Wednesday, 16 December 2020

All good as CIB releases first financial results since CBE probe

TL;DR

WHAT WE’RE TRACKING TODAY

The end of year news slowdown has finally hit, and with only 15 days to go to the end of the year, a lot of what we’re seeing is retrospectives on the year that passed and macroeconomic predictions for what’s to come.

ONE BIG THING- CIB has released its eagerly awaited 3Q2020 financial results, the first since Hisham Ezz Al Arab stepped down as chairman and managing director after a probe by the regulator. A favorite of investors, the bank is normally the poster child for timely disclosure, and the delay in releasing third quarter numbers (which were due by mid-November) had some folks starting to get on edge. The results were out overnight and look very solid — and critically show no gap in the balance sheet, as CEO Hussein Abaza promised investors early in the flap. We have the full rundown in the news well, below.

It’s official: The House of Representatives’ five-year term is now over and sessions are adjourned until the new set of MPs begin their first legislative cycle next month, House Speaker Ali Abdel Aal announced yesterday. Outstanding pieces of legislation on the outgoing Parliament’s roster will now be deferred to the next class of MPs. That includes the law that would allow Egypt to move ahead with its first-ever sovereign sukuk sale, which we recap in detail in this morning’s Legislation Watch, below.

WHAT’S HAPPENING TODAY- Students in Cairo, Giza, Damietta, and Marsa Matrouh seem to have prayed hard enough and are getting the day off. The national weather office says there’s a good chance of significant rainfall and is warning of potential flooding. Cairo Governor Khaled Abdel-Aal said that it’s still not clear whether schools in the capital will open on Thursday or not.

But it won’t be another “Dragon Storm,” with only moderate amounts of rain expected over the next couple of days, head of the Egyptian Meteorological Authority’s Remote Sensing Center Iman Shaker said last night on Masaa DMC and Ala Mas’ouleety.

TRIGGER WARNING- It’s been nearly 10 years since the events of the Arab Spring. Brace yourselves for paper-thin punditry and platitudes galore as media outlets trot out their “10 years on…” pieces. Reuters got an early start with this piece, out the day before the 10 year anniversary of Tunisian fruit seller Mohamed Bouazizi’s self-immolation.


It’s Fed day 2: The US Federal Open Market Committee will announce later today if it will expand a USD 120 bn per month bond-buying program it launched earlier in the pandemic, which would signal easy monetary policy and near-zero interest rates for years to come. Other central bankers — particularly in emerging markets — are watching closely to determine if they ought to push forward with stimulus policies and monetary easing.

Vaccination rollouts across the Middle East are expected to boost equity markets, especially as the inoculation distributions come together with a lower USD and higher oil price expected to create “the perfect recipe” for recovery, Bloomberg reports. Tourist-exposed equity markets — think Egypt and Dubai, especially — are more likely to immediately benefit from the recovery than oil-dependent economies, analysts say.

Saudi Arabia is getting ready to roll out the Pfizer / BioNTech jab in a three part program that will see citizens over 65, those with immunodeficiencies and chronic illnesses, as well as healthcare workers be first in line for the vaccine, according to a Saudi Press Agency statement. The pilot group will be followed by those over 50 getting the jab and eventually a rollout to just about everyone else. The Saudi government had last week approved the vaccine and is now asking people to sign up for the country’s vaccination drive, which will be provided without charge.

CIRCLE YOUR CALENDAR- The Central Bank of Egypt is scheduled to meet on Thursday, 24 December. Economists here are anticipating a hold on interest rates this time around after cutting rates 400 bps in 2020 on the back of food prices driving the headline inflation rate up for the second consecutive month, to 5.7% in November from 4.6% in October.

Also worth keeping an eye out for this month is the Egypt-UK post-Brexit trade agreement coming to effect on New Year’s eve. It is hoped that the agreement will unlock a spate of UK investments in Egypt, including in the Suez Canal Economic Zone, oil and gas, manufacturing, agribusiness, healthcare and education sectors, UK Trade Envoy to Egypt Sir Jeffery Donaldson said last month.

Taxpayers only have until 12 February 2021 take advantage of a partial waiver of penalty fees on late tax payments, Tax Authority boss Reda Abdel Kader said, according to Masrawy. Late taxpayers that clear their full dues before this date could get up to a 50% discount on penalty fees for late payment. Those that had made full payments in the previous four months were handed better discounts of 90% and 70% under an act passed by the House earlier this year.

enterprise

*** 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.

WE’RE DOING SOMETHING DIFFERENT THIS MONTH- Our first issue of Hardhat came out in January, and since then we’ve seen industries working in infrastructure face ups and downs that none of us could have pictured a year ago. In a special two-part Hardhat Year in Review, we examine the major trends and developments of infrastructure in 2020. In part 1, we look at how covid-driven supply-chain disruptions and price volatility impacted energy, construction and shipping — and how they bounced back.

enterprise

EARNINGS WATCH

You can breathe now

Leading private-sector commercial bank CIB reported net income of EGP 2.35 bn for 3Q2020 as it released its first set of financial results after CIB Chairman Hisham Ezz Al-Arab left office in the wake of a probe by the Central Bank of Egypt that found “regulatory, compliance and governance concerns.” Net income was down 26% on the same period last year, while revenues came in at EGP 6.65 bn for the quarter, a gain of 10% over 3Q2019. You can read the full release here (pdf) or have a look at the bank’s consolidated or standalone results.

The results show no hole in the bank’s balance sheet after the CBE said in late October that a review had found significant issues with the bank’s credit cycle and internal controls. As CIB Chief Executive Officer Hussein Abaza told investors on a call in the wake of Ezz Al Arab’s departure: “There is no gap in the balance sheet.”

The bank’s bottom line would have grown 15% had CIB not taken provisions of EGP 1.6 bn in the third quarter. That figure is in line with the conservative position the bank has taken on provisions for some time now, with management saying in a comment, “Despite wide anticipations of a speedy global economic recovery, ambiguity continued to overshadow the overall outlook and hence the creditworthiness of clients.” Meanwhile, the bank has “maintained resilient asset quality,” the release notes.

Key indicators all seem to be moving in the right direction. Your favorite research analysts will be in touch with their takes on CIB’s results later this morning, we’re sure — it’s no exaggeration to say no set of results has been as hotly anticipated in Egypt in living memory. But in the meantime, everything from revenues (+21% y-o-y in 9M2020 when you exclude the impact of provisions) and net interest income (the main way the bank generates its top line, up 22%), to operating costs were all healthy, and local currency loans are up 16% in the first nine months of the year.

Interestingly, lending to all but the bank’s very biggest clients was up as small and medium sized businesses borrowed 36% more YTD in local currency and LCY loans to individuals were up 29% in the same period.

CIB began working in late October on a number of the central bank’s recommendations and execs as well as new Non-Executive Chairman Sherif Samy have been in ongoing discussions with the CBE, the earnings release says. The bank is now bringing in an “independent international professional services firm” to review its controls and lending functions as it finishes addressing issues the central bank raised in its review.

The bank’s shares are down about 6% on the EGX since the flap first broke in October, closing yesterday at EGP 62.50. They were at EGP 66.60 before rumors began circulating that something was happening at the country’s largest private-sector lender.

CIB “remains prudentially sound and depositors’ funds are fully secure,” the central bank said in October when the news first broke. After Ezz Al Arab’s departure, the regulator noted that “with [the] appointment of a new CIB chairman and the existing board, the bank should be well-placed to work on addressing regulatory, compliance and governance concerns that have been communicated to CIB.” CIB’s financials and control procedures are regularly audited by independent international auditors PwC and Deloitte.

ECONOMY

FX liquidity at banks is recovering from covid

The banking sector’s FX liquidity has recovered from pandemic-induced lows, thanks to the return of foreign inflows to capital markets, Fitch Ratings said in a report yesterday. Net foreign assets at banks increased to USD 2.9 bn in October, continuing to rebound after having turned positive in September. Excluding the central bank, net foreign assets in banks are still low compared to USD 7.3 bn in February, before the pandemic struck. Meanwhile, the combined net foreign assets of commercial banks and the CBE in September rose 33% m-o-m to positive USD 14 bn, up from USD 10.6 bn in August, central bank data we picked up in November showed.

The liquidity position is a “sustained improvement” as net foreign assets had dropped to negative USD 5.3 bn in April, when banks had to service some USD 17 bn of capital outflows triggered by the global market panic, Fitch said. Fitch had previously expected the recovery in FX to last longer.

This improvement was underpinned by foreign investors flocking back to EGP treasuries, Fitch said. Foreign portfolio investments recovered sharply since May, increasing to USD 23 bn by the end of November, up from USD 21.1 bn six weeks earlier and more than doubling from USD 10.4 bn in May. Egypt’s carry trade continues to be attractive for overseas investors, the ratings agency noted as real interest rates continue to be among the highest in the world, despite this year’s 400 bps reduction in nominal rates.

Banks, however, saw a 21% increase in foreign liabilities in 10M2020, posing some long-term repayment risks. Net foreign assets at banks also only covered 7% of local foreign currency-denominated deposits at the end of October, down from 18% at the end of February, Fitch said. However, nearly 70% of the banks’ external debt is long-term, limiting short-term refinancing threats, it added.

FX liquidity is still vulnerable to any drop in investor confidence and to exchange-rate fluctuations, and the reliance of banks on foreign creditors carries “refinancing risks,” Fitch added. Given higher external financing needs and the drop in FX receipts — as we’ve seen in the plunge in tourism revenues — Fitch forecasts “renewed pressure” on FX reserves and on the EGP.

M&A WATCH

ODH sells affordable housing arm

An unnamed UK-based fund has acquired 100% of New City Housing and Development for EGP 365 mn, Al Mal reports citing unnamed sources familiar with the agreement. The fund, which is reportedly owned by an unnamed Egyptian businessman, purchased a 35.2% stake previously held by Samih Sawiris’ Orascom Development Holding (ODH) in the affordable housing developer, and a combined 64.8% stake held by Sawiris personally and US company Blue Ridge and PE firm Equity International. New City Housing was formerly known as Orascom Housing Communities (OHC). The sale comes as Sawiris’ ODH narrows its focus on core businesses, which center on high-end real estate including El Gouna and O West.

Advisors: Beltone Securities Brokerage provided sell-side brokerage services while Hermes Securities Brokerage executed the sale on behalf of the unnamed fund. Matouk Bassiouny & Hennawy acted as counsel to the buyer.

OTHER M&A NEWS- A mandatory tender offer to snap up 90% of El Nasr Civil Works at EGP 11 apiece is currently under review from the Financial Regulatory Authority, according to an EGX disclosure. A group led by Odin Investments submitted the MTO to the regulatory for sign-off. The remaining 10% of the company’s shares remaining as freefloat shares.

INVESTMENT WATCH

Monginis to invest EGP 200 mn over the next two years to expand their presence nationwide

Sweets maker Monginis is planning to invest EGP 200 mn to double their number of stores to 200 by 2022, Business Development Director Osama Soliman told Amwal Al Ghad. Monginis is currently mulling opening seasonal stores in tourism cities such as Hurghada, Ain Sokhna, and Sharm El Sheikh. The company is building a new factory in Sadat City to increase their production capacity and support their expansion with the factory set to begin operating by the end of 2021. Monginis was hard hit during the first wave of the pandemic, losing 70% of their overall sales, but has since recovered 80% of their pre-covid levels.

enterprise

DEBT WATCH

What we’re borrowing in 1H2021

The Finance Ministry reportedly plans to sell USD 7 bn-worth of EUR- and USD-denominated eurobonds in 1H2021, Asharq Bloomberg suggests. The story, which cites unnamed sources, suggests the ministry has already approached international investment banks to advise on the potential sales. Finance Minister Mohamed Maait had told Bloomberg last week that the government could issue new eurobonds on the international market in the first half of 2021.

In an effort to diversify its debt portfolio, the government is also considering floating-rate sovereign bonds, and is expected to take its first sovereign sukuk issuance next year after a draft law gets final approval next year. The government also took its first sovereign green bond issuance to market earlier this year.

LEGISLATION WATCH

Parliament pushes Sukuk law to 2021

The bill that lays the groundwork for Egypt’s first sovereign sukuk sale is being put on hold until the new class of MPs is seated in the House of Representatives next month. The current House of Representatives was expected to begin discussions yesterday of the bill, but ultimately pushed it to the next legislative cycle after House Speaker Ali Abdel Aal called an end to Parliament’s five-year term. The bill governs how the debt is securitized and traded, as well as the rights and responsibilities of sukuk holders. Egypt’s maiden sovereign sukuk sale is expected after the bill clears the House general assembly in a final vote, is ratified by President Abdel Fattah El Sisi, and its executive regulations are published. The bill received cabinet approval last month.

What does the bill entail? The law would, if passed, allow the government to sell ijara, mudaraba, istisnaa, murabaha, and wekala sukuk in the local and international debt markets, according to a copy of the draft law seen by Enterprise. (Don’t know your ijara from your murabaha? We have you covered on the sukuk types here).

While the bill would make sovereign sukuks a legal reality, it is the executive regulations that will lay the framework for sukuks. This includes establishing a regulatory oversight committee, clarifying how disputes between the government and sukuk holders would be handled, and setting up an association to protect the rights of investors. The regulations are expected to be out within three months of it being ratified by the president.

APPROVED AT THE COMMITTEE LEVEL YESTERDAY- The charter of the Eastern Mediterranean Gas Forum. The House Energy Committee approved the document, which also appears to have been pushed to the next legislative cycle for general assembly sign-off, reports Al Mal. Egypt and six of the forum’s founding members, including Cyprus, Greece, and Italy, signed the charter earlier this year. It officially establishes the Cairo-headquartered organization and outlines its mandate: to serve as a market platform for natgas producers, consumers, and transit countries in the region. Other items that received House committee-level approval include:

  • The Oil Ministry’s exploration contracts, including one with BP to explore in the Gulf of Suez, and one with Ganope in the Eastern Desert.
  • Establishing the 6 October Dry port, according to Al Mal. Cabinet earlier this year awarded the contract to design, build, operate, and transfer the port to a consortium of Elsewedy Electric, Schenker Egypt, and 3A International.
  • A SAR 1.4 bn (c.USD 390 mn) Saudi loan to establish the King Salman University, according to Youm7.

ELSEWHERE IN LEGISLATION- New building code and urban planning requirements are in their final drafting stages before being shipped to Ittihadiya for President Abdel Fattah El Sisi’s approval, Prime Minister Moustafa Madbouly said yesterday. The new framework will then be reviewed by the Supreme Council for Planning and Urban Development before coming into effect. The framework, which includes requirements for parking space availability and maximum building height, among other things, has been in the works since May, when the government imposed a six-month ban on construction permits.

ENTERPRISE+: LAST NIGHT’S TALK SHOWS

State coffers are ready to dole out a fresh stimulus package if needed during the second wave of covid-19, with the top priority being healthcare spending, Finance Minister Mohamed Maait confirmed to Yahduth fi Misr’s Sherif Amer. Maait had said last month that more stimulus has already been factored into budget calculations, but refused to tell Amer how the package would measure up in comparison to the EGP 100 bn in stimulus allocated at the beginning of the pandemic (watch, runtime: 5:36). Maait also had an extensive conversation with Ala Mas’ouleety’s Ahmed Moussa recapping the first stimulus package, as well as the implementation of the universal healthcare scheme, which was piloted in Port Said last year (watch, runtime: 35:59).

Meanwhile, the government’s scientific committees are still conducting a review of our vaccine choices before green-lighting their distribution, presidential health advisor Mohamed Awad Tag Eldin told Kelma Akhira’s Lamees El Hadidi. Until that day comes, we must take social distancing and other preventive measures seriously, Tag Eldin stressed (watch, runtime: 10:27). Egypt’s daily case count has been rising steadily because of people’s collective decision to essentially “cancel covid” and flout safety protocols, Tag Eldin told Sherif Amer (watch, runtime: 3:44).

EGYPT IN THE NEWS

It’s a mixed bag of human rights stories on Reuters (here and here) and the first of many “10 years later” pieces on the Arab Spring (Washington Post).

COVID WATCH

The Health Ministry reported 523 new covid-19 infections yesterday, up from 511 the day before. Egypt has now disclosed a total of 122,609 confirmed cases of covid-19. The ministry also reported 23 new deaths, bringing the country’s total death toll to 6,966.

The US’ first covid-19 vaccinations outside of clinical trials started Monday, with a New York nurse among the first to get the Pfizer/BioNTech jab, reports the Wall Street Journal.

The kick-off of the inoculation drive comes as the US Food and Drug Administration looks set to authorize the emergency use of the Moderna vaccine on Friday after its review confirmed that the vaccine is highly effective in protecting against covid-19. If approved, distribution of the 6 mn doses within the US could begin next week. The New York Times has the story.

PLANET FINANCE

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The EGX30 rose 0.1% yesterday on turnover of EGP 1.6 bn (15.4% above the 90-day average). Foreign investors were net sellers The index is down -20.8% YTD.

In the green: Cleopatra Hospital (+3.9%), Ezz Steel (3.7%) and Sidi Kerir Petrochemicals (+3.5%).

In the red: Dice (-7.4%), Egyptian Iron & Steel (-3.3%) and Orascom Development (-2.9%).

Asian markets are in the green this morning and futures suggest Europe and Wall Street should follow suit later today.

Up

EGX30

11,058

+1 (YTD: -21%)

None

USD (CBE)

Buy 15.67

Sell 15.77

Down

USD at CIB

Buy 15.66

Sell 15.76

None

Interest rates CBE

8.25% deposit

9.25% lending

None

Tadawul

8,659

-% (YTD: +3.2%)

Down

ADX

5,133

-0.4% (YTD: +1.1%)

Down

DFM

2,531

-1.0% (YTD: -8.5%)

Up

S&P 500

3,695

+1.3% (YTD: +14.4%)

Down

FTSE 100

6,513

-0.3% (YTD: -13.6%)

Down

Brent crude

USD 50.69

-0.1%

Down

Natural gas (Nymex)

USD 2.67

-0.3%

Down

Gold

USD 1,855.10

-%

Down

BTC

USD 19,343.68

-0.1%

Buyers of central bank-backed assets, beware, warns El Erian: Market sage Mohamed El Erian continues to warn that financial markets are divorced from the economic realities on the ground, writing yesterday that central bank-backed assets and fixed income have been moving in a different trajectory from macro indicators in a recession-prone Europe and a shaky US economy during the so-called post-covid recovery. “The result is not just seemingly endless liquidity-driven rallies regardless of fundamentals. It also alters market conditioning and inverts traditional cause and effect,” he writes in the Financial Times. This may come back and bite investors who are tucked in under the safety blanket of central bank-backed liquidity in 2021.

Is he hinting at a possible bubble? Not necessarily, but he certainly didn’t dismiss it. He urges rebalancing of portfolios and “a rethinking of the traditional portfolio construct of putting 60% of funds into equities and 40% into fixed income now that yields on government bonds are so artificially depressed. He stressed the need for a return to corporate fundamentals to validate high asset prices and support an orderly rebalancing of policy as well as an economic recovery boosted by vaccine rollouts.

Meanwhile, the FT’s Martin Wolf is adamant in a piece bluntly headlined There is no stock market bubble.

Standard Chartered strikes a more positive note, buoyed by vaccine optimism: While largely backing El Erian’s view that equity valuations are “optically elevated,” Standard Chartered sees the ongoing rapid vaccine distribution as justification enough to be optimistic heading into 2021, the bank said in its macro outlook for the year (pdf). “Vaccine distribution, fiscal and monetary policy support, bond yields, the USD and the Value vs Growth debate are five factors [that are] likely to define financial markets in 2021,” it added. A world without covid is also expected to be especially favorable for risky assets, meaning emerging market government bonds are in for a good run while the USD will be weak vis-a-vis EM currencies.

The bank still sees some risks going forward, namely central banks tightening monetary policy too early, “vaccine distribution hiccups,” or geopolitical risks, particularly heightened US-China or US-Iran relations.

AROUND THE WORLD

The US has slapped its NATO ally Turkey with sanctions over the purchase of Russian missiles, effectively denying Ankara’s state arms buyer, the Defense Industries Directorate (SSB), access to US financial institutions, US Secretary of State Mike Pompeo said in a statement. The US argues that the move threatens the “security of U.S. military technology and personnel and provide[s] substantial funds to Russia’s defense sector.” It has stopped short targeting Turkey’s economy or its financial industry with sanctions, comforting investors and nudging the Turkish lira and benchmark equity gauge higher, according to Bloomberg.

Ankara tries to save face, but it still has some egg salad right on the chin: The sanctions will have a limited effect on US-Turkish ties and may even support domestic development, SSB Chairman Ismail Demir said, according to Reuters. Turkey, which earlier said that the US accusations are “devoid of any technical merit,” had acquired the Russian S-400 defense system back in July 2019. Turkey also separately faces the threat of EU sanctions over illegal drilling for gas off the coast of Cyprus.

Trump supporters are starting to wake up and smell the coffee: Republican senator Mitch McConnell acknowledged in a speech on the Senate floor that Joe Biden has won the presidential election, and started a campaign to discourage fellow republicans senators from opposing the result of the election when it is presented to congress for ratification in early January, the New York Times reports.

Facebook disabled more than 100 Facebook and Instagram accounts and pages associated with a French disinformation campaign in Africa, the first time such a campaign was found to be linked to a Western government. The campaign seems to have been ongoing since 2018 and aimed to affirm positive sentiment about France’s policies in African countries and to criticize Russia’s involvement in Central African countries.

IN DIPLOMACY- Sudan and Ethiopia agreed to resume tripartite talks over the Grand Ethiopian Renaissance Dam (GERD) with Egypt, without setting a specific date, according to Sudanese news agency SUNA. Khartoum has no intention of pursuing a bilateral GERD agreement with Addis Ababa, and intends to keep working towards a trilateral accord with all three countries, Sudanese Irrigation Minister Yasser Abbas told Al Arabiya after a meeting with Ethiopia’s Irrigation Minister Seleshi Bekele yesterday. Sudan had opted out of the talks last month and called for more involvement from the AU in the negotiation process.

hardhat

2020 in review: The year of supply chain disruptions and bouncing back: Covid-19 impacted many areas of infrastructure, but energy, construction, and shipping were the hardest-hit, thanks to supply chain disruptions and price volatility. Businesses reliant on physical proximity, like ride-hailing, saw service demand weaken.

Renewable energy: Supply chain disruptions caused substantial operational delays to many solar, wind, and waste-to-energy companies from March-June. Companies heavily reliant on imports from China, the largest producer of solar panels, were hit particularly hard by production slowdowns, a backlog of orders, and a two-week Egyptian customs quarantine period.

Delays and scarcity also created uncertainty about the future price of imported components: Possible long-term reductions to Chinese production capacity, a weakened EGP, or global trade policy restrictions could all lead to higher prices, sources told us at the time, while an economic slowdown and reduced energy demand could result in surplus equipment, causing prices to fall.

But anticipated price swings never really materialized: Transactions essentially came to a standstill between March and June, but with China’s production rapidly recovering and countries coming out of lockdown, supply chains bounced back.

Lower gas prices slowed the renewables transition: When the price of natural gas for the entire industrial sector was lowered to USD 4.50 / mmBtu in March to help businesses through covid, LNG became more competitive than renewables. The price point for solar and wind energy competitiveness is USD 5 / mmBtu, while for waste-to-energy it’s USD 6 / mmBtu, say industry experts. Some warned this would disincentivize subsidy removals and Egypt’s shift away from fossil fuel-based infrastructure.

But the slowdown seems temporary: Overall investment in renewables is likely to slow substantially in the next year. But an uptick is then expected as the underlying factors driving it remain in play: the LNG price dip was temporary and the government remains committed to subsidy reforms. Long-term, renewable energy prices are more competitive for industry, government, and consumers — and more stable. This actually strengthened the business case for renewables, say some energy leaders. Financial institutions like the European Investment Bank also remain committed to funding renewable energy infrastructure projects.

Oil and gas: Market volatility and reduced energy demand brought a shock. As oil prices fell, Egypt’s energy companies cut production and spending. Our LNG exports collapsed, with only one shipment completed between March and October, driven by weak global demand that saw a 9.4% y-o-y decrease as of July. The sector had been expected to expand in 2020, after Egypt’s LNG exports made up 1% of the global market in 2019.

Oil ricochet and a (slower) gas rebound: Egypt should see the largest petrochemicals investments of the MENA region between now and 2024, an Apicorp report (pdf) predicts, while the CDC Group termed our oil refining sector ”relatively robust.” LNG export recovery will be slow, with Apicorp predicting Egypt’s facilities “will remain heavily underutilized” and that we’ll export only 35% of our LNG production capacity between now and 2022. Still, the Damietta LNG plant’s planned reopening in 1Q 2021 bodes well, as it could lead to the plant’s first LNG exports during that quarter.

Construction: Projects saw delivery delays from supply chain issues and essential social distancing measures taken on site to mitigate covid transmission. The sector relies on imported materials and skilled technicians, but covid challenged both procurement and labor. This slowdown led to an industry-wide contraction, of 9.1% in 1Q2020 alone. Sectoral growth in the coming years will be weaker than previously anticipated, reports have predicted.

But risks identified near the outset of the pandemic — like widespread unemployment — haven’t materialized: Potential risks like unemployment, the likelihood of businesses going bust, and global supply chains undergoing fundamental changes were mitigated by government investment and megaprojects, helping to minimize unemployment and maintain liquidity. The sector lost only 288k jobs — less than half the 624k seen by the retail and wholesale sector. Egypt’s construction growth was expected to be a “still strong” 7.5% in 2020, down from a previous forecast of 9.7%, as of April — outpacing regional peers.

Shipping: Egypt saw shipping losses aligned with global figures, though traffic at ports remained at full capacity to carry essential goods. Inbound container traffic fell 20% y-o-y in April 2020. As of mid-January, it had already fallen 10-20% from where it was in December 2019. Globally, a 25% fall in shipping was expected for 1H 2020, with a 10% drop for the year overall. Shipping companies saw losses from Egypt’s ports ranging from 50-70% y-o-y in April alone. A steady stream of Egyptian agricultural produce, and a backlog of shipping from long-term contracts, somewhat mitigated losses — but companies that didn’t ship essential goods missed out.

But the industry seems on course for the rebound expected after lockdowns eased: Increased shipping, expected from mid-July, would be a crucial sign of recovery, said sources. A government announcement that the Suez Canal saw some 165 more vessels y-o-y in 9M2020 suggests the sector is getting back on track.

But ride-hailing apps and others reliant on physical proximity saw their business models fundamentally impacted: Ride-hailing startups saw an immediate drop in demand. Uber was so keen to reduce costs and avoid losses, it closed down food delivery wing Uber Eats in Egypt in May. Careem laid off 31% of its employees. Transportation platform Wasel saw its weekly number of trips falling by 50% in the first two weeks of Egypt’s covid-19 curfew. Mayday, which provides roadside assistance through an app, had seen orders decrease from around 50 per day to 7 or 8, as of late-April.

They had to diversify to survive, often by introducing service delivery: Uber set up Uber Connect, a delivery tech solution to transport goods, and saw an 80% recovery rate. It’s on track to fully recover next year, says its Egypt general manager. Halan started offering consumers products sold on credit to mitigate losses from reduced demand in mobility services. And Wasel adjusted its financial models to make services more cost-effective. All substantially increased sanitization, say representatives.

Gov’t stimulus and rate cuts kept things moving: Across sectors, government economic stimulus — including lower rates and cuts to energy prices — drew praise from industry representatives, who termed it key to weathering the storm. The central bank’s March interest rate cut of 300 bps was its biggest on record, followed by a further 50 bps cut in September that took place on the back of low inflation and key economic indicators stabilizing in July and August. Government support was strong, led by the prime minister and the central bank, said one construction industry leader: “Because we use working capital facilities to support some of our projects and our cash flows, reducing the interest rates associated with these working capital facilities helped us reduce our costs significantly.” Cuts to natural gas and electricity prices for factories, made early in the pandemic, cost the state at least EGP 10 bn this year.

NEXT WEEK- How infrastructure businesses adapted to the pandemic — namely digitization and diversification — which we will cover in part 2 of our Year in Review.

Your top infrastructure stories for the week:

  • Sodic and Mobica will begin offering SMEs fully-furnished customized offices on a lease basis with a new service named Work-Plex.
  • Green Tech Egypt may create a joint stock company to implement waste-to-energy plants in Shabramant and Abu Rawash and has created feasibility studies of the project as part of its MoU signed with the the Military Production Ministry in October, according to a cabinet statement.
  • The government is looking to tap Siemens for the high-speed rail project that will connect New Alamein to Ain Sokhna, according to a cabinet statement. The German company expressed interest and said it would submit a bid for the project.
  • Egypt received a fifth train from South Korea’s Hyundai Rotem as part of the EUR 317 mn agreement signed between Hyundai Rotem and the National Authority for Tunnels to supply 32 new modernized trains for Cairo Metro’s Line 3, according to a cabinet statement.
  • The number of Egyptians subscribed to ADSL services rose to 7.99 mn, with 1.1 mn more subscribers in FY2019-2020.
  • SolarizEgypt installed a photovoltaic (PV) system for Coca Cola, becoming the first independent power producer to install a solar rooftop for another private company.

ON YOUR WAY OUT

Injustice League: Batman vs Cairo Traffic: The caped crusader has been spotted operating in and around Sheikh Zayed this week. We were wondering what may have prompted Bruce Wayne (or Ahmed Abou Hashima for all we know) to fight crime in broad daylight in the Bat-tuktuk as daylight hampers visibility on the bat signal. Whatever it was, we hope it wasn’t an emergency, because Cairo Traffic might be proving a nemesis more worthy than the Joker (watch, runtime: 00:31).

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).

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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