Gov’t unveils package of measures to boost consumer spending

Good morning, friends. It’s a busy news day, but there’s no “major” story dominating the front pages as we slide toward the dog days of summer.

SMART POLICY- If there’s one thing that made us smile this morning, it is the Sisi administration’s suggestion yesterday that a white cab-style vehicle replacement program may be in the works for passenger cars >20 years old. It’s good news for the environment, potentially pulling the most inefficient and polluting gas burners off the road — and hopefully good for business, including local assemblers, distributors, banks and non-bank financial services outfits.

We did this before, and it worked: The white cab replacement program, announced in early 2009, saw the government give incentives to cabbies at the wheel of what were then some 70k black-and-whites. Vehicle owners could pick up a locally assembled white cab on a subsidized, no-interest payment plan if they scrapped cars that had been on the road more than 20 years. There was a movement afoot by early 2011 to expand the program to civilian vehicles, but that initiative died on the vine with the events subsequent to 25 January.

Taking thousands of beaters off the road was good for the environment: Government estimates in early 2011 suggested the program had contributed to a significant drop in the capital city’s total carbon emissions in the first six months it was in place. A World Bank feature on the program in 2018 suggested the program would prevent the release of more than 350k tons of carbon emissions by the end of that year. More than 45k cars have been scrapped under the program. Green bonds as a financing mechanism, anyone?

Last time, cabbies could only source finance from state-owned banks. We’re hoping this time around the program will be expanded to include private-sector banks and NBFS players.

A companion program will offer no-interest financing to owners of cars less than 20-years old who want to convert their vehicles to run on natural gas. Conversions will cost EGP 8-12k per car, Trade and Industry Minister Nevine Gamea said yesterday. One question here: Can we build out CNG filling station infrastructure fast enough if the program takes off?

COVID-19 IN EGYPT-

The Health Ministry confirmed 89 new deaths from covid-19 yesterday, bringing the country’s total death toll to 3,858. Egypt has now disclosed a total of 82,070 confirmed cases of covid-19, after the ministry reported 912 new infections yesterday. We now have a total of 24,419 cases who have fully recovered.

Some 273 nurseries across 14 governorates have been cleared to resume working with new health and safety regulations, including operating at 50% student capacity, making available an isolation ward, temperature checks and sanitizing products, and banning guests, Social Solidarity Ministry spokesman Muhamed El Aqabi told the MENA news agency.

New Dubai travel requirement: EgyptAir has announced that all travellers to Dubai will be required to present a negative PCR test from an approved lab before flying.

ON THE GLOBAL FRONT-

A tale of two states: Formerly the hotspot of the US coronavirus epidemic, New York City yesterday reported zero virus-related deaths for the first time since the pandemic first entered the state, Bloomberg reports.

But all is not well in Florida, which yesterday smashed the country’s single-day record for new cases: One of the new centers of the epidemic, the Sunshine State yesterday reported 15,299 new infections, the highest number of new daily cases in any state since the crisis began, CNN reports.

Covid has put a damper on the global coffee industry, which once relied on morning runs and afternoon social breaks. With coffee shops closing down since the onset of the pandemic, global consumption of the beverage fell this year for the first time since 2011, according to Bloomberg. Citigroup predicts that futures for Arabica beans could drop roughly 10% — nearing breakeven cost — in 2H2020, which would severely affect the 125 mn people who make a living from the crop.

GLOBAL MACRO-

The worst is over for the oil market, but the demand slump is set to continue: Demand for oil will slowly recover through the second half of 2020 but will remain down by 5.1 mn bbl/d, the International Energy Agency said last week. This is roughly a 50% recovery from the nadir of oil shock, which saw demand collapse by 10.75 mn bbl/d during the first half of the year.

Enjoy a memorable summer with Somabay’s exclusive dining experience built around family atmosphere and love to deliver exceptional service at every step of your journey.

EGYPT BEYOND COVID-

A new program will help small engineering outfits export: The NilePreneurs initiative is offering a new program to help SMEs in the engineering sector develop, promote and export their products to global markets. The CBE-funded initiative will see the program managed by Nile University’s Export Excellence Center and financed by Banque du Caire. Companies with three years’ of experience in the field have until 20 July to apply.

Merit Publishing House owner Mohamed Hashem was arrested on Saturday on charges of alleged [redacted] harassment of several women former employees, Ahram Gate reports. Hashem’s arrest comes at a time where harassment is in the limelight following the case of Ahmed Bassem Zaki.

AND THE REST OF THE WORLD-

Nasdaq Dubai-listed real estate investment trust Emirates REIT could be facing a regulatory probe over its finances and valuations after a group of shareholders accused fund manager Equitativa of “misrepresenting” its market value to investors, Gulf News reports. The shareholders are demanding a freeze on management fees from its non-performing assets pending a full investigation into the fund’s operating expenses and property valuations, which they claim have been misrepresented to support the fund’s “excessive” fees.

The widening discount to net asset value has raised questions about the fund’s valuations as the covid-19 pandemic puts more pressure on the UAE’s property market, already suffering an extended downturn. Shares in the Sharia-compliant asset manager are now trading at just USD 0.16 apiece, compared to the net asset value of USD 1.57 at the end of 2019. Equitativa CEO Sylvain Vieujot claimed in May that an “aggressive campaign of negative stories and false rumours” was partly responsible for the low share price and said that the fund had reported the “potentially abusive market practices” to the regulator. Fitch placed Reit’s BB rating on negative watch earlier this month, citing “uncertainty over its ability to increase occupancy and rent across its portfolio in current challenging economic conditions in Dubai.”

Emirates REIT’s USD 175 mn IPO in 2014 broke a five-year IPO dry spell for the emirate.

Meanwhile, the region’s poster child for bad corporate behaviour is looking to restructure: Embattled healthcare provider NMC Healthcare is considering filing for restructuring and insolvency proceedings in the UAE, Reuters reports, citing two people familiar with the matter. This comes three months after the company was forced into administration by a UK court at the behest of its creditors amid allegations that it had cooked its books.

Uber is serious about becoming a major player in home delivery: The soon-to-be completed acquisition of food delivery service Postmates and Latin American grocer Cornershop are moving Uber towards CEO Dara Khosrowshahi’s vision of becoming “an everyday service,” the FT says.

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed. Blackboard appears every Monday in Enterprise in the place of our traditional industry news roundups.

In today’s issue: We revisit some of the Higher Education Ministry’s top policies for this year — namely the International Branch Campus program and the UCAS-style enrollment system — and explore how the covid-19 pandemic has impacted their implementation.

New social housing project, state budget get attention on the airwaves last night: Al Kahera Alaan’s Lamees El Hadidi spoke with Housing Minister Assem El Gazzar, who discussed the Asmarat 3 social housing project, one of several projects inaugurated yesterday by President Abdel Fattah El Sisi. El Gazzar said that people will be able to pay for housing in installments over 20 years at an 8% interest rate. He said that 410k of the 610k homes in the project have been completed. Would-be residents can apply for housing at the project online (watch, runtime: 22:19). El Hekaya’s Amr Adib spoke with the Prime Minister’s media adviser Hani Younis (watch, runtime: 4:00) and Tahya Misr spokesperson Mohamed Mukhtar about the project (watch, runtime: 3:03). Ala Mas’ouleety’s Ahmed Moussa also spoke with El Gazzar (watch, runtime: 38:19) about the project.

Masaa DMC’s Eman El Hosary spoke with Finance Minister Mohamed Maait to discuss the state budget for FY2020-2021. Maait said that the budget is an ambitious one targeting high growth rates and large investments in multiple sectors, especially health and water resources. Maait played up the state’s support of the average citizen, saying that despite the covid-19 crisis, the government was able to provide ample supplies of basic goods and medicines, in addition to a number of initiatives including the EGP 500 monthly stipend for day laborers. Funding for pensions will come in at EGP 170 bn in the new budget, up from EGP 160 last year. The allocation for public sector salaries is EGP 335 bn, up from EGP 301 bn from 2019-2020. Maait also discussed the USD 8 bn in funds secured from the IMF (watch, runtime: 29:07).

Gov’t unveils package of measures to boost consumer spending: A new package of measures designed to push the economy through its demand slump aims to stimulate up to EGP 100 bn of spending activity, Planning Minister Hala El Said announced yesterday. Speaking at a ceremony to inaugurate a number of national projects, the minister said that the Madbouly government has made agreements with manufacturers and merchants to offer average discounts of up to 20% on consumer goods, with ration card holders able to receive an additional 10% off select products.

The government is yet to provide details on how it is negotiating discounts with businesses, how much it plans to spend on the initiative, and what types of goods or services may be part of the program.

The initiative will be launched in the final week of July, according to the Federation of Egyptian Industries.

New fund to guarantee consumer loans, mortgages: The government will backstop up to EGP 2 bn in loans in an effort to stimulate lending and support consumer spending amid a slump in demand caused by the covid-19 pandemic, Finance Minister Mohamed Maait announced yesterday (pdf). The government will set aside EGP 2 bn from the public purse in a dedicated holding fund that would guarantee mortgages and consumer loans made by banks and consumer finance companies, the minister said.

More loan guarantees in the offing? Maait said on the sidelines of the event that the government will set up a number of “specialized arms” of the fund at some point in the future. He did not specify what sectors or product categories the sub-funds would cover.

The fund will also be deployed to provide low-cost financing for government projects such as the installation of dual-fuel engines into cars: President Abdel Fattah El Sisi said yesterday that he plans to introduce a new policy that would require citizens to outfit any new cars they purchase with a dual-fuel natgas / gasoline systems as a condition of licensing. Speaking at the inauguration, the president said that the shift to dual-fuel engines would both be more economical for consumers and would be a key step towards protecting the environment (watch, runtime: 17:20). Bloomberg also has the story.

Citizens will be able to trade in old cars for new, dual-fuel vehicles: People with cars that are over 20 years’ old will be able to apply for a low-interest car loan through the MSME Development Agency to obtain a new, dual-fuel car, turning in their existing vehicle as a deposit, Trade Minister Nevine Gamea told Al Kahera Alaan’s Lamees El Hadidi last night (watch, runtime: 11:05).

Background: The Sisi administration has for years been offering incentives for car owners to switch to dual-fuel engines, including providing subsidies for the cost of conversion and encouraging banks to offer low-interest loans for this purpose. Last year, the Oil Ministry said the government planned to have at least 50k car owners convert their vehicles to run on natural gas by the end of 2019 by installing the dual-fuel engines. Under the same plan, the ministry said more refueling stations would be built across the country. Some 33k vehicles in Egypt converted to natural gas in 2018. According to the president, the cost of converting 1 mn vehicles to dual-fuel engines hovers around EGP 8 bn.

Also from yesterday’s ceremony: Gov’t spending on healthcare since March hits EGP 10 bn: The government has allocated EGP 10 bn to the Health Ministry and the healthcare sector since the covid-19 outbreak started in March, Prime Minister Moustafa Madbouly said yesterday. It’s unclear if this is part of an EGP 11 bn that we noted last month were taken out of the EGP 100 bn emergency stimulus package to set up quarantine wards and provide medicine, supplies, and bonuses to medical staff. The extra allocation follows a directive from El Sisi which also instructed authorities to raise the salaries of state-employed healthcare workers, Madbouly said in a statement. The FY2020-2021 state budget has earmarked EGP 258.5 bn for health spending, which meets the constitutionally required minimum quota.

You can expect car prices to ease a bit in the coming months before rising again later in the year, the car-crazy domestic press suggests.

Why car prices are going down… Dealers are overstocked right now after demand slumped thanks the nighttime curfew imposed earlier in the covid-19 epidemic and the weekslong shuttering of traffic police offices that licensed new vehicles. Karim El Najjar, executive director of the local agent for Volkswagen, Audi and Seat, among other brands, suggests prices are likely to drop as dealers try to move inventory.

…and then back up: Imports were down 25-30% during covid, El Najjar suggests, so there could be supply constraints on new models. And with the USD having strengthened against the EGP earlier this year, that could mean sticker prices for 2021 models and other new imports are 3-5% higher, El Masria Auto President Shadi Rayan told Al Mal.

The Finance Ministry and the Consumer Protection Authority are watching prices, with Magdy Abdel Aziz, a senior advisor on customs at the Finance Ministry, telling Al Mal that customers did not fully benefit from the government scrapping customs on imported European cars last year as dealerships did not always pass on the discounts to end users. The ministry’s price monitoring committee is talking with the CPA about dealers’ profit margins, he said, adding that the agency would “soon issue decisions that will benefit consumers.” He stopped short of offering details of how the CPA might try to regulate distributors’ already-thin margins.

M&A WATCH- STC extends MoU for Vodafone Egypt purchase for a second time: Saudi Telecom (STC) yesterday extended by another two months its agreement with Vodafone Group to purchase a 55% stake in Vodafone Egypt due to “logistical challenges” resulting from the covid-19 pandemic, the company announced in a filing on the Saudi stock exchange. “The parties need more time to complete the processes related to the transaction, including the due diligence and they have therefore agreed to extend the MoU,” the company said. Sources claimed last week that the Saudi company had wrapped due diligence and that it would announce this week whether it would go ahead with the USD 2.4 mn acquisition or extend the process again. STC had already extended the agreement in April for the same reason.

Background: STC began due diligence in March after signing a non-binding MoU with Vodafone Group in January to purchase its stake in Vodafone Egypt in a sale that would value the company at USD 4.4 bn. Telecom Egypt, which owns the remaining 45% of Vodafone Egypt, maintains the right of first refusal on the transaction but it remains unclear how it plans to proceed. The Financial Regulatory Authority said after the initial acquisition agreement that the Saudi company may be required to make a mandatory tender offer for 100% of the company if it goes ahead with the transaction.

Advisers: Barclays is working with STC on the transaction, Goldman Sachs is advising Vodafone and EFG Hermes and Citibank are advising Telecom Egypt.

Al Mashat on the government’s response to the covid crisis, the future of tourism and GERD: The government is working to support 1.5 mn seasonal workers it had identified as vulnerable to the economic fallout from covid-19 and help integrate them within the formal economy, International Cooperation Minister Rania Al Mashat told CNBC in an interview (watch, runtime: 7:08). “We now have 1.5 mn informal workers on the formal books, and that has been helped by a speed up in financial inclusion regulations,” Al Mashat said. Marina Wes, the World Bank’s regional director in Egypt, Yemen and Djibouti, said in April that the private sector and informal workers are expected to be especially affected from the economic fallout and the lockdown.

Covid-19 has forced policy innovation: The dramatic economic effects of the pandemic have pushed policymakers, the business community, civil society and citizens to be “innovative in the way they think about [the crisis],” Al Mashat says.

Tourism recovery a ‘wait and see’: The unpredictable nature of the pandemic and its effects on consumer demand make it difficult to forecast how a recovery in the tourism and aviation sectors will play out, Al Mashat says. Authorities are working closely with the World Travel and Tourism Council and the UN World Tourism Organization to ensure health standards are maintained, the former tourism minister said.

GERD: Al Mashat refused to comment on whether the diplomatic clash between Egypt and Ethiopia over the Grand Ethiopian Renaissance Dam could deteriorate, expressing confidence that the foreign affairs and irrigation ministers will be able to secure an agreement.

*** We recently had a sit-down with Al Mashat for the first episode of Enterprise After Hours, our new podcast featuring business leaders, policymakers and cultural icons. You can listen to the episode on our website, Apple Podcasts, Google Podcasts, Anghami, Omny, or Spotify (for non-MENA accounts). You can also check out edited excerpts of our conversation.

PRIVATIZATION WATCH- Privatization cometh for Food Industries Holding Co factories? The Supply Ministry is looking at potentially selling off some of the Holding Company for Food Industries’ factories as part of the government’s plans to develop and restructure state-owned enterprises, Minister Ali El Moselhy tells the local press. According to El Moselhy, the ministry plans to consolidate five factories into two or three facilities before offering them for sale. The ministry had contracted auditing and consultancy firm BDO earlier this year to offer financial advice on restructuring and developing five companies: Alexandria Oil and Soap; Tanta Oil and Soap; Nile Company for Oil and Detergents; Abo El Hol Company for Oil and Detergents; and the Egyptian Starch, Yeast, and Detergents Company.

M&A WATCH- Adeptio’s offer to buy out minority shareholders of Americana Egypt gets nod from regulators: The Financial Regulatory Authority (FRA) has approved Adeptio’s offer to purchase a 9.6% stake in Americana Egypt at EGP 6.32 per share, it said in a statement (pdf). The regulator has also required Adeptio purchase any shares that are later offered by Americana outside of those outlined in the current purchase agreement within a six month period at the same price.

Background: Americana Egypt shareholders approved last week Adeptio’s purchase offer after it had been revised upwards at the request of the FRA who indicated that the offer price must account for the value of the company as a whole, rather than the minority shares targeted in the MTO.

FinMin exempts imported steel products from new development fees: Imported finished steel products will be exempted from newly-imposed development fee after the Finance Ministry yesterday approved a request from the Federation of Egyptian Industries’ (FEI) taxes and customs committee, Al Masry Al Youm reports. The FEI had been lobbying against the introduction of the 10% fee, arguing that it would increase pressure on domestic industry and hurt its competitiveness.

Background: The House Planning and Budgeting Committee approved in May a series of new “development fees” on a wide range of products from mobile phones, concerts, sporting team contracts and even pet food. The levy was proposed by the Finance Ministry as a way to help it plug the widening fiscal deficit caused by the covid-19 pandemic.

Samih Sawiris sees property values holding their ground despite covid-19 market slowdown: Orascom Development Holding Chairman Samih Sawiris expects real estate to continue appreciating in value over the short term as the broader economy experiences a slowdown and alternative investment options remain scarce, he told Hapi Journal. High interest rates coupled with the increased cost of constructing new real estate would also lead current property holders’ home values to rise over the coming two to five years, he said.

EARNINGS WATCH- QNB Al Ahli’s net profits fell 9% y-o-y in 1H2020 to EGP 3.8 bn, according to an earnings release (pdf). The bank cited covid-19 as “overshadow[ing]” its operations this year for the dip in profits.

MOVES- Our friends at ALC Alieldean Weshahi & Partners have welcomed arbitration specialist Yehia Shahine (LinkedIn) to the firm, according to a statement. Shahine joins ALC from private practice and was previously with Baker McKenzie International, Shearman & Sterling, and the Egyptian Competition Authority. He holds a Bachelor of Law (license en droit) from l’Université Paris 1 Panthéon-Sorbonne and is also a graduate of the Faculty of Law at Cairo University. Shahine also holds two masters degrees in international business and tax law.

MOVES- Karim Radwan (LinkedIn) and Sherif Salem (LinkedIn) have recently joined Abu Dhabi-based asset manager Chimera. Radwan is currently CIO, heading private equity and venture capital investments, while Salem is heading public markets. Radwan, who assumed his new position in April, was previously executive director for MENA investments at Rashed Abdul Rahman Al Rashed & Sons Group. Prior to joining Chimera late last year, Salem was the vice president and fund manager of Union National Bank.

It’s crickets in the pages of the international press this morning. Nothing to see here. Move along, move along.

Groundhog day at the GERD talks: Fraught talks over the future of the Grand Ethiopian Renaissance Dam remained at a standstill yesterday after the Egyptian, Ethipian and Sudanese negotiating teams failed to find a breakthrough, the cabinet said in a statement. The talks will resume today ahead of a final ministerial-level meeting whose conclusions will be submitted to South Africa, the current head of the African Union and sponsor of the latest round of talks.