Of inflation and interest rates + El Erian on Egypt’s post-covid path.
(Enjoy your long weekend and see you back here on Sunday)

Good morning, friends. We hope you’re looking forward to the long weekend as much as we are. We’re looking forward to a well-earned break, but will also take a moment to honor those who have served in our country’s conflicts, particularly those who made the ultimate sacrifice.

We have 4,032 candidates vying for seats in the upcoming House of Representatives elections, according to the final list the National Elections Authority released yesterday, Youm7 reports. The list was finalized after the Administrative Court issued its final rulings on appeals from candidates whose bids were not accepted. Voters will go to the polls in a multi-stage process starting 21 October (voters abroad) and 24 October (in Egypt).

Season three of Making It, our podcast on how to build a great business in Egypt, debuts tomorrow — just in time for the long weekend — with new episodes available each Thursday thereafter. Making It is brought to you in association with our friends at CIB and USAID.

Tap or click here to listen to this season’s trailer on our website | Apple Podcasts | Google Podcasts.

USAID’s acting administrator, John Barsa, is in town until tomorrow for a three-day visit focused on economic development and religious freedom, according to a US Embassy statement. Joined by Minister of International Cooperation Rania Mashat, Barsa paid a visit yesterday to Flat6Labs — which is supported by USAID and the Egyptian-American Enterprise Fund — and to Coptic Orphans, which has helped girls in Upper Egypt to develop leadership skills with the organization’s support. The embassy noted that Flat6 has helped more than 100 businesses create nearly 7.5k jobs. USAID has invested some USD 30 bn in Egypt since 1978.

Speaking of the US of A: Kamala Harris and Mike Pence are going head-to-head in the vice presidential debate tonight in Salt Lake City. The hometown angle for us (beyond enjoying the show across the pond): EM bonds are among the options on the menu now as investors look to hedge their portfolios against a potential post-election selloff, the FT reports.

We’re getting new shiny new polymer banknotes in 2021: The central bank will begin printing plastic EGP 10 and EGP 20 notes, which have at least three times the lifespan of traditional paper money, once the new administrative capital printshop becomes operational, reports Youm7.

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The last time we swatted a white spheroid with a weighted stick was as a requirement to graduate high school, but we are given to understand that many of you out there enjoy said pastime. In our dotage, we have moved on to swinging at fuzzy yellow balls, but for those of you who prefer golf:

It isn’t too late to register for a three-day golf championship this long weekend on a Gary Player-designer course. Our friends at Somabay are hosting a three-day golf tournament running 8-10 October. The tournament, which will follow the rules of golf approved by the Royal & Ancient Golf Club of St Andrews, will be held under the auspices of the Egyptian Golf Federation. Register for the event by emailing ghada@somabay.com or calling +20 12 2393 4205, and find out more about special accommodation packages here.

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The IMF and World Bank’s fall meetings are next week (16-18 October), and already we’re being warned that “the calamity is far from over.” The global economy’s path to recovery is far from certain, fund boss Kristalina Georgieva warned yesterday, urging governments to do “whatever it takes” to avoid stagnation. Speaking ahead of next week’s annual meetings, Georgieva said the global economy faces a “long ascent” to pre-covid growth levels and warned policymakers that removing the emergency measures introduced to support the economy could result in “severe economic scarring.” This comes a day after the IMF called on advanced economies to ramp up public investment in infrastructure (Financial Times | CNBC | The Guardian).

Next week will be awesome for gadget nerds:

Apple is set to unveil new iPhones next Tuesday at its virtual “Hi, Speed” event. Pundits expect to see a big reveal of new iPhones that support 5G, as well as new AirPods and possibly tags to find lost items seamlessly, Reuters and Bloomberg report.

Nikon will until its much-awaited Z6 II and Z7 II mirrorless cameras on Wednesday. Nikon Rumors has a rundown on what you can expect, including dual card slots, the promise of better AF thanks to twin processors, and a real vertical grip accessory. While you’re there, check out NR’s first rumored specs of the Z9, which looks like a beast.

Fujifilm will unveil its X-S10 midrange mirrorless camera on Thursday. FujiRumors has more.

Four Egyptian companies have made Forbes’ list of the Middle East’s 50 most-funded start-ups: Halan, Adzily, MoneyFellows, and Lucky are among the region’s best funded startups, raising a collective USD 60.7 mn since their founding. Halan, the international ride hailing app and on-demand delivery startup has so far raised USD 23.5 mn from investors. Digital advertising platform Adzily was noted to have raised USD 12.2 mn. Dsquares’ consumer discounts platform Lucky raised USD 20 mn from investors, while fintech startup MoneyFellows saw USD 5 mn invested since its 2016 launch.

PSA- Look for a warm weekend before temperatures cool next week to the low 30°c range as we slide into fall weather.

The Health Ministry reported 121 new covid-19 infections yesterday, up from 98 the day before. Egypt has now disclosed a total of 103,902 confirmed cases of covid-19. The ministry also reported 11 new deaths, bringing the country’s total death toll to 6,001. We now have a total of 97,449 confirmed cases that have fully recovered.

One in 10 of the world’s population may have already been infected by the virus, Mike Ryan, director of the WHO’s Health Emergencies Programme, said on Monday, CNN reports. More than 35.6 mn cases have so far been reported globally, according to the Johns Hopkins University’s covid tracker.

A covid-19 vaccine might be ready by the end of 2020, WHO Director-General Tedros Adhanom Ghebreyesus said, calling for equal distribution when immunization is available, according to Reuters. Currently, there are nine experimental vaccines in the pipeline of the WHO’s Covax global facility, which aims to distribute 2 bn doses by the end of 2021.

Pfizer and BioNTech’s vaccine is getting expedited clearance from the EU’s medical regulator, allowing mass production to begin immediately if it is judged to be safe following phase three trials, the Financial Times reports. Pfizer previously said that it will be able to assess whether the shot is safe and effective before the end of October.

As a first-class leading golfing destination, Somabay will be hosting a 2020 edition golf tournament on its world renowned golf courses, upgraded with new innovative tweaks, driving ranges and floodlights.

Somabay’s golf course stands out when it comes to sustainability as solar energy is used for seawater desalination, in addition to applying smart irrigation systems to ensure minimum water consumption and cost of sand.

The World Trade Organization (WTO) is a bit more optimistic than expected on global trade performance this year, saying yesterday it expects the volume of traded goods to drop by 9.2% this year — a more upbeat outlook from the 13-32% drop it had anticipated in April. The updated forecasts came after June and July’s trade volumes outperformed expectations as countries eased lockdowns, but the WTO caveats that the outlook could change again if we see a “resurgence” of covid-19 in 4Q2020.

The rebound next year isn’t going to be as sharp as previously anticipated, though: The WTO is now penciling in 7.2% growth in 2021, which is a significant downwards forecast from the 21.3% growth it had expected previously, due to the threat of a second wave of lockdowns.

Google-affiliated health insurance provider Clover Health is jumping on the SPAC bandwagon as it goes public through a USD 3.7 bn agreement with former Facebook executive Chamath Palihapitiya’s special-purpose acquisition company (SPAC) Social Capital Hedosophia III, the FT reports.

Don’t know your SPAC from your PIPE? We’ve got you covered here and here.

We’re that much closer to understanding black holes thanks to these Nobel Laureates:

Three scientists — Sir Roger Penrose, Reinhard Genzel and Andrea Ghez — have been awarded the 2020 Nobel Prize in Physics for their research into black holes. Sir Penrose’s research showed that black holes were an inevitable consequence of Einstein’s theory of relativity, while Genzel and Ghez (who is the fourth woman to ever win the physics prize) provided convincing evidence that our galaxy is centered around a supermassive black hole, known as Sagittarius A*.

The Nobel Prize in chemistry will be announced today, the literature prize tomorrow and the peace prize on Friday. The too-complicated-to-write prize in economics will be announced next Monday.

Eddie Van Halen — the lead guitarist of rock band Van Halen — has passed away at age 65 following a battle with cancer, his son said yesterday. The New York Times and Rolling Stone, among others, have obits for the Rock Hall of Famer.

*** 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: In part 3 of our series on how our ageing water infrastructure is causing us to lose water to leakage, we explore just how bad the leakage problem has hurt the most water intensive activity in Egypt — agriculture.

Celebrations of the 6 October anniversary and Egypt’s 1973 military victory dominated the airwaves last night, with most airing President Abdel Fattah El Sisi’s speech in commemoration of the day: Kelma Akhira’s Lamees El Hadidi (watch, runtime: 1:29), Al Hayah Al Youm (watch, runtime: 1:45), and Masaa DMC’s Ramy Radwan (watch: runtime: 4:29).

The highlight of the evening, however, was Lamees’ interview with Allianz Chief Economist and markets sage Mohamed El-Erian, who was also just recently elected the 42nd president of Queens’ College Cambridge. Tap / click here for the full interview (runtime: 18:46).

By and large, Egypt is doing well in its post-covid economic recovery, partially because of demographic fundamentals such as having a young population that is better able to cope with the virus and requires less hospitalization. The Central Bank of Egypt and the government also moved impressively quickly at the beginning of the pandemic to support the economy and consumers, El-Erian noted, which helped to offset the economic fallout (watch, runtime: 1:18). China is also seeing a stronger economic recovery because it has the benefit of having gone through the crisis first, he said (watch, runtime: 1:12).

The only way out of the economic slowdown for Egypt and the rest of the world is high inclusive growth to generate income and help bring down ballooning debt levels, El-Erian said. Governments can also resort to austerity measures, but austerity is not a permanent solution, he noted (watch, runtime: 1:31).

The global economy and markets look like they’re living in two different dimensions, El-Erian said. Whereas economic growth across the world is less than what is needed — and will fall short of what is possible — markets are doing relatively well by benefiting from central bank stimulus measures, meaning they aren’t reflective of the economic situation on the ground, he noted (watch, runtime: 2:36).

A delicate balancing act on interest rates: A too-sharp decline in Egypt’s September inflation figures could result in “consultations” with the IMF, which would likely recommend more interest rate cuts, Patrick Werr writes for Reuters. The consultations would be triggered under the USD 5.2 bn stand-by facility Egypt agreed with the fund earlier this year, which stipulates that the government would consult with an IMF technical team should the inflation rate fall below 6% by the end of September, and with the fund’s executive board if it dips below 4%.

Where is inflation now? Egypt’s annual headline urban inflation slowed down to 3.4% in August — the lowest since 2005 — from 4.2% in July. Economists quoted by Reuters expect the September numbers to hover in the same region. September figures are expected to be out on Saturday. Renaissance Capital had said last month it expects inflation to close out 2020 just below the Central Bank of Egypt’s (CBE) inner band target of 6-12%.

What to expect: Reuters suggests that a nudge from the IMF to cut interest rates when the CBE next meets in mid-November would pose a quandary as policymakers have shied away from being too aggressive with monetary easing since they enacted an emergency 300 basis point cut in March to stimulate a recovery from covid-19. “I don’t think they’re comfortable cutting rates when the external balances are still under pressure. High real rates also keep the carry trade going,” said EFG Hermes’ head of macroeconomic research Mohamed Abu Basha. This means monetary easing would be preferable for policymakers if they ensure other sources of FX, including tourism and expat remittances, recover from the pandemic-induced shock, the economists say.

In its most recent meeting, the MPC lowered rates by 50 basis points, against expectations, and citing favorable summer indicators. The move could also alleviate pressure for another rate cut in November, Werr suggests. The IMF’s next formal consultation with Egypt is scheduled for December.

Why is low inflation a bad thing? Falling inflation implies (but is not a cause of) muted economic activity. If inflation (in any economy) is considered lower than it “should” be, this is usually a signal that people aren’t spending enough money on consumption and investment. Policymakers have succeeded in taming inflation from a post-float peak of 33% in July 2017, but the shift in priorities now needs to be towards supporting growth in 2021 and 2022, said Charles Robertson, chief economist at Renaissance Capital. Robertson also points to manufacturing in particular as one area of the economy that is lacking in investment.

The CBE has had a very steady hand as it guided the economy through the pandemic, including its approach to interest rate cuts and stimulus. And cutting rates in the near term may do little to stimulate corporate spending, anyway: With market demand still recovering, there isn’t much in the way of an imperative for corporates to take debt on board when utilization is well below 100%, although lower rates could prompt a bit more consumer spending.

And then there’s the need to stay attractive to the carry trade, where the Financial Times suggests we may be facing competition from other EMs that are raising rates, including Turkey and Hungary.

But Enterprise, what is the carry trade? Check out our explainer here.

PRIVATE EQUITY WATCH- The International Finance Corporation (IFC) has committed USD 25 mn to Lorax Capital’s SME-focused PE fund, LCP II, it said in a statement (pdf) overnight. The fund, managed by Egyptian private equity outfit Lorax Capital Partners, has already secured commitments of c. USD 142 mn from other limited partners including the European Bank for Reconstruction and Development, the European Investment Bank, and the French Development Agency’s Proparco, we noted this week. Lorax is targeting a USD 250 mn final close for LCP II, which will primarily focus on long-term investments in Egyptian SMEs.

What IFC had to say: “We expect IFC’s participation will help bring in more private capital into the Egyptian private equity market, increasing its competitiveness, diversifying the investor base, and ultimately improving access to capital for mid-cap Egyptian companies,” said Walid Labadi, the IFC’s Egypt country manager.

We recently had a sit-down with Labadi for our Spotlight section, who told us that inclusion — which involves investing in education, promoting financial inclusion, and facilitating access to finance for small businesses — is a key pillar of the IFC’s strategy in Egypt.

Premium Card and Sarwa Capital are launching a consumer finance joint venture this month, once Premium Card gets the greenlight for its consumer finance license application from the Financial Regulatory Authority (FRA), CEO Paul Antaki tells Al Mal. Premium and Sarwa will each hold 50% of the JV. The JV, which is yet to be named, is looking to secure a 40% share of the consumer finance market in the next three years, which has significant growth potential as more people turn to short-term borrowing. FRA officials said in July that there could be as many as 30 licensed consumer finance players in Egypt by the end of the year. In the past two weeks alone, the regulator approved licenses to CI Capital’s Souhoola and GB Auto’s Drive.

On Premium Card’s securitization program: Antaki said the company plans to issue its fourth round of securitized bonds — part of its EGP 2 bn securitization program launched last year — in January and finish the program by the end of 2021. Premium Card issued an initial offering of EGP 169 mn in bonds in October 2019, followed by a EGP 172 mn issuance in April and a further EGP 182 mn in September.

M&A WATCH- Makkasa Sport chairman Amr Mostafa Kamel has reportedly made an offer to purchase 100% of Misr Lel Makkasa Sporting Club after resigning from his post, the local press reports, citing sources with knowledge of the matter. Kamel is reportedly looking to buy the club through his company I Friends Sport, the sources said, without disclosing the value of the offer. Saudi investor Turki Al Shikh and state0owned Estadat are reportedly also in the running to acquire part or all of Misr for Central Clearing, Depository and Registry’s (MCDR) 71% stake in Makkasa Sport. Sources close to MCDR said it had received three offers for its stake and will make a decision on the sale in the next month.

Benban solar developers get EGP 300 mn reduction in cost-sharing bill: Solar power developers operating at the Benban solar power park have reached an agreement with the Egyptian Electricity Transmission Company (EETC) to lower the cost-sharing bill to EGP 1.6 bn from EGP 1.9 bn, the local press reports, citing unnamed sources at the EETC. Companies had previously agreed to pay the EGP 1.9 bn towards the costs of developing key infrastructure and utilities at the site, but appear to have lobbied the state-owned electricity company to lower the bill a second time. The EETC had last lowered the bill, which was originally priced at EGP 2.4 bn, in May 2019. The 32 energy developers at the park will pay the sum across six installments over a five-year period, a portion of which will not be charged interest.

The settlement should mark an end to the dispute dating back to last year when the EETC raised the cost-sharing bill by 25% due to higher-than-expected building costs, allegedly without notifying the developers. Companies refused to pay the increase on the grounds that they were not previously made aware of the scale of the financial obligations.

Advisors: Mazghouny & Co (LinkedIn) acted as legal counsel to the solar power developers.

Siemens, Hassan Allam beat State Grid, Huawei in new capital control center tender: A Siemens-Hassan Allam consortium has been awarded the tender to construct an electricity control center in the new administrative capital, beating out Chinese state-owned utility company State Grid, tech giant Huawei, and Orascom Construction, Al Mal reports. The tender will see the group build the control center, develop communication networks, and improve electrical transmission over a two-year period. They reportedly submitted a EGP 880 mn bid for the contract, undercutting State Grid’s EGP 1.1 bn offer by 20%. A third consortium led by General Electric was disqualified from the tender, the Electricity Ministry announced last year.

City Edge to launch specialized arms for development projects: City Edge is looking to set up several subsidiaries focused on the group’s separate development activities like hotel construction and management within the coming three years, City Edge chairman Ashraf Salman said during a conference, according to Hapi Journal. The New Urban Communities Authority (NUCA) and Housing and Development Bank-owned real estate developer will invest additional EGP 400 mn in 4Q2020 to reach the company’s EGP 850 mn target by the end of the year — a figure that the company is planning to at least triple next year with EGP 3 bn earmarked for 2021.

Shell and Total will export 30 shipments of natural gas from the Idku liquefaction plant in 2021, Youm7 reports, citing Oil Ministry sources. Each shipment will average 150k cbm, potentially bringing the total exported by the two companies to 4.5 mn cbm. Egypt’s natural gas exports more than doubled to 4.5 bn cbm in 2019 — its highest level in more than a decade. Sources also said the ministry is preparing an updated investment map and data on potential natural gas concessions to be offered to investors.

REGULATION WATCH- Nilex-listed SMEs are now allowed to terminate contracts with their sponsors after one year, provided they achieve the goals of sponsorship, according to new tweaks by the EGX (pdf) to the recently introduced program. Small-cap firms were recently required by the Financial Regulatory Authority (FRA) to contract with sponsors when they list their shares on the Nilex. The move aims to provide expertise and support to small firms to allow them to eventually upgrade to the main market.

What are sponsors? They are financial advisors that assess the suitability of SMEs for listing on the exchange and assist qualifying firms in both going public and meeting their responsibilities after listing. They’re the equivalent of nominated advisers (‘Nomad’) used in the UK’s small-cap market. The list of certified sponsors has also been amended, with the EGX removing 10 financial advisors who have not met its requirements, and adding two others (details in the pdf linked above).

Gourmet is streamlining its delivery services and restocking logistics with Norma, an AI solution by Softec Technologies, the upmarket grocery store said in a press release (pdf). Norma will allow Gourmet to “automate, optimize and control home delivery and branch replenishment routes” using AI-enabled planning and visibility software, according to the release. The new software is expected to help Gourmet improve the punctuality of its home deliveries and boost the business’ operational efficiency overall, says Gourmet CEO and founder Jalal Abu Gazaleh.

Want to hear more about Gourmet? Listen to Abu Ghazaleh tell us about how he built the retail powerhouse and his plans for future growth on our podcast, Making It.

STARTUP WATCH- Digital services provider Milango has raised an undisclosed six-figure USD seed investment in a round led by VC tech fund A15, Menabytes reports. Milango provides online services via branded mobile apps to offline communities such as residential compounds and sporting clubs, and is currently used by Orascom Development’s El Gouna, Travco Properties’ Almaza Bay as well as Sodic, Emaar, and Smash Sporting Club. The company plans to use the funds to expand their team and improve their digital products.

Egyptian industries’ overall performance dropped 25.4% since the onset of the pandemic, with the drop driven primarily by weak domestic consumption and export activity, according to a report (pdf) from the Industrial Modernization Center (IMC) and the United Nations Industrial Development Organization (UNIDO). The index measures overall performance by looking at labor force, production lines, financing and liquidity, companies’ ability to make good on debt and tax payments, domestic sales and exports, companies’ reliance on digital technology, and their crisis management capacity.

Slower domestic sales and exports led to a liquidity crunch among manufacturers, which in turn forced layoffs and downsizing production activity, the report says. The ability to keep up with tax payments has also been negatively impacted by the pandemic, but a smaller segment of the country’s manufacturers reported difficulties with this indicator than with liquidity, labor force, and the production process, including shortages in raw materials.

On the flipside, industry reported a significant improvement in their uptake of technology and digital solutions for business continuity throughout the pandemic. The report does not specify the type of technology that companies relied on, or how this was integrated into their business operations. Companies also reported stronger crisis management policies since the pandemic broke out.

How stimulus measures helped industry: Nearly half of the companies surveyed said the Central Bank of Egypt’s (CBE) six-month debt repayment holiday helped them weather the covid storm, with 74% saying they would like the holiday to be extended. CBE Governor Tarek Amer had said last month that the freeze would not be extended. Companies cited cuts to electricity prices for industry as the second-most helpful stimulus measure, but only 19% of respondents felt that lower natgas prices were helpful. 20% of companies surveyed said the CBE’s emergency 300 bps rate cut in March was positive for performance. The measures were disproportionately helpful for large and medium companies, however, with some small and micro companies saying they did not benefit at all from any of the measures.

Topping coverage in the foreign press: The Guardian reports on rare anti-government protests by citizens who are unable to afford the fines to settle building code violations and face having their homes demolished. Reuters interviewed people in several provinces whose salaries are nowhere near enough to pay the required fees.

Elsewhere: Egypt gets mentioned in a Financial Times story on how some Arab youth are looking to emigrate from the region due to economic hardships, while Stephen Paduano writes for the Washington Post that the Trump administration’s decision to slash aid to Ethiopia over the Grand Ethiopian Renaissance Dam has escalated Addis Ababa’s tensions with Egypt.

The North Africa Journal also notes that Al Manassa reporter Basma Mostafa has been released after being detained while reporting on the alleged killing of a man by police in Luxor.

Topping diplomatic coverage this morning: We now know how the EUR 1 bn loan agreement signed with the French Development Agency (AFD) last year will be spent, following a meeting between International Cooperation Minister Rania Al Mashat and French Ambassador to Cairo Stéphane Romatet yesterday. The four-year agreement is set to last through 2023 and will channel funding to various infrastructure development, health, education, energy and water management projects. Some of the most notable allotments include:

• EUR 250 mn for the Abu Qir electric railway conversion project
• EUR 155 mn for water management and sanitation projects in Helwan
• EUR 150 to finance unspecified energy development projects
• EUR 150 mn to support the government’s universal health insurance scheme.