Monday, 14 December 2020

The debt market is looking really good heading into 2021

TL;DR

WHAT WE’RE TRACKING TODAY

Good morning, friends, and welcome to an unusually busy Monday in which we have plenty of corporate news to keep you entertained on your morning commute, whether that’s across the hall or across the city.

WHAT’S HAPPENING TODAY- The final results for parliamentary elections held in Cairo and 12 other governorates will be announced today.

(We said 11 other governorates yesterday, but that was apparently because we decided Dakahlia should go missing. Our apologies for accidentally disenfranchising all Dakahlians.)

The US electoral college votes today and looks set to deliver Agent Orange “a withering blow to his increasingly hopeless effort to overturn the results of the US presidential election when 538 members of the electoral college cast their ballots and formally send Joe Biden to the White House,” the Guardian reports.

It’s vaccine day in the US of A as wide distribution of the Pfizer / BioNTech vaccine begins nationwide following the FDA’s emergency approval. The Associated Press has the story.

That has the tinfoil hat brigade muttering about fundamental changes to human DNA and “toxic metals in vaccines that literally make our bodies into an antenna for 5G” wireless signals that will somehow benefit Bill Gates and allow him to biometrically monitor us all, among other things. We’re not joking — a viral video on the subject (to which we won’t be linking) has gotten a second lease on life in the past couple of days. Don’t bother trying to set recipients straight — just send them this video to watch.

NOT HAPPENING TODAY- A post-Brexit trade pact. But neither have talks melted down: The UK and the EU have pushed the deadline to strike a post-Brexit trade agreement, asking their negotiators to “go the extra mile,” European Commission President Ursula Von der Leyen and UK Prime Minister Boris Johnson said in a joint statement (BBC | Sky News). The issue now boils down to creating a “level playing field” on regulation, the Financial Times reports. The new deadline for an agreement is 31 December in this chapter of The NeverEnding Story Part XXCVII.

In the meantime, investors have pulled some USD 42 bn from UK-exposed funds since the Brexit referendum.

Egypt will co-chair a UN Support Mission in Libya (UNSMIL) technical meeting today and tomorrow alongside the US and the EU. On the agenda: Discussing possible economic policy reforms with Libya's main financial institutions, according to a UNSMIL statement. The meeting will convene in the UN Office in Geneva.

Expect to see a flurry of energy news tomorrow as Al Ahram’s annual energy conference gets underway today.

CIRCLE YOUR CALENDAR-

The House of Representatives will reconvene from its fall recess tomorrow. Look for MPs to have their noses to the grindstone until our next class of elected representatives is seated in the new year.

The US Federal Open Market Committee kicks off its two-day policy meeting tomorrow to review interest rates. US policymakers are expected to expand a USD 120 bn per month bond-buying program launched at the onset of the pandemic to maintain recovery momentum, senior economists and policy watchers said, according to the Financial Times. An extension would make it harder to walk back and would mean easy monetary policy for years ahead, complementing a promise to keep interest rates at close to zero until inflation exceeds 2% and the economy achieves full employment.

Germany is set to enter a nearly month-long hard lockdown on Wednesday, the Financial Times reports. All schools and shops will be closed and private gatherings of more than five people banned until at least 10 January, with a slight relaxing of restrictions between 24 and 26 December to allow for Christmas gatherings.

The Central Bank of Egypt’s Monetary Policy Committee meets a week from Thursday for the final time in 2020 to review interest rates.

Indonesia, Russia, the Philippines and Mexico all look set to leave rates on hold as at least 10 EM central banks are set to make decisions in the coming weeks. Bloomberg has a solid rundown.

Ethiopia and Sudan are talking GERD next week, but it’s not clear whether Egypt is invited to the sit-down. Sudan has opted out of talks for now.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

START THIS BUSINESS- An old folks’ home. Yes, our population is ridiculously young. It’s also ridiculously large, which makes the absolute number of folks over the age of 65 equivalent to the population of a small European nation. And there are just about zero services catering to the needs of seniors. From retirement communities to homecare and long-term care facilities, both the olds among us and their Gen X and Millennial children / grandchildren are going to need help, sooner or later. Even KSA is ahead of us in this, as a piece by Colliers on the market there (pdf) reminded us yesterday.

SIGN OF THE TIMES- Inexpensive tracker funds are outperforming private equity in developed markets, the FT writes. Read the underlying study here.

Meet the new “coach class”: Low airplane prices (thanks, collapsing tourism market) and skyrocketing demand for e-commerce have created a boom market for converting airliners into cargo aircraft.

Anyone over the age of 30 will feel nostalgia watching this Bell Canada holiday ad, no matter where you grew up.

Prolific spy thriller author John le Carré has died at the age of 89. Obits are everywhere, from the New York Times to the FT and the Journal. The SIGN OF THE TIMES here? The obit writers are at pains to note that he did not die of covid-19.

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

WE’RE DOING SOMETHING DIFFERENT THIS MONTH- It’s been a little over a year since we published our first issue of Blackboard – and what a year it has been. So, we decided to reflect on the ups and downs of the education sector during this exceptionally turbulent year, in a special two-part Blackboard Year in Review. In part 1, we look at how covid-19 drove changes in the sector and how despite this, education proved a defensive sector, with equities staging a rapid comeback and CAPEX investment remaining strong.

enterprise

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DEBT WATCH

What to expect from the debt market in early ‘21

Five companies are planning seven securitized bond issuances worth a combined EGP 9.3 bn in the near future, Financial Regulatory Authority (FRA) boss Mohamed Omran said in a statement (pdf). The issuances have already been greenlit by the FRA’s board of directors, but it’s still unclear when exactly they’ll hit the market. The companies will be looking to securitize outstanding leasing, consumer finance, mortgage, and factoring receivables through existing special purpose vehicles (SPVs), Omran said.

The FRA also separately approved multi-tranche programs by two companies that plan to securitize EGP 12.5 bn-worth of receivables, according to Omran. The unnamed real estate companies plan to get the programs up and running to finance working capital, he added.

What we know so far: CI Capital-owned Corplease is planning to issue EGP 2.5 bn of the repackaged securities, we noted last month. The issuance, which is likely one of the seven Omran referred to yesterday, will set a new record as the largest private sector issuance in Egypt. State-owned Banque Misr’s investment arm Misr Capital is acting as lead manager on at least three other securitized offerings, which we expect to hear more about soon. Those include a planned EGP 1 bn sale by AT Lease, which we noted last month was pushed to 2021.

Securitized bonds are becoming an increasingly popular means of debt finance: Corplease, Sarwa, Palm Hills, and Raya are some of the private sector firms to sell asset-backed securities to investors this year. Sizes have ranged anywhere from Premium Card’s EGP 182 mn offering to Sarwa’s EGP 1.8 bn issuance in May. The New Urban Communities Authority was responsible for the largest issuance this year, selling EGP 10 bn of bonds to investors to fund new developments in the new capital and New El Alamein.

But Enterprise, what are securitized bonds? Check out our explainer here.

THANK THE CBE FOR THIS SPATE OF BORROWING- The 400 bps rate cuts enacted this year already helped push up corporate borrowing 18% y-o-y in the first five months of 2020, while personal loans increased by 30% over the same period, BNP Paribas said in a report picked up by the local press. The uptick in corporate lending comes after years of businesses keeping their capex borrowing plans on ice until interest rates came down to pre-float levels. Though Egypt’s poverty rate decreased in FY2019-2020 for the first time in two decades, the increase in personal loans could be a reflection of job losses and economic hardship caused by covid-19, with 74% of Egyptians reporting diminished incomes since covid-19 began, according to a July CAPMAS report.

Fawry eyes debt to charge growth

Fawry subsidiary Fawry Microfinance is looking to borrow at least EGP 300 mn from its existing shareholders to expand its microfinance portfolio and increase operations, Fawry CEO Ashraf Sabry told Enterprise. Negotiations are ongoing with 6.3% shareholder Banque Misr to provide a EGP 150 mn loan. The Egyptian American Enterprise Fund, which holds a 9.7% stake in the firm, had previously agreed to extend a USD 10 mn loan to the microfinance firm. The company is hoping to expand its microfinance portfolio to EGP 500 mn by the end of next year, up from EGP 204 mn in 9M2020.

Expanding the microfinance subsidiary is complementary to Fawry’s digital lending ecosystem as it enables merchants to pay their suppliers electronically, Sabry told us. “We have seen solid growth in 2020 and we see the potential of lending to small businesses to finance their working capital and purchases from suppliers,” he added. Fawry became Egypt’s first widely recognized unicorn, reaching a market cap of USD 1 bn in August, after its share price increased by more than 300% since it debuted on the EGX last year.

Hermes resumes its EGP 2 bn corporate bond program

Hermes Securities Brokerage sold a second EGP 500 mn tranche of unsecuritized bonds, resuming its EGP 2 bn two-year corporate bond program, according to an emailed statement (pdf). The issuance was 1.3x oversubscribed without local banks, with strong demand from “a broad array of domestic Egyptian corporates,” said EFG Hermes’ co-head of investment banking Mostafa Gad.

Background: The EFG Hermes subsidiary began the program with an EGP 400 mn issuance of one-year bonds in December 2019, ending a decade-long dry spell for corporate bond issuances. New FRA regulations introduced in 2018 now allow joint-stock and limited liability companies, banks, financial institutions, and SMEs to sell short-term debt instruments with maturities of less than two years to retail and institutional investors.

Advisers: EFG Hermes acted as financial adviser and main underwriter for the issuance, and acted as guarantor for the issuance along with Banque Misr’s Misr Capital. Zulficar & Partners acted as counsel, while KPMG Hazem Hassan acted as auditor.

MEANWHILE- SolarizEgypt is eyeing EGP 300 mn-worth of loans from local banks for its solar energy projects, Managing Director Yaseen Abdel-Ghaffar said, according to the local press.

CORRECTION- The version of this story published in our email edition incorrectly identified Corplease as being owned by CIB. It is owned by former CIB subsidiary CI Capital, which acquired Corplease from its former corporate parent in 2016.

IPO WATCH

Galina to sell 49% in EGX debut

Agrifood player Galina Holding will sell up to 49% of the company in its EGX debut slated for early 2021 with the aim of raising USD 50 mn through the issuance of 161 mn new shares, Galina Chairman Abdel Wahed Soliman told Al Mal. Galina plans to use the proceeds from the IPO to finance capex spending to expand its operations in fruit and vegetable concentrates and meat alternatives. Galina had been looking at a potential EGX listing since 2018.

Local and international asset managers have already expressed interest in a piece of Galina. The prospective institutional investors include five unnamed private equity funds from France, the UAE, Kuwait, and one Egyptian fund, Soliman said. Subscription to the institutional portion of the IPO will end on 26 December, he noted.

Advisers: The company has tapped Renaissance Capital as lead adviser on the transaction.

EQUITIES

Kingsway Capital has sold 2.5% of its stake in Edita in an EGP 166.5 mn transaction, according to a regulatory filing (pdf). The sale brought down the UK investment’s total holdings in the high-profile snack food maker to 22% from 24.5%, a source from Edita told us. Kingsway is still committed to Edita long-term, despite selling down its stake, the source said, noting that Kingsway’s stake includes GDRs listed on the London Stock Exchange.

REAL ESTATE

Sodic, Mobica are giving SMEs fully-furnished office spaces to lease

Sodic will begin offering SMEs plug-and-play tailored offices on a lease basis in partnership with Mobica under a new service named Work-Plex, according to a press release (pdf). Sodic will develop the office spaces while Mobica will fully furnish them. Clients can customize their office based on their preferred layouts and interior look and feel. The duo aim to be cost-competitive by offering a wide range of office sizes and furniture designs. Work-Plex will debut at The Portal Business Park in Sodic West “at a later date.”

Why SMEs and Office Don’t Mix? We covered the challenges SMEs face to find affordable office space in our weekly Hardhat vertical. You can check out the two-part series here: Part 1 | Part 2

IN OTHER REAL ESTATE NEWS- Al Ahly Sabbour has signed two USD 100 mn contracts with UAE-based property manager Eltizam Asset Management to provide services to the Egyptian real estate developer, according to a statement. The contracts come as part of a longer-term partnership which will see Eltizam provide facility management services in four of Sabbour’s upmarket residential compounds as a starting point, and later in other high-end real estate developments, the statement noted.

INVESTMENT WATCH

Orascom Construction eyes infrastructure investments

Orascom Construction looks to be eyeing recurring revenue as CEO Osama Bishai tells Hapi Journal the company has appetite for investment in water management, desalination, and renewable energy. The company is also considering entering the healthcare sector, but would likely only do so by partnering with a more experienced player, said Bishai. On the flipside, OC is unlikely to invest in education or mining, or to reinvest in cement and fertilizers (industries to which OC can trace its lineage), though it would consider investments in other industrial sectors depending on the available ventures.

Opening up the economy to the private sector and sharing in the risk burden should be a key policy priority for the government to encourage private investments, Bishai said in the wide-ranging interview, pointing out that sharing the risk of an investment would allow businesses greater access to lending.

Is Orascom interested in a stake in the Siemens combined-cycle power plants? It depends on the terms of the sale, which have not been made public, said Bishai. Because of the size of the plants, the transaction would have to involve a partnership with other players, such as international funds, said Bishai.

Six investors have already expressed interest in acquiring stakes, including Actis, Blackstone Group’s Zarou, France’s Engie, China Datang Overseas, and Edra Holding. The three combined-cycle power plants of 4.8 GW each were developed by Siemens and partners including Orascom Construction. The transaction could wrap as early as this year.

COMMODITIES

Russia, our biggest wheat supplier, is mulling a grain tax

Egypt’s largest wheat supplier is planning to impose a temporary tax and maximum quota on grain exports in a bid to boost local supply and stabilize prices, sources close to Russian government discussions told Reuters. The tax could be between USD 27-30 per tonne of wheat, and it could be applied alongside a quota on exports of wheat, rye, barley and maize. The quota could be set at 17.5 mn tonnes for all grains, a source suggests to the newswire.

Egypt has made record purchases of Russian wheat since the start of the pandemic to ensure its strategic stockpile and curb any possible wheat shortages. Russian wheat constituted 80% of Egypt’s wheat purchases last season, with 2.5 mn tonnes bought as of August and more expected to come.

The tax might not necessarily translate into a considerably higher final price per tonne, which will limit its impact on Egypt, Pharos Holding’s head of research Radwa El Swaify told Enterprise yesterday. If anything, the increase might prompt the Finance Ministry to take out hedging contracts and guard against rising grain prices, El Swaify added.

The government is mulling purchasing derivative contracts to protect against rising grain prices, alongside hedging against rising oil prices, Finance Minister Mohamed Maait recently said. This option had been floated several times in recent years due to Egypt’s heavy dependence on wheat imports. Wheat futures are currently trading at USD 210.7 per metric ton, slightly above the USD 199.5 price assumed in the state budget.

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AUTOMOTIVE

El Nasr to sign final contracts for EV production with Dongfeng this month

El Nasr Automotive will sign the final contracts this month for its partnership with China’s Dongfeng to assemble electric vehicles locally, El Nasr CEO Hany El Kholy tells the local press. The partnership will eventually see the assembly of 25k electric vehicles per year, and is expected to cost some EGP 2.5 bn. State coffers will cover half of the cost, El Kholy said. El Nasr Automotive was reportedly in negotiations with a syndicate of local banks for a EGP 2 bn loan to establish the EV facility following the signing of an MoU with Dongfeng last June.

Is there an opening for private sector players to get in on the facility? El Kholy suggested that “the door is open” for private participation in the project, although it is unclear in what capacity.

The electric vehicle assembly line will be installed in 2Q2021, said El Kholy, with production of the vehicles expected to begin in 4Q2021. El Nasr is currently in talks with local suppliers to meet a local component quota of at least 50%, El Kholy said.

The government has proposed a number of incentives to promote the conversion to electric vehicles, including set charging prices and subsidies of up to 50k per vehicle. Public entities will also be required to replace 5% of their fleet every year with electric cars. Read more on the El Sisi administration’s push for EVs and the logistical hurdles, including the establishment of costly infrastructure such as charging stations networks, which we talk about in our weekly Hardhat vertical.

EARNINGS WATCH

Qalaa Holdings reported a consolidated net loss after minority interest of EGP 450 mn in 3Q2020, widening its losses from EGP 395 mn in 3Q2019, according to the company’s earnings release (pdf). The wider loss comes despite Qalaa’s top line more than doubling to EGP 8.7 bn in 3Q2020, from EGP 3.9 bn in the same quarter last year. Qalaa’s flagship greenfield Egyptian Refining Company — which became fully operational back in 2019 — contributed to the bulk of the consolidated revenues, or nearly EGP 5.4 bn. Due to the pandemic and “a volatile oil market,” ERC booked a net loss before minority interest of EGP 1.96 bn. Qalaa’s effective share in ERC currently stands at 13.1%.

Quarter on quarter, Qalaa’s net loss after minority narrowed 36%.

Qalaa is planning “to engage in a full debt restructuring” for ERC next year “as an exercise in caution and given the relative uncertainty,” co-founder and Managing Director Hisham El Khazindar said. Qalaa remains, however, “optimistic about ERC’s long-term outlook and are encouraged by the recent uptick in oil prices following the news of a potential vaccine,” said El Khazindar.

MOVES

Bishoy Azmy becomes youngest member of AUC’s board of trustees

CEO of Dubai-based ASGC construction group and AUC alumnus Bishoy Azmy (LinkedIn) has joined the American University in Cairo’s Board of Trustees as the board’s youngest member, according to an emailed statement (pdf). Azmy is also a board member of the local Emirates Chapter of the Young Presidents Organization, an associate of the Chartered Institute of Arbitrators, and sits on the board of UK infrastructure contractor Costain.

Mohamed Alabbar is stepping down from his position as chairman of Emaar Properties and will hold the position of managing director, Emaar Properties said in a disclosure to the Dubai Financial Market. Alabbar is stepping down to meet a regulatory requirement that chairs of listed companies not hold executive roles. Emaar Properties Vice Chairman Jamal Bin Theniyah has been named chairman.

ENTERPRISE+: LAST NIGHT’S TALK SHOWS

It was another night of covid-19 and the rollout of vaccines leading the conversation on the airwaves.

Egypt is now nearing the peak of its second wave of infections, so keep wearing your masks and adhering to social distancing measures, member of the Health Ministry’s covid-19 committee Mohamed El Nady told Kelma Akhira’s Lamees El Hadidi. The transmission of the virus that causes covid-19 has become faster and more widespread over the past few weeks, El Nady said (watch, runtime: 12:44).

Don’t hold your breath for Pfizer: On the vaccine front, former Health Minister Ashraf Hatem reminded Lamees that rolling out the Pfizer vaccine here in Egypt will be difficult because of its ultra-cold transportation and storage requirements, meaning we’re more likely to rely for the most part on the Sinopharm, Sputnik V, and AstraZeneca vaccines (watch, runtime: 9:46).

Sorry, kids, there’s still no plan to close schools or shorten the school year. Thanaweya Amma exams will also proceed as planned, and will cover all parts of the curriculum, Education Minister Tarek Shawki told Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 16:54). Any decision for a school to shut down entirely would require government approval, Shawki told El Hekaya’s Amr Adib (watch, runtime: 11:45). Shawki separately discussed the Global Knowledge Index ranking (which we note in Blackboard, below) with Al Hayah Al Youm’s Lobna Assal (watch, runtime: 15:45).

Also on the airwaves last night:

  • Details on the government’s plan to replace gasoline-fired cars with dual-fuel vehicles will be announced in the second half of January 2021, said Trade and Industry Minister Nevine Gamea (Lamees El Hadidi on Kelma Akhira | watch, runtime: 9:08).
  • The “Two is Enough” family planning program has so far reached 4 mn citizens, campaign director Desiree Labib said (Sarah Hazem on Masaa DMC | watch, runtime: 6:57).

COVID WATCH

The Health Ministry reported 486 new covid-19 infections yesterday, up from 478 the day before. Egypt has now disclosed a total of 121,575 confirmed cases of covid-19. The ministry also reported 22 new deaths, bringing the country’s total death toll to 6,920.

We received our second shipment of China’s Sinopharm vaccine yesterday from the UAE, after receiving our first shipment last Thursday. The vaccine will first be administered to frontline health workers. The UAE had reported that its own trial for the Sinopharm vaccine had shown that it was 86% effective in preventing moderate and severe cases of covid-19.

Kuwait’s flight resumption with Egypt will at first be limited to evacuating Egyptians from the Gulf country, an unnamed source at EgyptAir told Al Shorouk. The flights will be one way from Kuwait to Egypt and return empty without any passengers. Once the Kuwait’s Civil Aviation Authority signs off on health requirements and procedures followed by EgyptAir and other airlines, two-way travel will be resumed as well, a separate unnamed Kuwaiti source added.

PLANET FINANCE

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The EGX30 rose 0.2% yesterday on turnover of EGP 1.2 bn. Regional investors were net buyers. The index is down 21.2% YTD.

In the green: Orascom Development (+3.2%), Egyptian Iron & Steel (+1.7%) and Dice (+1.7%).

In the red: Edita (-1.6%), Beltone Financial Holding (-1.1%) and Heliopolis Housing (-1%).

Asian markets are largely up this morning and futures suggest Wall Street and much of Europe will follow suit later today.

Up

EGX30

11,004

+0.2% (YTD: -21.2%)

None

USD (CBE)

Buy 15.65

Sell 15.75

None

USD at CIB

Buy 15.66

Sell 15.76

None

Interest rates CBE

8.25% deposit

9.25% lending

Up

Tadawul

8,644

-% (YTD: 3.0%)

Up

ADX

5,140

+0.6% (YTD: 1.3%)

Down

DFM

2,546

-% (YTD: -7.9%)

Down

S&P 500

3,663

-0.1% (YTD: +13.4%)

Down

FTSE 100

6,546

-0.8% (YTD: -13.2%)

Up

Brent crude

USD 50.05

+0.2%

Up

Natural gas (Nymex)

USD 2.66

+2.3%

Down

Gold

USD 1,838.30

-0.3%

Up

BTC

USD 19,094.48

+1.7%

Brent crude rose above USD 50 for the first time since March as global lockdowns ease and the hope of a vaccine rollout boosts demand, according to Bloomberg. Oil demand in India, China, and Japan is nearly at pre-covid levels.

How much is Tesla worth? Depends on whether you like Elon. It really does. Wall Street pundits are miles apart when it comes to Tesla’s share valuation, with JPMorgan Chase setting a target as low as USD 90 a share and Goldman Sachs penciling in USD 780, says Bloomberg. “It’s whatever people want to believe Elon Musk is touting,” hedge fund manager Jim Chanos said. The simple explanation for Tesla’s share price, which has ballooned nearly tenfold year-to-date, is that it’s not based on what Tesla currently does, but rather what it can do (or hope to do) in the future: “transform the century-old automobile industry.”

Thematic exchange-traded funds or ETFs tied to economic, geopolitical, or technological trends — could be in for a boost in 2021 as investors are increasingly looking for “narrower ways to play,” two analysts told CNBC’s “ETF Edge” last week. One example is the Renaissance Capital IPO ETF, which benefited tremendously from 2020 unexpectedly turning into a blockbuster year for stock market debuts, especially tech IPOs. The IPO ETFs ties its investors to stock market listings, giving them exposure to significant new entrants.

Another interesting concept is a “fractional share,” a way for small investors to buy into the broader market through pieces of shares in high-value companies including Apple and Tesla. This allows those with capital as little as USD 50 to make gains from trends and even invest in index-tracking ETFs, says the Wall Street Journal. Stock broker Robinhood, which opened over 3 mn new accounts this year, began offering this service in May.

AROUND THE WORLD

Just to raise our hackles a little bit: The chairman of DP World says that Israel is the “logical” link between the EU and Middle East. Ports in Europe and the Middle East would be best, and most logically and strategically, linked via Israel, DP World Chairman Sultan Ahmed bin Sulayem said, according to Reuters. The Dubai-based port operator in September signed partnership agreements that could set up a shipping route to Israel. UAE-based Med-Red Land Bridge has also, following the UAE’s normalization agreement with the Jewish state in August, opened talks with Israel’s state-owned Europe Asia Pipeline Co on an oil route to Europe that could bypass Egypt’s Suez Canal, challenging Egypt’s ambitions to emerge as a hub for regional energy exports.

IN DIPLOMACY- President Abdel Fattah El Sisi talked cooperation on counter-terrorism in the Sahel as well as the situation in Libya on a call with Mauritanian President Mohamed Ould Ghazouani. Meanwhile, Egypt will launch this month its ‘Gosoor’ program aiming to improve access to African markets.

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Year in Review Part 1- Education proves its mettle as a defensive sector in the face of covid: In a tumultuous year, education providers have come under heavy scrutiny for their ability to meet demand (or not) through online and blended learning, and exam management. But as a sector, education remains robust, with stocks resilient and CAPEX investment steady.

Covid school closures in March spurred a sudden move online: Some schools and universities deployed tools already in use, like Google Classroom or their own learning systems, while others created new ones, including online lessons in video format. Teachers had to quickly adapt to new ways of lesson delivery and longer preparation times, while schools upped their teacher training and investment in online learning infrastructure.

And while educators were initially optimistic, the covid reality was different — and parents, children and teachers all felt the strain. Full-time online learning was widely criticized for not being interactive and relying too much on parental involvement. Online learning platforms are reasonably good for delivering content and submitting assignments, but not for student assessment or facilitating communication, parents said. There was particular pressure on working parents, and those with small children.

Most see blended learning as a step in the right direction: With the new school year, blended learning models have enabled a partial return to the classroom. Schools generally lobbied for blended learning, despite increased costs of at least 8-10% including continued investment in online platforms and infrastructure, extra sanitation and operational measures. Blended learning is widely preferred, but the online component still needs to be more interactive, and social distancing needs to be more strongly enforced in the classroom, parents feel.

But who should bear the increased costs was a contentious issue: An ongoing tuition dispute saw some parents push for deferment of 15% of total 2019-20 fees and partial refunds for services like transportation and on-campus activities. While some top-tier private and international schools offered deferments, improved pay structures, and even refunds where possible, some other private national schools pushed for overdue fees and early installments for the 2020-21 academic year. Some even lobbied the education ministry to let them raise fees beyond the 7% cap on annual tuition hikes, to shoulder the extra costs of blended learning. The dispute remains unresolved.

Despite it all, education stocks outperformed the benchmark EGX30 and traditionally strong market performers like banks. Education services are currently up 13.82% YTD, while the benchmark EGX30 is down 21.25% YTD and banks down 16.81% since the start of the year. The covid-19 market meltdown in early March did impact education stocks, but they saw only about half the dip of the EGX30. Since bouncing back, they’ve gone from strength to strength. In August, education services were up 5.22% YTD after being down 6.68% YTD in early March, and they’ve continued to climb steadily.

We saw this strong defensive play because the education sector is in itself resilient, industry insiders kept telling us. Education remains a priority irrespective of social upheaval, as demonstrated in 2011 when parents continued to pay tuition fees despite school closures. Online learning challenges and tuition fee disputes didn’t negatively impact investor sentiment or lead to dips in equity performance after the initial March blip. Appetite has remained strong throughout the pandemic, said one education provider. “Investors have a very growth-focused mindset and they know that the population is growing, which means demand for education services will continue to grow as well.”

Continued demand for education services also fueled growing CAPEX investment: CAPEX spending remained substantial throughout 2020, with large operators maintaining their investment levels despite some delays in execution. One provider reported an extra 15-20% rise in CAPEX spending. High levels of greenfield activity were reported throughout the year, and enrollment at some top-tier international schools actually exceeded projections. Overall, CAPEX investment in Egypt is expected to keep growing, despite delays in planned construction of new buildings and facilities, and an increase in OPEX spending.

So what can we expect in 2021? In the absence of a return to full-time classroom learning, the pressure will be on schools to refine their blended learning models and take the burden off stressed parents, children and teachers. International exam providers will want to avoid a repeat of 2020’s widespread confusion, so we should expect a slicker rollout — with more emphasis on online exams. And we expect education to consolidate its position as a solid investment prospect, with construction and CAPEX spending accelerating and stocks holding strong.

Your top education stories for the week:

  • Egypt jumped 10 places in UNDP’s Global Knowledge Index, ranking 72 out of 134 countries, compared to 82 in 2019. The country’s biggest jump in 2020 was in the Pre-University Education Index where Egypt now ranks 83.
  • Thanaweya Amma exams will be electronically administered and students will be able to sit for the same exams several times each year and pick their highest grade, as part of the state exam revamp approved by the cabinet last week.
  • Students will take a demo exam of the new electronic Thanaweya Amma exam tomorrow, reports the local press.
  • Hospitality school to open in New Alamein: One of the world’s top hospitality schools, Switzerland’s Ecole hôtelière de Lausanne, is opening a branch in New Alamein.

CALENDAR

December: Egypt-US Trade and Investment Framework Agreement (TIFA) talks.

December: A meeting to finalize membership and trading rules governing Egypt’s Commodities Exchange (Egycomex).

December: The Egyptian-Iraqi Joint Higher Committee will meet.

14 December (Monday): Final results will be announced for Parliamentary elections held in Cairo, Dakahlia, Qalyubia, Menofia, Gharbia, Kafr El Sheikh, Sharqia, Damietta, Port Said, Ismailia, Suez, North Sinai and South Sinai.

14 December (Monday): Al Ahram Energy Conference, Cairo, Egypt.

15 December (Tuesday): House of Representatives reconvenes from recess.

15-16 December (Tuesday-Wednesday): US Federal Open Market Committee will hold its two-day policy meeting to review the interest rate.

24 December (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

25 December (Friday): Western Christmas.

31 December (Thursday): Egypt-UK post-Brexit trade agreement to take effect.

31 December (Thursday): Deadline for car owners to comply with traffic regulations to install a RFID electronic sticker on their cars.

1Q2021: The Annual Egypt Automotive Summit will be held.

1H2021: Egypt’s Commodities Exchange (Egycomex) will begin trading.

1 January 2021 (Friday): New Year’s Day, national holiday.

7 January 2021 (Thursday): Coptic Christmas, national holiday.

13-31 January (Wednesday-Sunday): Egypt will host the 2021 Men’s Handball World Championship at the Giza Pyramids.

17 January 2021 (Sunday): A court will hold a postponed hearing to look into an appeal by Syria’s Anataradous against an arbitration ruling in favor of Amer Group and Amer Syria in case 445 of 2019.

25 January 2021 (Monday): 25 January revolution anniversary / Police Day.

25-29 January 2021 (Monday-Friday): The World Economic Forum’s “Davos Dialogues” will take place virtually.

26-28 January (Tuesday-Thursday): Future Investment Initiative, Riyadh, Saudi Arabia.

28 January 2021 (Thursday): National holiday in observance of 25 January revolution anniversary / Police Day.

4 February 2021 (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

6-18 February (Saturday-Thursday): Mid-year school break.

18 March 2021 (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

12 April 2021 (Monday): First day of Ramadan (TBC).

25 April 2021 (Sunday): Sinai Liberation Day.

29 April 2021 (Thursday): National holiday in observance of Sinai Liberation Day.

29 April 2021 (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

3 May 2021 (Monday): Sham El Nessim.

6 May 2021 (Thursday): National holiday in observance of Sham El Nessim.

12-15 May 2021 (Wednesday-Saturday): Eid El Fitr (TBC).

18-21 May 2021 (Tuesday-Friday): The World Economic Forum’s annual meeting will be held under the theme of “The Great Reset” in Lucerne-Bürgenstock, Switzerland

31 May-2 June 2021 (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, Nasr City, Cairo.

30 May-15 June 2021 (Wednesday-Thursday): Cairo International Book Fair.

1 June 2021 (Tuesday): The IMF will conduct a second review of targets set under the USD 5.2 bn standby loan approved in June 2020 (proposed date).

10 June 2021 (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

24 June 2021 (Thursday): End of the 2020-2021 academic year.

26-29 June 2021 (Saturday-Tuesday): The Big 5 Construct Egypt, Cairo International Convention Center

30 June- 15 July 2021: National Book Fair.

22 July 2021 (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

30 July-3 August 2021 (Thursday-Monday): Eid Al Adha, national holiday (TBC).

1 October 2021-31 March 2022 (Friday-Thursday): Postponed Expo 2020 Dubai.

13-17 December 2021: United Nations Convention against Corruption, Sharm El Sheikh, Egypt.

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