House authorizes sending troops to Libya, passes corona tax and Banking Act

There’s plenty for the business community to digest this morning, and almost all of it is coming out of the House of Representatives. MPs passed what can only be called a torrent of legislation yesterday, including an authorization to send troops to Libya as well as business-relevant legislation including:

• The long-awaited Banking and Central Bank Act;
• A 1% “corona” surtax on all employee wages in the public and private sectors;
• Stamp and withholding tax cuts for EGX transactions;
• Setting up a new authority to regulate outdoor advertisements;
• A tax break for state-owned companies.

We have the full rundown in this morning’s Speed Round, below.

Does this mean we’re going to war? Not yet. The House gave President Abdel Fattal El Sisi the green light to deploy troops in a potential military operation to counter “terrorist groups” and “militias” — language that matches up with a statement (pdf) the presidency released after Sunday’s meeting of the Egypt’s National Defense Council that that specifically “emphasized [Egypt’s] commitment to a political solution as the way to end the Libyan crisis.” Pundits have drawn a line under both the NDC statement and the words “terrorist groups” and “militias” in the authorization bill as signaling that Egypt is looking to push a diplomatic solution. Policymakers have emphasized the flashpoint would be if Ankara’s proxies move on the strategically important town of Sirte.

The nation’s diplomats are working overtime: El Sisi and the heads of state of Ethiopia and Sunday will try today to find a way through the deadlock on the Grand Ethiopian Renaissance Dam at a virtual summit organized by the African Union. Technical and legal teams had little joy resolving the key points of dispute over 11 days’ of talks earlier this month, and pressure is mounting as Ethiopia threatens to begin filling the dam’s reservoir.

It looks like our elected representatives can kiss goodbye their recess this year: House Speaker Ali Abdel Aal yesterday adjourned the current session and announced that MPs will be recalled to the House to get back to work on 16 August. The reason for a three-week break? The senate elections, which will be held on 11-12 August.

Plans for the new public school year will be announced in the first week of September, Education Minister Tarek Shawki said on his Facebook earlier this morning. Public schools will start the academic year on 17 October, but there’s some question as to whether private international schools will be allowed to start in-person instruction before that date, we reported in our weekly Blackboard yesterday. Look for schools to adopt a hybrid model this fall, with elementary schoolers going to class more frequently — and online education a bigger part of the menu for kids in upper years.

PSA- We have a four-day workweek next week. The wa’fa will fall on Thursday, 30 July, Dar Al Ifta said in a Facebook post last night. That means the first day of Eid will be Friday, 31 July. That suggests we’re back to work on Tuesday, 4 August.

REMINDER- This coming Thursday is a national holiday in observance of the 23 July 1952 Revolution.

COVID-19 IN EGYPT-

The Health Ministry confirmed 627 new cases of covid-19 yesterday, bringing the country’s total infections to 88,402. There have now been 4,352 deaths after the ministry reported 50 new fatalities yesterday. We now have a total of 28,924 cases who have fully recovered.

EgyptAir’s flight schedule will be back to about 50% of its pre-covid level next month as the national flag carrier adds 10 more routes to its daily schedule starting next month, CEO Roshdy Zakaria said in an interview with Masaa DMC last night (watch; runtime 8:38). This will mean the airline operates 30-35 flights daily, compared to 80 prior to the pandemic.

Egypt will serve as the African manufacturing and distribution center for a Chinese covid-19 vaccine under a preliminary agreement between Health Minister Hala Zayed and Chinese ambassador Liao Li Chang, a cabinet statement said. It did not disclose the name of the Chinese pharma company producing the vaccine or provide other details. Health Ministry spokesperson Khaled Megahed told El Hekaya’s Amr Adib that the vaccine should cover 20% of Egypt’s needs when it is ready, but didn’t shed any light on which company is manufacturing it (watch, runtime: 13:05).

EDA decides public pricing for covid meds: The Egyptian Drug Authority has decided that a 40-tablet pack of Anvirizam will be sold to the public for EGP 1,260 while the market price for a vial of Remdesivir will be EGP 680, Rameda Pharma said (pdf) yesterday. Rameda announced last month that it would begin producing the antiviral medications.

Mask-makers are lobbying for permission to export surplus face masks, Masrawy suggests, citing an official from the Federation of Egyptian Industries’ textiles division .

IN THE REST OF THE WORLD-

Chevron is acquiring Noble Energy for USD 5 bn, giving the Houston-based group control of the Israeli Leviathan gas field and massively expanding its Mediterranean assets, Reuters reports. The acquisition likely marks the beginning of a series of consolidation agreements that will take place in the aftermath of crude oil price collapse and the continued spread of covid-19, according to the FT.

Why should you care? Noble is one of two companies that inked a USD 15 bn agreement to export natural gas to Egypt from massive Israeli gas fields, making it one of the lynchpins of Egypt’s strategy of becoming a regional energy hub for the Eastern Mediterranean.

Saudi Arabia’s King Salman bin Abdulaziz, 84, was admitted to a hospital in Riyadh yesterday for medical tests after being diagnosed with an inflamed gallbladder, according to the Saudi Press Agency. Salman’s hospitalization, which comes a day after Kuwait’s 91-year-old ruler Sheikh Jaber Al Ahmad Al Sabah underwent surgery, could be cause for “uncertainty” in the Gulf countries amid the pandemic and a crisis in the crude market, Bloomberg suggests.

Locusts worse than covid? The swarms of locusts rampaging around parts of East Africa, the Middle East and South Asia could pose “a bigger threat in some of these countries than COVID-19,” the CEO of agricultural data firm Gro Intelligence tells Axios. While disruptions to global food supply chains are unlikely, locust outbreaks could be hugely disruptive to countries facing food insecurity, “leading to localized supply shocks rippling through the international economy due to, for instance, currency crises or increased migration,” Gro analysts said in an email.

We’ve had plague, but it looks like we’re going to sidestep pestilence: The UN FAO’s Desert Locust Watch page doesn’t show any threat to Egypt this morning.

UK accounting firms have been left red-faced after the country’s watchdog pointed to endemic auditing failures in the industry. The Financial Reporting Council said last week that a third of company audits carried out by the so-called ‘Big Four’ (KPMG, Deloitte, EY and PwC) and several smaller firms failed a quality test, Reuters reports. Accounting firms have been under close scrutiny from regulators after a series of high profile scandals and corporate failures, and earlier this month were ordered to spin-off their auditing arms in the next four years.

Alibaba’s payments arm Ant Group has announced a dual-listing IPO in China and Hong Kong in what would represent one of the biggest IPOs of an Asian company, according to the Financial Times. The company has not provided a timeline for its listing or said how much it is aiming to raise, but was most recently valued at USD 150 bn in 2018.

It was wall-to-wall foreign policy on the airwaves last night (with a sprinkling of covid and an interview with the EgyptAir boss — both of which earn a mention in this morning’s What We’re Tracking Today, above).

Parliament authorizes military deployment to Libya: Al Kahera Alaan’s Lamees El Hadidi spoke with parliamentary spokesperson Salah Hasaballah to discuss yesterday’s vote to allow the president to militarily intervene in Libya. While most of the details from the session remain a secret (given it was held in a closed session), Hasaballah said that members of the National Defence Council were allowed to outline their proposals and fielded questions from MPs ahead of the vote (watch, runtime: 6:25). Masaa DMC’s Eman El Hosary spoke with Deputy House Speaker El Sayed El Sherif, who described the vote as “historic,”' saying that the presence of foreign fighters in Libya posed a threat to the security of Libya, Egypt and the wider Arab region (watch, runtime: 6:40). El Hekaya’s Amr Adib spoke with Mahmoud Fawzy, secretary-general of the House, to discuss the vote (watch, runtime: 6:23), while Ala Mas’ouleety’s Ahmed Moussa covered the parliament’s statement on the decision (watch, runtime: 4:43).

Ex-FM Fahmy chimes in: El Hadidi spoke with former foreign minister Nabil Fahmy, who said that Egypt was still committed to a political solution to the crisis. Egypt can no longer depend on the US to broker a peace agreement, and the government should look instead to Russia, which he said was more influential and willing to act to end the conflict. Fahmy also discussed the Grand Ethiopian Renaissance Dam (GERD) negotiations, saying that the African Union is placing pressure on the parties involved to reach a resolution and prevent an escalation, and that it will present possible solutions at its upcoming limited presidential summit (watch, runtime: 16:47).

GERD’s controversial filling: Adib also spoke with Alaa Al Zawahiri, a member of Egypt’s technical GERD team, who said that Ethiopia had not started filling the dam yet, but was only conducting routine storing. He said that Egypt did not object to storing water, but to possible unilateral decisions by Ethiopia during times of drought (watch, runtime: 2:25).

House authorizes potential military intervention in Libya: The House of Representatives yesterday gave the all-clear to President Abdel Fattah El Sisi to deploy Egyptian troops to Libya. Meeting in a closed session, MPs voted unanimously to authorize the president to send the military over the border to counter what a parliamentary statement described as “armed criminal militias” and “foreign terrorist elements.” The vote came a few days after the president pledged to protect tribal leaders in the east of the country if forces loyal to the UN-recognized government in Tripoli try to seize the strategic town of Sirte in the center of the country. Eastern lawmakers allied with Eastern military commander Khalifa Haftar (backed by Egypt, the UAE, Russia and France) called on the Sisi administration this month to intervene after Turkey helped forces loyal to Tripoli make battlefield gains.

El Sisi, Trump agree on need for ceasefire: El Sisi and President Donald Trump agreed in a phone call yesterday on the need to agree a lasting ceasefire, Ittihadiya said. El Sisi voiced concern over what he described as “foreign interference” — a reference to the Turkish military presence in Libya — which he said undermined security.

What the pundits are saying: According to the FT’s Heba Saleh, “Mr Sisi has made clear that an Egyptian incursion into Libya would be aimed at cementing dividing lines and spurring talks towards a settlement.” She quotes a Cairo-based Western diplomat as suggesting it is “unlikely Egypt would take its forces all the way to Sirte, some 900km from its borders. He argued that a limited presence in eastern Libya was the likelier option, along with potential strikes by the Egyptian air force.”

Shoukry has been looking for support in the Levant: Palestinian sources said yesterday that Foreign Minister Sameh Shoukry’s trip to the West Bank this week was focused on securing support against Turkey. We’re assuming this featured heavily in the conversation Shoukry had with the king of Jordan too.

Ankara seems to be searching for support from the Statelet: Turkey’s defense minister met with his Qatari counterpart yesterday, according to a statement by Qatar’s Defense Ministry, which didn’t provide additional details.

The story is receiving wide coverage in the international press: Reuters | Associated Press | AFP | France 24 | Bloomberg | Financial Times | SBS | Deutsche Welle | Al Monitor | Xinhua | Arab News | The National.

LEGISLATION WATCH- House signs off on 1% “corona” salary tax, Banking Act, EGX stamp tax + more: The House of Representatives approved yesterday the “corona tax” bill that will require companies to dock 1% from all employees’ gross monthly salaries until the end of the current fiscal year, Ahram Gate reports. All employees in both the public and private sectors will be subject to the tax, which will be in place for 12 months. Pensioners will get 0.5% docked from their monthly allowance during the same period. Proceeds from the tax will be placed in a special “epidemics and natural disasters” account at the CBE to support the drive to protect the nation from the pandemic.

The House finally passed the long-awaited Banking and Central Bank Act. In the works since 2017, the law gives the CBE more oversight of the sector and allows it to introduce measures governing e-payment, fintech and cryptocurrencies. It also strengthens data protection and consumer privacy. You can find out more about the details of the legislation from our previous coverage here, here, here and here.

Traders get tax break… Amendments cutting stamp tax on EGX transactions and the withholding tax on dividends also got the nod. Foreign investors will now pay a 0.125% tax on EGX trades (down from 0.15%) and residents will be taxed 0.075% (also down from 0.15%). The tax on dividends has been cut in half to 5% for foreign and resident investors alike. Read more here and here.

…and so will state-owned companies: The House passed amendments to the Income Tax Act that hand state-owned enterprises in which the government owns a minimum 51% stake a capital gains tax break. Under the changes, companies will not be charged capital gains tax on the sale of land to banks as part of debt settlements.

Billboards and roadside ads face new regulation, and we’re not sure that’s necessarily a bad thing. A new law passed yesterday will create a National Advertising Regulatory Authority to regulate issuing licenses for new roadside billboards (good) as well as ad content (meh).

The law governing the Sovereign Fund of Egypt got the okay after earlier receiving the go-ahead from the Council of State (Maglis El Dawla), Al Mal reports. The amendments provide VAT refunds to any company that is more than 50% owned by the SFE and its sub-funds (set up to attract investment to the logistics, renewables and manufacturing sectors) and limits the scope of legal action that can be taken against the fund, shielding the SFE and its coinvestors from third-party lawsuits.

Public Enterprises Act amendments pass: Amendments to the Public Enterprises Act that streamline the public sector, promote financial stability within state-owned enterprises and make management more accountable to shareholders were finally passed by the House yesterday. Read more about the legislation here and here.

A bill waiving interest and late fees on taxes was passed by the House. The measure waives 90% of the fees if the taxes are paid within two months after it becomes law, 70% if paid within four months, and 50% within six months. Late taxpayers that were able to clear their dues before the temporary law passed received a 100% exemption.

The state of emergency has been extended for three months.

Also approved in yesterday’s plenary session:

• Military gets oversight of Sinai dev’t: A draft law bringing development projects in the Sinai peninsula under the jurisdiction of the Defense Ministry. (Passed)
• An EGP 80 bn overdraft for the FY2019-2020 state budget, to help pay off the Electricity Ministry’s debt to the Oil Ministry and installments on debt to the state pension fund. (Passed)
• Amendments to a bill raising the salaries of state-employed healthcare workers, increasing hazard pay for general practitioners, nurses and other workers. (Passed)
• A draft law governing metrology and calibration, bringing units of measurements in line with international standards to facilitate trade. (Passed)
• A draft law regulating parole, empowering the Interior Ministry to determine whether police supervision can be conducted in the private residence of former detainees. (Preliminary approval, now going to Magles El Dawla for review.)

All bills passed into law yesterday now head to President Abdel Fattah El Sisi, who needs to sign off on the legislation before they are published in the Official Gazette and become law. Most will also require ministries to write and formulate executive regulations, which are also published in the Gazette.

DEBT WATCH- EBRD to back NUCA bond issuance with EGP 1.5 bn investment: The European Bank for Reconstruction and Development (EBRD) will invest EGP 1.5 bn in the New Urban Communities Authority’s (NUCA) latest EGP 10 bn securitized bond issuance, it announced in a statement (pdf) to Enterprise yesterday. This brings the lender’s total investments in NUCA’s bond programme to EGP 3 bn, having invested EGP 1.5 bn in two offerings last year.

About the issuance: The three-tranche issuance is comprised of a EGP 2.6 bn, three-year offering; a EGP 6.2 bn, five-year offering; and a EGP 1.2 bn, seven-year offering. The bonds are backed by EGP 10 bn of receivables from private sector real estate developers. CIB, the National Bank of Egypt, AAIB and the Housing and Development Bank will manage the issuance. Dreny & Partners is providing legal counsel on the issuance.

In related news: The EBRD has agreed to finance the purchase or conversion of 200 buses to be powered by electricity or natural gas instead of diesel, Deputy Director to EBRD’s Egypt office Khaled Hamza told Masrawy, without disclosing how much the lender would provide for the project. The funds are being allocated as part of a EBRD initiative to channel money into clean energy and pollution reduction projects.

The bank may also participate in the government’s project to convert cars to run on natural gas, Hamza said. The government last week announced new incentives for people to outfit their vehicles with dual-fuel engines or trade in their old cars for new, natural gas-powered vehicles.

DEBT WATCH- Raya closes EGP 562 mn securitized bond offering: Raya Holding has closed a four-tranche, EGP 562 mn securitized bond sale with a weighted average yield of 10.78% to finance its debt, according to a disclosure to the bourse (pdf).

About the issuance: The securities are backed by 124k consumer loans and micro loans for SMEs held by three of Raya’s subsidiaries — Raya Electronics, Aman Financial Services, and Aman Microfinance — with a delinquency rate of less than 3%. The six-month tranche — accounting for more than a third of the issuance — carries a 10.53% yield; the second, nine-month tranche carries a yield of 10.68%; the yield on the third, one-year tranche is 10.73%; and the final three-year tranche has a yield of 11.73%.

Advisors: CIB was the lead underwriter and sole lead arranger for the transaction, while the National Bank of Egypt, Banque Misr, Misr Capital, Attijariwafa Bank-Egypt, and Suez Canal Bank were co-underwriters. Dreny & Partners were legal counsel, United for Auditing, Taxation, Advisory and Financial Services was auditor, while Moody’s regional affiliate MERIS rated the offering.

Correction: 21 July 2020

A previous version of this story incorrectly referred to United for Auditing, Taxation, Advisory and Financial Services as United Accounting.

M&A WATCH- Raya board gives initial nod to sale of minority stake in Aman to NBE: Raya Holding’s board of directors approved in principle an offer from state-owned National Bank of Egypt (NBE) to purchase a 20-25% of Raya subsidiary Aman Holding, Raya CEO Medhat Khalil tells the local press. The final value of the offer will be determined once NBE completes its due diligence, which is currently underway. The bank presented its offer to Raya earlier this week, after Raya had received 24 offers for a minority stake in Aman Holding from domestic and international investors in January.

M&A WATCH- BPE Partners eyes majority stake in Egyptian IVF Center: Private equity firm BPE Partners is currently in early-stage talks with the Egyptian IVF Center to acquire a stake of “around” 51% in the center, Mohamed Aboulghar, the center’s director, told the local press. The size of the share is not set in stone and could be changed if the two sides reach a final agreement, Aboulghar said. He did not disclose any further details on the talks or potential acquisition.

Egypt is among the emerging markets “most vulnerable” to debt default as covid borrowing pressures state finances, the FT suggests: Egypt, Zambia, and Ghana are the three emerging economies with the greatest risk of defaulting on sovereign external debt in the next year, Absolute Strategy Research’s Adam Wolfe says, according to the Financial Times. Wolfe also sees “elevated levels of risk” for default with South Africa, India, Nigeria, and Brazil. Out of the 20 EM economies with the largest financing requirements in 2020, Egypt leads the pack with the ratio of its maturing debt and fiscal deficit to GDP nearing 40%, according to Oxford Economics and IMF figures cited by the FT.

These countries will be forced to choose between cutting back state spending in the next few years and asking for debt restructuring, analysts say, as their budget deficits have soared on the back of massive public spending increases since the onset of the pandemic. For now, a pickup in capital inflows to EM bond markets has helped address immediate financing needs but is essentially pressing the “snooze” button on fiscal pressure, and is expected to result in “exacerbating their future budget problems by increasing debt interest costs and repayments.”

Gov’t disbursed EGP 6 bn in export subsidies last fiscal year, earmarks another EGP 7 bn for the new fiscal year: The Export Subsidy Fund doled out a total of EGP 6 bn in overdue export subsidies to 1,667 companies in FY2019-2020, according to a cabinet statement. The government has also earmarked another EGP 7 bn in its FY2020-2021 budget to pay off the arrears it has owed exporters since 2012.

Background: Payments of bns in overdue subsidies under an old framework have been moving forward since last September. Exporters are eligible for up to 40% in cash and can receive the remainder through either writing off taxes or customs or receiving industrial land at a discount. This arrangement was set in place in tandem with the launch of a new EGP 6 bn framework, which similarly promised a mixed model for payments. The government had committed to doling out at least 30% of the arrears it owes to exporters this year, with each company receiving at least EGP 5 mn.

Egypt launches new WEF program to support women’s participation in the economy: The International Cooperation Ministry, the National Council for Women, and the World Economic Forum (WEF) have launched Closing the Gender Gap Accelerator in Egypt, a WEF program designed to boost women’s role in the economy, according to a ministry statement (pdf). The program, making its MENA and Africa debut in Egypt, will run under a three-year action plan aimed at “preparing women for the post covid-19 world of work, closing gender gaps in remuneration between and within sectors, enabling women’s participation in the labour force, and advancing more women into management and leadership roles.”

MOVES- Shehab Marzban (LinkedIn) has resigned as chairman of government-owned venture capital fund Egypt Ventures and is joining Beltone Financial, where he will lead a new VC platform. Marzban had founded Egypt Ventures back in 2017.

MOVES- Major General Mohamed Ahmed Morsi was sworn in as Egypt’s new military production minister on Saturday, succeeding the late Lieutenant General Mohammed Al Assar, who passed away earlier this month, Ittihadiya said on Sunday. Morsi was previously the general director of the Arab Organization for Industrialization and the director of the Armed Forces’ armored vehicle weapon department, according to Youm7.

The House’s decision to approve military action in Libya is dominating the conversation on Egypt in the foreign press. We have the full story in this morning’s Speed Round, above. Dar Al Iftaa’s support for military intervention in Libya gets ink in Foreign Policy.

Ending the lockdown hasn’t meant everyone returning to work: Plenty of people working in the private sector have yet to go back to their jobs since the government relaxed lockdown restrictions in June, as the covid-19 epidemic continues, Reuters reports.

Human Rights Watch is calling on the government to speed up the release of detainees amid reports of virus outbreaks in Egyptian prisons. The government has released some 13k prisoners since the end of February.

The Administrative Capital for Urban Development Company has signed a EGP 140 mn agreement with the Military Production Ministry’s Benha Electronics and China’s Suntech to provide solar power to 65 ministerial buildings in the new administrative capital, Hapi Journal reports.

Egypt is planning to import between 600k and 700k tonnes of sugar this fiscal year, Reuters reports, quoting an Agriculture Ministry official. The country produced a record 2.48 mn tonnes of sugar last harvest season, but reports suggested last year that the cultivated area of sugar beet could fall between 33-50% in 2020 as a result of fuel price hikes and challenging market conditions.

Egypt’s wheat storage capacity has increased to north of 4 mn tonnes, from 3.6 mn tonnes last year, as the country builds more silos, Reuters reports, citing a Supply Ministry official. Last year, Egypt secured a USD 14 mn loan from OPEC Fund for International Development to build two silos in Port Said.

The New Administrative Capital Company for Urban Development (NACCUD) has granted a consortium of UK-based Alliance Worldwide and Sabbour Consulting a six-month grace period to make a USD 100 mn down payment for a 500-feddan plot of land it is looking to develop in the new administrative capital’s Diamond City project, Al Shorouk reports.

The Oil Ministry plans to convert some 50k cars to run on LNG during FY2020-21, a cabinet statement said. Minister Tarek El Molla made the announcement during a visit to the conversion center at Gastec, adding that plans for the year include setting up 50 new filling stations across the country.

The National Authority for Tunnels (NAT) has pushed the date to launch an international tender to supply railcars for phase 1 of Cairo Metro Line 4 to 15 September, from 16 July, reports the local press. The tender was originally planned to begin on 17 June, but was kicked to 16 July. NAT is only accepting bids with Japanese companies acting as the main contractor. The phase will be financed through a loan from the Japan International Cooperation Agency (JICA).

Cairo Festival Mall is providing its shoppers with a zero interest pament payment program with Premium Card Group, according to a statement (pdf). Premium Card will provide the cards to consumers with good credit scores and allow them to spend within an approved limit. The program will be rolled out next month.

The number of new companies that were set up in Egypt in June rose 15% y-o-y to 1,672, General Authority for Freezones and Investment (GAFI) statistics showed. According to GAFI, just less than half of the new companies operate in service industries, while 26% of the companies are manufacturers, 14% are in construction, and 6% are tech ventures.

The government has recently added 1 mn newborns on commodity ration cards, Supply Minister Ali El Moselhy said, according to Al Shorouk. There is currently a backlog of requests to add 6-7 mn other newborns, but the state budget “cannot afford” to accept all of these requests because of the economic strain of the pandemic, El Moselhy said, without explaining what the government plans to do about these requests.

Entrance fees to protected areas in South Sinai and Red Sea are being cut in half to encourage tourism, Environment Minister Yasmine Fouad announced yesterday. The 50% discount will apply to individuals and groups visiting the areas, she said.