1H sucked — and the WHO says “worst is yet to come”

Welcome to the final day of 1H2020, which must surely rank near the top of the league table for worst first halves ever? Sure, 2H wins the Global, All-Time Bad Half Sweepstakes — but only because the first and second world wars broke out in 2H. (As did the Great Depression…)

2020: The year that just keeps on giving. Maybe “hindsight is 20/20” was meant as some kind of cryptic warning from the future?

The big news of the day? The World Health Organization is warning that the pandemic is speeding up globally and that “the worst yet to come” (details below).

Some thoughts as we prepare to kick off the second half of the year — and the state’s new fiscal year:

Regularly scheduled commercial flights to and from Egypt resume tomorrow with EgyptAir flying to 22 destinations. You can find details on the flights and how to confirm your bookings here. The national flag carrier aims to add seven more destinations by mid-July. EgyptAir is offering 20% breaks on flights to and from Europe, the company told the domestic press.

EgyptAir’s most-booked destinations so far? Paris, New York and London.

The 2020-2021 budget is on President Abdel Fattah El Sisi’s desk for signature. It goes into effect tomorrow if it is signed today. If not, the current budget resets and guides spending and revenue priorities from tomorrow until a new one is passed.

Your wage tax bill could soon get a little bit more expensive: The state’s coffers will benefit in the new fiscal year from a 1% surtax on all salaries for coming fiscal year to help fight covid-19. The surtax is also yet to pass in the House.

Electricity bills are going up by some 16-30% for residential consumers starting tomorrow in the government’s final phase out of electric subsidies for the highest consumption brackets. You can find the full breakdown of the new pricing structure for household customers here. The full phase-out of subsidies will now take place in 2025.

University exams start tomorrow and the 2019-2020 academic year has been extended to 15 September (rather than 31 July) as a result.

A ray of sunshine: China said this morning that factory activity expanded in June as the official purchasing manager’s index showing both supply and demand picking up.

Asian markets are up in early trading this morning as a result. Futures suggest markets in Europe, the US and Canada will follow suit.

Key news triggers coming up in July:

• PMI: The purchasing managers’ index for June is due on 6 July. The contraction in Egypt’s non-oil private sector was slightly less catastrophic last month, recovering somewhat from the all-time lows seen in April — the first full month under lockdown restrictions. Expect the contraction to have eased further this month as the government started to unwind the lockdown.
• Foreign reserves: Foreign reserves figures for June should be out sometime next week. Reserves have fallen by almost USD 10 bn over the past three months to USD 36 bn as the central bank stepped up purchases of strategic goods and covered debt payments during the height of the covid-19 crisis.
• Inflation: Inflation data for June will land Thursday, 9 June. Price growth slowed to six-month lows of 4.7% in May.

Is an announcement on new EBRD funding for Egypt’s tourism industry imminent? International Cooperation Minister Rania Al Mashat held talks yesterday with the European Bank for Reconstruction and Development (EBRD), a few days after the bank announced that Egypt could be in line for an unspecified amount of emergency funding to rescue its tourism sector.

MORNING READ- The long, unhappy history of working from home in the New York Times. Look, we’re not fear-mongering. Like Inktank, our parent company, we’ve been fully WFH since early March, and we’re still here, right? In fact, Enterprise’s night shift — pre-corona — worked from home four out of five days every week. The key here is “four out of every five”: In our experience, culture is built in the office and tested in remote work, and it’s critical that we all remember that WFH works for “many” jobs in “many” industries — but not every job at every company.

*** Want to start your own business? You have only have a few days to submit entries to Giz Egypt’s CouchPitch initiative. The partnership with Himangel and Mint Incubator will matchmake startups with angel investors. Deadline for entry is 4 July and the event will take place on 14 July.

COVID-19 IN EGYPT-

The Health Ministry confirmed 83 new deaths from covid-19 yesterday, bringing the country’s total death toll to 2,872. Egypt has now disclosed a total of 66,754 confirmed cases of covid-19, after the ministry reported 1,566 new infections yesterday. We now have a total of 17,951 confirmed cases that have fully recovered.

At least seven covid-19 patients died in a fire at the isolation ward of Badrawy Hospital in Alexandria, according to Ahram Gate. Another nine patients were injured in the fire. Public Prosecutor Hamada El Sawy has ordered an investigation into the incident, according to Al Masry Al Youm.

Nurseries will be operating at 50% capacity and all staff will be required to wear masks as part of the Social Solidarity Ministry’s guidelines for nurseries looking to reopen their doors next week, according to a ministry statement. Parents and outside visitors will be barred from entry. Other provisions: regular fever testing, maintaining an on-site isolation unit and a trained infection control officer. Social Solidarity Minister Nivine Kabbag yesterday told ExtraNews that nurseries will be allowed to operate four days a week — from Sunday through Wednesday — but will have to close their doors each day at 3pm rather than 5pm (watch, runtime: 12:41).

It’s unclear whether travellers from Egypt will be freely allowed into the UAE: The UAE will classify countries into three categories as air travel is set to resume. Green countries will be allowed freely into the UAE, yellow countries will have to take certain measures before entering, while red countries will be restricted from entry, Consulate General of Egypt in Dubai Younan Edward explained, according to Al Mal. Edward added that the official announcement is still to be made and that Egypt has not yet been classified.

Cairo Airport is installing 40 thermal cameras at a cost of EGP 7 mn, Chairman Mohamed Mahrous said, according to Al Mal. The airport’s arrival halls will be fitted with the cameras by tomorrow, in time for the resumption of flights.

Covid continues to spread among the nation’s footballers ahead of league restart: Nineteen professional football players have now tested positive for covid-19, a source in the Egyptian Football Association (EFA) told FilGoal. The source added that the cases are distributed among eight clubs, but all are stable. Zamalek FC said last week that it would opt out of this season’s Egyptian Premier League after the EFA reported six new cases among players

CIB saw e-banking transactions double and smart wallet subscribers increase by 12% during March and April, compared to the first two months of 2020, CIB Chief Digital Officer Mohamed Farag told Masrawy.

The Egyptian General Petroleum Company (EGPC) will resume importing petroleum and diesel in anticipation of an uptick in demand following the relaxation of lockdown measures, according to Al Mal. The state oil firm suspended imports in March as Egypt’s domestic production was sufficient to meet the low demand.

ON THE GLOBAL FRONT-

WHO: “The worst is yet to come … [as] some countries have now experienced a resurgence of cases as they start to reopen their economies and societies.” So said WHO boss Tedros Adhanom Ghebreyesus in remarks yesterday, adding: “Globally, the pandemic is actually speeding up. We all want this to be over. We all want to get on with our lives, but the hard reality is that this is not even close to being over.”

Some politicians in the United States are getting the message: New York and New Jersey are reconsidering the pace at which they’re re-opening. The case count in California is exploding (Los Angeles is now the epicenter of the US outbreak), as is Texas. And Arizona is closing parts of the economy back down.

But hey, world leaders are back to face-to-face diplomacy, the WSJ notes, writing that, “Four months of virtual meetings saved time and money but officials say the personal touch is needed for successful diplomacy.

Iran reported a record number of daily covid-19 deaths yesterday with 162 fatalities, according to Bloomberg.

Canadian theatrical circus operator Cirque du Soleil filed for bankruptcy protection on Monday after being starved of revenue from cancelled shows since the outbreak took hold, Reuters reports.

GLOBAL MACRO-

Trump’s comments on China agreement, central bank stimulus boosts risk appetite for EMs despite grim macro outlook: Bolstered by Trump’s recent comments that a US-China trade agreement is staying and a “tidal wave of central-bank stimulus,” risk appetite for emerging market assets is continuing to stage a rebound. The MSCI EM index is poised to post its strongest quarterly performance since 2010, and EM currencies have gained momentum over the past three months, says Bloomberg. While EM assets continue to gain, there’s a split between those gains and the grim outlook in countries where cases are continuing to spiral out of control.

AND THE REST OF THE WORLD-

The Wirecard fintech scandal — now being dubbed the “Enron of Germany” — has galvanized calls for regulatory reform of the country’s financial system, CNBC reports. Germany’s financial regulator is facing sharp criticism for its toothless oversight that enabled fraud in the fintech firm, along with Wirecard’s long-time auditor EY, which is also currently caught up in three other scandals. Wirecard’s founder and former CEO Markus Braun was arrested last week after admitting that EUR 1.9 bn of cash reported on its balance sheet likely “does not exist.”

Brazil bans WhatsApp mobile payments: The Brazilian central bank and competition watchdog has suspended WhatsApp’s payments feature because of its concentrated share of the country’s e-payments market, Bloomberg reports. The central bank has banned Mastercard and Visa from partnering with the Facebook product for payments and transfers and the regulator has ordered it to suspend its partnership with e-payment giant Cielo.

Turkey is deepening its involvement in Libya: Turkish energy firm Karadeniz will bid soon to supply the Tripoli-based government in Libya with 1 GW of electricity, Reuters reports.

Terror attack on Karachi stock exchange: “Pakistani security officials killed four gunmen in Karachi as they tried to storm the stock exchange building with automatic rifles and grenades, the worst terror attack in the nation’s financial hub in two years,” reports Bloomberg.

The UN Security Council meeting on the Grand Ethiopian Renaissance Dam (GERD) was by far the most widely covered topic on the airwaves last night. Al Kahera Alaan’s Lamees El Hadidi (watch, runtime: 3:24), El Hekaya’s Amr Adib (watch: runtime: 2:15), and Masaa DMC’s Eman El Hosary (watch, runtime: 10:15) each recapped Foreign Minister Sameh Shoukry’s speech at the virtual meeting yesterday. We have chapter and verse in this morning’s Speed Round, below.

All signs point to the dispute any resolution to the dispute emerging from the African Union (AU)’s mediation, especially after the AU said on Friday that the dispute is an African problem that should be addressed with African solutions, Al Ahram Center for Political and Strategic Studies consultant Hany Raslan told Lamees. That doesn’t mean that Egypt has no recourse if things go awry, though — the dispute could be brought back to the Security Council at any time, Raslan stressed (watch, runtime: 3:20).

Involvement from the AU and the UN are not mutually exclusive, and both bodies have the mandate to step in and mediate the negotiations to help Egypt, Ethiopia, and Sudan reach a final agreement on the dam, political pundit Abdel Moneim Said told Lamees (watch, runtime: 11:45).

Egypt needs to stand its ground on clearly outlining a dispute resolution mechanism in the final GERD agreement to ensure Ethiopia is held accountable down the line if it tries to take any unilateral action, journalist Emad El Din Adib told El Hekaya host (and his brother) Amr Adib (watch, runtime: 1:04).

Away from Planet Diplomacy, Finance Minister Mohamed Maait sat down with Al Tase’a Masa’an’s Wael Ibrashy for an extensive chat on everything from the government’s growth projections to the proposed VAT Tax Act amendments.

Egypt’s new USD 5.2 bn standby loan agreement with the IMF will be used to help the government finance its reform program and shore up the social safety net, Maait said, stressing that the new funding package will not translate into more financial burden on the average citizen. The fund noted yesterday that Egypt will begin repaying the first USD 2 bn tranche of the loan — which Central Bank of Egypt Deputy Governor Ramy Aboul Naga said should land within the next few days — in September 2023, with each disbursement set to be repaid in eight quarterly instalments.

Other highlights from the interview, which you can watch in full here (runtime: 1:43: 38):

• The government has disbursed some EGP 61 bn of its EGP 100 bn covid-19 stimulus program;
• Several companies have put their investments in Egypt on hold because of the pandemic;
• Egypt had expected to lock in 6% GDP growth during the current fiscal year before the pandemic took its toll on the economy.

PRIVATIZATION WATCH- The state privatization program is still on ice due to the “unfavorable” market conditions caused by the covid-19 pandemic, Public Enterprises Minister Hisham Tawfik told Bloomberg. The suspension will remain in place until further notice, Tawfik told the business information service. Tawfik had said in March that the program was suspended thanks to pandemic-induced market turmoil, but a government official had signaled at the time that the government could come back with a new plan for the program come May.

But the program isn’t being taken off life support: The pandemic upended global markets, but Mohamed Ebied, co-CEO for the investment bank at EFG Hermes, said last week that it is possible that the program could resume in 4Q2020 or 1Q2021. The timing remains hard to predict due to the drop in corporate valuations and volatile conditions just about everywhere.

A quick recap of the program: The state privatization program ran headlong into global market turmoil since it was announced in 2018 and has seen transactions postponed multiple times. It was due to include both stake sales by already-listed companies and fresh IPOs. Out of the two dozen companies slated to IPO or offer secondary stakes, only a single offering has materialized: Eastern Tobacco’s 4.5% secondary offering in March last year. Banque du Caire had planned to debut 20-30% of its shares on the EGX in April but shelved plans due to the onset of the coronavirus pandemic. State-owned e-payments firm E-Finance also pushed its IPO date to the final quarter of 2020. Alexandria Containers, Abu Qir Fertilizers, and Sidi Kerir Petrochemicals have also pushed back stake sales.

M&A WATCH- Energean is buying less of Edison’s oil and gas assets, but Egypt is still part of the transaction: Edison has agreed to cut the price at which it sell its oil and gas portfolio to Energean by more than 60% to USD 284 mn after its assets in Norway and Algeria were removed from the agreement, Energean said in a statement (pdf). Energean agreed in July 2019 to pay as much as USD 850 mn for the Italian company’s entire portfolio but last month asked for a revaluation in light of the coronavirus pandemic’s impact on the energy markets.

What has changed? The new assessment excludes the company’s Algerian assets worth USD 155 mn and its Norwegian subsidiary worth USD 200 mn. Edison has also agreed to a USD 111 mn discount to account for the recent weakening of oil and gas prices since the onset of the virus. The additional USD 100 mn payment conditional on gas production from the Italian Cassiopeia will now vary between USD 0-100 mn, depending on future Italian gas prices.

Edison’s Egypt portfolio remains unaffected: Edison’s Egypt oil and gas assets make up 24% of the company’s portfolio and include three producing concessions and six exploration concessions.

Energean is happy: “We are pleased to have agreed revised terms for our acquisition of Edison E&P … which I believe represents excellent value for our shareholders,” CEO Mathios Riga said.

Going forward: Energean has signed a USD 220 mn loan agreement with ING, Natixis, and Deutsche Bank and is waiting for final approvals from regulators before the company’s shareholders meet on 20 July. The company wants to close the transaction “as soon as possible” during the second half of 2020, the statement says.

Egypt is key to closing the transaction as the company noted it could be executed later this year; Regulatory approval from Egypt will be the final step, it added. The Oil Ministry approved the acquisition in principle last year.

EBRD may boost financing to Egyptian banks by USD 150 mn -sources: The European Bank for Reconstruction and Development (EBRD) is reportedly planning to increase credit lines to Egyptian banks and private companies to USD 1 bn up from USD 850 mn, Al Mal reports, citing an unnamed source. The source said that EBRD received a request from an unnamed Egyptian bank for USD 50 mn in funding and has been in negotiations with two unidentified companies for funding that will be funneled to cushion the covid-19 impact.

Background: In May, the EBRD was said to be in the process of offering USD 850 mn in combined lines of credit to five Egyptian banks as part of an emergency package to inject liquidity into sectors stricken by the covid-19 pandemic. Since then, four banks have reached funding agreements with the EBRD: the National Bank of Kuwait-Egypt, QNB Al Ahli, the National Bank of Egypt, and CIB. Banque Misr has submitted a request that is still pending approval.

STARTUP WATCH- Flat6Labs Cairo to triple capital to EGP 150 mn, has appetite for fintech: Flat6Labs Cairo, sub-fund of regional tech accelerator Flat6Labs, is in the process of raising its capital to over EGP 150 mn, from an original EGP 50 mn, through a private placement that will close today, Managing Partner Marie Therese Fam told Al Mal. Flat6Labs Cairo investors International Finance Corporation, the Egyptian American Enterprise Fund, Egypt Ventures, and the Micro, Small, and Medium Enterprises Development Agency.

The accelerator will use the capital increase to expand its investments in fintech startups that have been seeing growth potential amid the covid-19 pandemic. Since its establishment in 2017, the fund has adopted a strategy to invest in 18-20 startups per year, bringing its investments to 50 startups so far.

Apicorp issues benchmark USD 750 mn bonds: Multilateral development bank Arab Petroleum Investments Corporation (Apicorp), of which Egypt is a member, has successfully issued a benchmark USD 750 mn USD-denominated five-year bond as part of its USD 3 bn global medium term note program, according to a statement (pdf). The proceeds will be tapped to bolster Apicorp’s business operations, including its countercyclical role in mitigating the impact of the covid-19 and oil prices volatility in the Middle East and North Africa. Fitch Ratings had recently awarded the multilateral development bank an ‘AA’ rating with a stable outlook to become the only financial institution in the MENA region with the rating.

El Sisi vows to push ahead with reforms, protect Egypt’s national security in 30 June speech: Egypt will do “what is needed” to protect its sovereignty and national security from the threats borne out of the “turbulent” regional landscape, President Abdel Fattah El Sisi said in a speech yesterday commemorating the anniversary of the 30 June revolution. El Sisi stressed that Egypt always prefers peace over conflict and is prepared to cooperate in goodwill with its neighbors to achieve stability. The president’s comments came after he signaled earlier this month that Egypt could stage a military intervention in Libya as a means of self-defense, and Ethiopia separately raised the specter of war over the Grand Ethiopian Renaissance Dam.

Egypt will continue to push ahead with its reform plans to undo years of corruption and neglect that have affected the country’s economy and infrastructure over the years, El Sisi also said at an inauguration ceremony for several national projects yesterday. The president pointed to his administration’s work over the past six years to develop the country’s roads and said that, while there is more work to be done, it will cost the state EGP tns (watch, runtime: 4:41). The ceremony saw El Sisi inaugurating the renovated Baron Empain Palace, two airports (Sphinx on the capital city’s west side and at the new administrative capital), and several projects in West Cairo, Ittihadiya said.

The government plans to invest some EGP 400 bn in construction and infrastructure projects in the upcoming fiscal year, which begins tomorrow, Prime Minister Moustafa Madbouly said at the inauguration ceremony. The investments are part of the government’s plans to create as many jobs as possible, Madbouly said. Egypt’s unemployment rose to 9.2% in April as the government’s precautionary measures to limit the spread of the novel coronavirus hit the economy.

Egypt pushes for UN Security Council resolution on GERD: Foreign Minister Sameh Shoukry urged the United Nations Security Council yesterday to adopt a resolution on Egypt, Ethiopia, and Sudan’s negotiations over the Grand Ethiopian Renaissance Dam (GERD) that would give international impetus to reach an agreement. The resolution is designed to encourage the three countries to reach a mutually satisfactory agreement on the dam within two weeks and refrain from taking any unilateral action, Shoukry said at a virtual meeting of the council.

The 15 members of the security council “all expressed support” for the African Union facilitating renewed talks “but took no immediate action,” the Associated Press reports.

Addis Ababa wants the UN to stay out of it and let the AU take the lead: Discussions over the dam do not have “a legitimate place in the Security Council,” Ethiopia’s Ambassador to the UN Taye Atske-Selassie said, echoing the AU’s statement last week that the resolution of the dispute should be led by the AU. Taking the dispute to the security council “is bound to set a bad precedent and open a Pandora’s box. The Council should not be a forum for settling scores and for exerting diplomatic pressure,” Atske-Selassie said at yesterday’s meeting. The Ethiopian representative condemned the council for “[allowing] itself to be politicized in this manner.”

Sudan, US call for “fair agreement”: Sudanese Ambassador to the UN Omer Siddig called for a demonstration of political good will and commitment to ironing out “the few remaining issues” and reaching a final agreement. The three countries can “reach a balanced and equitable agreement … if there is a commitment among all to do so,” US Ambassador to the UN Kelly Craft said, urging Cairo, Addis Ababa, and Khartoum to continue building on the progress they have made in negotiations so far.

Background: The three countries agreed on Friday to push through the last phase of negotiations over the dam in a bid to reach an agreement within 2-3 weeks. The negotiations — which will focus on pending legal and technical issues, including how to monitor water flow and handle dry years — will be brokered by the AU. Ethiopia has maintained it will begin filling GERD’s reservoirs within the next two weeks, saying that construction of the dam will resume as planned.

LEGISLATION WATCH- It may soon be a bit less expensive for The Youts to file for a patent after the House Education and Scientific Research Committee approved amendments to the Intellectual Property Act, according to Al Masry Al Youm. The bill would, if passed by the House general assembly, reduce patent licensing fees for applicants below the age of 21 to EGP 100, from the regular rate of EGP 1k. Students and persons with disabilities will see the fee waived altogether under the new bill. Cabinet approved the amendment earlier this month.

In an incredibly tough year for business, the clear winners are tech and pharma companies. Pharma companies are doing well thanks to the global race to develop a vaccine for the novel coronavirus, while tech giants — including owners of virtual communications platforms such as Zoom and Teams — are benefiting from the shift to remote work. This Financial Times graphic visually displays companies’ equity value added by sector during 2020.

It’s relatively quiet for Egypt in the international press, with the conversation dominated by the UN Security Council’s meeting yesterday on Ethiopia’s damn dam. Meanwhile, Al Monitor looks at proposed legislative amendments that would toughen penalties for FGM while Germany’s Qantara has an opinion piece on potential Egyptian military intervention in Libya.

Egypt talks potential financing for SOE upgrades, EgyptAlum expansion with int’l lenders: International Cooperation Minister Rania Al Mashat and Public Enterprises Minister Hisham Tawfik discussed potential funding to restructure 70 state-owned enterprises and finance the government’s EGP 13 bn plan to expand state-owned Egypt Aluminium with officials from several international lenders yesterday, according to a statement (pdf). The lenders included the World Bank, the African Development Bank, the International Finance Corporation, the European Bank for Reconstruction and Development and the European Investment Bank.

The Egyptian Electricity Holding Company is in talks with a consortium of undisclosed state-owned and private banks to secure a 3- to 5-year medium term loan of EGP 20 bn for its FY2020-2021 investment plans, Al Mal reports, citing unnamed sources familiar with the matter. A final agreement for the loan should be signed by August at the latest. The company plans to invest EGP 32.4 bn in the coming fiscal year, including to increase the national electricity grid’s capacity by 145 MW.

Uber subsidiary Careem is planning to roll out new financial payment services in partnership with Visa to provide its drivers with quicker access to their payments for completed trips, according to Menabytes. The new system will also offer a new reduced-fee remittance platform. The program will be rolled out in Egypt, the UAE, Saudi Arabia, Jordan, and Pakistan, but the timeline remains unclear.

Edita Food Industries’ Morocco-based subsidiary has acquired a MAD 80 mn (c. USD 8.24 mm) from the Arab Bank’s branch in the North African country, the company said in a regulatory filing (pdf). The loan’s proceeds will be used for construction works and to purchase equipment and machinery for the Egyptian snack food maker’s under-construction Morocco plant. Edita is expecting to inaugurate the facility by the end of 2020.

Raya Holding subsidiary Aman for e-payments has received approval from the Central Bank of Egypt (CBE) to become a certified payment facilitator, meaning it can now receive and process credit payments on behalf of banks, according to an EGX disclosure (pdf). Aman separately signed a cooperation agreement with the National Bank of Egypt to provide 25k POS devices as part of the CBE’s e-payments initiative.

The Defense Ministry is in talks with Russia’s Uralvagonzavod (UVZ) corporation to build a facility to locally assemble 400 T-90MS tanks for Egypt, RT reports, citing the Russian Gazette. The report did not provide details on the value of the agreement or its timeframe.

Siberia is burning up: Parts of the Arctic are “on fire” after the Russian Arctic town of Verkhoyansk hit a record temperature of 38°C in what scientists are saying is a warning sign of massive proportions, according to the Associated Press. “The Arctic is figuratively and literally on fire — it’s warming much faster than we thought it would in response to rising levels of carbon dioxide and other greenhouse gases in the atmosphere, and this warming is leading to a rapid meltdown and increase in wildfires,” said climate scientist and University of Michigan environmental school dean Jonathan Overpeck.