The new income tax and customs acts are coming by 1H2020

A little bit of good news before we get underway: The first charter flight to Sharm El Sheikh from the UK is due to land today after a four-year hiatus, Al Mal reports, citing unnamed sources. The UK lifted its flights to the resort destination in October.

Oh, and Egypt has been named the top emerging destination for 2020 in a survey by the United States Tour Operators Association (USTOA), along with Croatia and Colombia. “Egypt topping the list is the epitome of a destination comeback story,” said USTOA boss Terry Dale. Italy ranked as the most popular destination for travelers in 2020, followed by France, Spain, Ireland, and Japan.

Meanwhile: It’s one week until interest rate day. The Central Bank of Egypt’s Monetary Policy Committee meets a week from today. Analysts seem to be divided on whether the MPC will squeeze in another rate cut in its final meeting of 2019, particularly as inflation rose for the first time in six months in November. Look for our comprehensive interest rate poll next week for an in-depth analysis of the factors at play.

The story of the day, globally: The Donald has been impeached, which means he will become the third president in US history to face trial in the Senate in January after a vote last night in the House of Representatives. Trump stands charged with using his office for personal gain and with obstruction of Congress. Democratic lawmakers charge that Trump abused his power for personal gains by pressing the Ukraine to launch investigations into political rival Joe Biden and debunked theories that Kyiv (not Moscow) meddled in the 2016 US presidential election.

What does it mean to be impeached? It’s the first step in a two-step process in Congress through which lawmakers can bring what are effectively criminal charges against a sitting president. Now that he’s been impeached, Trump goes on trial in the Senate. Only if he’s convicted is he then removed from office.

What’s next? A trial in the Senate should start in January, but it’s dominated by Republicans — meaning (a) we’re looking at a very nasty trial and (b) Trump is unlikely to be removed from office. He’ll be tried by a jury of 100 senators (there are 53 Republicans, 45 Democrats and two independents) and 67 of them need vote to convict for him to be turfed out of the White House. The Washington Post’s video on the process back in September is still worth watching (runtime: 2:48). Rather read than watch? This Washington Post primer is just what you need.

Read about it in the New York Times | Politico | Axios | Reuters | Financial Times | Wall Street Journal | CNBC | Bloomberg

*** Tell us what you think will happen in 2020 and maybe we’ll send you an Enterprise mug and our very own coffee: Your view on where the EGP will be next year is one of the key questions in our 2020 Enterprise Reader Poll, which also asks you if your company is hiring, how optimistic you are about the economy in the new year, and other questions designed to take the pulse of our community. Tell us, and we’ll share the results with the entire community in early January to help you shape your view of the year. The survey is quick, we promise.

You can take the Enterprise Reader Poll here.

As a token of our thanks, we’re going to send 40 readers their very own Enterprise mug and a bag of our special coffee blend, produced in association with our friends at 30 North. Want a chance to get a mug of your own? Make sure you give us your name and complete contact information at the bottom of the survey.

New sulfur regulations will shake up the shipping industry in 2020 — and they’re good for Qalaa Holdings: New rules from the International Maritime Organization coming into effect on 1 January will force shipping companies to use less environmentally damaging fuels, Bloomberg notes. Egypt is among the countries that haven’t ratified the new regulations, meaning its ports will likely draw in regional shipping traffic from ships that have yet to comply with the rules. The IMO 2020 regulations are expected to drive down prices of noncompliant fuel — and will be a boon for demand on Qalaa Holdings’ Egyptian Refining Company’s low-sulphur fuel products and operating margins, Shuaa previously said in a research note (pdf). That being said, the UAE, which Bloomberg notes is a “vital Middle East shipping hub,” will not immediately enforce penalties on noncompliant ships when the regulations come into effect.

Fiat Chrysler and Peugeot agree mega-merger: Fiat Chrysler and France’s PSA, the owner of Peugeot, have agreed to merge companies in a move that will create the world’s fourth-largest auto company, according to the Wall Street Journal. The transaction will be completed within the next 12 to 15 months and each group would own 50% of the new entity, which will boast revenues of EUR 170 bn and a 400k-strong workforce.

Vodafone wants to make M-Pesa pan-African: Vodafone is planning to expand its Kenya-based M-Pesa peer-to-peer mobile money service into a financial platform operating throughout the continent, according to the Financial Times. Vodafone aims to expand M-Pesa’s business in the seven African countries where it already operates as well as enter new markets such as Ethiopia.

A woman may yet lead Citigroup for the first time as Citigroup President Jane Fraser, 52, looks likely to succeed Mike Corbat as the investment bank’s CEO. (Financial Times)

The next episode of our interview show about building a great business in Egypt is out today: Today’s episode of Making It is a must-listen for finance nerds.

Look for the episode in your podcast feed in time for your afternoon commute. You can listen on our website | Apple Podcast | Google Podcast.

The anticipated arrival today of the first British flight to Sharm El Sheikh in four years was greeted with much fanfare by the nation’s talking heads last night. Al Hayah Al Youm’s Lobna Assal (watch, runtime: 1:03) and Masaa DMC’s Ramy Radwan each took note (watch, runtime: 1:15).

The timing of British tourists’ return to the Red Sea resort town is opportune and will push the industry to capitalize on the Central Bank of Egypt’s recently-launched EGP 50 bn tourism support program to prepare for the expected influx of tourists, Chamber of Tourism Establishments member Magdy Sadek told Min Masr’s Amr Khalil (watch, runtime: 4:41). On a related note, French ambassador to Egypt Stephane Romatet said at a presser that an estimated 700k French tourists have visited Egypt this year, marking a recovery from the post-2011 period that saw French arrivals nosedive to 100k per year, Assal reported (watch, runtime: 5:38).

Veteran diplomat Ahmed Hagag explained how Egypt is looking to get the UN to denounce as illegitimate the recently signed Libya-Turkey maritime border demarcation agreement in a phone-in with Assal (watch, runtime: 6:53). Masaa DMC’s Ramy Radwan also took note (watch, runtime: 3:00). We have the full story in this morning’s Diplomacy + Foreign Trade, below.

Final bits of World Youth Forum coverage: Assal and Radwan highlighted Prime Minister Moustafa Madbouly calling on the forum’s moderators to partner up with other global forums in the future (watch, runtime: 1:35) and (watch, runtime: 1:26). Yahduth fi Misr’s Sherif Amer, meanwhile, had a chat with International Organization for Migration (IOM) Egypt Chief of Mission Laurent de Boeck on how platforms such as the World Youth Forum can help reduce immigration among the youth (watch, runtime: 3:07).

LEGISLATION WATCH- The new income tax law will see the light of day this fiscal year: The new income tax law will be finalized before the end of the current fiscal year in June 2020, Finance Minister Mohamed Maait said at the World Youth Forum earlier this week. The law will, if passed, would raise the personal income tax exemption threshold beyond EGP 8k per year, according to a local press report, make it harder for foreign companies to sidestep Egyptian taxes, and introduce new rules on the resolution of tax disputes.

MPs have been discussing tax changes of their own: Rep Mervat Alexan last week proposed raising the income tax brackets for all people earning up to EGP 30k a year, rather than just the exemption threshold.

LEGISLATION WATCH- The proposed Customs Act is expected to come into effect in 1H2020, unnamed sources at the Finance Ministry said, Al Mal reports. The House Planning and Budgeting Committee is expected to finalize its review of the 55-article bill this month before shipping it to the House general assembly for a final discussion and vote in the new year. The executive regulations for the act, which must be issued within three months of its approval from parliament, are already being drafted, according to the ministry sources. The proposed bill would, if passed, expedite clearance through a white list of importers, broaden the powers of customs clearance agents, and include customs breaks for local manufacturers, among other things.

DEBT WATCH- EFG Hermes subsidiary to end decade-long dry spell for corporate bond issuances: EFG Hermes subsidiary Hermes Securities Brokerage will become the first company tap the debt market by issuing short-term corporate bonds under a new regulatory framework introduced by the Financial Regulatory Authority (FRA) last year, Al Mal reports.

What’s happening? Sources close to the matter said that the brokerage will sell EGP 400 mn in one-year bonds before the end of the year, with another EGP 1.6 bn planned in the coming months. The FRA announced in a statement on Tuesday that it had greenlit an issuance by an unnamed borrower, stating only that a brokerage firm will offer EGP 2 bn of short-term bonds to finance working capital. This will be the first issuance of corporate paper (beside asset-backed securitized bonds) in Egypt in almost a decade.

FRA regulations aim to revive Egypt’s corporate bond market: The new rules allow joint-stock and limited liability companies, banks, financial institutions, and SMEs to sell short-term debt instruments with maturities of less than two years to retail and institutional investors. Issuers must have two years’ worth of financial statements audited by a FRA-approved auditor, possess a minimum BBB- credit rating, and appoint a FRA-approved lead manager.

EFG is separately leading a EGP 370.5 mn securitized bond issuance for Madinet Nasr Housing (MNHD), according to a statement by rating agency Meris seen by Enterprise. The sale will include three tranches of one-, three-, and four-year bonds that all received investment-grade ratings.

M&A WATCH- Centamin claims Endeavour refusing to cooperate on value study: Endeavour Mining is refusing to go ahead with its reciprocal due diligence proposal to Centamin unless the latter asks the London Stock Exchange to extend the deadline for making a merger offer, Centamin said in a filing to the London Stock Exchange. Both companies agreed earlier this week to conduct a “reciprocal due diligence exercise,” less than two weeks after Centamin rejected an all-share merger bid from Endeavour. Under UK merger rules, Endeavour must make a renewed bid by no later than 31 December.

But Centamin is demanding Endeavour sign up for due diligence: “Without Endeavour providing information that is core to the assessment of value, such as its financial model, Centamin cannot properly assess the proposed combination,” the company said in the statement.

A lack of trust: Centamin, which owns the Sukkari gold mine in Egypt, said that the Canada-based company has been repeatedly refusing to “engage in a proper manner,” and that its board believes Endeavour should sign the reciprocal due diligence agreement immediately. Analysts from London-based advisory firm Peel Hunt wrote that the talks are unlikely to progress until one of the companies changes its position, according to Reuters.

Background: Centamin’s board rejected Endeavour’s initial on the grounds that it would disproportionately benefit Endeavour’s shareholders. The Candian miner offered to exchange 0.0846 of its shares for every Centamin share, valuing the latter’s share capital at around USD 1.9 bn. Centamin would have received a 47.1% stake in the new company while Endeavour would have been the majority shareholder.

Reaction: Centamin shares fell as much as 3% on the news, before rallying to close 1% in the red.

DEBT WATCH- Palm Hills Developments (PHD) has signed a EGP 1.1 bn medium-term loan agreement with CIB to refinance some of its existing debt, according to a statement. The facility will replace an existing EGP 2.4 bn syndicated medium-term loan previously granted by the Arab African International Bank along with other banks. The loan is separated into two tranches with maturities of five and four years, with a five-month grace period. The first tranche will refinance Golf Views and Gold Extensions to the tune of EGP 828, with an additional EGP 100 mn allocated for other projects. The second EGP 171 mn tranche will refinance the outstanding exposure of Palm Hills Katameya.

There may be more loans on the horizon: Palm Hills is expecting to take on another loan in the next two to three months to refinance a different project, according to Hapi Journal.

Israeli court injunction threatens to delay gas exports: Israeli gas exports to Egypt scheduled to arrive next month could face more delays after the Jerusalem District Court issued a temporary order blocking “operations involving gas emissions” at the Leviathan field on environmental concerns, according to the Jerusalem Post. Field operator Noble Energy was due to begin the third stage of tests at the field before an application was filed by several municipalities and environmentalists who claimed it will cause excessive gas emissions.

It’s still unclear what is going on: Noble was in court yesterday to fight against the injunction after it succeeded in bringing forward the hearing, which was originally scheduled to take place on Sunday. Noble’s Israeli partner Delek Drilling was confident (pdf) that the court would lift the injunction during the hearing, but there was no word yesterday on the decision.

Questions over Tamar field: We don’t know how an extended delay to Leviathan output would impact on gas deliveries from the Tamar field. Under the terms of Egypt’s USD 19.5 bn agreement with Israel, Tamar is supposed to supply 25.3 bcm of natural gas over the next 15 years and Leviathan 60 bcm.

We thought we were in the clear: Israeli Energy Minister Yuval Steinitz gave the go-ahead just three days ago to Noble and Delek to begin exporting natural gas to Egypt. The first shipments were scheduled to arrive in January, almost two years after the initial agreement was signed.

CABINET WATCH- The Madbouly Cabinet signed off yesterday on four agreements with Germany that Egypt had signed last month worth a combined EUR 145.9 mn, according to an official statement. The agreements include a EUR 23.4 mn funding and technical assistance package for German development agency GIZ to implement education and employment projects; several funding packages to support Egypt’s renewable energy projects; and a EUR 12.5 mn agreement for vocational training in Egypt. The ministers also approved two oil and gas exploration and production agreements with unnamed foreign companies in the Mediterranean and West Delta.

STARTUP WATCH- A15 makes six-figure investment in R2S: Egyptian e-commerce logistics and delivery startup R2S landed a six-figure commitment for a pre-series A funding round from A15, according to a press release (pdf). The startup provides e-commerce businesses with delivery and logistics services, including last mile delivery, parcel pick-up and drop-off points, and payment collection solutions as well as international shipping for Egyptian sellers. R2S is aiming to expand its network to include 600 stores across the country by November 2020.

Driving the conversation on Egypt in the international press on yet another quiet morning: A Reuters story on the January 2016 murder of Italian graduate student Guilio Regeni and an opinion piece for Bloomberg by Timothy Kaldas on prospects for mediation by the US and the World Bank of the dispute over the Grand Ethiopian Renaissance Dam.

The Young Changemakers (YCM) Competition for teenagers is being documented in Pioneers Post as it rolls out invitations to young women entrepreneurs who are pushing for social change in Egypt. Organized by global social entrepreneurship network Ashoka in partnership with the British Council and UK-based social change consultancy Red Ochre, YCM is recruiting girls in Egypt who can support their communities with local initiatives. Ashoka and Red Ochre are teaching them critical thinking abilities, social entrepreneurship, and how to design and implement initiatives to create a positive impact (watch, runtime: 02:51).

Egypt takes its beef with Turkey to the UN: Egypt has asked the UN not to recognize the maritime and security agreements signed between Turkey and Libya, calling them “illegal and groundless” in letters sent to the UN secretary-general and the Security Council, diplomatic sources said, according to Ekathimerini. The government says that the agreements violate UNSC resolutions on Libya and allow the transfer of weapons to militias in the west of the country. The agreements signed between Turkish President Recep Tayyip Erdogan and Libya’s Tripoli-based Prime Minister Fayez Al Serraj at the end of November have drawn sharp criticism from Egypt, Greece, and Cyprus for their potential to pave the way for sea border demarcation agreements that could disregard the rights of other Mediterranean countries.

UAE encouraging companies to invest in Egypt -Mubadala CDO: The Emirati government is encouraging companies to increase their investments in the Egyptian oil and gas, renewable energy, and construction sectors, Mubadala Chief Development Officer Sheikh Mansour Al Hamed told Investment Minister Sahar Nasr during talks yesterday, according to a ministry statement. Mubadala’s Egyptian assets have so far been limited to the oil and gas sector, following its purchase of stakes in Eni’s Zohr and Noor concessions in 2018. Yesterday’s meeting came a week after the UAE pledged to double its investments in Egypt to USD 14 bn over the next five years. Egyptian-Emirati economic ties have been deepening since the Sovereign Fund of Egypt signed an agreement to establish a USD 20 bn investment fund with the Abu Dhabi Development Holding Company.

Madbouly meets Italian business delegation: Prime Minister Moustafa Madbouly and Supply Minister Ali El Moselhi yesterday met with a delegation from the Italian Confederation for Economic Development to talk trade and investment, a cabinet statement said. Italian companies expressed an interest in investing in the Suez Canal Economic Zone and the Egyptian leather industry, and discussed ways to cooperate on government plans to convert vehicles to run on natural gas.

The African Development Bank board has signed off on a EUR 109 mn facility to develop sewage disposal and wastewater treatment plants for rural areas in Luxor Governorate, the bank said in a statement.The project is set to increase sewage treatment in the governorate from 6% to 55% to serve 161,929 inhabitants. The facility consists of a EUR 108 mn loan from the bank with an additional EUR 1 mn grant from the bank’s Rural Water Supply and Sanitation Initiative.

Agriculture Ministry officials will be allowed once again to travel abroad to inspect wheat shipments at the port of origin, traders told Reuters. The move will undo guidelines set by the government in 2016 effectively suspending Egypt’s routine of sending abroad delegations of six officials to inspect the shipments, which the US Department of Agriculture deemed as an “unnecessary and burdensome” practice. The suspension was put in place after a French wheat shipment was rejected upon arriving in Egypt for containing traces of the ergot fungus despite being approved by government officials before being shipped. Traders have criticized the decision to resume port of origin checks, saying people “will get very worried about ship rejections.”

French industrial group Legrand aims to fully acquire an Egyptian company that manufactures electric meters and is currently in negotiations with two unnamed potential targets, Managing Director Nicolas Hobeilah told the local press. Legrand Egypt could also acquire an Egyptian company working in the field of digital infrastructure, he added.

State-owned investment bank NI Capital has kicked off the public subscription period for the National Investment Charity Fund for Education, the Planning Ministry said in a statement. The fund will issue instruments worth EGP 100 each, with investors allowed to hold as little as a single certificate. The fund’s proceeds will be used to improve education facilities and services in impoverished areas of Egypt.

Porto Group is targeting sales of around EGP 1 bn in the first phase of the Porto Assiut project which is to begin construction in the coming days, the company said in a bourse disclosure (pdf). The EGP 4.5 bn development will include 1.9k residential and hotel apartments and 525 villas.

Air France has begun operating a Cairo-Paris air route six times per week using its new Airbus A350 airliner, according to an emailed statement (pdf).

The Arab Organization for Industrialization (AOI) has agreed with Japan’s Toyota Tsusho Corporation to manufacture 240k natural gas-powered minibuses, according to Al Mal. The AOI has already approached 11 global auto companies as it looks for a partner on the project to replace the diesel buses by manufacturing new ones domestically. The AOI is planning to have the first natgas-powered microbus by June 2020, head Abdel Moneim Al Terras told the press.

In related news: Egypt will receive 30 natural gas-powered buses by the end of January, Cairo Governor Khaled Abdel Saeed said, according to Al Mal. This will be the first batch of a EGP 442 mn order for 121 buses.

Intertech Vision ME has submitted an offer to the Egyptian National Railways (ENR) for the implementation of the central control rooms, locomotive door automation, and securing data, head of sales Ahmed Assem tells Al Mal. He noted that the company had worked on similar projects before, including a subcontract through the French Alstom for the metro project and a USD 2.5 mn project in the new administrative capital. The company is also eyeing part of the work in the electric train line connection Salam City to the 10th of Ramadan City and will be bidding with the contractor when the project is launched.

Egypt’s prepaid card market is expected to grow at a compound annual rate of 18.2% by 2023, after growing 24.1% between 2014 and 2018, according to a report by Research and Markets.

Prime Holding will launch its consumer financing arm by March 2020, recently-appointed CEO Mohamed Maher told the local press. The launch is pending certain logistical procedures, including hiring staff and purchasing an electronic system, Maher said.

Hatem Tawfik, managing director of Cairo Solar: My Morning Routine looks each week at how a successful member of the community starts their day — and then throws in a couple of random business questions just for fun. Speaking to us this week is Hatem Tawfik, who heads up solar installation company Cairo Solar.

I’m Hatem Tawfik, a 32-year-old who still has the naivety to believe he can change the world and make some money while doing it. I graduated from CAC and Canada’s McMaster University and then worked at CIB for a few years. Today, I’m the managing director at Cairo Solar. I help people dodge electricity costs without going to jail.

I’m not going to lie, my morning routine starts when I wake up at 8:00 am to work out, then say “not happening” and snooze until 9:00 am. I then wake up again, spend 5 minutes watching videos of impractical jokers, pray, chug a big glass of water, then grab my black coffee to go. I’ve been intermittent fasting for two-and-a-half years and it’s awesome. I then start moving to work. My work is across the street in New Cairo so I get in at 9:30 am sharp.

The rest of my day consists of following up on our major weekly tasks, and reworking our strategy constantly. Solar is so fluid, especially with all the changing interest rates and electricity prices. At 5 pm I eat at home, make up for my missed morning workout with a BeFit session at 7 pm, then spend time with family or friends.

I usually read around half a page a day of Riyadh Al Saleheen to keep my morals in check. It’s not uncool to read religious stuff.

Cairo Solar started in 2015, and we soon became the first company to successfully sell electricity to the government – from my actual home. We struggled a lot during the first three years. There are 300 other solar companies operating in our space. And we had to convince the small pool of clients, who were already affected by the EGP float, why they should go with us and not the other 299. It took a while to get there. And when we were just a few people multitasking, I would end up driving our company’s minivan once a month. (Side note: I picked up an old lady who thought I was a microbus, I was in a full suit, I played along to drop her off, but she then insisted on paying). Things started picking up in 2018, and now we’re one of the top five solar companies in Egypt.

What are some common misconceptions about my business? People think solar is very glitzy, and it is. But usually, what springs to people’s minds are large solar farms only. However, there are three other solar sectors in Egypt, all of which could save you up to 100% of your energy cost. Installing a solar station in your home could give you an internal rate of return (IRR) — a measure of an investment’s rate of return — of 20-25%. For places such as agricultural farms running on diesel, you could get an IRR of 30% to 45%. Factories, schools and other such buildings – which we classify as medium scale – could see an IRR of 20-30%.

Cairo Solar focuses on the medium scale sector which comes in two forms: Independent power producer (IPP) or turnkey EPC (engineering, procurement, and construction). IPP is where the solar company builds, owns, and operates the station and sells the electricity to the client for a flat fee or a percentage less than the government price. Turnkey EPC is where the solar company builds the station and the client owns the station. IPP is usually for larger scale stations where the client doesn’t want to tie up large amounts of money and prefers someone to operate the station. Turnkey EPC is usually for smaller scale stations where the client prefers to have all the savings to themselves, rather than save a percentage.

The savings for businesses: For example, a steel factory with limited cash flow and a large piece of land would rather not invest in a 135 MW solar station, and prefer to bring on a solar company to become the IPP, the solar company would then sell the client electricity at a 10% discount than the government price. This way the cash-strapped company does not have to invest and gets to save 10% on its electricity bill. There are approximately between 20 MW and 30 MW of these kinds of stations.

On the other hand, if a client wants to save 100% of his electricity bill, they need to own the station themselves, which is the turnkey model that Cairo Solar does. For instance, if a shampoo factory has enough space and is financially strong, it can own the station and lease it with the bank with special solar loans that we provide at low interest rates. The lower the interest rates, the lower their installment, and the less affected their cash flow is, since what they save in electricity could be equal to what they pay to the bank.

As of 2019, 12.5 MW of the medium scale stations where installed. Out of the 300 registered solar companies in Egypt, Cairo Solar managed to capture a 12% market share in the medium scale sector. In the next two years, I expect this sector to add another 75 MW, or EGP 1 bn. I believe this is a great opportunity for banks to benefit from such projects.

The one internal or external force that will create the most change in this industry are lower interest rates. Lower interest rates will definitely give our clients a push to install solar.

The best business advice I’ve ever gotten was “it takes time.” That phrase sticks with me. It was given by one of our shareholders who believed in us. In this new venture capital world of ours, people want to see results fast, and VCs along with company owners tend to give up too easily if they don’t see results in a year or two. But now I believe you need to have the patience because “it takes time.”