Bye bye, Agent Orange.
Plus: IMF gives Egypt top marks for response to pandemic’s economic fallout.

Good morning, everyone. A very smart Egyptian-American friend of ours recently likened us all to “non-voting subjects” of a global American sphere of influence. Are you educated? A participant in this thing called global capitalism? Like the idea of democracy? Then your wagon is tied to Amreeka whether you like it or not, however much we may admire a softer approaches to capitalism and more sensible approaches to things like social welfare and inclusion (cf: Canada, France, Scandinavia).

And so it is that we cheer this morning the departure of Agent Orange and the swearing in at 7pm CLT of decent human beings as president and vice president of the United States.

Joe Biden will be sworn in today at noon Washington time as the 46th US president at the Capitol in Washington, DC. Kamala Harris will become the 49th vice president — and the first woman and first person of color to hold the position.

The event this year has been marred by the threat of violence and all 50 US states are bracing themselves, with several already seeing armed demonstrations. Meanwhile, the departing president (can we all stop saying his name now?) is throwing himself a farewell party, having requested a red carpet, a military parade (which he may not get), and a large crowd of supporters, reports the Guardian.

Biden will start to roll back the clock to 2016 from day one, signing executive orders to end the travel ban on Muslim-majority countries and rejoin the Paris climate agreement, reports CNN. He will also take executive action to freeze evictions and student loan payments during the covid-19 pandemic, and maintain the travel ban on the UK and much of Europe. You can also look for him to appoint an antitrust czar at the White House.

Expect to see a more liberal USD, swift stimulus, and climate change action- The key takeaways from incoming Treasury Secretary Janet Yellen’s Senate confirmation hearing:

• Expect big stimulus: The former Fed chair urged Congress to “act big” and push ahead with a large stimulus package to prop up the US economy.
• Democrats accept Agent Orange’s tax cuts: Yellen said the administration has no plans to raise corporate taxes to pre-2017 levels to fund the extra spending.
• A hands-off approach to the greenback (QE aside): The US will oppose attempts by other countries to manipulate their currencies, she said, pledging to take a hands-off approach to the currency.

US stocks climbed higher on Yellen’s statements: The S&P 500 blue-chip index was up 0.5%, the Dow Jones 0.4%, and the Nasdaq 0.6% as expectations that the Biden administration will push for large-scale stimulus measures.

Republican heavyweight Mitch McConnell finally seems to be taking off his MAGA hat. The Senate majority leader yesterday explicitly blamed Trump for the siege on Capitol Hill, accusing him of “provoking”his loyalists into attempting to prevent the certification of the election. This comes as Republicans mull which way to vote in Trump’s upcoming impeachment trial.

The lightest, most fun piece on the transition of power today: They prepare the White House for a new president. They have 5 hours.

WHAT’S HAPPENING TODAY-

Rumors of a cabinet shuffle continue to swirl: More names have been added to the list of ministers suspected to be on their way out of government should a cabinet shuffle come to pass. Sources told Al Shorouk that the aviation, higher education, irrigation, local development and manpower ministers, among others, could all be heading for the exit. Sources claimed earlier this month that members of the cabinet’s economic group were all safe, but that the environment, culture, and tourism ministers could leave the stage.

Egypt faces Russia at the 2021 Handball World Championships at 7pm CLT today before taking on Belarus at 4:30pm CLT on Friday and Slovenia at 7pm CLT on Sunday.

*** 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: We explore how the “oil-for-development” agreement — our most recent and expansive mechanism for infrastructure diplomacy — is stoking excitement among Egyptian infrastructure developers, who see it as a chance to expand overseas. Insiders tell us, though, that greater clarity from policymakers and additional incentives will be needed before they fully commit to the agreement.

Egypt’s “proactive and targeted response” to the economic fallout from the pandemic helped Egypt fare better than observers had expected, said Said Bakhache, the IMF’s senior resident representative in Egypt. Speaking at a webinar we attended yesterday on the economic policy response to covid-19, Bakhache spoke highly of how an aggressive economic reform program starting in 2015 — including the phasing out of ruinous energy subsidy — combined with healthy FX reserves to help Egypt weather the covid storm.

With economic indicators pointing in the right direction, it’s unlikely Egypt will need further IMF funding by the end of the current fiscal year, Bakhache said. “Within the approved budget there are sufficient contingencies to allow the government to shift resources and priorities, and on the monetary side reserves are at a comfortable level,” said Bakhache, noting that engagement with the IMF after the current standby facility wraps up will be dependent on what the Egyptian government’s goals are.

But economic growth doesn’t mean inclusive growth: “We would like to see more of a spillover from these nice macro numbers into more employment. Egypt needs higher levels of inclusive growth,” Bakhache said. The growth reflected in Egypt’s macro indicators has been rooted more in consumption than in investment, which has been largely driven by government spending. A deepening of structural reforms, a rethinking of import barriers, and a focus on job creation will be key going forward, he said.

THE CONTINENTAL PERSPECTIVE- African countries should take advantage of today’s high-liquidity environment to improve their borrowing profiles, said Elina Ribakova, deputy chief economist at the Institute of International Finance in Washington. Ribakova advises developing economies to “be very opportunistic in terms of your borrowing and don’t be too enthusiastic and borrow at any terms, and develop relationships with investors.” Acknowledging the diversity of the region’s monetary policies, Ribakova said further stability and predictable policy was needed to attract longer term investments.

On vaccine distribution efforts in the continent, Bakhache said IMF facilities for budget support did not specifically take into account a scheme for vaccine acquisition, though Marina Wes, World Bank country director for Egypt, Yemen and Djibouti, said the World Bank does have facilities for vaccine purchase that are being developed in some low-income countries in Africa, considering the general underdeveloped state of healthcare services across the continent. Support programs are important, says Ribakova, since “if there are pockets of infections it will still come back to affect the global economy.”

But don’t expect a quick recovery once vaccines are doled out: Wes said the World Bank does not forecast a V-shaped curve indicating a sudden bounceback. “We expect the pandemic will scale down potential output for some time. It will be a slower rebound where it will take a couple of years to get back onto the growth path.”

Egyptian state-owned companies are “eclipsing” the private sector despite IMF-backed structural reforms designed to reorientate the economy toward private sector growth, Reuters writes. Revenues at 17 non-oil, public sector holding companies more than doubled from July 2016 to June 2019 to EGP 60.6 bn, while income after tax more than quadrupled, according to Reuters calculations using Finance Ministry data (pdf).

Meanwhile, in the private sector: Non-oil private sector activity expanded in only five of the 36 months during the same period, Reuters says, pointing to the IHS / Markit Purchasing Managers Index.

Ready for the caveat? It’s a bit of an apples to oranges comparison, as the PMI does not measure revenue or profit, but is a “composite gauge” that reflects the sentiment of purchasing managers at 400 private-sector companies. The gauge dipped into contraction territory in December after edging into expansion the month before.

And please don’t get us started on the many ways to gin up paper profits at moribund state holding companies…

Still, Reuters is picking up on a theme the World Bank touched on recently, writing in a report last month that tax exemptions and weaknesses in antitrust legislation as applied to state-owned businesses have a dampening effect on private sector growth. The economic reform program, it said, is yet to make a meaningful impact on private investment, which continues to lag behind the historical average despite strong economic growth.

Market effect plays a role here: There’s been a pullback from foreign direct investment globally in the past four years amid turbulent conditions. Consider this: FDI in Egypt fell between 2016 and 2017 (and paused again in 2020 thanks to the pandemic), but the country’s share of global FDI rose at the same time even as the global market for investment shrank.

High interest rates — necessary to lure in the carry trade and rebuild FX reserves — have been a big brake on private investment. With rates sky-high after the float of the EGP, we’ve seen a three-year period in which it has made no sense for private-sector companies to take on debt to finance capital expenditures. Conventional wisdom among bankers is that capex borrowing will only start to stage a comeback later this year as rates continue to ease. And in the 12-18 months before the float, private investment stalled because FX simply wasn’t available at the official market rate.

The USD 5.2 bn standby loan agreed with the IMF last year is partly conditioned on the government making it easier for private firms to compete against SOEs and improving the transparency of public sector organizations.

The story also notes that the privatization program is yet to deliver the goods, largely due to poor market conditions, most recently thanks to the slump in investor interest in emerging markets that accompanied the global pandemic.

A new plan to bring the private sector into the fold? “The government plans to allow the private sector to manage several SOEs on behalf of the public sector in the transportation, tourism and housing sectors,” a Finance Ministry spokesperson told Reuters. Meanwhile, the Sovereign Wealth Fund is shopping military-owned companies to private investors at home and abroad, starting with Wataniya Petroleum and bottled water producer Safi. The two subsidiaries of the military’s NSPO could be fully privatized and will likely see 70-80% stakes offered to the private sector.

We’re on track to receive 7 bcm of natural gas from Israel through new and improved pipelines in the EastMed: Chevron, Delek Drilling and Israel Natural Gas Lines (INGL) will spend USD 235 mn to lay a new subsea pipeline and upgrade existing lines, enabling the companies to ship 7 bcm of natural gas to Egypt each year, Bloomberg reports, citing a Delek statement. The new line will connect the Israeli coastal cities of Ashdod and Ashkelon, the latter of which is linked to Egypt via the EMG pipeline.

In details: The new pipeline is expected to cost USD 228 mn with the remainder being spent on expanding other lines, Delek said, without specifying which pipelines would receive investment. Delek and Chevron will pay for 56% of the new line, and INGL — which will build it — will cover the remaining 44%.

A year of imports: Egypt began importing gas from Israel’s offshore Tamar and Leviathan gas fields under the landmark USD 19.5 bn agreement in January last year. Delek and former operator Noble Energy were reportedly aiming to send 1.5-3 bcm Egypt’s way in 2020 before gradually increasing the supply to 4-5 bcm in 2021 and 7 bcm in 2022. The agreement will see Egypt import 85.3 bcm of gas between 2020 and 2034.

Chevron- The new company on the block: The US energy giant acquired Noble Energy for USD 5 bn last year, giving it a 39.7% stake in Leviathan and 32.5% of Tamar.

UK-based nutraceutical player Vitabiotics will invest EGP 1 bn in its Egypt arm over the next five years to expand production capacity, Vitabiotics Egypt Chairperson Yasmine Zayed tells Amwal Al Ghad. The investment is expected to finance upgrades to the group’s manufacturing capabilities which will allow Vitabiotics Egypt to locally produce 24 additional products here. Vitabiotics’ local arm is a joint venture with Magic Pharma.

Meanwhile, keep an eye on Macro Pharma: The Alta Semper-backed company is an industry leader and has hired CI Capital and Rencap to quarterback an IPO in the first half of this year.

IN OTHER INVESTMENT NEWS- DB Schenker and DHL are interested in getting involved with more logistics projects in Egypt, German ambassador to Egypt Cyrill Nunn told Transport Minister Kamel El Wazir yesterday. DB Schenker’s Egypt arm is already working on the Sixth of October dry port build-operate-transfer contract as part of a consortium with Elsewedy Electric.

A fresh EGP 170 mn securitized bond issuance EFG Hermes is looking to take to market should soon get regulatory approval, Financial Regulatory Authority head Mohamed Omran said yesterday, according to Hapi Journal. The FRA hopes to increase debt instrument issuances by 15-20%, said Omran, particularly considering the increased recent surge in securitized bond issuances.

WHO’S IN THE MARKET FOR DEBT?

El Nasr wants money for its EV venture: El Nasr Automotive is in negotiations for a EGP 1.4 bn syndicated loan from four banks to finance its electric vehicle assembly facility, El Nasr Managing Director Hany El Kholy tells Al Mal. The company is seeking funds to cover 70% of the factory’s costs from CIB, the National Bank of Egypt, Banque Misr, and Banque du Caire. El Nasr was said to have been in negotiations in November with a syndicate of local banks for a EGP 2 bn facility.

This comes a day after the company signed the final contracts with China’s Dongfeng. The two companies plan to eventually produce 25k electric vehicles per year at an expected cost of some EGP 2.5 bn.

Banque Misr has signed an agreement with the European Investment Bank for the first EUR 425 mn tranche of a EUR 750 mn loan for on-lending to SMEs, the bank said in a statement (pdf). The proceeds will be used to provide six-year loans to help SMEs cope with the repercussions of covid-19.

Palm Hills Development’s board of directors signed off on a EGP 1.28 bn loan from a syndicate of banks led by the National Bank of Egypt for funding of the company’s The Crown development, according to an EGX disclosure (pdf).

EFG Hermes topped brokerage league tables in Egypt, Dubai, Kenya and Kuwait in 2020, according to a press release (pdf). EFG topped the EGX’s brokerage league tables all year to capture 36.4% market share, while the investment bank boasted market shares of 32.5% in the Dubai Financial Market and 58.3% in Nasdaq Dubai. Over in Kenya, EFG captured 52% of the market only three years after entering the market, “significantly outpacing all other players.” The firm also consolidated its seat at the top of Kuwait’s brokerage league table for the third consecutive year as trading activity picked up before and after the MSCI event in November, which saw the market upgraded to EM status. The upgrade helped EFG set a record for the number of total executions across the MENA region with USD 2.7 bn traded.

The firm remained among the top players in Abu Dhabi, Nigeria, and Oman and was the number two foreign broker in Saudi with a market share of 2.2%. EFG Hermes currently operates in 12 markets in MENA and covers some 75 frontier markets.

EFG sees growing foreign inflows into frontier and emerging markets as an asset class, said Ali Khalpey, CEO of EFG Hermes Frontier. The firm will work to “gain greater footing in Sub-Saharan Africa as well as Southeast Asia by launching new products, offering new services, and creating partnerships,” he added.

Work on the USD 23 bn high-speed electric rail network will begin towards the end of the year, CEO Osama Bishai told Al Arabiya yesterday. It’s going to take 6-8 months to put financing in place, he said. OC is responsible for 15-35% of the construction works on the project’s first phase, which will cost USD 3 bn. OC, Arab Contractors, and Siemens signed an MoU with the National Authority for Tunnels this week to design, install, and commission the rail system. The railway will link Ain Sokhna to El Alamein via the new administrative capital and Alexandria.

The Unified Tax Act’s executive regulations are up for public consultation after the Finance Ministry finalized the draft regulations, according to a ministry statement. Among those giving their input and feedback on the regs (pdf) until 4 February: The Federation of Egyptian Chambers of Commerce, the Egyptian Tourism Federation, the Egyptian Federation of Investors Associations, and the Federation of Egyptian Industries.

Refresher on the law: The Unified Tax Act, which was passed last year, saw the creation of Egypt’s unified tax platform, which went live earlier this month as a key part of the government’s plan to overhaul tax administration, encourage informal businesses to go legit, stimulate investment, and grant authorities better oversight on commercial transactions and tax accounts. Its trial launch follows the rollout of the first phase of a new e-invoicing system (which will eventually be linked to the core system) and recent amendments which obliged companies to file their taxes electronically as of this year. The act also imposes tighter deadlines on companies filing VAT returns and imposes penalties on late filers.

Draft sukuk bill gets committee approval

The draft sovereign sukuk law earned a preliminary nod yesterday from the House Economic Committee, the committee's deputy head Ahmed Farghal tells Al Mal. The legislation would put into place a framework governing how sukuk are created and traded, and define the rights and responsibilities of investors. Check out our explainer for the lowdown on how sukuk work.

The top two executives of a well-known accounting and auditing firm were arrested yesterday on charges of attempting to bribe a senior Tax Authority official, the Finance Ministry said in a statement. The Administrative Control Authority made the arrest after it found that the executives were trying to understate the tax dues of one of their major clients, the ministry said without revealing the names of the firm or its owner. Salah Mohammady Ibrahim, who heads an arm of the Tax Authority which handles joint stock companies, was the official who resisted the carrot, two sources who spoke to Enterprise on condition of anonymity confirmed.

A slowdown in imports during the pandemic helped narrow Egypt’s non-oil trade deficit by 17% y-o-y in 2020, falling to USD 38.3 bn in 2020 from USD 46.2 bn in 2019, Trade Minister Nevine Gamea said in a statement. Non-oil imports fell 12% during the year while exports declined 1%

Remember: These figures don’t include oil and gas trade, whose deficit continued to widen in 1Q and 2Q due to collapsing exports. This means that the country’s overall trade balance probably doesn’t look quite as rosy as the non-oil figures imply.

At the top of the class: Construction, which saw the value of exports rise 20% last year to hit EGP 6.1 bn.

And the top destinations? The UAE, US, Italy, Saudi Arabia and Turkey, which received 36% of our total exports last year worth some USD 9 bn.

SPEAKING OF EXPORTS- Fees on nitrogen fertilizer exports will remain in place but will be reduced to EGP 250 per tonne, down from EGP 550 per tonne, according to a Trade Ministry decision issued yesterday. The fees were imposed on local fertilizer manufacturers back in 2018 when companies began to fall behind on their monthly deliveries to the state and direct their output towards exports. Fertilizer companies had then said they lose as much as EGP 250 per tonne when selling their output to the government — which provides the commodity to farmers at a subsidized price. The fee is meant to discourage fertilizer manufacturers from the practice and ensure the government has its needed supply.

The main event on the airwaves last night: Masaa DMC’s extended interview with World Bank senior VP and former investment minister Mahmoud Mohieldin. The broadcaster’s YouTube channel is down at the moment, so you can only check out half of the discussion here on El Face (watch, runtime: 10:29).

Here are the key takeaways:

It’s still too soon to tell what path the global economy will take, Mohieldin said. Current IMF / World Bank projections have global GDP coming in at 4-5% this year, though this will be conditioned on a fast vaccine rollout and the avoidance of debt crises. But even if global growth does mount a strong recovery, this is unlikely to be evenly distributed, with countries such as China and India seeing c.8% growth and states in Africa lagging behind at 2-3%.

Much more needs to be done to help poorer countries fight the pandemic: Low-income countries require some USD 26 bn to receive adequate supplies of vaccines, Mohieldin said. Developed and some emerging countries need to step up to the plate and provide quick funding to the less fortunate or the world risks the pandemic dragging on for longer. By the end of this year, developed countries will have completed vaccination of 60-70% of their populations, however according to some projections some developing countries won’t receive the jabs before 2023-2024, he said.

The time is now for investment in digital: Investment in productivity-enhancing areas of the economy such as digital technology will be critical if the world is to see a strong recovery from the covid crisis, he suggested.

A jobs apocalypse at the hand of technology isn’t a dead cert: The automation brought about by the fourth industrial revolution doesn’t have to result in huge job losses. Although mns of jobs will be made redundant by new technologies, Mohieldin said that new jobs will be created too. It will, however, be important for governments to step in with adequate social protection as societies transition towards a heavily automated future.

Also on the airwaves: Ala Mas’ouleety’s Ahmed Moussa invited on a stream of MPs to berate Information Minister Osama Heikal, who had his turn to address the House of Representatives yesterday. Guests accused him of breaking the law (watch, runtime: 4:16), failing to address issues with the media (watch, runtime: 8:28).

The mega-welfare project known as Egyptian Iron and Steel just doesn’ want to go down without a fight: The Egyptian Trade Union Federation will file a lawsuit against the government’s decision to liquidate the company. The company officials have (rightly, if you ask us) refused to consider a turnaround proposal, the union said in a statement yesterday.

Other things we’re keeping an eye on this morning:

• Prime Fintech’s Endorse will launch its factoring and leasing services this month, with an eye to offer consumer finance services shortly thereafter.
• Al Shrook Scan will invest EGP 200 mn over the next two years to construct new medical labs in Cairo and their first Alexandria branch.

The Health Ministry reported 899 new covid-19 infections yesterday, up from 878 the day before. Egypt has now disclosed a total of 158,174 confirmed cases of covid-19. The ministry also reported 58 new deaths, bringing the country’s total death toll to 8,696.

Emirates and Etihad Airways are adopting the International Air Transport Association (IATA) Travel Pass app, which can be used by passengers to verify their covid-19 test results and show airlines and authorities whether they’ve been vaccinated, the two airline operators said (here and here). Emirates is expecting to trial the app in April.

IN DIPLOMACY: Libyan rival officials held talks in Hurghada yesterday to determine constitutional arrangements that would set the stage for an upcoming presidential and legislative elections, which peacemakers hope to hold on 24 December, the UN support mission in Libya said in a statement. Officials from the eastern Libya-based Tobruk parliament and the UN-recognized High Council of State were urged by acting UN Libya envoy Stephanie Williams to wrap up talks in no more than two months to meet a political settlement roadmap laid out in Tunisia last November. The Libyan Political Dialogue Forum, which has 75 members that represent all Libyan walks of life, has already agreed on a mechanism to appoint a unified transitional government until the elections are held, the UN support mission said.

13-31 January (Wednesday-Sunday): Egypt will host the 2021 Men’s Handball World Championship in four venues in Alexandria, Cairo, Giza and the New Capital.

19 January (Tuesday) Financial Regulatory Authority’s (FRA) annual conference on non-banking financial services.

19-22 January (Tuesday-Friday) Global Energy Forum, Abu Dhabi, UAE. The Atlantic Council-organized event will focus on the post-pandemic energy system.

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

25-29 January (Monday-Friday): The World Economic Forum’s “Davos Dialogues” (virtual)

26 January (Tuesday): Uber will host a virtual panel discussion titled ‘Tech for Transport Safety’, which will be the inaugural panel in a MENA-wide series of events under the name Ignite.

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

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

31 January (Sunday): The deadline for businesses to electronically submit their annual tax return to the Egyptian Tax Authority.

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

6-18 February (Saturday-Thursday): Mid-year school break (public schools — enjoy the break from bumper-to-bumper traffic).

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

8-10 April (Thursday-Saturday): The TriFactory’s Endurance Festival at Somabay.

13 April (Monday): First day of Ramadan (TBC).

25 April (Sunday): Sinai Liberation Day.

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

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

1 May (Saturday): Labour Day (national holiday)

3 May (Monday): Sham El Nessim.

13-15 May (Thursday-Saturday): Eid El Fitr (TBC).

18-21 May (Tuesday-Friday): The World Economic Forum’s annual meeting “The Great Reset”

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

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

1 June (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).

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

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

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

30 June (Wednesday): June 30 Revolution Day

1 July: (Thursday): National holiday in observance of 30 June Revolution

30 June- 15 July: National Book Fair.

1 July (Thursday): Large taxpayers that have not yet signed on on to the e-invoicing platform will suffer a host of penalties, including removal from large taxpayer classification, losing access to government services and business, and losing subsidies.

19 July (Monday): Arafat Day (national holiday)

20-23 July (Tuesday-Friday): Eid Al Adha (national holiday)

23 July (Friday): Revolution Day (national holiday)

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

9 August (Monday): Islamic New Year

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

1 October (Friday): Expo 2020 Dubai opens

6 October (Wednesday): Armed Forces Day

7 October (Thursday): National holiday in observance of Armed Forces Day

18 October (Monday): Prophet’s Birthday

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

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

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

Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish below between the actual holiday and its observance.