CBE leaves interest rates on hold, extending our honeymoon with the carry trade

It’s shaping up to be a short (but busy) week as the Islamic New Year holiday looks set to fall on Thursday. Prime Minister Moustafa Madbouly confirmed the day is a paid holiday for the public sector. You can expect to hear in the next day or two that the stock exchange, banks and the private sector are also off.

That 1% “corona tax” on all salaries is now real: President Abdel Fattah El Sisi has signed into law the “corona tax” bill that requires companies to dock 1% from all employees’ net monthly salaries for 12 months. Anyone with a salary is subject to the 1% levy, whether they’re private or public sector. Pensioners will see 0.5% less in their monthly allowance during the same period, with all proceeds placed in a special “epidemics and natural disasters” account at the CBE to support the drive to protect the nation from the pandemic. Look for guidance from the taxman as early as this week on when the measure officially goes into effect.

MPs are back from a three-week recess today for another three days of plenary sessions. Tuesday will be the House of Representatives’ last session before it finally adjourns for its summer recess, Ahram Online reports, citing an unnamed source. It remains unclear whether parliament will reconvene in October ahead of elections for the House, which are expected in November, the source says.

Among the bills up for discussion this week — it’s anyone’s guess at this point how much of the list MPs will be able to get through:

• The draft Unified Tax Act, which would create a single platform for filing income tax, VAT, stamp tax, and real estate tax returns.
• Amendments to the Microfinance Act that would introduce new capital requirements on SME lenders, and bring them within the scope of the legislation.
• A six-month extension to the temporary law for settling building code violations, which is scheduled to expire on 30 September.
• A bill to simplify the commercial registry which would see new businesses registered under one roof.
• Amendments to the Intellectual Property Protection Act that would reduce patent licensing fees for applicants below the age of 21.
• Amendments to the Electricity Act that would impose harsher penalties on electricity company employees who illegally provide connections to the power grid or refuse to install connections.
• The new Customs Act that would expedite clearance through a white list of importers, broaden the powers of customs clearance agents, and include customs breaks for local manufacturers, among other things.
• Amendments to the criminal code that would protect the identities of victims of harassment.

The results of last week’s Senate elections are due this Wednesday, with any runoffs set for 8-9 September. Voters will elect 200 members of the newly reconstituted upper house of parliament, with the other 100 set to be appointed by the presidency.

EGP WATCH- EGP hits 10-week high against the greenback: The EGP gained almost three piasters against the USD on Thursday, rising to 15.88. This is the strongest the currency has been in USD terms since 1 June.

GERD talks may get back underway tomorrow: Both Sudan and Ethiopia have signaled they are willing to resume negotiations over the filling and operation of the Grand Ethiopian Renaissance Dam (GERD) tomorrow, according to Al Arabiya. Egypt, Ethiopia, and Sudan last week agreed to suspend talks for a week after Khartoum threatened to boycott the negotiations due to Ethiopia’s refusal to commit to a timetable for filling the dam’s reservoir. Meanwhile, Pope Francis called on the three countries to engage in dialogue and eschew “enmity, misunderstanding, and conflict,” according to Reuters.

Prime Minister Moustafa Madbouly is in Sudan ahead of the talks. The prime minister, along with the ministers of irrigation, health, industry and electricity, traveled to Sudan yesterday to discuss the GERD ahead of a potential resumption of talks, the cabinet said in a statement. Madbouly also discussed Egypt and Sudan’s electricity interconnection project with the deputy head of the country’s governing council, Mohamed Hamdan Dagalo.

The Health Ministry confirmed 17 new deaths from covid-19 yesterday, bringing the country’s total death toll to 5,141. Egypt has now disclosed a total of 96,336 confirmed cases of covid-19, after the ministry reported 116 new infections yesterday. We now have a total of 58,835 confirmed cases that have fully recovered.

New infections have eased in recent days after rising into the 170-range last week.

Parents are getting a partial rebate on school bus fees from the 2019-2020 school year: The Consumer Protection Authority (CPA) decided last week that school bus fees paid to cover the second term of the 2019-2020 academic year will be deducted from tuition fees charged for the 2020-2021 academic year, CPA Head Ahmed Samir said on Extra News (watch, runtime 06:29). Non-compliant schools will be fined between EGP 10k and EGP 1 mn, while repeat offenders will be slapped with a fine between EGP 20k EGP 2 mn. Parents have complained that they were made to pay bus fees despite students moving to online learning after the government closed schools due to covid-19.

Starting yesterday, foreign tourists need to show a negative PCR test for the virus that causes covid-19 taken within 72 hours of flying to Egypt. Some tourists were turned back on landing yesterday when they could not produce the certificate, Al Masry Al Youm reports. Airlines bringing in passengers who can’t produce the tests on landing could face fines, the Civil Aviation Ministry said. Passengers travelling on direct flights to Sharm El Sheikh, Taba, Hurghada, Marsa Alam, and Matrouh airports will be exempt, as are all Egyptian nationals.

Cairo coffee shop, restaurant owners are still pushing to be allowed to stay open past midnight, according to Al Mal. Coffee shops and restaurants nationwide were allowed to open for seated customers in June, but only at a 25% capacity and until 10pm. This was later relaxed to 50% and 12pm. Industry lobbyists were successful in getting authorities to extend closing time for these establishments in touristic cities to 2am.

Inspired by nature to combine utmost comfort with a world of unparalleled privacy, Mesca’s signature design-led luxury hotel is an elegant amphitheater of sea, sky and sand, redefining waterfront hospitality on the Red Sea.

Europe’s post-lockdown corona honeymoon period looks like it’s coming to an end: Infection rates in France, Spain and Germany are surging, with all three countries last week reporting daily highs not seen in months, the BBC reports. The rising numbers, which have been linked to tourists, are triggering the return of travel restrictions across the continent, with governments requiring travelers from an increasing number of countries to self-quarantine and most states advising against travel to Spain, according to the Wall Street Journal.

UAE, Israel to establish diplomatic relations in historic peace agreement: The United Arab Emirates and Israel sealed a watershed diplomatic agreement brokered by the Trump administration that saw the two agree to “full normalization of relations” in return for Israel halting plans to annex its settlements in occupied West Bank territory, the New York Times reports. In a shock announcement on Thursday, Trump hailed the pact as a “significant step towards building a more peaceful, secure and prosperous Middle East” and said it would lead to increased investment and security as the countries launch regular direct flights and open embassies. The agreement makes the UAE the first Gulf country to formally establish ties with Israel and only the third Arab country after Egypt and Jordan.

President Abdel Fattah El Sisi praised the accord on Twitter and called UAE Crown Prince Mohamed bin Zayed to congratulate him on the UAE’s “historic peace step,” Ittihadiya said in a statement.

Less than trilled: Palestine condemned the agreement as a “betrayal of Jerusalem, Al Aqsa and the Palestinian cause,” while Iran, Turkey and Hezbollah responded as you might expect.

Will the pact actually prevent an Israel land grab? Israel didn’t provide the UAE with any guarantees that it won’t move to annex parts of the West Bank down the line, according to a UAE minister, who told the Independent that the two sides reached “understandings” rather than any concrete pledges.

Elsewhere in the region: The US could trigger a “diplomatic crisis” if it unilaterally tries to extend an expiring arms embargo on Iran, Bloomberg reports. The UN Security Council declined on Friday to extend the embargo.

US President Donald Trump is giving ByteDance 90 days to divest in TikTok’s operations in the US, the Verge writes. He also ended a waiver that allowed some US companies to sell goods to Chinese telecom giant Huawei without a license, citing national security threats from the Chinese Communist Party. Microsoft is in talks to buy TikTok, but the app could see its operations in the US come to an abrupt end if no agreement is reached within the 90-day deadline.

Beloved black and white film star Shweikar passed away at age 82 on Friday after struggling with poor health, according to BBC Arabic. Shweikar began her artistic career in the early ‘60s with roles that were primarily in the drama genre, but later moved onto comedy roles, acting alongside former husband Fouad El Mohandes, among others. Her burial took place yesterday in 6 October City.

Famed singer and former intelligence asset Samir El Eskandarany died yesterday, also at age 82, Al Shorouk reports. El Eskandarany, who was known for several iconic patriotic tunes, helped Egyptian intelligence foil a plot to assassinate then-President Gamal Abdel Nasser and Gen. Abdel Hakim Amer.

Correction (16/08/2020): A previous version of this article incorrectly stated that the 1% ‘corona tax’ on salaries will be deducted from gross monthly salaries until the end of the current fiscal year.

CBE leaves rates on hold, in line with expectations: The Central Bank of Egypt (CBE) left interest rates unchanged for the fourth consecutive meeting on Thursday, citing persistent global uncertainty caused by the covid-19 pandemic, the bank said in a statement (pdf). “With the ongoing high level of uncertainty, and given the preemptive measures taken by the CBE, including the reduction of 300 bps during the unscheduled Monetary Policy Committee meeting on 16 March 2020, the MPC decided to keep key policy rates unchanged” despite inflation remaining below its target range, it said.

Where do rates stand? The CBE’s overnight deposit rate is at 9.25% and the lending rate is at 10.25%. The main operation and discount rates are both at 9.75%.

This is great news for the carry trade as it means Egypt still has the highest rates (when adjusted for inflation) of the more than 50 major economies tracked by Bloomberg.

This was in line with analysts and economists surveyed in our poll ahead of the meeting: Nine of 10 respondents forecast the central bank to leave rates on hold, citing the need to maintain portfolio flows into EGP-denominated bonds and contain inflation.

The CBE doesn’t want to put pressure on foreign inflows: Egypt saw significant capital outflows in March through May 2020 as covid-19 sparked a selloff in emerging markets, but foreign investors began returning in June in search of yield after the government secured financing from the IMF and global policy stimulus stabilized markets. Foreign holdings of local treasury bills and bonds climbed to around USD 14 bn by the end of July, from USD 10.6 bn a month earlier, Bloomberg notes. “While inflows have resumed back into the local Egyptian market in recent weeks, the international exogenous outlook remains uncertain,” said Paul Greer, a money manager in London at Fidelity International. “The central bank focus will remain on keeping the currency stable and maintaining a healthy and positive real policy rate.”

Central bank unmoved by falling inflation: The CBE left rates on hold despite annual headline inflation falling to 4.2% in July, which is below the bank’s target range of 9% (+/- 3%). Annual core inflation — which strips out volatile items such as food and fuel — fell to 0.7% last month from 1% in June.

Covid’s impact was a blow, but there have been recent signs of recovery: Preliminary figures show that the economy grew at a 3.8% clip during FY2019-2020 compared to 5.6% in the first half of the year, “reflecting the impact of the covid-19 outbreak and the accompanying containment measures,” the bank said. On the plus side, “a number of leading indicators started showing signs of recovery in June and July, in tandem with the easing of the containment measures,” it said.

INVESTMENT WATCH- Zarou plans USD 1 bn investment in energy: Blackstone Group’s energy developer, Zarou, will invest USD 1 bn in energy infrastructure this year, according to a cabinet statement. The statement doesn’t specify which projects the company is planning to invest in, but Zarou was last year reported to be the frontrunner to purchase a 70% stake in the first of the three Siemens-built combined-cycle power plants. The company announced the plans during a meeting on Thursday with Prime Minister Mousafa Madbouly, Planning Minister Hala El Said and Sovereign Fund of Egypt chief Ayman Soliman.

What’s Zarou? Owned by private equity giant Blackstone, Zarou is a MENA-focused energy development company that finances, constructs and operates renewable energy, oil and gas, and water projects in the region.

SFE + Electricity Ministry sign agreement to channel investment to state energy projects: The SFE and the Electricity Ministry signed an agreement to study placing state energy projects in the SFE’s portfolio to channel greater private sector investment to the industry, according to a cabinet statement. The move comes amid state efforts to boost investment in renewable projects and liberalize energy markets.

The SFE could work with the government on four new investments, including in the pharma, real estate development, and agriculture sectors, Public Enterprises Minister Hisham Tawfik said yesterday (watch, runtime: 53:08). These projects include developing “large swathes” of land owned by state holding companies, developing land in key rural areas, rebuilding the historic Continental Hotel at Opera Square, and promoting a slaughterhouse that has been built in Toshka, Tawfik said.

M&A WATCH- State-owned Banque Misr is now the largest shareholder in EGX-listed CI Capital after acquiring another 9% stake in the investment bank on Thursday, raising its total holdings to 24.7%, Reuters reports. This came a day after the bank purchased 14 mn shares in the financial services firm, which gave it a position of more than 15% at the time. The acquisition, which makes Banque Misr the largest stakeholder in the company, comes as part of the bank’s drive to develop its non-banking financial services business, Banque Misr Chairman Mohamed El Etreby said. El Etreby did not signal whether Banque Misr remains a buyer of CI shares or discuss its plans for seats on the board.

It’s not the first state financial institution to decide it has interest in private-sector opportunities: The move comes less than two months after EFG Hermes and the Sovereign Fund of Egypt said they were aiming to take a 76% stake in the Arab Investment Bank as EFG Hermes aims to turn itself into a universal bank. The proposed acquisition would see EFG Hermes take a controlling 51% stake in AIB.

The European Investment Bank (EIB) could provide Banque Misr with as much as EUR 750 mn for on-lending to SMEs, according to the bank’s website. The loans would be provided to SMEs impacted by the covid-19 pandemic to finance working capital. The EIB signed off in July on a combined EUR 1.9 bn in financing for Egypt, which included EUR 800 mn for “covid-19 related business investment” and another EUR 1.1 bn for public transport infrastructure development across the country. The European Bank for Reconstruction and Development extended last week a USD 100 mn facility to the state-owned bank for on-lending to SMEs.

STARTUP WATCH- Laundry and dry cleaning services startup Makwa has secured a six-figure investment from an unnamed angel investor, the company said in a statement (pdf). Makwa is a mobile app that allows customers to schedule pickup and delivery time slots for their laundry, ironing, and dry cleaning while adding instructions and paying online. The new investment will be used to expand the team, develop its technology, and expand into new areas of the market. The startup graduated from Flat6Labs and pitched their product in Rise Up’s Pitch by the Pyramids event.

Trade Ministry looks to give Federation of Industries more power: The Trade Ministry plans to expand the role of the Federation of Egyptian Industries (FEI) and will appoint one of its representatives to the Industrial Development Authority’s (IDA) board, Trade and Industry Minister Nevine Gamea said in a meeting with the heads of the authorities, according to a cabinet statement on Friday. The federation will contribute to drafting laws governing SMEs, and collaborate with the IDA to issue industrial licenses, establish industrial zones, and develop local manufacturing. Gamea added that the federation had formed a joint committee with the IDA to develop a methodology to determine the proportion of domestic components in local manufacturing to bring added value to Egyptian products.

The local components industry wants to get in on the government’s auto natgas conversion project: The Egyptian Auto Feeders Association will meet this week to discuss how local industry can participate in the government’s project to outfit all future vehicles in Egypt with dual-fuel engines, Al Mal reports.

EARNINGS WATCH- Ibnsina Pharma’s net profits dipped 36.8% y-o-y to EGP 38.7 mn in 2Q2020, from EGP 62.2 mn in 2Q2019, according to the company’s earnings release (pdf). Ibnsina reported EGP 4.4 bn in revenues during the quarter, up 16% y-o-y from EGP 3.82 bn. In the first half of the year, revenues rose 17.6% y-o-y to EGP 8.9 bn, while net profits during the first six months of the year fell 13.8% y-o-y to EGP 89 mn. Commenting on the results, CEO Omar Abdel Gawad said “the industry’s defensive nature and strong fundamental profile” meant sales were not as badly affected by the pandemic as other economic activity, and allowed Ibnsina’s performance to outpace the broader market during the first half of the year. Looking ahead, Ibnsina sees a healthy 2H2020 after the nationwide curfew was lifted and medical clinics and doctors’ offices reopen, helping to spur “a significant rebound in market activity.”

Telecom Egypt reported a 46% y-o-y rise in 2Q2020 net profits to EGP 746 mn, with net revenues growing 20% y-o-y to EGP 7.9 bn, according to the company’s earnings release (pdf).

On a six-month basis, TE’s net profit came in at EGP 2.1 bn, down 3% y-o-y, while net revenues climbed 18% y-o-y to EGP 15 bn.

Maridive Oil Services’ net loss widened to USD 28.3 mn in 1Q2020 from USD 3.77 mn in 1Q2019, according to a regulatory filing (pdf). Maridive’s revenues over the first half of the year came in at USD 65.2 mn. The company, which is looking to divest a key subsidiary to Jeddah-based Khaled Abdullah Al Subaie Holding Company, opened talks with creditors in March as it grappled with the twin threats of covid-19 and the collapse in oil prices.

Arabian Cement also reported a net loss of EGP 5.64 mn for 1H2020, after turning a net profit of EGP 25.38 mn in the same period the previous year, according to a disclosure to the EGX (pdf).

MOVES- President Abdel Fattah El Sisi renewed Yehia Zaki’s position as chairman of the Suez Canal Economic Zone for another year, according to the local press. El Sisi also renewed Osama Mounir Rabie’s term as chairman of the Suez Canal Authority and a member of the managing board for an additional year.

It’s a relatively quiet news day for Egypt in the international press. The BBC is out with a short video examining Egypt’s use of antibody tests. The annual Great Burkini Debate got underway this weekend after an altercation between a woman going for a swim in a burkini at a North Coast resort and passersby, making the Associated Press’ radar. Low-income housing gets some attention from Reuters, while Amnesty International is still talking about the prosecution of TikTok personalities.

Brinkmanship in the EastMed as Turkey refuses to back down in Greece gas standoff: Turkish President Recep Tayyip Erdogan said yesterday that Turkey “will not back down” from its gas exploration efforts in the eastern Mediterranean under threat of sanctions, Reuters reports. Turkey and Greece have been locked in a standoff after Ankara last week began a seismic survey in a disputed area that Athens claims as its own.

Risks are growing as warships mobilize: A Greek and a Turkish warship collided in the Mediterranean on Wednesday in what a Greek defense official characterised as an accident but Ankara denounced as a provocation. Ankara sent its exploratory vessel, the Oruc Reis, into the Med accompanied by warships, leading Greece to put its military on high alert and stage military exercises with France, which sent naval vessels and fighter jets to the region last week.

The EU is urgently trying to dial back tensions: EU foreign ministers held emergency talks on Friday to try and find a diplomatic solution to the dispute, the Associated Press reports.

AID TO BEIRUT: Egypt has sent three more planes to Beirut carrying 28 tonnes of food and medical aid. A total of 12 planes with supplies of 220 tonnes will be sent over the coming two weeks, with three planned every two days until the end of August, Egyptian Ambassador to Lebanon Yasser Elwi said.

Suez Canal traffic was up 4% in the state’s 2019-2020 fiscal year, according to Cabinet's media center (pdf) reports. Canal revenues inched down slightly in the year ending 30 June to USD 5.7 bn, compared to USD 5.8 bn in the previous year, as traffic slumped 18.5% thanks to corona-fuelled dip in global trade in April through June 2020..

SCZone plans industrial zone for Brazilian firms: The Suez Canal Economic Zone (SCZone) is planning on designating an industrial zone for Brazilian businesses to set up logistics and industrial hubs in the near future, SCZone head Yehia Zaki said last week, according to a statement. The zone could reduce export costs by 25-50% and halve shipping time, Zaki said.

Gulf Energy has paid off USD 1.4 mn in arrears SDX Energy owed to China’s North Petroleum for production at the North West Gemsa concession, which SDX and North Petroleum were operating together, Al Mal reports, citing an unnamed industry source. SDX sold its 50% working interest in the concession to Gulf Energy last month for USD 1.6 mn. The company’s stake was priced at USD 3 mn, but the sale was priced at USD 1.6 mn to account for the arrears Gulf Energy would have to pay down. SDX Energy now plans to use the proceeds from the sales to expand its operations at its remaining concessions in Egypt, as well as other operations in Morocco.

Egyptians for Healthcare Services Company (EHSC) signed a cooperation protocol with Huawei that will see the Chinese company design and set up the technological infrastructure for EHSC’s EGP 18 bn integrated medical park in Badr City, CapitalMed, according to Al Mal. Huawei will implement a smart system in the medical park, which will be equipped for 5G services. The company will also be responsible for supplying and installing technological devices, supervising the operation, and training local talent. CapitalMed’s first phase is scheduled to open in 2022, and is set to be the largest park of its kind in the MENA region once complete.

The Madbouly government has extended by one month a deadline to pay “seriousness” fees for applicants looking to settle building code violations, cabinet said. The deadline was originally yesterday for applicants who have already submitted settlement requests. Applicants now have until 15 September to make good on these fees.

The government will implement a new cotton trading system in four governorates — Fayoum, Beni Sueif, Beheira, and Sharqia — for the 2020-2021 season that will rely on a public auction mechanism for the sale of the crop, according to a cabinet statement. The private sector will be permitted to participate in the auctions, which will set the market price. Under the new system, the sales will be restricted to government-designated collection centers, and farmers will be required to directly submit their hauls to the nearest collection centers.

ICT infrastructure contractor Benya Capital has signed a final contract with the Arab Organization for Industrialization (AOI) to build a EGP 1 bn fiber optic cable factory in the Suez Canal Economic Zone, Al Shorouk reports. Benya and the AOI had signed a preliminary agreement for the factory back in May. The two companies also signed an MoU with the Arab Academy for Science, Technology, and Maritime Transport to work together on training in installing and operating fiber optic networks.

President Abdel Fattah El Sisi issued a presidential decree to establish four new private non-profit universities, according to a cabinet statement. The decree will see the establishment of King Salman International University, which will have three branches in South Sinai’s El Tor, Sharm El Sheikh, and Ras Sudr; Al Alamein International University, which will be set up in New Alamein; Galal University in El Galala; and New Mansoura University in New Mansoura.

Egypt has launched an EU-funded program designed to promote “slow tourism” and encourage travelers to spend longer stretches of time in “less-known areas,” according to the local press. The three-year Med Pearls program covers Egypt, Greece, Jordan, Italy, Palestine, and Spain. Egypt will focus on Alexandria’s Al Montazah and Al Alamein, where the program will invest EUR 3 mn to develop and advertise cultural, culinary, and family tourism.

The Sultan Hussein Kamel Palace — which is more popularly known as the Sultana Malak Palace — in Heliopolis will undergo restoration after the Committee of Islamic and Coptic Antiquities approved the project, according to a cabinet statement.

Egypt will receive on Thursday 30 General Electric-built locomotives that make up the penultimate batch of rail engines purchased in a 2017 agreement. Evge Egypt is currently shipping the locomotives from the US to Alexandria. The final batch of 10 locomotives is set to be delivered next February. GE was contracted to supply and finance 110 new locomotives and refurbish 81 at a cost of a little over USD 600 mn.

A Finance Ministry trial will see 3k state employees collect their wages using state-owned e-wallet Meeza’s contactless cards instead of the government cards currently in use. The trial comes ahead a national rollout of 5 mn cards by next June, a statement said on Thursday. Workers can use the Meeza cards to withdraw funds from ATMS, make online purchases, and pay state dues online.

Deputy Ikhwan leader Essam El Erian died after suffering a heart attack in Tora prison on Thursday, Youm7 reports. El Erian, 66, was serving a life term after being convicted on multiple charges related to the Ikhwan’s time in government between 2012 and 2013. A statement from the prosecutor’s office said that an investigation into the cause of death found no evidence of criminal behavior.

Egypt wins grant for cultural entrepreneurship incubator: The Culture Ministry landed the EU National Institutes of Culture’s Creative Circles project grant — a business incubator for cultural entrepreneurs, according to a cabinet statement. The incubator is designed to train entrepreneurs on how to market culture and heritage as business products.

The top three floors of a building in Downtown Cairo collapsed yesterday while its residents were in the building, the Cairo governorate said. A total of 18 people have been rescued so far and a search for more survivors is still underway.