramco announced a sharp drop in profit in the third quarter due to the attacks on its facilities in September, “highlighting the risks to investors ahead of what could be the world’s largest initial public offering,” the WSJ says.

America’s uber rich are freaking out about the prospect of President Warren. The ascendancy of Democratic presidential contender Elizabeth Warren to frontrunner status has many of America’s 0.001% increasingly fearful for their bns. Warren’s pledge to introduce a wealth tax to fund ambitious social programs such as Medicare for All would see the government take six cents of every greenback in assets held by multi-mn’aires — every year.

It sounds pretty meager, but over time it adds up. The New York Times crunches the numbers and finds that if a wealth tax had been in place since 1982, Bill Gates would be worth roughly USD 14 bn now, instead of USD 97 bn, and Michael Bloomberg would have seen his personal fortune amount to USD 12.3 bn instead of almost USD 60 bn.

Bill Gates last week became the most high-profile bn’aire to come out against Warren’s tax plans, arguing that it could impede economic growth and discourage investment. As for Bloomberg, he’s seriously considering taking the matter into his own hands and launching a rival bid for the Democratic nomination.

Also from the US of A:

Let’s not get ahead of ourselves on US-China trade: The Donald at the weekend quashed rumors circulating last week that his administration had agreed to lift some of the tariffs on Chinese goods. “I haven’t agreed to anything,” the Financial Times quotes him as saying. “China would like to get somewhat of a rollback, [but] not a complete rollback because they know I won’t do it.”

First Trump impeachment hearings to take place this week: The first public hearings in the impeachment investigation into Trump will take place on Wednesday and Friday this week, when a former US ambassador to Ukraine and two diplomats testify to the House. CNBC has more.

Other international headlines worth knowing about:

• SoftBank founder makes WeWork mea culpa: Founder and CEO of SoftBank Masayoshi Son has admitted that he turned a “blind eye” to the failings of WeWork and pledged to resurrect the troubled office-space company, the Financial Times reports. SoftBank was forced to bail out the company to the tune of USD 9.5 bn last month after its valuation plummeted more than 80% to just USD 8 bn following a failed IPO attempt.
• Uber shares fell to new lows lows last week after the lock-up period for early investors expired, according to the FT.
• Xerox is contemplating making a cash-and-stock takeover offer for HP, which has a market value of roughly USD 27 bn, in what the Wall Street Journal terms “an audacious move that would unite two fading stars of technology.”

PSA- Perhaps the news with the widest appeal to our readers this morning: Inveterate SMS spammers Sherket Almaneya just too it in the teeth, it seems. We have the rundown in this morning’s roundup of last night’s talk shows.

Human rights was topic du jour on the airwaves last night as UN Human Rights Council meets in Geneva: A government delegation landed in Geneva yesterday for Egypt’s Universal Periodic Review with the UN Human Rights Council, which is set to take place on Wednesday. Egypt will present three documents during the meeting, one compiled by the government, one from information contained in reports by independent human rights groups, and another by the National Human Rights Council. The reports will outline actions taken to improve the human rights situation in the country, and will serve as the basis for review. The visit comes just weeks after the council called on the government to release thousands of people detained in the wake of the protests last month. Al Kahera Alaan’s Lamees El Hadidi (watch, runtime: 22:11) took note.

El Hadidi spoke to the head of the Forum for Development and Human Rights, Saeed Abdel Hafez, who outlined the review process and dismissed a UN report out on Friday alleging that former President Mohamed Morsi’s main cause of death was poor prison conditions. He said Egyptian authorities will present evidence and prison records during the Geneva meeting to prove otherwise. We note the UN report on Morsi in this morning’s Egypt in the News, below.

SIS distributes video of prison tour and interviews: The State Information Service was out with a video yesterday (watch, runtime: 16:10) documenting a visit by prosecutors to the Tora Prison complex to interview inmates, who spoke of minor inconveniences and provided little evidence of human rights violations, contrasting markedly with multiple reports by the UN and rights group that allege abuse of political prisoners. Al Hayah Al Youm’s Lobna Assal took not and aired a few minutes of the video (watch, runtime: 10:20). The state’s prisons authority will organize meetings soon with foreign correspondents and journalists to follow up on the situation, Egyptian Press Syndicate head Diaa Rashwan told El Hekaya’s Amr Adib (watch, runtime: 9:14).

El Almaneya out for good: We haven’t seen Egyptians this happy since World Cup qualifiers. The Cairo Economic Court has slapped an unnamed pest control company — which we take is the infamous “El Sherka El Almaneya” — with an EGP 900k fine, Masaa DMC’s Eman El Hosary reports (watch, runtime: 12:56). The business was charged with setting up unlicensed virtual networks and spamming unsolicited messages to personal phone numbers obtained illegally. The fine came under the Cyber Crimes Act, which was signed into law last year. The act contains provisions to protect consumer privacy, as well as grant the government widespread oversight on internet activity.

Tragic death of Haitham Zaki: Egyptian actor Haitham Ahmed Zaki, son of late film icon Ahmed Zaki and actress Hala Fouad, died on Thursday aged 35 at home in Sheikh Zayed. Zaki began his career when he filled in for his father, who died before finishing “Halim,” a biopic of late Egyptian idol Abdel Halim Hafez. He then landed the lead role in El Belyatsho (Egyptian for pagliaccio, or clown in Italian), a movie exploring social injustice. El Hadidi dedicated an hour-long segment of her show to an interview with Zaki’s half-brother, Ramy Ezz El Din (watch, runtime: 51:50).

Headline inflation cools again in October, ramping up expectations of a rate cut this week: Egypt’s annual headline inflation rate dropped for the fifth consecutive month to its lowest level in nine years, hitting 2.4% in October from 4.3% in September, according to Capmas data (pdf) released yesterday. Annual urban inflation decelerated to 3.1% from 4.8% the month prior. Reuters also has the story.

Prices of education goods and services soar as food and beverage inflation continues to cool: October inflation was primarily driven by a 28.9% y-o-y increase in the prices of goods and services in the education sector, including textbooks and stationery. Meanwhile, after being the key culprits of inflation over the past several months, food and beverage prices dropped 2.1% y-o-y. Pharos’ head of research Rada El Swaify had said last month that the government’s efforts to maintain food supply levels to put a cap on price volatility has helped inflation levels to beat expectations for several months.

We again have a high base effect to thank, but that factor could soon fizzle, Naeem Holding’s Allen Sandeep tells Bloomberg. He says that it remains unclear whether the CBE will maintain its aggressive easing cycle as the high base effect “should last just a few more months.”

Everyone and their mother has priced in a rate cut this week: Inflation hitting a new low has made it all the more likely that the CBE will move to cut rates again when it meets at the end of this week on Thursday, 14 November. Five of six economists we surveyed last week are calling a rate cut this week, El Swaify tells Reuters she expects a 100 bps rate cut, which Shuaa Securities’ Esraa Ahmed had also penciled in last week in our interest rate poll.

The dissenters: CI Capital’s Noaman Khalid tells Bloomberg he expects the CBE to keep rates on hold this week and at its next meeting on 26 December. Khalid warns that the central bank should slow down the pace of rate cuts to be able to correctly measure the impact its past easing decisions have had on the economy, while also leaving room down the road for more cuts if need be. Renaissance Capital had also told us last week it expects rates to remain unchanged on Thursday.

With inflation dipping again, Egypt’s real yield is still attractive to EM bond investors: Egypt is among the world’s most promising markets when it comes to the real interest rate on our bonds, topping an index for inflation-adjusted returns with a real yield of 9.42%, Bloomberg reports. According to the Bloomberg Barclays Local Currency Government Universal Index, our real yield is significantly higher than Turkey, number two on the list at 5.14%, and South Africa, which comes in third at 4.84%. Egypt’s YTD bond return rate is also among the highest on the index, at 25.78% — second only to Turkey’s rate of 30.02%.

Emerging market returns are increasing, while those in developed markets are at a low: Inflation-adjusted bond yields in developed markets are close to the lowest level they’ve been since 1997, Bloomberg says. In the last three months, emerging market bonds have gained 1.7%, spurred by optimism over a prospective trade agreement between the US and China, while developed markets have lost 1%. Egypt’s local currency sovereign debt has climbed by 0.4% last week alone, while Turkey’s is up nearly 1% and South Africa’s is up 0.9%. Slowing inflation in emerging markets has also boosted their attractiveness in terms of real yields, with extra real yields offered by emerging markets over developed markets standing at 302 bps in October — marking a five-fold increase from 2013. Fund manager Takeshi Yokouchi makes the case that now is the time to buy EM bonds “as inflation in many of the economies has slowed and more rate cuts are expected for some of them.”

What’s the difference between yields and “real” yields? To calculate a sovereign’s real rate of interest, the inflation rate is subtracted from the average monthly yield of 10-year local-currency sovereign debt.

M&A WATCH- CBE’s Amer tells NBG employees their “rights will be protected” in Bank Audi acquisition: Central Bank of Egypt (CBE) Governor Tarek Amer said that the rights of the National Bank of Greece’s (NBG) employees would be safeguarded if its acquisition by Bank Audi goes through, according to Masrawy. Speaking on the sidelines of an event last week, Amer attempted to assuage the employees’ concerns, saying the CBE has an “ongoing commitment” to protecting workers’ rights during mergers and acquisitions. Amer’s statement comes as CBE officials are due to meet this week with executives from Bank Audi and the NBG in a bid to resolve an employee compensation dispute that has blocked the execution of the Lebanese bank’s acquisition of NBG Egypt.

Background: The employees claim that they are entitled to severance pay if the transaction goes through, as they see the acquisition being tantamount to wrongful termination under article 122 of the labor law (pdf). The grace period granted to the two banks by the CBE in which to resolve the issue expired more than a week ago. NBG did not request an extension, which has threatened to bring the acquisition to a dead end. NBG and legal counsel at Matouk Bassiouny have told employees that no severance will be payable because staff members will maintain positions at the bank after Bank Audi completes its takeover.

INVESTMENT WATCH- ERC to invest EGP 15 bn in new marina complex in Sahl Hasheesh: Egyptian Resorts Company (ERC) is planning a large extension to the south of Sahl Hasheesh at an estimated cost of EGP 15 bn, CEO Wael El Hatow said. The 1.2 mn sqm project — on which ERC is expecting to break ground within one-and-a-half years and complete within eight— will add four or five hotels, 2k residential units, several commercial and service facilities, and a 330-yacht marina to the Red Sea town. ERC will finance the investment through a mixture of equity and new shares to unnamed local and foreign investors. No further details were provided.

PRIVATIZATION WATCH- Holding Co for Maritime getting its ducks in a row with int’l consultants — Is privatization beckoning? The Holding Company for Maritime and Land Transport is in talks with international consulting firms to evaluate its plans to restructure and merge a number of its subsidiaries, sources told Al Mal. According to sources, the Public Enterprises Ministry is looking to restructure the Suez Cargo Handling Automation Company alongside other companies handling foreign trade, freight shipping, and transport. The winning company will be given a 30-month period to restructure three of the selected subsidiaries. Out of the 20 firms that threw their hats in the ring, Brisk is the frontrunner, followed by Dutch advisory firm MTBS.

Background: The Public Enterprises Ministry has been on a privatization drive for the past several months, and said last month that it could offer private investors the management rights to three bus companies before merging them together. The move is partially modeled after state-owned Heliopolis Housing, which is offering management rights alongside a 10% stake sale as part of its plan to sell 25% of the company on the EGX. The government has also enacted legislation that would push privatization forward. Under proposed amendments to the Public Enterprises Act, private-sector companies would be allowed to own stakes of just under 50% in the ministry’s holding companies. The amendments would also introduce private sector-friendly board regulations by setting a cap on the number of government seats on the boards of state holding companies to seven.

New suspect in Russian airliner crash: A Lebanese Danish man named Basil Hassan, born Mohammed Basil El-Cheikh, has been implicated in the downing of the Russian airliner over Sinai in 2015, Danish public service broadcaster DR reported on Friday. DR obtained court documents from the “meat grinder bomb plot,” in which two Lebanese brothers were found guilty of attempting to blow up an Etihad plane flying between Sydney and Abu Dhabi. Khaled Khayat, one of the brothers, said during his confession that “there was also another plane that blew up in Egypt, and the same man was behind it [Hassan].” Daesh claimed responsibility for the attack, but so far no-one has been prosecuted.

Background: 224 people died after a Russian Metrojet was downed shortly after takeoff from Sharm El Sheikh in October 2015. Russian authorities have since grounded chartered flights to and from Egyptian Red Sea destinations, a ban that has cost us bns in tourist inflows. The ban has remained in place despite repeated inspections of Hurghada and Sharm El Sheikh’s airports indicating that security procedures are up to par. Russian officials have continually declined to give a timeline for the reversal. Last week, it was reported that a Russian delegation was in town to look into lifting the ban. Hopes were particularly high this time, given the British government lifted its own four-year ban just a few weeks prior. However, there is still yet to be anything concrete from the Russian government.

MOVES- Mahmoud Mohieldin to exit World Bank next year: Former Egyptian investment minister Mahmoud Mohieldin (bio) will leave his position as senior VP at the World Bank when his contract expires in January 2020, according to Al Shorouk. He has reportedly been nominated for a “senior international post” that will be announced in the coming weeks. Mohieldin, who joined the World Bank in January 2010, was previously rumored to have renewed his contract until October 2022.

EARNINGS WATCH- Etisalat Misr’s revenues rose 20% to reach EGP 10.6 bn in 9M2019, up from EGP 8.8 bn in the same period last year, according to financial statements seen by Al Mal. Mobile revenues during the period came at EGP 8.9 bn.

Forty years after Star Wars, it seems holograms are finally here: The world’s first commercially available hologram projector is creating 3D imagery that’s set to be used by universities, car companies, medical faculties, advertising agencies, companies making computer games and companies mapping the seabed, the Financial Times reports. The Voxon VX1 machine laser works by projecting 1,400 layers of an image simultaneously, using a vibrating mechanism, to create a vision that looks to human eyes like a 3D object. Its makers, Australia’s Voxon Photonics, have already raised AUD 1.5 mn in seed round funding, and are now looking to raise another USD 10 mn. They confirm that drawing parallels between their device and the most famous hologram of all time is no flight of fancy: Star Wars was indeed the force that pushed them to create this repository of “true” 3D imagery.

Human rights are back in the international press as Egyptian representatives travel to the UN Human Rights Council in Geneva: The UN has said that there is “credible evidence” that prison conditions could have led to the death of former Egyptian President Mohamed Morsi and warns that other detainees could be at risk of a similar fate.

Also getting traction in the foreign press:

• Sinai attack: Two security officials were killed in a roadside bomb in Sinai, according to the Associated Press.
• Combating water scarcity: The Egyptian government has “ambitious” plans to use modern irrigation systems to address the pressing issue of water scarcity, Agriculture minister Ezzedin Abu Steit told reporters on Saturday, Xinhua reports.
• Water wars: Pan-African publication Face2Face Africa dives into the history behind the current tensions between Egypt, Ethiopia and Sudan over the Grand Ethiopian Renaissance Dam.
• Israeli spy in 1954 Egypt dies: Marcelle Ninio — the only woman in a small Egyptian espionage ring that took part in a bungled Israeli operation in 1954, for which she was arrested — died on 23 October aged 89, the New York Times reports.
• Sinai hiking routes get good press: The Sinai Trail and the Red Sea Mountain Trail offer the best way to connect with nature and understand the region’s Bedouin people, allowing visitors the chance to see parts of Egypt rarely visited by tourists, CNN says.

El Sisi, Bahrain’s Al Khalifa talk Yemen, terrorism: President Abdel Fattah El Sisi and Bahrain’s King Hamad bin Isa Al Khalifa discussed the situation in Yemen and international counterterrorism efforts during a meeting in Cairo on Thursday, .

Global pharma companies looking to expand Egypt business: Multinational pharma companies including Johnson & Johnson, Pfizer, Eli Lilly, PhRMA, GlaxoSmithKline, and Mundipharma have told Investment Minister Sahar Nasr they are looking to expand investments in Egypt and make the country a regional center of operations, the ministry said in a statement.