Global tourism and remittance slumps will bite

The story of the morning isn’t here in Egypt, but next door in Lebanon, where Beirut is reeling from a massive explosion in the city’s port yesterday that left at least 78 people dead and some 4,000 others injured. The blast (watch, runtime: 0:55) was apparently caused by nearly 3k tonnes of ammonium nitrate, which Lebanese President Michel Aoun said were stored for six years at the port without proper safety measures.

Authorities have yet to confirm whether the explosion was an attack or an accident. There were also initial rumors that a separate explosion had targeted former Lebanese Prime Minister Saad Al Hariri. President Abdel Fattah El Sisi extended his condolences yesterday to Lebanon and the victims of the explosion.

The story is front-page news around the world this morning: Reuters | Bloomberg | Financial Times | NYT | Washington Post | CNN | the Guardian.

The news couldn’t have come at a worse time: Lebanon was already buckling under the weight of political and economic turmoil, and is continuing to grapple with its covid-19 outbreak. The IMF looks likely to agree to a bailout that would give Lebanon only half of what the country needs amid an “accelerating economic collapse” and the country’s foreign minister resigned on Monday, saying he “could not continue given the poor performance of the government.”

PMI data for Egypt, Saudi Arabia and the UAE is due this morning at around 6:15am CLT. The gauge is a proxy for how the economy is holding up amid strains caused by covid-19, including the pandemic-induced hit to tourism. Non-oil private sector business activity in Egypt started to stabilize in June after a nasty plunge in May on the back of lockdown measures imposed by the Madbouly government to stem the spread of covid.

Key news triggers coming up in the week ahead:

• Foreign reserves figures for July should be out early next week.
• Inflation data for July will land on or about, Monday, 10 August.
• Senate elections will take place in Egypt on 11-12 August, while expats will vote on 9-10 August.
• The Central Bank of Egypt will meet to review interest rates on Thursday, 13 August.

Gov’t to hold talks on opening domestic natgas market to private sector: The Gas Market Regulatory Authority will soon begin discussing rules that will allow private sector companies to trade and transport natural gas in the domestic market, Al Mal reports, citing a senior government official.

Two things you may want to know about this morning:

1- The wonderful Dame Minouche Shafik has been named a member of the House of Lords as a “crossbench peer” who sits without a declared political affiliation. Born in Egypt, Shafik leads the London School of Economics, was the youngest-ever vice president of the World Bank, and was a top candidate to head the Bank of England, where she was previously deputy governor. You can learn a bit more about Minouche in our quick sit-down with her in March of last year.

2- Listed companies, brace yourselves for even more pointed questions from fund managers after a scandal at a UK retailer brought home the point that “pseudo-scientific scoring systems are no substitute for thorough, time-consuming research” on ESG, Sarah O’Connor writes in the Financial Times. Legwork and a deep reading of the local press are among the tools she recommends.

COVID-19 IN EGYPT-

The Health Ministry confirmed 24 new deaths from covid-19 yesterday, bringing the country’s total death toll to 4,912. Egypt has now disclosed a total of 94,752 confirmed cases of covid-19, after the ministry reported just 112 new infections yesterday — the lowest number since 19 April. We now have a total of 94,752 confirmed cases that have since tested negative for the virus after being hospitalized or isolated, of whom 45,569 have fully recovered.

MAF sees 747% surge in online demand for groceries in Egypt since January: Carrefour’s online demand for groceries from has been “soaring” in the Middle East since covid-19 hit, Majid Al Futtaim CEO Alain Bejjani told CNBC, adding that he expects the trend to continue post-pandemic (watch, runtime: 03:03). Saudi Arabia saw the biggest demand increase, surging 917% in the first six months of the year, while Egypt saw a 747% surge and UAE was up 257%. Average demand increase in the region was between 200% to 220%, he said.

ON THE GLOBAL FRONT-

We better hope that people start taking to the skies for their vacations soon, because — if FT columnist Rana Faroohar is correct — the longer global tourism is in the crater the more likely it will cascade through the global economy, impacting everything from restaurants and real estate to manufacturing and finance.

The pandemic has led to the largest disruption of education in history, with over 1 bn students affected across more than 160 countries and at least 40 mn children having missed out on their pre-school year, UN Secretary-General Antonio Guterres said yesterday, according to the Associated Press. He warned that we now face “a generational catastrophe that could waste untold human potential, undermine decades of progress, and exacerbate entrenched inequalities.”

GLOBAL MACRO-

Global remittances could fall by more than USD 100 bn this year under a worst-case scenario outlined by economists at the Asian Development Bank. Writing in a blog post on Monday, James Villafuerte and Aiko Kikkawa Takenaka forecast a USD 108.6 bn drop in remittance flows in 2020 if the pandemic rumbles on throughout the year — an 18.3% drop from pre-covid expectations. Egypt got a boost from rising remittances in the third quarter of the state’s last fiscal year, but analysts expect figures will show Egyptians working abroad will have collectively sent back less money from March 2020 onward as economies the world over slowed down. Job losses in the GCC will present particular challenges to our economy, where remittances are one of the top sources of foreign exchange.

Gold prices broke the USD 2k / oz threshold on Tuesday after US lawmakers seemed closer to agreeing on a new covid-19 stimulus package, Reuters reports. “The rally is understandable given that investors are looking for a broader range of risk-mitigating assets now that yields on government bonds are so low,” markets sage Mohamed El-Erian said.

Allow yourself the chance to recharge your inner batteries. Change your focus, energy, and take control. Reconnect with your inner self and let the renovation begin.

AND THE REST OF THE WORLD-

The FT thinks that Egypt’s candidate to lead the World Trade Organization lacks “heft.” The salmon-coloured paper zeroed in on candidates put forward by Nigeria and Kenya as the global trade body ambles toward the appointment of a new chief. The story names Nigeria’s Ngozi Okonjo-Iweala and Kenya’s Amina Mohamed as the “favourites” for the job of secretary-general as the current boss steps down next month. Among the six candidates, “Egypt’s Hamid Mamdouh is regarded by most observers as having insufficient political heft,” writes the FT, which previously dismissed Mamdouh as too much of a “technocrat.”

Chinese state media aren’t mincing words over Trump’s TikTok “smash and grab”: Chinese state media have called out a potential TikTok sale to Microsoft as “open robbery,” hinting that Beijing could seek retaliatory action against the US if an agreement is signed, CNBC reports. “China will by no means accept the ‘theft’ of a Chinese technology company, and it has plenty of ways to respond if the administration carries out its planned smash and grab,” read an op-ed in state-backed newspaper China Daily, which stopped short of suggesting how Beijing might hit back.

*** 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 as well as social infrastructure such as health and education.

In today’s issue: Our dive into the El Sisi administration’s plan to fast-track the replacement of traditional gasoline-fired car engines with dual-fuel engines that primarily use natural gas continues this week with a look at the final node of the plan: the supply of dual-engine vehicles. For that, we turn our attention to the automotive industry, which has to supply them. We also explore alternatives to natgas, such EVs, and give our final verdict on the plan’s feasibility.

Egypt could lose out on tourism revenues worth more than 2% of its GDP this year due to global travel restrictions, the International Monetary Fund (IMF) said in its 2020 External Sector Report. The forecast is based on a scenario laid out in a UN World Tourism Organization (UNWTO) study in which all travel restrictions are gradually lifted as of September, which would still see 2020 tourism receipts fall 73% y-o-y. The IMF says pandemic-induced tourism losses will likely be incurred mostly by “large net tourism exporters,” including Egypt, Costa Rica, Greece, Morocco, New Zealand, Portugal, Spain, Sri Lanka, Thailand, and Turkey. Tourism revenues, meanwhile, fell 11.2% y-o-y during the quarter to its lowest level in any three-month period over the past two years, Central Bank of Egypt data released last month showed.

What’s the “external sector”? In basic terms, the parts of a nation’s economy that interact with the economies of other countries. Think tourism and remittances, for example.

Don’t expect next year to be brilliant: “Although uncertainty is high, the effects on tourism may persist to some extent in 2021 and beyond,” says the IMF, citing a UNWTO survey expecting tourism demand to start recovering only in 2021.

Remittances will also take a beating in 2020: Quoting forecasts of an average 20% drop in the global flows of worker remittances in 2020, the IMF warns of “significant hardship” for remittance-reliant households and small businesses. This will be particularly pronounced for Egypt and other countries in which remittances are a large part of the economy. Remittance flows into Egypt — and other economies including Pakistan, Guatemala, the Philippines, and Sri Lanka — account for more than 5% of GDP. Remittances are vulnerable to the covid-19 crisis as migrant workers are both more exposed to the unemployment and wage loss risk and work excessively in hard-hit sectors such as food and hospitality, retail, and tourism, the fund said.

Remittances are forecast to “only partially” rebound by 5% in 2021, the fund added. Tourism receipts and remittances, two key sources of foreign currency for Egypt, came under increased pressure earlier during the pandemic — dragging down the central bank’s foreign currency reserves for three months straight.

Other key takeaways from the report:

• Egypt and Turkey are among the countries witnessing a “significant decline” in FX reserves due, in some cases, to currency “depreciation pressures”;
• Global trade is forecast to shrink by 12% in 2020 in a scenario that can be likened to what was witnessed during the global financial crisis;
• Global current account deficits and surpluses are forecast to narrow by 0.3% or of global GDP in 2020. Deficits and surpluses stood at just below 3% of GDP in 2019;
• 2021 may not see a recovery across the board in the external sector;
• Policymakers should engage in collective reform action to reduce global external imbalances once the pandemic abates, while continuing to focus on short-term economic “lifelines” to promote recovery.

M&A WATCH- The value of M&A activity in the Middle East fell 58% y-o-y in 1H2020, outpacing the global average decline of 41%, according to a report from Baker Mckenzie. M&A volume, meanwhile, dropped 26% in the region during the same period. M&A activity started slow in January, but picked up in February before a steep decline in March at the outset of the covid-19 pandemic. Globally, the downturn peaked in April with transaction volumes falling 34% and value falling 69%. The trend was slightly reversed in May and June for the Middle East. We noted this in our coverage of 1Q2020 figures earlier this year.

Cross-border M&A fell by both value and volume compared to a year earlier. Value dropped by USD 5 bn y-o-y and volumes to 132 from 163. Cross-regional volumes were also down from the first quarter of 2019, but values increased by nearly one quarter to reach USD 23.17 bn from USD 19.26 bn.

Egypt was the #2 target country for outbound cross-regional M&A, with a total of 10 agreements valued at USD 2.6 bn, the law firm said. The US ranked first in this category, while the UK came in third. The figure for Egypt is largely owed to a single transaction: The still-in-the-works acquisition by STC of Vodafone Group’s shareholding in Vodafone Egypt.

The future looks brighter: While covid-19 has had a negative impact on M&A activity in the region, “the dramatic increase in the value … during the final two months of H1 2020 showcases a positive outlook and an early recovery sign,” said Omar Momany, who runs M&A at Baker McKenzie Habib Al Mulla in the UAE. The outlook was much less rosy when the law firm released its 1Q2020 report, which showed Middle East M&A falling 90% y-o-y in value terms.

M&A WATCH- B Investments to offload a fifth of its holdings in Total Egypt: B Investments has entered talks with Total Egypt to sell 20% of its holdings in the company, it announced in a statement (pdf) to the EGX. The private equity outfit currently holds a 7.97% stake in the energy giant’s Egypt downstream arm, which operates more than 230 service stations, is a player in the aviation fuels market, and which owns tank farms and blending facilities. The company also operates Bonjour-branded convenience stores in Egypt.

M&A WATCH- MNHD gives Odin Investments green light to start due diligence on El Nasr Civil Works: Madinet Nasr Housing & Development’s (MNHD) board of directors has given Odin Investments approval to begin due diligence on El Nasr Civil Works, MNHD said in a regulatory filing (pdf). Odin, along with other unidentified inventors, is looking to acquire a 90% stake in the company, first expressing interest last week. MNHD owns a 52.5% stake in El Nasr, while the Holding Company for Construction & Development (HCCD) holds a 19.3% stake, El Nasr worker’s union holds 5% and the remaining shares are listed on the EGX.

INVESTMENT WATCH- Sanad, Green for Growth have earmarked USD 250 mn to invest in Egypt in 2021: The Sanad Fund and the Green for Growth Fund (GGF) have USD 250 mn to commit to Egyptian SMEs and renewable energy projects in 2021, said Mohamed Morsy, Egypt manager of impact investor Finance in Motion — a consultant to both funds in Egypt — according to Masrawy. The funds have so far made combined commitments of USD 180 mn this year, which Morsy expects to come in just over USD 200 mn by the end of the year, in cooperation with local financing institutions and development agencies to support the Egyptian economy as it grapples with covid-19.

Your company looks likely to begin filing taxes electronically through the Tax Authority’s new online system as of November, according to a Finance Ministry statement. Companies will submit tax returns and sales receipts electronically on the system, which will also give businesses the ability to complete audit requests online, eliminating the requirement to maintain physical receipts of sales invoices. The platform will also facilitate tax refund procedures, the statement says. The ministry began beta testing on the system in June with more than 130 companies (pdf), which have been filing their taxes through the new platform.

About the platform: The new system is designed to streamline tax filing procedures, grant the taxman better oversight on commercial transactions, and bring informal businesses into the formal economy. This is part of the government’s planned unified digital tax payment system, which will enable businesses to file and pay income tax, stamp tax, VAT and real estate tax through a single online platform.

The Customs Authority is also getting an e-makeover under the new system, which will see 90% of exports and imports processed electronically by the end of December. Wait times for customs clearance are expected to be truncated to five days and precise parcel tracking will become possible as the system moves to a unified online platform. Estimated fees on incoming goods will also be disclosed ahead of time.

Egypt to spend EGP 30 bn on new non-profit universities: President Abdel Fattah El Sisi has directed his government to earmark EGP 30 bn for a government program to set up state-run non-profit universities and colleges, Ittihadiya said in a statement. Those universities will be built on land owned by the New Urban Communities Authority. The aim of setting up this new type of institution is to improve Egypt’s capacity to produce advanced degree holders, especially in the technology sector, according to El Sisi’s orders.

Background: The government has recently introduced amendments (pdf) to the Private and Nonprofit Universities Act (pdf) to allow state universities to set up non-profit arms. Those arms will be positioned to compete with private universities and other non-profit institutions, Sedik Abdel Salam, who heads the ministry’s council for private universities, told Enterprise earlier this year. Each of Cairo, Alexandria, Zagazig, Assiut, Suez Canal, and Minya universities are expected to inaugurate new non-profit affiliates within the next two academic years, Abdel Salam said then. According to yesterday’s statement, other universities will also be set up in east Ismailia and Port Said’s Salam City.

LEGISLATION WATCH- Amendments to protect assault victims’ identity gets committee-level nod in parliament: The House Legislative Committee greenlit yesterday amendments to the criminal code that would keep the personal data of victims of [redacted] harassment and assault anonymous. If they become law, the changes — which are meant to encourage more victims to come forward and report crimes — would mean that anyone who identifies victims could be jailed for up to six months, attorney Reda Eldanoubki was quoted by Reuters as saying. Cabinet drafted the changes in July following the arrest of [redacted] offender Ahmed Bassam Zaki, who confessed to serial abuse and blackmail charges.

The bill is due to be discussed by the House general assembly later in the month for a final approval and a subsequent signoff by President Abdel Fattah El Sisi, Rep. Magda Nasr said. If passed, it would help many victims that have previously been pressured to withdraw their complaints if their names were public in fear of blackmail from assailants, says the newswire. The National Council for Women also urged last week victims who are being pressured into silence to speak to authorities after the administrators of an Instagram page set up for women to report [redacted] assault received death threats.

STARTUP WATCH- Egyptian e-commerce startup Dresscode has secured an undisclosed six-figure USD seed funding round from Egypt Ventures, according to an emailed statement (pdf). The funding will be directed towards sustaining the business’ growth by expanding its team and product offerings. Dresscode will also use the proceeds from the investment to build up its infrastructure and begin offering faster delivery options. According to the statement, the pandemic has been a boon for the company, with its business seeing “huge growth” over the past four months.

MOVES- Careem has tapped Haitham Essam (LinkedIn) as the general manager of its Egypt business, the MENA-focused ride-hailing company said in a statement carried by the press. Essam had stints at high-profile corporates including Etisalat, online travel agency Agoda, and management consultant Peppers & Rogers Group.

MOVES- Naeema Al Gasseer (LinkedIn) is taking over as the World Health Organization’s Egypt representative, Mubasher reports, citing MENA. Al Gasseer succeeds John Jabour, who is moving to the same position in Oman.

EARNINGS WATCH- Centamin Mining pre-tax profits surge on rising gold prices, higher production: Centamin Mining’s pre-tax profits soared by 221% during the first half of the year as the company ramped up production from its Sukari mine and gold prices rose. Pre-tax profits rose to USD 191 mn during the period, up from USD 60 mn last year, according to the company’s earnings release (pdf). Gold prices rose 17% during the first six months of the year as investors piled into the safe haven asset in response to the covid-19 pandemic, helping the company sell at an average price of USD 1,657/ounce, up from USD 1,305 last year. Production at its Sukari mine in the Eastern Desert rose 9% to 256,084 ounces during the period.

Madinet Nasr Housing & Development’s (MNHD) consolidated net profit fell 6% in 1H2020 to reach EGP 484.6 mn, down from EGP 515.6 mn in the same period last year, according to an EGX disclosure (pdf). Revenues climbed 21% on an annual basis, reaching EGP 1.31 bn during the first six months of the year from EGP 1.1 bn last year.

Juhayna net profits rose 9.4% to EGP 118 mn in 2Q2020, up from EGP 108 mn in the same period last year, according to the company’s quarterly earnings release (pdf). This came despite a 6% drop in revenues, which fell to EGP 1.9 bn from EGP 2 bn in 1Q2019.

Amer Group net profits increased 8.6% to EGP 27.6 mn in 1H2020, up from EGP 254 mn last year, according to the company’s earnings release (pdf). Revenues over the six-month period fell by EGP 1 mn to EGP 690 mn from the previous year.

Ezz Steel fell deeper into the red in 1Q2020, with the company reporting yesterday losses of EGP 1.1 bn, down from EGP 611 mn in 1Q2019.

Egyptian Resorts Company (ERC) posted a net profit of EGP 25.1 mn in the first quarter of 2020, up from a loss of EGP 8.7 mn in 1Q2019, according to its earnings statement (pdf). Revenues surged 307% y-o-y to EGP 89.5 mn from EGP 29 mn in the first quarter last year.

As the pandemic continues to bite, consumer sentiment and the stock market are moving in opposite directions as the S&P 500 continues its stimulus-fuelled surge while the real economy craters. Visual Capitalist associates this disjoint with S&P 500 tech giants that have rocketed during corona in contrast to the majority of other sectors that have been rocked by lockdown restrictions. The Federal Reserve has also injected the equity markets with rocket fuel by becoming the buyer-of-last-resort of corporate debt. The central bank has bought bns of USD in corporate bonds and ETFs in an effort to supply liquidity to the private sector and support balance sheets. This has helped to rescue investor confidence in the stock market, encouraging risk on sentiment regardless of underlying fundamentals.

The only thing going on in the foreign press this morning: Human rights in Egypt and the Middle East have earned some column inches in Foreign Policy.

Egypt and Sudan have walked away from the latest round of talks on GERD after Ethiopia’s latest proposal dodged mention of a binding dispute resolution mechanism and left out key operating guidelines for the dam. Ethiopia’s proposal came despite the three countries’ representatives agreeing at a meeting earlier this week to focus on the dam’s long-term operation, alongside a timeline to fill GERD’s reservoir.

Meanwhile: Egypt’s food exports increased 2.2% y-o-y in 1H2020 to reach USD 1.8 bn, said Export Council for Food Industries Head Hani Berzi, according to the local press. June saw the best growth rate of the period at 39% y-o-y, with exports reaching USD 337 mn. Food exports represented 14% of Egypt’s total non-oil exports during 1H2020, he said.