Wednesday, 28 July 2021

Egyptian economy to grow 4.5-5% in 2Q2021 -RenCap

TL;DR

WHAT WE’RE TRACKING TODAY

MPs are packing their bags for Sahel: The House broke for summer recess yesterday, ending the first legislative session of the new parliament that started on 12 January, Masrawy reports. The Senate went on recess on 19 July.

What does this mean for the rumored cabinet shuffle? The parliament could be called by the president for an emergency session to approve the shuffle, MP Ayman Abou Alaa told Masrawy. Sources have told multiple outlets in recent days that a major government shake-up could take place this week or the next, with some claiming that we could be seeing as many as 11 new faces on the cabinet.

WHAT’S HAPPENING TODAY-

The Clean Energy Business Council will host a webinar focused on female entrepreneurs in the MENA renewable energy scene at 3 pm.

A Russian delegation arrived in Egypt yesterday for a four-day visit to assess the covid situation in Hurghada and Sharm El Sheikh before direct flights between Russia and the Red Sea resort towns resume next month, Youm7 reports. The team will inspect preventative measures in place at the two airports and some hotels in the cities. Flights are expected to resume on 9 August following a six-year hiatus due to the 2015 Metrojet crash.

*** CATCH UP QUICK with the top stories from yesterday’s edition of EnterprisePM:

  • SODIC closes EGP 343 mn securitized bond sale: The bonds were issued in two tranches with tenors of 13 and three years and ratings of AA+ and A.
  • GoodsMart gets funding: Online grocery shopping service GoodsMart has secured USD 3.6 mn in funding in a round led by Sawari Ventures.
  • Barrick Gold signs four gold exploration contracts: The Canadian miner has inked four gold exploration contracts worth a combined USD 8.8 mn for 19 blocks in the Eastern Desert.

GLOBAL EARNINGS WATCH- Apple, Alphabet and Microsoft continued where Tesla left off yesterday, smashing 2Q earnings expectations.

  • Apple’s net income almost doubled to USD 21.7 bn during the quarter, compared to an expected USD 16.6 bn. Revenues rose to a record USD 81.4 bn.
  • But that didn’t stop its share price from sliding: Apple shares fell almost 3% in late trading after the company warned that supply chain disruptions will affect iPhone and iPad sales in the current quarter.
  • Google parent Alphabet reported USD 18.5 bn net income, compared to USD 3.1 bn that analysts were expecting. Revenues came in at USD 61.9 bn vs the estimated USD 56.2 bn.
  • Microsoft made net income of USD 46.2 bn during the quarter, up from the expected USD 14.5 bn.

The story was everywhere in the business press last night: FT | Wall Street Journal | Bloomberg | Reuters | CNBC.

CIRCLE YOUR CALENDAR-

Startups have until this Thursday, 29 July, to apply for round two of the Green Works Growth Acceleration Program, which aims to support green enterprises in Egypt. The 10-month program is supported by Hivos and implemented by Nahdet El Mahrousa and will see 10 startups receive financial and non-financial support. Chosen startups will be eligible for up to EGP 250k in funding. You can read more about eligibility requirements and the program here (pdf) and register using this form.

Egypt will host the Africa Food Manufacturing exhibition at the Egypt International Exhibition Center on 2-4 August.

The Central Bank of Egypt will meet to review interest rates on Thursday, 5 August.

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

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*** 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, and urban development, as well as social infrastructure such as health and education.

In today’s issue: We sit down with Samaila Zubairu, president and CEO of the Africa Finance Corporation, to discuss Egypt’s membership in the lender, its investment plans, the country’s infrastructure gaps and how Africa can harness the global move towards renewable energy.

enterprise

We can’t wait to see the endurance sports community back at Somabay, taking on the Supersprint, Sprint, Olympic, Youth, & Kids Races. Early-Bird Registration for the Somabay Endurance Festival is now open.

ECONOMY

Economy to grow 4.5-5% in 2Q2021 -RenCap

The Egyptian economy will grow by 4.5-5% in 2Q2021 and will continue to gather momentum through the rest of the year, Renaissance Capital economists said during a press briefing yesterday. The investment bank is also maintaining its forecast for 4.2% growth in 2021, which it believes will accelerate to 5% next year.

What’s driving growth? Anticipated growth will come off the back of recovering tourism, an uptick in portfolio inflows, economic recovery driving imports, continued easing of pandemic restrictions and the vaccination program.

The base effect is also at play: The strong quarterly figures are also partly due to the low base effect that saw the economy contract by 1.7% in 2Q2020, said RenCap’s head of research in Africa Yvonne Mhango.

Recovering tourism is a driving factor: Tourism will once again start making a positive contribution to growth in 2Q2021, Mhango said. May 2021 saw 1.5 mn passengers pass through Egypt’s airports — a more than 20% y-o-y increase from May 2020. But tourist numbers in May 2021 are still a third below what was seen pre-pandemic, which suggests the sector is still in recovery, Mhango added.

All of this impacts our current account deficit — which should widen in 2021, then remain flat in 2022: RenCap is expecting a current account deficit of around 4% of GDP for 2021, up from 2020’s 3.1%, said Mhango. Declining tourism revenues have been a driving factor in the current account deficit. But the anticipated recovery, and an uptick in imports, means the deficit will likely remain flat at 4% in 2022, she added. “In spite of the current account deterioration, growth is returning to the economy, so we’re quite encouraged by that.”

Recovering portfolio inflows are also helping to drive growth: 2021’s uptick in portfolio inflows has also been a positive sign, said Mhango. While 2Q 2020 saw a negative balance — more outflows than inflows — “we’ve seen a significant recovery since then.” Egypt’s high real rates meant that inflows recovered rapidly in the months following the covid-induced EM sell-off, rising from a nadir of USD 10.4 bn in May 2020 to USD 26 bn in January. The pace of inflows has since slowed, with foreign holdings rising to USD 29 bn as of May.

The carry trade will continue to draw interest: Egypt’s high interest rates will continue to be a significant draw for portfolio investment, RenCap believes. “Two-thirds of portfolio inflows in 1Q2021 were to the debt market, and that will be sustained, I think,” said Mhango.

Which means changes to interest rates are unlikely: RenCap expects the policy lending rate to remain at 9.25% through the end of 2022, said Mhango. “We don’t expect to see cuts, which would undermine the interest rates drawing the capital inflows that are financing the current account.”

We also remain on track for single-digit inflation, with “contained” non-food inflation offsetting rising food prices: Global increases in food prices do bring the risk of short-term inflation, which was a little concerning earlier in the year, as Egypt imports much of its food, said Mhango. Food inflation for June 2021 stood at just over 3% y-o-y, and will likely continue ticking up. But non-food inflation has been much softer, helping keep headline inflation relatively contained at 4.9%, she added. “We’re expecting mid-single digit inflation — another reason we expect interest rates to remain relatively flat.”

What macro risks should we watch out for? A slowdown in the global recovery would undermine current growth momentum, impact global trade, and have a knock on effect on the Suez Canal operations, said Mhango. Hiking US interest rates would slow emerging market inflows and undermine the carry trade. While this isn’t expected, “it’s certainly a risk and something to watch out for moving forward,” said Mhango. And the relatively slow pace of Egypt’s vaccination program — only 3.6-4% of the population has received the first dose of the vaccine compared to some 27% in Morocco — could mean restrictions need to be tightened again during forthcoming covid-19 waves, undermining the recovery, she added. High oil prices could also add pressures to the current account deficit and inflation, with Egypt being a net importer.

RenCap is optimistic about equity market performance in 2H2021 — especially towards 4Q2021: The dynamics dominating the market for over a year — with non-Egyptian institutions being net sellers and local institutions the only clear buyers — appear to be shifting, said RenCap’s head of MENA research Ahmed Hafez, indicating that the foreign institutional sell-off seems to be coming to an end. RenCap has clocked a drop in activity by foreign investors, which usually indicates market reversal, he added. All this is driving optimism about market performance in 2H2021.

Retail investors are coming back to conventional names — another indication of a market shift, says Hafez. The last month has seen an uptick in EGX activity from some of the more conventional blue chip names in the market, along with rising interest in real estate, fertilizers, steel, refining, cement and big cap names, he added.

RenCap is looking at “a good, solid pipeline” of IPOs and other activity moving into 1H2022, said Amr Helal, North Africa CEO. “We’re a joint global coordinator on an e-finance IPO — part of the government IPO program — which will hopefully come through this year.” RenCap has two or three more IPOs it expects to take to market between the end of 2021 and beginning of 2022 in sectors including healthcare, industrials, commercial real estate, he added.

EGP valuation remains attractive: The gap between Egypt and other emerging markets is still triple its historical average, said Hafez. The MSCI EM Index has traded at 2.1 times higher 12-month forward earnings multiple compared to the MSCI Egypt over the past 10 years, according to Bloomberg, and this gap has notably widened since the pandemic outbreak. Over the past month Egypt has outperformed in USD terms, which has helped to narrow the gap, although it’s still at a 6x difference, he said. “We believe that this level of valuation is very attractive.”

M&A WATCH

Tycoon to officially kick off bid for ANFI

Tycoon Holding gets FRA nod to launch MTO for ANFI: Shareholders of Alexandria National Company for Financial Investment (ANFI) will soon be able to sell their shares to Tycoon Holding after the Financial Regulatory Authority yesterday approved (pdf) its mandatory tender offer to acquire 90% of the listed company.

What’s the offer? Tycoon wants to buy a 90% stake (or (4.7 mn shares) of ANFI for EGP 6.25 per share, valuing the company at EGP 32.7 mn.

We’re not sure when exactly subscription will kick off: The FRA said the subscription period would start within two days of the MTO being approved, meaning it will start either in today’s trading session or tomorrow. The MTO will end within 10 working days.

The highest offer so far: Tycoon recently raised its bid from EGP 5.60 per share to EGP 6.25, beating Compass Capital’s EGP 6.12 offer, and Zeta investments’ EGP 6 bid that was rejected by shareholders earlier this month.

Tycoon first entered the bidding race for ANFI last June, joining other bidders including Kayan Sustainable Development, Zaldi Capital, and a group of investors including Egyptian businessman Ahmed El Saba and Saudi Arabia’s Mostafa El Humeidan

Who’s the seller, again? ADIB wants to exit ANFI, which it considers a non-core business. The Gulf lender owns almost 85% of ANFI, holding 9% directly and the remainder through its KWIN and ADI Lease subsidiaries.

COVID WATCH

Gov’t to start handing out covid travel certificates soon

That vaccination certificate you get when you receive your shot: You can’t use it to travel. The current vaccination certificates being handed out to people are not internationally-accredited documents that can be used for travel purposes and are only meant to document the receipt of the vaccines, Mohamed Abdel Fattah, head of the Central Department of Preventive Medicine at the Health Ministry told El Hadidi (watch, runtime 12:44).

So how do we travel? The Health Ministry will open centers for those who want to get vaccinated for travel purposes in the coming days, he said. Those wishing to travel have to show their passport, visa or airline ticket at the center to get the vaccine required by the country they're going to, and obtain a documented vaccination certificate.

Yes, but: Travelling to Europe or the US requires you to have been vaccinated with either the Pfizer, Moderna, AstraZeneca or Johnson & Johnson vaccines — all of which either don’t exist in Egypt or are in very short supply. We’re supposed to be receiving some 25 mn doses of J&J through the African Union, but we’re unlikely to get all of these for another year. The AU will start distributing 6 mn doses to countries next week, and 45 countries are expected to have received shipments by the end of August.

The Health Ministry reported 31 new covid-19 infections yesterday, down from 35 the day before. Egypt has now disclosed a total of 284,090 confirmed cases of covid-19. The ministry also reported four new deaths, bringing the country’s total death toll to 16,498.

Tokyo reports new record of covid-19 cases: The Japanese capital reported a record 2,848 new cases of covid-19 on Tuesday, days after the beginning of the long-delayed Olympic Games, the Associated Press reports. Prime Minister Yoshihide Suga said he still isn’t considering the suspension of the Olympics but urged people to abstain from unnecessary outings. The games have gone ahead despite calls for their postponement and widespread public criticism that Olympics officials are jeopardizing public health. The event organizers recently announced a total of 153 cases of covid-19 including three athletes.

The fight against Malaria could be getting a boost thanks to covid after BioNtech announced that it would invest a portion of the proceeds gained from its mRNA covid-19 vaccine into making malaria and tuberculosis vaccines based on the same technology in Africa, the Wall Street Journal reports. The mRNA shots would be developed at a facility based in Africa and could once again put the company in competition with Oxford University, who earlier this year conducted early stage clinical trials of a malaria shot in Burkina Faso.

INFRASTRUCTURE

EBRD on board to finance Sixth of October dry port

EBRD to finance half of the Sixth of October Dry Port: The European Bank for Reconstruction and Development (EBRD) is providing the October Dry Port Company (ODP) with a USD 29.6 mn loan to part finance the development of the Sixth of October Dry Port (DP6), which will cost a total of USD 60 mn, according to the bank’s website. The greenfield project will be the first Private Public Partnership (PPP) in the dry port sector, and will be constructed on the outskirts of the city.

The project will be implemented under build-operate-transfer (BOT) structure, whereby a public entity grants a concession to a private company to build and operate a project for a number of years. ODP is a JV firm established as a special purpose vehicle in Egypt to implement the DP6 project. The company is 70% owned by El Sewedy Electric, while 20% is held by SLP for Logistic Properties and 10% by Schenker Egypt.

The DP6 project marks the start of the Green City Action Plan with the New Urban Communities Authority for West Cairo. The project will also be the first investment in Sixth of October City under the EBRD Green Cities Framework 2 Window 2, and will initiate the development of a Green City Action Plan for Sixth of October. The cooperation aims to identify priority environmental and climate change challenges facing the city and provide green investments and policy interventions to mitigate the impacts.

How is the project good for the environment? DP6 will be Egypt’s first inland dry port that acts as an extended gateway for the deep-sea ports located in the north and east of Egypt. The port is being built with ESGs in mind, and aims to transfer container traffic away from roads and railways to reduce road congestion, accidents and emissions. The project is expected to save over 14 mn liters of diesel and 40k tons of CO2 emissions per year. DP6 also aims to provide efficient customs inspections and clearance procedures, reduce congestion at seaports, create economies of scale, and improve the overall reliability and cost-efficiency of the logistics process.

The bank did not indicate a timeline for the implementation or completion of the project.

Egypt has recently been embracing the PPP model for infrastructure projects, greenlighting this month nine dry ports and logistics centers projects to be implemented under the framework including the Tenth of Ramadan dry dock and logistics hub.

INVESTMENT WATCH

La Mancha fund aims to raise USD 300-400 mn investments

La Mancha’s fund targets USD 300-400 mn contributions: Sawiris-run La Mancha is open accepting new investors in its new USD 1.4 bn mining fund, aiming to attract investments worth USD 300-400 mn, Chairman Naguib Sawiris told Al Arabiya in a phone interview yesterday (watch, runtime 7:19). The company announced this week that it is transforming itself into a fund, reaching a USD 1.4 bn first close with its current gold mining assets and a USD 100 mn contribution from an unnamed strategic investor.

Why the new fund? Sawiris has plans for new acquisitions in the gold mining industry, which represent a big share of the net worth of the Sawiris family. La Mancha already has 20-30% stakes in four listed companies, namely Endeavour Mining, Golden Star, Altus Strategies and Evolution Mining.

The strategy: La Mancha aims to both buy and restructure small and medium-sized businesses then merge them with larger entities in a bid to raise their production capacity and cut administrative costs, Sawiris said. These include listed companies valued at USD 200-300 mn which own one or two small mines and are in financial distress. The fund may also look for stakes in smaller mining outfits with “strong managerial and geological potential to implement a 3-to-5-year value creation strategy.”

The fund will be mainly focused on Egypt, thanks to the new amendments to the Mineral Resources Act, Sawiris noted. He wants to acquire more gold exploration licenses, after his Altus Strategies subsidiary Akh Gold won four licenses for nine blocks in the Eastern Desert earlier this year.

LEGISLATION WATCH

Water Resources Act gets final nod from House

The long-awaited Water Resources Act got its final approval by the House in the final session of the parliamentary cycle, the cabinet said in a statement yesterday. The new law aims to regulate how the country utilizes its water resources, especially in the light of threats from climate change and the Grand Ethiopian Renaissance Dam, while reducing the use of some of the nation’s canals for agriculture and reducing water wastage. The law has been in the works since at least 2017, when it received cabinet approval, but it was delayed several times until the draft got a nod from the House Agriculture Committee in 2019.

About the law: The law would make farmers pay fees worth EGP 1,250 for a renewable five-year license to set up pumping stations on the Nile and irrigation canals, as well as EGP 5k to obtain a five-year license for drilling underground wells. But smallholders who have 10 feddans or less and farmers who use non-mechanical small pumping equipment will be exempted from having to purchase a license.

What’s next? The law will be sent to President Abdel Fattah El Sisi for a ratification, with the bill’s executive regulations to be reviewed by the cabinet before being issued.

STARTUP WATCH

Bosta plans to land in Saudi Arabia by early next year

Egyptian courier startup Bosta plans to enter the Saudi market by early 2022, as part of the company’s plans to expand its presence in the Gulf region, co-founder and COO Omar Yaghmour told Al Mal. The company is also eyeing the UAE and Kuwait Yaghmour said. Bosta seems to have slightly delayed its plans, having previously said it would expand to the UAE and Saudi Arabia expansion in 2021, and to as many as seven countries in the coming five years.

Why Saudi Arabia? Saudi Arabia and the UAE account for almost half of the e-commerce industry in the Middle East and are both promising growth markets, Yaghmour said. The company also plans to expand further in Africa and is currently considering an entry into Kenya, Morocco, and South Africa.

The company is also coming off a bumper series A funding round that saw it raise USD 6.7 mn in May from several international and regional VC outfits.

INFRASTRUCTURE

Mwasalat Misr lands long-term contracts for new cities

Mass transport operator Mwasalat Misr will take charge of bus fleets in new cities under a 15-year contract with the New Urban Communities Authority, deputy general manager Mohsen Sabra said, according to Al Mal. The company, a provider of higher-end mass transport, will operate and maintain some 110 buses in six cities including Shorouk City, Badr, Al Obour, Sheikh Zayed, Tenth of Ramadan, and Sixth of October. It is expected to invest some EGP 1.5 bn in running the new routes and financing a fleet expansion. We tried reaching out to Mwasalat Misr to confirm the story and get further details, but a representative from the company wasn’t available as of dispatch time.

Mwasalt, which is majority-owned by Emirates National Group, previously operated fewer lines between cities including Sixth of October and Sheikh Zayed under short-term agreements.

enterprise

ENTERPRISE+: LAST NIGHT’S TALK SHOWS

The parliamentary recess was the main highlight of last night’s talk shows: Kelma Akhira’s Lamees El Hadidi had full coverage of the story, noting that the parliament will resume its sessions before the first Thursday of October (watch, runtime 1:02). Ahmed Moussa also had coverage of the final House session before the summer break (watch, runtime 4:36).

Tunisia’s political crisis is still getting attention from the talking heads: Yahduth Fi Masr’s Sherif Amer covered Tunisian president Kais Saied’s meetings with civil society groups, and spoke to Tunisian MP Amira Sharaf El Deen, who refused to call the president’s actions a coup but said it came as a response to protestors’ anger over the handling of recent spike in covid-19 cases (watch, runtime 5:50). She noted that freezing the parliament for one month might not be enough unless the country brings in the right people to power. Politician Mostafa El Feki told Amer that the Ikhwan have proved a political failure in Tunisia, though he noted that the current crisis doesn’t mean an end to their involvement in Tunisian politics (watch, runtime 5:52 I 3:04).

EGYPT IN THE NEWS

The political turmoil in Tunisia is leading coverage on Egypt in the foreign press this morning: The Washington Post’s Claire Parker notes the gleeful reaction of Egypt, Saudi Arabia and the UAE to the dissolution of the Islamist-dominated parliament in Tunis, and claims that the three countries have been engaged in social media operations to fuel the recent protests in the country. Meanwhile, Bloomberg’s Bobby Ghosh compares the events to the overthrow of the Morsi government in 2013.

Elsewhere, it’s a mixed bag:

  • Warraq building collapse kills 1: The Associated Press reports that a building collapse in Warraq yesterday left at least one man dead,
  • The Suez Canal, ours for 65 years: The Guardian digs into its archives to commemorate former president Gamal Abdel Nasser’s nationalization of the Suez Canal.
  • La Mancha in the pink paper: The Financial Times is also running a piece on Sawiris-backed La Mancha’s new USD 1.4 bn mining fund, which we covered earlier this week.

ALSO ON OUR RADAR

Tobacco and molasses manufacturing facilities have until the end of this year to legalize their status under a decision (pdf) by the Trade Ministry to set a deadline for companies to complete licensing procedures. The decision comes in response to several complaints by molasses manufacturers after the Industrial Development Authority stopped renewing expired licenses, which led to the closure of over 37 plants, Federation of Egyptian Industries’ tobacco division Ibrahim Imbaby told the local press.

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

  • IHG Hotels will launch four new Hotel Indigo branches in Sahel, New Cairo, Sixth of October, and Ain Sokhna between 2024 and 2028 after reaching an agreement with property developer Mountain View.
  • The board of tourism developer Remco has approved (pdf) a study (pdf) that sets the fair value of subsidiary Empain Tourism Investments at EGP 76 per share or a total of EGP 347.68 mn, ahead of a potential sale to unnamed local investors.
  • A female TikTok influencer and her friend have been handed a four-day detention order on charges of indecency and inciting debauchery.

PLANET FINANCE

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IMF warns of “lopsided” global recovery over vaccine inequity: Unequal access to covid-19 vaccines are widening the recovery gap between advanced and developing economies especially amid the resurgence of new cases and the delta spread, theIMF warned in in its World Economic Outlook update yesterday. This comes as the fund revised upwards its projections for developed countries by 0.5% to 5.6% this year but lowered its growth forecasts for developing countries by 0.4% to 6.3%.

The problem in a nutshell: "Close to 40% of the population in advanced economies has been fully vaccinated, compared with 11% in emerging market economies, and a tiny fraction in low-income developing countries," IMF chief economist Gita Gopinath said at a presser.

Developing economies are likely to suffer from a double knockdown effect: Emerging markets are expected to get a double hit “from worsening pandemic dynamics and tighter external financial conditions,” which will put its toll on their recovery and weigh on global growth.

The global picture: The Fund has left its global growth forecast unchanged at 6%, but has raised its 2022 projection to 4.9% from 4.1% in April.

How to address the vaccine gap? The IMF is urging advanced countries to share their surplus of vaccine doses of at least 1 bn with poorer nations this year. Gopinath also reiterated calls for countries to sign up to its USD 50 bn plan that it thinks can fully vaccinate at least 40% of the world’s population in a matter of months.

The story got plenty of digital ink in the global press: Reuters | AP | FT | CNBC | New York Times.

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THE CLOSING BELL-

The EGX30 rose 0.6% at today’s close on turnover of EGP 2.06 bn (41% above the 90-day average). Local investors were net sellers. The index is down 0.8% YTD.

In the green: MM Group (+4.0%), Telecom Egypt (+3.1%) and Fawry (+3.0%).

In the red: Orascom Development Egypt (-1.6%), Emaar Misr (-1.3%) and AMOC (-0.6%).

AROUND THE WORLD

Amid coup accusations, Tunisian president pledges to respect democracy: Tunisian president Kais Saied pledged to respect freedoms, the constitution and the rule of law during meetings with civil society groups yesterday, two days after firing the prime minister, dissolving parliament and imposing a night-time curfew, Bloomberg reports. Saied is trying to gain legitimacy for assuming executive power, an act which appears to enjoy considerable public support for ousting the unpopular Ennahda government but which the Islamist movement has dubbed a coup.

Israel, Palestine accused of war crimes during May fighting: Human Rights Watch has accused Israel and Palestinian militants of committing war crimes during the 11-day Gaza war in May.

IN DIPLOMACY: DRC, South Sudan officials in town for talks with Madbouly:

  • Prime Minister Mostafa Madbouly discussed strategic partnership and economic development with South Sudanese vice president James Wani Igga during the first session of the Egyptian-South Sudanese higher committee talks yesterday, according to a statement.
  • The Grand Ethiopian Renaissance Dam, water security, and bilateral cooperation over infrastructure, energy and technology were discussed by Madbouly and Democratic Republic of the Congo PM Sama Lukonde Kyenge during talks yesterday. The DRC is the current chair of the African Union, which is leading the GERD negotiations between Egypt, Ethiopia and Sudan.
hardhat

Enterprise talks to: Samaila Zubairu, president and CEO of the Africa Finance Corporation: Established in 2007, the Africa Finance Corporation (AFC) is a pan-African financial institution that focuses on upgrading the continent’s infrastructure. The lender has channeled more than USD 10 bn into projects in 35 countries since its founding, and while it hasn’t been that active in Egypt, this could change in the years ahead. The AFC could be ready to allocate more than USD 1 bn to Egyptian infrastructures in the coming years.

AFC President and CEO Samaila Zubairu is in town this week to discuss its investment plans with Egyptian officials. During talks yesterday, Planning Minister Hala El Said floated the idea of the AFC collaborating with state-owned vaccine maker Vacsera to distribute its covid-19 vaccines, and discussed proposals to work with the Sovereign Fund of Egypt in a number of areas including renewables, desalination, housing, and railcar manufacturing.

We sat down with Zubairu this week to talk about Egypt’s membership in the AFC, how much investment the corporation is looking to deploy in which sectors, the country’s infrastructure gaps and how Africa can harness the global move towards renewable energy.

Edited excerpts from our conversation-

The Cabinet has already approved Egypt’s membership in the AFC, so now it just needs to be ratified by the parliament. The talks we are having now are informal, but once the membership is ratified, there will be a formalized framework for engagement. This will include devoting more time to agree on a country strategy for Egypt and increasing the investment ticket sizes. Previous AFC investments in Egypt, such as in the Egyptian General Petroleum Corporation (EGPC) and Carbon Holdings, were below USD 100 mn, but once the membership is ratified, these ticket sizes can be much larger. The faster that happens, the faster capital can be unlocked.

Renewables, storage, logistics and transport are high up on this visit’s agenda. We met with the petroleum, planning and electricity ministers so far, and the Central Bank of Egypt (CBE). We have put forth some proposals to the government on how we can support their aspirations to improve the country’s infrastructure, specifically in the transport and logistics space. We are engaged with several ministries on how AFC can really be a partner for Egypt in consolidating on the gains of its economic performance last year, which grew faster than most countries, including China.

We are also talking to private sector players looking to expand their renewable energy and storage business streams in Egypt and Africa. Potential upcoming meetings include stakeholders in the renewable energy, construction, logistics and green hydrogen sectors.

The AFC can potentially support Egypt with investments worth over USD 1 bn, based on our typical risk metrics, the size of Egypt’s economy and the priority sectors identified by the government. Each country gets assigned a certain investment limit based on those factors, which is constantly updated. The risk metric includes ease of doing business, track record of contract enforcement, rule of law and so on. When Egypt’s membership is ratified, we can clearly do much more than that.

Potential investments worth over USD 600 mn have already been identified. We’ve identified projects worth USD 400-500 mn so far in the private renewables, transport, logistics and natural gas sectors. On the government’s side, we are looking at USD 250 mn to support transport and logistics projects.

Mobilized investments after that can go up to 6x that amount: Once the AFC enters a project, it typically is joined by other investors who provide additional funding. Usually, a project’s financing depends on 20-30% of equity and 70-80% of debt. The fact that we can play across both spectrums with our partners, allows us to mobilize upto six times more capital.

AFC derisking makes the investments possible: The AFC derisks the project by reducing or defining the construction and completion risks. One way of doing that is putting the regulatory framework in place to ensure that the project’s concessions or tariffs are robust and can stand the test of time, as well as changes in government. This makes it easier for private partners to participate.

Egypt has more advanced infrastructure than other countries on the continent but there are still gaps. The country has plans to build new cities to decongest Cairo, and the government has a plan to accelerate industrialization by establishing projects such as economic zones. All of these plans can sustain the growth of the economy, but also require infrastructure, which we are ready to support. It’s a sector of continuous investment — the more infrastructure you develop, the more you need.

Involving private sector participants ensures more impact and is key to supporting the economy. The delivery cost and time is handled in a more disciplined approach, when the private sector is involved, which creates more jobs and accelerates delivery. The government itself has also expressed a need for more involvement from the private sector — for instance, the CBE wants us to work with Egyptian banks on their digital infrastructure. So bringing together the private sector, government and financial institutions is key to supporting the Egyptian economy.

Africa is well-positioned to support the global move towards renewables. The continent has a lot of commodities that are required for the global energy transition. For instance, an electric car requires six times more minerals and metals than a normal car. A wind turbine requires 11 times more minerals and metals than a gas turbine. All of those minerals and metals can be found in Africa.

We are most excited about projects that increase the value-added of African commodities and minerals, and create jobs. We want to change the current focus of just exporting raw materials without any added value. What is consumed in Africa should be produced in Africa, so we don’t continuously export and re-import. Currently, Africa pays for the export freight of raw materials and for their way back after the value addition, which is unfair. Moreover, exporting raw materials also exports the jobs that are created for value addition.

When the AFC was established, Africa needed to spend about USD 20 bn on infrastructure for the next 10 years — this has since grown to USD 170 bn with the largest area of need being water and sanitation for which about USD 67 bn are required. Energy needs USD 50 bn, transportation and logistics USD 47 bn, and ICT USD 12 bn.

We constantly look for ways to make business in Africa less painful. We want to reduce the risk perception of the continent, which is slightly misplaced. Evidence shows that Africa is less risky in terms of default rate than the Middle East and Eastern Europe, for instance, and sometimes at the same risk level as Western Europe.

Why hasn’t the Africa trade agreement gotten off the ground? Africa-wide trade agreements are challenged by infrastructure deficits, travel restrictions, customs regulations and the lack of unified currencies or integrated payment systems. These gaps provide opportunities. For instance, the rise of digital currencies could aid in the development of a unified currency system. If it’s not a currency, then a unified payment system, like in Asia, could help.

Your top infrastructure stories for the week:

  • Private sector invests in Egypt’s railway network: Nine, mostly private sector companies, will manage and operate Egypt’s rail system under a cooperation protocol signed with the National Railways Authority.
  • Dabaa nuclear plant launch postponed by two years: The delay comes as a result of disruptions caused by the covid-19 pandemic.
  • Bee’ah wants new waste management contracts: The Emirati waste management company wants to provide a waste management system for new cities.
  • Saudi’s Aldrees Petroleum wants to expand in Egypt: The petroleum and transport service company aims to build 60 fuel stations in the country before the end of 2021.
  • Highway in the middle of Maadi: The Transport Ministry plans to build a new highway through the middle of the historic neighborhood, and residents aren’t happy about it.

CALENDAR

23 July-11 August (Friday-Wednesday): Tokyo 2020 Olympics.

27-28 July (Tuesday- Wednesday): The Federal Reserve meets to review interest rates.

28 July (Wednesday): Clean Energy Business Council’s webinar Women entrepreneurs in clean energy (3pm)

2-4 August (Monday-Wednesday): Egypt is hosting the Africa Food Manufacturing exhibition at the Egypt International Exhibition Center.

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

9 August (Monday): Islamic New Year.

9 August (Monday): Russian flights to Sharm El Sheikh, Hurghada resume.

12 August (Thursday): National holiday in observance of the Islamic New Year.

3-5 September (Friday-Sunday): The World Karate Federation will hold the third competition of the 2021 Karate 1-Premier League in Cairo.

12-15 September (Sunday-Wednesday): Sahara Expo: the 33rd International Agricultural Exhibition for Africa and the Middle East.

15 September (Wednesday): The CFO Leadership & Strategy Summit is taking place in Egypt.

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

21-22 September (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

30 September-2 October (Thursday-Saturday): Egypt Projects 2021 expo, Egypt International Exhibition Center, Cairo, Egypt.

30 September-8 October (Thursday-Friday): The Cairo International Fair, Cairo International Conference Center, Cairo, Egypt.

30 September: Closing of 2021’s first oil and gas tender in the Gulf of Suez, Western Desert, and the Mediterranean.

October: New legislative session begins.

1 October (Friday): Businesses importing goods at seaports will need to file shipping documents and cargo data digitally to the Advance Cargo Information (ACI) system.

1 October (Friday): Expo 2020 Dubai opens.

1 October (Friday): State-owned companies and government service bodies selling goods and services to customers that have not yet signed 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.

6 October (Wednesday): Armed Forces Day.

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

11-17 October (Monday-Sunday): IMF + World Bank Annual Meetings.

12-14 October (Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria, Egypt.

18 October (Monday): Prophet’s Birthday.

21 October (Thursday): National holiday in observance of the Prophet’s Birthday.

24-28 October (Sunday-Thursday) Cairo Water Week, Cairo, Egypt.

27-28 October (Wednesday-Thursday) Intelligent Cities Exhibition & Conference, Royal Maxim Palace Kempinski, Cairo, Egypt.

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

30 October – 4 November (Saturday-Thursday): The first edition of Race The Legends, Egypt.

November: The French-Egyptian Business Forum is set to take place in the Suez Canal Economic Zone.

November: Egypt will host another round of talks to reach a potential Egyptian-Eurasian trade agreement, which can significantly contribute to increasing the volume of Egyptian exports to the Russia-led bloc that includes Armenia, Belarus, Kazakhstan and Kyrgyzstan.

1-3 November (Monday-Wednesday): Egypt Energy exhibition on power and renewable energy, Egypt International Exhibition Center, Cairo, Egypt.

2-3 November (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

1-12 November (Monday-Friday): 2021 United Nations Climate Change Conference (COP26), Glasgow, United Kingdom.

29 November-2 December (Monday-Thursday): Egypt Defense Expo.

12-14 December (Sunday-Tuesday): Food Africa Cairo trade exhibition, Egypt International Exhibition Center, Cairo, Egypt.

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

14-19 December (Tuesday-Sunday): The Cairo International Festival for Experimental Theater.

14-15 December (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

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

14-16 February 2022 (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, New Cairo, Egypt.

1H2022: The World Economic Forum annual meeting, location TBD.

May 2022: Investment in Logistics Conference, Cairo, Egypt.

27 June-3 July 2022 (Monday-Sunday): World University Squash Championships, New Giza.

**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.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2021 Enterprise Ventures LLC.

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