Businesses get tax relief as Egypt reports 1,322 total covid cases

SMART POLICY- Companies have until 30 June to finish paying their income taxes for 2019 under a decree signed yesterday by President Abdel Fattah El Sisi. The measure will allow businesses to pay in three installments. The president also gave the tourism industry a full six-month tax holiday and rolled out other policies to support the civil aviation industry, exporters, and seasonal workers. We have chapter and verse in this morning’s Speed Round, below.

The government is expected to make an announcement today on whether it will extend the 11-hour curfew and suspension of flights, schools and universities, and other measures to curb the spread of covid-19. The measures came into effect on 25 March for a two-week period that expires tomorrow, Al Kahera Alaan’s Lamees El Hadidi reminds us (watch, runtime: 3:47).

Don’t expect a full lockdown just yet: Information Minister Osama Heikal had told Lamees earlier this week that the government would only impose a full lockdown if we reach the point of 1k new covid-19 cases per day.

The EGX30 was up 1.9% at yesterday’s closing bell. Local investors were the sole net buyers in a session that saw moderate turnover of EGP 778 mn, 29% above the trailing 90-day average. The benchmark index is down 32.3% since the start of the year. US stocks surged to a three-week high yesterday on suggestions that “the reported death tolls in some of the world’s coronavirus hot spots showed signs of easing,” Bloomberg noted. Shares in Europe also surged yesterday.

Markets are holding up well so far today, with shares in Japan, China, Hong Kong, South Korea, Australia and New Zealand all in the green this morning. Futures suggest European markets will open weakly in the green later this morning, as will the S&P, Dow and Nasdaq across the pond.

Three pieces of wisdom from Twitter:

1- Bill Ackman made USD 2.6 bn hedging against corona (details in his note to investors here) in what we figure must be the greatest hedge of all time (he defended it on Twitter after the usual suspects started whining about it). He’s now optimistic that the tide may be turning on covid.

2- The smartest thing we’ve read in weeks on the virology of SARS-CoV-2 comes from another virologist (see, we’re everywhere…) turned venture capitalist.

3- Why follow advice to social distance? Because the experts bloody say so, the UK’s Doncaster Council argues, colorfully invoking an attempt in Oregon to blow up a dead whale with a half ton of TNT back in the 1970s.

COVID-19 IN EGYPT-

Egypt now has 1,322 confirmed cases of covid-19 after the Health Ministry reported 149 new infections yesterday. The ministry also said that another seven people had died from the virus, bringing the death toll to 85. We now have a total of 396 confirmed cases that have since tested negative for the virus after being hospitalized, of whom 259 officials say have fully recovered. Health Minister Hala Zayed noted that 88% of confirmed cases in Egypt are mild cases, 7% are moderate, 3% are extreme cases; 2% cases are people who are in hospital in critical condition.

The government will pay civil servants early this month, with wages disbursed over the course of four days between 19 and 22 April to reduce large crowds at banks and ATMs, according to a cabinet statement.

The CIT Ministry has pushed the deadline to pay January’s landline phone bills to avoid overcrowding at state-owned landline operator Telecom Egypt’s offices, Minister Amr Talaat told Al Hadath Al Youm (watch, runtime 2:01).

Companies in Egypt’s private sector struggling with short-term cash crunches need immediate help to keep the lights on, limit bankruptcies, and prevent layoffs, Regional Director of the World Bank in Egypt, Yemen and Djibouti Marina Wes told Ahram Online. She noted that the private sector and informal workers will be the most vulnerable to the economic fallout from Egypt’s response to covid-19.

Egypt has an 8.6-month reserve of sugar, 4.2 months of rice, and 5.8 months of vegetable oil, Reuters reports. The government is working to increase the country’s strategic commodity reserves to be sufficient for a six-month period to protect against possible food supply shortages.

The Tourism Ministry is allowing hotels outside so-called “tourism governorates” to host guests up to 25% of their capacity and allow up to 50% of their staff members to work, Al Mal reports, citing a ministry memo. The decision does not apply to South Sinai, the Red Sea, Luxor, and Aswan, but it remains unclear whether hotels in these governorates are required to remain vacant. Red Sea hotels were evacuated last month and tourism in the governorate’s hotels was suspended before Marsa Alam facilities were tapped to serve as quarantine centers for Egyptians returning home from the United States.

Construction companies working on contract to the government should be given up to six extra months to finish work, the Federation of Construction and Building Contractors has said, according to a report in Al Mal. The industry is struggling with labour shortages and the 7pm-6am curfew.

Ongoing railway projects are all set to be completed on schedule, including Cairo Metro Lines 3 and 4 and the new administrative capital monorail, head of the National Authority for Tunnels Essam Waly said, according to Al Mal. President Abdel Fattah El Sisi had decided on Saturday to postpone the inauguration of all national projects due this year.

State-owned Misr Spinning and Weaving (Ghazl El Mahalla) began trial production of face masks yesterday on a line with the capacity to crank out up to 40 masks per minute, board member Magdy El Alfy tells Al Mal. The company is aiming to double its output soon.

Mastercard has increased its contactless payment limit for Egypt from EGP 300 to EGP 600 to help customers avoid touching keypads when making purchases, in an initiative rolled out across the MENA region on Monday, Al Masry Al Youm reports, noting the new limits for each country.

A flight passing overhead near deadline time this morning reminded us that there are not just cargo flights in and out of Egypt, but that at least three commercial flights are scheduled for tomorrow. An EgyptAir repatriation flight for Canadian citizens, permanent residents and their immediate families takes off on Wednesday for Toronto, while Air Cairo is running two commercial flights for citizens from any country tomorrow morning to Paris. There are presently no flights scheduled to the United States for American nationals.

DONATIONS-

*** The Breathe Campaign (image above) has now raised enough money to purchase 30 ventilators: The campaign has so far raised EGP 10 mn since its launch on 31 March, enough to buy 30 ventilators costing EGP 240-430k each.

Want to make a contribution? Hit up the Egyptian Cure Bank, Fawry or the FawryApp or check out the description section of the Youtube page for other options.

You can keep up to date with the campaign on Instagram and check out the ad here (watch, runtime: 1:08).

Orascom Construction and the Sawiris Foundation for Social Development are funding the repair of 110 ventilators for several public hospitals, according to a statement (pdf). The company has worked with international manufacturers of medical equipment to identify broken ventilators and will reportedly deliver them in the coming days.

FEI to repair 122 ventilators, buy 21 more: The Federation of Egyptian Industries signed an MoU with the Egyptian Cure Bank and the Authority for Unified Procurement to repair 122 ventilators and purchase 21 more for use in public hospitals, according to the local press. The repairs will cost approximately EGP 7.7 mn and 87 will be completed in two weeks and the rest within a month.

Banque du Caire is doling out EGP 40 mn in donations under a Federation of Egyptian Banks’ initiative aimed to collect EGP 150 mn from the country’s banks to help the state confront the covid-19 pandemic, Al Mal reports.

Centamin is donating EGP 10 mn to support Egypt in fighting the covid-19 pandemic, according to a statement. Chairman Josef El Raghy said the mining company is “committed to extending support to our host countries.”

City Edge is also donating EGP 10 mn to the Tahya Misr Fund, Al Masry Al Youm reports.

ON THE GLOBAL FRONT-

UK Prime Minister Boris Johnson was moved to an ICU unit after his covid-19 symptoms took a turn for the worse yesterday. Johnson was hospitalized on Sunday following 10 days of “persistent symptoms” from his infection. The story is front-page news around the world this morning on the Financial Times, Wall Street Journal, Reuters, and the New York Times.

Europe plans for a post-covid future: European governments are drawing up plans for easing lockdown restrictions for businesses and schools without causing a second wave of covid-19 infections, the Financial Times reports. This is unlikely to happen for several weeks, and will require a massive increase in testing capacity, along with rigorous contact tracing. Experts also fear it may undermine key messages about the importance of continued social distancing.

Austria is the first European country to provide a timetable for restarting the economy, with small shops due to open as early as next week, the Financial Times reports. Higher risk businesses are likely to reopen from 1 May.

America’s Inovio Pharma is starting covid-19 vaccine testing on 40 healthy volunteers in Missouri after it obtained Food and Drug Administration permission for the study on Monday, according to the Associated Press. If successful, it would still take over a year before the vaccine could be widely distributed. Inovio is the second US drugmaker to start potential vaccine testing, after Moderna announced it would begin testing this month.

In other international covid-19 news:

• Japanese Prime Minister Shinzo Abe is set to declare a state of emergency for Tokyo and six other prefectures today but is not yet imposing any hard lockdowns, AP reports. The government is also launching a JPY 108 tn (USD 1 tn) stimulus package, double what was initially expected.
• The Spanish government is working to introduce universal basic income as soon as possible to support families, Bloomberg reports, quoting the country’s economy minister.

The global economy is already contracting and is falling at a faster rate than during the opening salvo of the 2007-08 financial crisis, according to Bloomberg Economics’ GDP tracker. Global economic output fell 0.5% at an annualized rate in March, down from 0.1% in February and 4.2% in January, the tracker shows.

Meanwhile, JP Morgan is considering suspending dividend payments for the first time in its history if the worst-case recessionary scenario — which would see the US’ economy shrink 25% in 2Q2020 and unemployment rising to 14% — plays out, according to the FT.

Lawyers are bracing themselves for investor claims against unsuccessful margin calls: Equity investors who had lost from questionable margin calls are drawing up claims against bankers who some lawyers allege give very little refinancing flexibility, resulting in hefty losses, says the Financial Times. The magnitude of claims to recoup losses could potentially exceed those filed during the financial crisis, lawyers expect.

Europe can now borrow USD at negative rates after FX swap costs plunge: The cost of swapping EUR and GBP for USD has fallen back to negative territory after having risen to 2011 European crisis era levels earlier in the covid-19 fallout, according to Reuters. This is an unusual turn of events given that a premium for the USD has been prominent in FX swap markets since the financial crisis. Despite the decrease in borrowing costs on swaps, the cost remains high within the US interbank system, a discrepancy showing that “there is still a credit risk or a liquidity shortage in the market,” Monex Europe forex broker Simon Harvey said.

Emaar Properties has cut executive and staff salaries across its Dubai businesses, effective 1 April, for an indefinite period, Bloomberg reports. Senior management will see a 50% reduction, while middle management wages will be down 40% and junior staff down 30%. Chairman Mohamed Alabbar will completely forgo his salary.

Is an end to the oil war within arm’s reach? In what could be the first step to ending a months-long oil war between Russia and Saudi Arabia, Moscow has signaled it could reduce its oil production “substantially” to prop up oil prices ahead of a planned Opec+ meeting today, Reuters reports, citing two Russian sources. Russian President Vladimir Putin had previously said that Opec+ cuts could reach 10 mn bbl/d, but government and industry sources tell the newswire this may not be enough to steady the global oil market given the weak demand hit by the covid-19 outbreak.

Correction (07/04/2020): A previous version of this article incorrectly stated that Orascom Investment Holding had cut the salaries of employees at its tourism businesses by 50%.

Last night’s talk shows were awash with coverage and commentary on President Abdel Fattah El Sisi’s decree pushing the tax payment deadline for businesses and providing support for the tourism and civil aviation industries.

Ittihadiya spokesman Bassam Rady took to the airwaves to give the talking heads the lowdown on the decision, which we break down in this morning’s Speed Round, below. Rady had a chat with Al Kahera Alaan’s Lamees El Hadidi (watch, runtime: 10:22) and El Hekaya’s Amr Adib (watch, runtime: 8:23). Masaa DMC’s Eman El Hosary (watch, runtime: 1:29) and Min Masr’s Reham Ibrahim (watch, runtime: 5:05) also took note of the president’s decree.

An EGP 500 mn monthly stipend the state will pay day laborers in each of the coming three months will cost state coffers some EGP 1.5 bn, Manpower Minister Mohamed Saafan told ‘Ala Mas’ouleety’s Ahmed Moussa. The three-month allowance, which is part of the bundle of decisions El Sisi issued yesterday, will be disbursed to 1.5 mn workers who have registered with the ministry (watch, runtime 3:12)

Tax holidays for tourism companies and loans for airlines were specifically designed to avoid layoffs in these industries, Tourism Minister Khaled Enany told Moussa, saying that companies that still lay off workers could face penalties (watch, runtime 5:28).

The Health Ministry’s daily covid-19 update was also featured on Al Kahera Alaan (watch, runtime: 1:20), Masaa DMC (watch, runtime: 1:07), and Min Masr (watch, runtime: 4:40). We have the details in What We’re Tracking Today, above.

Spotlight on the Breathe campaign: Jenan Sheta had a chat with Lamees to detail how she and her two sisters decided to launch the Breathe campaign to help acquire ventilators for Egyptian hospitals. The campaign, which is the pilot project of the Sheta sisters’ charity startup, HumanKind, has so far raised money for 30 ventilators, of which 12 have already been delivered to hospitals (watch, runtime: 8:14).

Also on the airwaves last night:

Lamees took note of the death of New Giza Chairman Mansour El Gammal (watch, runtime: 0:28). Stories in Al Masry Al Youm and Al Shorouk report that El Gammal died of acute pneumonia secondary to a covid-19 infection, while Youm7 reports only that he passed after a long illness.

Businesses are getting a breather with a two-month extension on the deadline to pay income taxes under a decree issued by President Abdel Fattah El Sisi yesterday that extends the final deadline for payment to 30 June. The decree will allow businesses to pay in three installments, Ittihadiya said in a statement yesterday. The deadline for companies to file and pay taxes was previously 30 April, and the government extended last month the filing deadline for individuals to 16 April. El Sisi’s decree also pushes by three months the deadline for corporate real estate taxes.

There will be no interest, fines, or late fees for anyone choosing to pay by 30 June.

It’s both a helping hand to business and a form of stimulus: The two measures are not just pro-business at a time in which many auditors and finance teams are struggling to complete closing paperwork amid work from home — it is a form of stimulus and gives businesses a lifeline by allowing them to retain cash for a longer period of time. The United States, Canada and the UK had previously gone down similar routes and extended both filing and payment deadlines.

Waiting for more details from the Tax Authority: Businesses will be waiting to hear from the Tax Authority on the required size of payments (must they be equal, or can you back-load them) as well as on whether any of the measures include value-added tax (VAT). Businesses will also want to know whether 30 June is the final date for filing tax returns or whether they’re due earlier.

Hotels and other businesses in the tourism industry are getting a three-month extension of their tax deadline, also with no penalties or late fees, as the government looks to shield the industry that is so far taking the worst hit from the virus outbreak. Hotels and other establishments in the tourism industry will also get a full six-month holiday on their real estate taxes — meaning they will never have to remit taxes for that six-month period.

Businesses were lobbying for the government to give them space to manoeuvre on taxes. El Sisi’s tax decision followed a virtual meeting Finance Minister Mohamed Maait held with several members of the business community to look into proposals to push the tax deadline by two months and to give factories a real estate tax holiday, according to a ministry statement (pdf).

More support for civil aviation, exporters, irregular workers: The president also ordered his government to:

• Make available loans with a two-year grace period for the aviation industry as part of a wider bailout package, which has effectively ground to a halt after the suspension of international flights;
• Have the Export Subsidy Fund disburse at least 30% of overdue subsidies, with each company receiving at least EGP 5 mn apiece;
• Day laborers will receive a EGP 500 monthly salary for three months. The Manpower Ministry had previously said it would disburse EGP 500 to each seasonal worker as a one-time compensation for lost income due to covid-19.

BUDGET WATCH- The Finance Ministry is aiming to collect EGP 974 bn in tax revenue in the coming fiscal year, according to its draft FY2020-2021 budget, the local press reports. This would mark a 13.7% increase from the EGP 856.6 bn the ministry expects to collect during the current fiscal year.

But doubts are being cast on whether these figures are realistic: Hossam Nasr, partner at Ernst & Young, said that the revenue targets are unattainable in the current environment as key sectors such as tourism, aviation, oil, and real estate face losses due to the covid-19 pandemic. Unnamed parliamentary sources said meeting these targets would require a swift resolution of the pandemic as exports, sales, and VAT yields drop.

The FY2020-2021 budget — what we know so far: The tax figures come a week after Finance Minister Mohamed Maait revealed new details about the government’s fiscal targets for the year ahead. Government spending is due to rise 9% to EGP 1.71 tn, with health, education, welfare and investment allocations due to rise substantially. Total revenues are expected to increase to around EGP 1.3 tn, up almost EGP 200 bn on last year. The ministry believes it can cut the budget deficit down to 6.3% of GDP from 7.2% projected for the current fiscal year, and is using a benchmark oil price of USD 61/bbl for its calculations.

EU slaps Egypt, China with five-year anti-dumping tariffs on glass fiber fabrics: The EU has imposed a five-year, 20% tariff on glass fiber fabrics sold in the bloc by Egypt-based exporters. It has also imposed even heavier tariffs on between 37-99% on Chinese exporters to counter dumping practices, Bloomberg reports. The anti-dumping duties, which will take effect today, partially wrap up a trade dispute arising that caused “material injuries” to EU producers including Finland-based Ahlstrom-Munksjo Oyj. An inquiry by the European Commission to decide whether to impose tariffs on the widely used industrial good began in February 2019.

The investigation is parallel to another probe by the commission into alleged subsidies the Egyptian and Chinese governments are providing to glass fiber reinforcements exporters. In both cases — glass fiber fabrics and reinforcements — the commission is targeting Jushi Egypt for Fiberglass Industry, a subsidiary of Chinese giant Jushi Group that opened in the Suez Canal Economic Zone in 2012. The glass reinforcements probe saw the bloc provisionally impose a tariff of 8.7% that took effect last month. The commission set a July deadline to determine whether it will prolong this for five years, too.

GB Auto suspends capex for 2020 as part of its plans to mitigate effects of covid-19 on business: GB Auto has outlined a course of action to shield its business from the fallout of Egypt’s response to covid-19, which included suspending last month the issuance of new car licenses. The suspension was part of a broader shutdown of government services that saw the closure of Traffic Police offices as well as of offices providing visas, work permits and passport services.

The automotive company’s plan involves suspending all planned capex for 2020, excluding maintenance spending and increasing working capital to ensure liquidity. Management also kicked off a cost-cutting program that will be fully implemented in April, the car maker said in a press release (pdf).

Ability to meet short-term liabilities despite challenges: GB Auto has enough liquidity in hand to meet its obligations despite the challenges, the company said in a regulatory filing. This came after the company’s CEO, Raouf Ghabbour, said in a televised statement that the company expects to face liquidity shortages due to the crisis.

In other automotive news, passenger car sales soared 138% y-o-y in February, increasing to 16,602 vehicles from 6,980 during the same month last year and 8,747 from January, according to figures from the Automotive Information Council (AMIC). The y-o-y growth was primarily due to an exceptionally low base in February 2019, when the “let it rust” car boycott campaign was at its peak and the market was still pricing in the elimination of custom duties on EU cars that came into effect in January 2019. This had a substantial effect on car sales at the start of last year.

Short-lived recovery: Just as the market began to stage a recovery in early 2020, it is now coming under pressure from the covid-19 outbreak. Local distributors expect sales to contract “significantly” in March, Pharos said in a research note last week.

M&A WATCH- Cairo 3A is nearing completion of due diligence on the Egyptian Starch & Glucose Company: Cairo 3A’s plans to complete due diligence on the Egyptian Starch & Glucose company are on track to be completed during the first half of April and remain unaffected by covid-19, Al Mal reports, citing sources familiar with the agreement. The poultry and commodities trader, which is looking to acquire a 91.5% stake in the company, had previously said that it would finish its due diligence by 9 April and make a mandatory tender offer by 12 April. Cairo 3A offered to buy the combined 45.8 mn shares for EGP 8.99-10.18 apiece ahead of starting due diligence, valuing the stake at EGP 450-510 mn.

Cairo Poultry’s general assembly signed off on the transaction yesterday, according to a bourse disclosure (pdf). The company has indicated willingness to sell its stake in the Egyptian Starch & Glucose company at whatever fair share price within the EGP 8.99 – EGP 10.18 range that Cairo 3A determines through due diligence.

So far, so good with Egypt’s competition watchdog: The source also added that Cairo 3A has been in full compliance with the Egyptian Competition Authority’s (ECA) probe into the acquisition earlier this year and has yet to receive any objections following the provision of all requested paperwork.

Background: Cairo 3A earlier this year began its bid to purchase shares in Egypt Starch & Glucose held by three major shareholders: a 23.2% stake held by Egyptian International Tourism Projects Company (Americana Egypt), Americana Egypt’s parent company Americana Group’s 41% stake, and Cairo Poultry’s 27.3% stake. Egyptian Starch & Glucose and the board of all three shareholders approved the offer shortly after Cairo 3A declared its bid.

HHD’s board resigns after stake sale finds no buyers: State-owned Heliopolis for Housing and Development’s (HHD) chairman and board of directors have submitted their resignations to parent company Holding Company for Construction and Development (HCCD) after failing to secure offers for its tender for a 10% stake + management rights in February, the company said in a statement to the EGX (pdf).

The current board will remain in place while a new one is formed, the statement said, noting that HHD is “capable of self development under its current leadership.” It added that HHD is formulating an alternative plan to the offering alongside forming a new board, to be approved by the general assembly in its next meeting.

Background: The resignations come more than a month after the company failed to attract offers for its tender to sell a 10% stake + management rights, forcing it to abandon its share sale plans. HHD was planning to sell a 22-25% stake in a secondary offering to be completed before May, aiming to sell 12-15% of the company on the EGX, with the remaining 10% and management rights of the company to be sold to the winning bidder. Companies apparently did not want to meet HHD’s requirements, with Sodic saying after the submission deadline had passed that it could not reach an agreement over key issues such as board representation.

Headlines to skim on an otherwise quiet morning for Egypt in the foreign press:

• Work on Egypt’s megaprojects has resumed, with construction workers returning this week to sites in the new administrative capital and a new coastal city, the National reports.
• Curfew puts family planning programs to the test: Egypt’s efforts to encourage family planning through campaigns such as “Two is Enough” could be undermined as families spend more hours at home due to the curfew, Al Monitor reports.

A new world order? 12 leading global thinkers envisage life after covid-19: The long-term economic and social impact of covid-19 will be profound and far-reaching, likely to deepen existing fissures in our globally interconnected world, says this Foreign Policy piece. The key takeaways:

Globalization will come under fire, with fears about the fragility of global supply chains meaning more reliance on domestic resources. This could mean greater supply stability and a reduction in carbon emissions, but could also bring a rise in protectionism — at least in the short term — as national interests trump European integration, Chinese-American relations, and the commitment to tackle global problems such as climate change.

An inevitable shift away from the US and towards China: US leadership has been tested and found wanting during the covid-19 crisis, and this is likely to accelerate the rise of power and influence in East Asia, particularly China. If the US wants to remain competitive and protect its security, it will firstly need to put aside its trade war and cooperate with China, says Mahbubani, and secondly think in much broader terms than its current strategy of acting alone.

Some small glimpses of hope: Individual and collective examples of human courage, resilience and leadership are the best reasons for hope at a time when fear abounds, says Nicholas Burns. These may be channelled into better healthcare provision, more resilient supply chain models, and a recognition that multilateral collaboration on big, global issues is in everyone’s interests, some of the writers say. Though we are likely to see more sweeping waves of nationalism and great-power rivalry, G. John Ikenberry holds out hope that in time we may also see a countermovement, as in the 1930s and 40s, towards “pragmatic and protective internationalism.”

The Egyptian Electricity Transmission Company (EETC) is pushing by up to 40 days the window for companies to submit bids in the tender for the construction of Egypt’s electricity interconnection project with Saudi Arabia due to the covid-19 pandemic, reports the local press. An initial tender was scrapped after the electric line plan was changed due to Saudi Arabia’s addition of its futuristic city project, Neom.

Russian state nuclear energy corporation Rosatom has signed a 10-year contract with the Egyptian Atomic Energy Authority to supply low-enriched nuclear fuel components for the ETRR-2 nuclear reactor in Sharqia governorate, according to a company statement. The components include uranium and aluminum and the reactor will be used for research in particle physics and material studies, as well as for production of radioisotopes.