Pandemic aid from the IMF lands in Cairo as total reported cases break past the 10k barrier

It’s a reasonably quiet news morning after the packed issues of the past few days. Not too many sleeps left before we all enjoy a long weekend for the Eid.

Two things bedeviling our peabrains as we get underway this morning:

#1- Springboarding off our food security story in Speed Round (below), the obligate carnivores among us are concerned about the integrity of the global supply of fresh meat as a growing number of European slaughterhouses have joined their US (here and here) and Canadian (here, here and here) counterparts as hot zones of infection. Some are closing, others are cutting output. The problem, the Guardian warns, is a global one.

#2- Saudi Arabia and Lebanon have (re)imposed total lockdowns as calls mount in some corners of Egypt for policymakers to do the same here before or during the Eid vacation. Saudi will impose a 24-hour curfew for all five days of its Eid El-Fitr vacation, which is set to run May 23-May 27. Earlier in the pandemic, the kingdom had imposed and then eased a full lockdown. Lebanon returns today to a full lockdown for a four-day period after a spike in the number of covid cases.

A couple of pieces worth reading today regardless of what industry you’re in:

How tourist destinations are reconfiguring reopen safely (WSJ) is particularly relevant as we look to Friday’s reopening of hotels in Egypt. Properties will here be capped at 25% occupancy in the first phase. Globally, “resorts are spacing out beach chairs, [purveyors of games of chance and skill] will toss decks of cards after a single use and amusement parks plan apps to avoid lines for rides,” the paper notes.

What does WFH mean for … cities? Imagine how much easier the past few months of WFH would have been had you not also been pressed into service as your kid(s)’ teacher. Heck, you might even have enjoyed the flexibility of working from home, right? That’s the fear spreading now through a vast ecosystem of shops, real estate companies, restaurants and transport providers as businesses in New York wake up to the fact that plenty of people will want to work more from home even after the pandemic eases.

Speaking of WFH in the future: It seems most of our readers love the idea. That’s among the early (and really, really clear) results of our poll on how covid-19 is impacting your business.

PLEASE LET US KNOW how covid-19 is impacting your business. We run an annual reader poll asking what you expect of business conditions and the economy in the year ahead. Covid-19 has us thinking that the results of this year’s survey need updating. Take a minute and tell us how covid-19 has impacted your business, whether it’s changed your outlook on the economy, and what you think of WFH. We’ll have the results for you immediately after the Eid

Oh, and FWIW: Twitter has become the first major tech company to say it will allow employees to work from home on a permanent basis after the end of the lockdown, Buzzfeed reported yesterday.

The markets today: Asian shares are down in early trading this morning and futures point to a lower open in both Europe and North America after US stocks closed down again yesterday on fears that the reopening of the US economy might be “premature” and as “traders assessed a dire outlook from Federal Reserve regional chiefs.” The EGX30 was up 2.8% yesterday and is now down 24.2% since January.

It’s interest day tomorrow: 10 of the 12 analysts in our regular poll expect the central bank to leave rates on hold.

PSA- The last week of Ramadan will be a scorcher, with a heat wave due to send temperatures from a high of 37°C today into the low 40°C range this weekend and early next week, according to the national weather office. Our favourite weather app shows the mercury stuck at 42°C all week next week, with overnight lows of just 27°C.

So, when do we eat? Maghrib prayers are at 6:40pm and you’ll have until 3:23am to finish caffeinating. Fajr is coming one minute earlier every day through the end of the Holy Month.

COVID-19 IN EGYPT-

Egypt has now disclosed a total of 10,093 confirmed cases of covid-19 after the Health Ministry reported 347 new infections yesterday. The ministry also said that another 11 people had died from the virus, taking the death toll to 544. We now have a total of 2,811 confirmed cases that have since tested negative for the virus after being hospitalized or isolated, of whom 2,326 have fully recovered.

MP Sherine Farag has tested positive, the local press reports. Farag, who is now in isolation, has contracted the virus from an infected person outside parliament and there’s no need to suspend sessions, Youm7 quoted House Deputy Speaker Soliman Wahdan as saying. Farag has recently attended meetings of the House Budget and Planning Committee and came into contact with Education Minister Tarek Shawky, committee deputy chair Yasser Omar told Sada El Balad (watch, runtime: 16:10).

Farag is the latest in a string of high-profile cases to make the domestic press, including yesterday news that an employee of the state television apparatus had died of covid-19 and an announcement by the Nursing Syndicate that a sixth nurse had died after contracting the disease.

The full reopening of the nation’s courts won’t come until after the Eid holiday, Court of Cassation chief Aballah Assar said yesterday, according to Youm7, walking back an earlier declaration that most courts would reopen this coming Saturday with precautionary measures in place. Assar was speaking in his capacity as head of the Supreme Judicial Council. Which courts and which are closed? It’s a patchwork right now: Some are convening only to issue final verdicts in major cases, others rule on detention orders. Most are entirely closed, but some are open two days a week and have measures in place to keep headcounts in courtrooms low. Look for the post-holiday reopening to be gradual, Youm7 reports elsewhere.

Egypt, Saudi electricity interconnection project on ice: Work on Egypt’s 3 GW electricity interconnection project with Saudi Arabia has been postponed until we emerge from the pandemic, an Electricity Ministry official said, according to Youm7. Contracts to build the project were set to be signed this month, we noted earlier this week.

Madbouly talks covid with multinationals: Prime Minister Moustafa Madbouly met yesterday with top execs from multinationals including Majid Al Futtaim, Sumitomo, Unilever and Schneider Electric, Al Mal reports. The topic of the day: The implications of covid for the business and the economy.

DONATIONS-

Orange Egypt is working with the Egyptian Food Bank to distribute 50k boxes of food to day laborers in six governorates, according to a statement (pdf).

DP World has donated two ventilators to the Suez General Hospital, according to the local press.

Prometeon Tyre Egypt is also donating a ventilator and other medical equipment to Alexandria’s fever hospital, the company said in a statement (pdf).

ON THE GLOBAL FRONT-

There are signs that covid is spreading rapidly through large emerging markets including Nigeria and much of Latin America, where Brazil has just reported 881 deaths in one day, its worst single-day total yet. Pundits say the figures raise the prospect of an “unrecorded coronavirus surge” in EM.

Are you (or your kid / sibling) heading to university this fall? You’ll want to read this piece by Canada’s CBC canvassing high-profile institutions including McGill and UBC, which in recent days have “unveiled broad plans for the fall that centre on offering classes primarily online.” South of the 49th parallel, Cal State (America’s largest four-year public university system) said yesterday that “classes at its 23 campuses would be canceled for the fall semester, with instruction taking place almost exclusively online.”

Anthony Fauci and other top docs in the US are warning of “suffering and death” if the America reopens too soon. Fauci’s testimony to a US Senate committee is front page news on both sides of the Atlantic (Financial Times | New York Times).

China will put the rest of the world to shame if it pulls off this testing campaign: Wuhan is gearing up to test all 14 mn of its residents in just 10 days after a new cluster of infections was detected on Sunday, Chinese media report. Officials are worried about a possible second wave of infections.

GLOBAL MACRO-

US Democrats’ colossal USD 3 tn stimulus bill is going nowhere: House Democrats yesterday unveiled a USD 3 tn+ package to provide emergency relief to local authorities, businesses and the mns of newly-unemployed Americans — only to have it immediately shot down by Senate Republicans. Bloomberg and Reuters have the story.

Meanwhile, India announces bumper stimulus package: Indian prime minister Narandra Modi has announced plans to inject USD 266 bn in emergency funding into the economy as unemployment surges above 25% and business activity remains paralysed by eight weeks of lockdown, the Financial Times reports.

Hopes for a rapid bounce-back in Chinese economic activity are darkening after new data revealed that factory-gate prices fell at the quickest rate in four years in April, the Wall Street Journal reports. Analysts have been optimistic that Beijing’s seeming success at controlling the virus will fuel a so-called ‘V-shaped’ recovery after the economy contracted for the first time in more than 40 years in 1Q2020. But fresh evidence that weak demand is continuing to hurt manufacturers has led an analyst at China’s Bank of Communications to write off any chances of an imminent surge in economic activity.

The IMF looks like it’s about to cut its very bad, no good growth forecasts even further after having already projected the deepest global recession of the modern era. IMF head Kristalina Georgieva signalled yesterday that it is “very likely” that the fund will make further cuts to its projections less than a month after forecasting the economy to contract the most since the Great Depression this year, Reuters reports.

Fed kicks off historic intervention in the ETF market in a bid to prop up corporate balance sheets: The US Federal Reserve has begun purchasing corporate bond exchange-traded funds (ETFs) for the first time in its history in an attempt to channel liquidity to US corporations struggling due to the pandemic, the New York Times reports. The program will see the bank purchase up to USD 750 bn in mostly investment grade corporate bonds, first through the ETF market and later through direct purchases. The announcement of the program in March triggered an explosion in new debt last month, with corporations issuing USD 265 bn worth of bonds, more than double the USD 108 bn in April 2019.

RIP Zakeya Zakaria: Comedian and Ramadan icon Ibrahim Nasr died in Cairo yesterday at the age of 70. Nasr was best known as Zakeya Zakaria in “El Kamera El Khafeya,” the hit Ramadan hidden camera prank show that peaked in the early 2000s and paved the way for (God help us) Ramez. Al Shorouk has an obituary, or you can go catch this recent interview with him (watch, runtime: 3:49).

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, urban development and even social infrastructure such as health and education.

In today’s issue: We explore the two biggest threats facing renewable energy this year: the covid-19 lockdown and the volatility in energy markets. In part 1 of this two-part series, we explore how the lockdown has impacted renewable energy companies and projects and if there is any lasting impact on the growth seen in Egypt’s renewable energy sector.

Nothing to see here, folks. The nation’s airwaves were even more an intellectual wasteland than usual last night. Most shows are on ice for the duration of Ramadan.

IMF’s USD 2.8 bn pandemic aid lands in Cairo: Egypt took receipt of the IMF’s USD 2.8 bn rapid financing instrument yesterday, only a day after the fund’s executive board gave its approval, state news agency MENA reported, quoting an unnamed central bank official. The facility will support the country’s balance of payments and be used for “targeted and temporary spending” to help the country grapple with the covid-19 pandemic that has ground the tourism sector to a halt and caused an exodus of foreign capital.

Talks for more funding underway: Talks were scheduled to kick off yesterday for a separate stand-by arrangement (SBA) that could see us receive an additional USD 4.5-5 bn, Vice Minister of Finance Ahmed Kouchouk said on Monday. How much we end up receiving in SBA funding will depend on the IMF”s assessment of our needs, ability to repay and track record with the fund.

The wheat season in the northern hemisphere will be a godsend for food security in Egypt: Egypt’s wheat imports could pick up in a couple of months once the harvest season begins in the northern hemisphere and helps to boost global supply, Bloomberg says. The harvest season comes at a critical time for Egypt, potentially enabling it to meet its 800k-ton import target during the local harvest season despite Russia and other major wheat producers restricting exports to bolster their own domestic supply during the pandemic.

Signs of stress in the international market: The reticence of other producers to export has meant that state grain buyer GASC has only imported 240k tons of wheat since the local harvest began in mid-April. Its last tender attracted just five offers — the fewest in more than a year.

Egypt has been relying on local wheat to build up its stockpile. The Supply Ministry has purchased 2.1 mn tonnes of wheat from local farmers since the beginning of the harvest season, 30% more than it snapped up in April last year at a slightly higher price of EGP 770 per ardib, Bloomberg notes.

Local farmers appear to be happy to play ball as they see higher prices and better policies from the government, including paying the farmers within 48-72 hours, which one farmer speaking to the business information service says is “way better than last year.”

The day ESG came home to roost? Our friends at Elsewedy Electric, the high-profile EGX-listed industrial, infrastructure and energy player, are the first (we believe) Egyptian company to make the blacklist of the world’s largest sovereign wealth fund. The USD 1 tn Norges Bank said yesterday that Elsewedy was among a handful of new additions to its blacklist of companies in which it will not invest on the grounds that their core business allegedly carries a “risk of contribution to severe environmental damage.” Reuters has the story, and you can view Norges’ announcement here, their full blacklist here, or skim through the criteria to make their blacklist here (pdf).

M&A WATCH- The total value of M&A in the Middle East plummeted 90% y-o-y in 1Q2020 to USD 9.28 bn from 95 transactions, down from USD 88.27 bn from 109 transactions during the same quarter last year, according to a report from Baker Mckenzie (pdf). On a quarterly basis, total M&A value rose from USD 4 bn in 4Q2019. Around 63% of all Middle East M&A activity was cross-border in 1Q2020, while domestic transaction values dropped 94% y-o-y.

Egypt was the top target market for inbound M&A at USD 2.4 bn, but the figure masks the fact that it was on the basis of a single transaction: The still-in-the-works acquisition by STC of Vodafone Group’s shareholding in Vodafone Egypt.

The total value of M&A activity in the region fell faster than the global average, which dropped 70.5% y-o-y to USD 4.29 bn during the quarter. Transaction volume globally rose 9.4% y-o-y.

Outlook is mixed, but could see growth at a slower rate: The outlook for the remainder of the year is unclear due to the high level of uncertainty from the covid-19 pandemic, said Omar Momany (pdf), who runs M&A at Baker McKenzie Habib Al Mulla in the UAE. One of the two scenarios Momany sees moving forward is M&A volumes and values slowing down even further, potentially through the end of 2020, “reflecting on the global uncertainty, investors’ anxiety and shift of priorities.” A more optimistic scenario would see growth in M&A activity “but at a much slower pace and value … driven by companies being interested to join forces in an attempt to mitigate losses and consolidate.”

India led outbound cross-regional transactions, while the UAE continued to drive inbound M&A in the region, the report said. “The UAE remained the most attractive foreign investment destination both by volume and value with 16 [transactions] amounting to USD 1.1 bn.” The value of cross-regional transactions targeting the Middle East dropped 91.4% y-o-y to USD 1.19 bn, but soared 1,078% in comparison to 4Q2019. By value, outbound cross-regional transactions rose 41.5% y-o-y to USD 3.64 bn, with volumes up 12.5%.

Industrials and tech were the most attractive acquisition target sectors for inbound and regional investment by value and volume, respectively, in 1Q2020. High technology accounted for seven transactions worth USD 190 mn, while industrials saw four transactions amounting to USD 1 bn.

M&A WATCH- UK’s Statsbomb Services acquires Arqam FC: British football analytics company StatsBomb Services has completed their acquisition of Cairo-based sport data startup Arqam FC, Statsbomb said without disclosing the value of the transaction. The acquisition was announced last year. Arqam FC collects and analyzes thousands of data points during football matches and sells them to clubs, agencies, media organizations and players.

Advisers: Venture by Shahid, an arm of Shahid Law Firm, acted as the legal representative for Arqam, it said in a statement (pdf).

M&A WATCH- FRA green-lights Sika Egypt’s MTO for Bitumode: The Financial Regulatory Authority (FRA) has approved a mandatory tender offer submitted by construction chemicals supplier Sika Egypt for up to 100% of Modern Waterproofing (Bitumode), Bitumode said in a regulatory filing (pdf). Sika’s offer, reviewed late last month by the regulator, will price Bitumode’s shares at EGP 3.79 if shareholders offer up to 95% of the company’s shares. If more than 95% of the shares are up for grabs, Sika will set the share price at EGP 3.91.

LEGISLATION WATCH– State-owned companies face economic viability tests — and could get a special break on capital gains. Proposed changes to the Public Enterprises Act would put in place new regulations to “promote financial stability” in state-owned enterprises (SOE) and introduce new limits on board compensation, Public Enterprises Minister Hisham Tawfik said yesterday. A separate piece of legislation would give them tax new tax breaks.

The amendments would require SOEs to provide evidence that their subsidiaries are economically viable, Tawfik said. Boards will be required to call for a capital increase once any subsidiary’s losses exceed its shareholders’ equity. If the company is unable to increase its capital, it will be forced into liquidation or be merged with another public entity, he added.

Cap on board compensation: Annual bonuses would be capped at 5% of distributable annual profit for board members of holding companies and 10% for people sitting on the boards of subsidiaries, while employees will be entitled to a 10-12% share of the profits, Tawfik said. Boards will also be required to have between five to nine members and select at least one member to represent the company’s employees.

Background: The long-awaited amendments gained cabinet approval in February and received a preliminary nod from the House Economic Committee earlier this week. A pillar of the legislation, revealed by Tawfik more than a year ago, would reclassify listed companies in which the government holds up to a 75% stake and bring them within the scope of the Companies Act, granting general assemblies more power to oversee and remove boards. The bill will not go to the House general assembly until it gets committee-level approval.

A special tax break only for state-owned companies? State-owned companies could see capital gains tax they pay on the sale of land to banks as part of debt settlements become tax deductible. The measure is part of a series of amendments to the Income Tax Act that received a final committee nod yesterday, El Watan reports. Businesses in which the state holds a stake of 51% or more could get a break under the measure if it passes in the general assembly.

Background: Public Enterprises Minister Hisham Tawfik told us last summer that his ministry is planning to let go of 20 mn sqm of land held by its companies to pay off EGP 38 bn-worth of debt. At the time, several state-owned companies were in talks with investment bankers to advise them on how to divest unused land.

Tawfik’s turnaround strategy seems to be getting traction in the House: When he was sworn in as minister in 2018, Tawfik unveiled a rescue plan for loss-making state firms which at the time had racked up some EGP 7.5 bn in net losses. The plan saw the ministry undertake feasibility studies to determine each company’s financial viability to shut down those found incapable of making a turnaround.

LEGISLATION WATCH- House committee curbs EGX stamp tax cut for resident investors: The House Planning and Budgeting Committee yesterday approved legislative changes to cut stamp taxes on EGX transactions and withholding tax on dividends, the local press reported. The cabinet approved plans in March to slash stamp tax to 0.05% from 0.15% but the committee yesterday decided to scale back the size of the tax cut to 0.075%. The decision was taken to narrow the tax rates charged to resident and foreign investors, said Yasser Omar, deputy head of the committee.

Foreigners will keep their tax break: The committee approved cabinet proposals to cut stamp tax for foreign investors to 0.125% from 0.15% and signed-off on plans to slash the withholding tax on dividends to 5%.

Intraday transactions will no longer be tax-exempt: Stamp tax will be charged on intraday transactions for both resident and foreign investors to “reduce speculation,” Omar said.

Background: The stamp tax was introduced as a temporary measure in 2017 in response to an investor revolt against the 10% capital gains tax. The capital gains tax was due to be reintroduced this year, but will be shelved until 1 January 2022 if the legislative changes make it through the House.

Irrigation Ministry has an EGP 18 bn plan to save 5 bcm of water by developing water canals: The Irrigation Ministry is finalizing a strategy to develop and upgrade Egypt’s water canals in FY2020-2021 and expects to present it to the Madbouly Cabinet in the coming days, Al Mal reports, citing an unnamed ministry source. The plan is expected to save around 5 bcm of water that currently goes to waste because of these canals. The ministry expects the work to cost some EGP 18 bn and plans to implement it over the course of two years, with the timeline being contingent on the availability of funding. The draft FY2020-2021 budget has allocated EGP 8 bn to the ministry.

Background: Although Al Mal makes no mention of the legislation, the new Water Resources Act — which has long been in the works — is part of the government’s strategy to better secure Egypt’s water resources by addressing recent challenges, including the impact of climate change, increased levels of pollution, and growing demand and population growth.

MOVES- Our friend Amal Enan has is now leading venture capital fund Global Ventures’ investments in Egypt and serving as chief investment officer of the American University in Cairo’s endowment. She was previously executive director of the Egyptian-American Enterprise Fund.

Making It’s next guest bridged a gap between low banking penetration and high mobile adoption. Her business was built to offer the unbanked a mobile payment solution through an outlet they already use — mobile network operators. Six years later, her company is one of the largest players in direct operator billing and the first so-called “dragon” company to come out of MENA. Look for the episode in your podcast feed tomorrow.

Until then, you can listen to last week’s episode with Tanmeyah CEO Amro Abouesh (listen, runtime: 38:37) on: Our website | Apple Podcast | Google Podcast | Omny. We’re also available on Spotify, but only for non-MENA accounts. Subscribe to Making It on your podcatcher of choice here.

All is quiet in the pages of the foreign press this morning.

Turkey accuses Egypt and its Mediterranean allies of forming “alliance of evil”: The Turkish Foreign Ministry yesterday accused Egypt, Greece, Cyprus, France and the UAE for forming an “alliance of evil” after the countries condemned Ankara’s involvement in Libya and its gas exploration in the eastern Mediterranean, the Associated Press reports. The ministry accused the nations of stirring up “regional chaos and instability” and standing in the way of Libya’s “hope for democracy for the reckless aggression of dictators.”