AM — Tax all the things: Tax hikes, new development fees get nod from House committee

Good morning, friends, and happy hump day. Before we get underway, a quick note that we will not be publishing EnterprisePM this afternoon so that the whole team can get together with our friends at Inktank for our annual Christmas / end-of-year get-together on the roof of Enterprise World Headquarters.

EnterprisePM will be back in your inboxes at its appointed hour tomorrow afternoon. In the meantime, we hope you’re looking forward to your own office Christmas party — and that it isn’t, you know, an Office Christmas Party.

HAPPENING TODAY-

Egypt Economic Summit takes place today at the St. Regis Hotel. The one-day event will feature a range of panelists from institutions including CIB, EFG Hermes, the Sovereign Fund of Egypt, Eastern Company, Oriental Weavers, Microsoft and Danone, among others. The full agenda is here (pdf).

Steel license inquiry session today: Companies interested in bidding for a new steel manufacturing license from the Industrial Development Authority will get responses to their inquiries on the terms of the license today. The authority will open the door for bidding in February.

Foreign Minister Sameh Shoukry is in Cyprus today for talks with his Cypriot counterpart, according to a statement, which did not specify the issues on which the sit-down would focus. Egypt and Cyprus work closely together on everything from energy to maritime security.

PSA- More progress updates on the Ring Road: Construction on bus rapid transit (BRT) stops, pedestrian bridges and tunnels on the Ring Road will begin next week, Transport Minister Kamel El Wazir said yesterday, according to Al Borsa. The BRT lanes in the Middle Ring Road are just about finished, El Wazir said earlier this week. The bus rapid transit system comes as part of the larger upgrade and expansion of the Ring Road, which intends to widen the freeway and add extensions to ease traffic congestion. The BRT also aims to replace more disruptive public transport on the freeway like microbuses.

Also moving along: Work on the new Adly Mansour bridge in Tenth of Ramadan, as well as another bridge atop the Saad El Din Shazly tunnel and the intersection between the Autostrad and the Ring Road, are now complete, El Wazir added.

CORRECTION- In yesterday’s edition of EnterpriseAM, we incorrectly said that the Abu Qir metro will connect Abu Qir to Cairo’s Ramses Station. The line will connect Abu Qir to Alexandria’s Mahatet Masr. Ramses station is commonly and colloquially referred to as Masr Station. The story has been corrected on our website. H/t to sharp-eyed readers Khaled G. and Shehab Z for the tip.

Across the pond: The US Federal Reserve’s Open Market Committee meets today and tomorrow, during which the Fed is widely expected to announce it will taper its bond-buying program at a faster rate and telegraph a planned interest rate hike next year. The meeting comes after US inflation soared to its highest annual pace since 1982.

The outcome of the Fed’s meeting could play into the Central Bank of Egypt’s calculations on interest rates here at home when its monetary policy committee meets at the end of the week. As it currently stands, the consensus in our customary poll is that the CBE will hold rates steady at its final policy meeting of the year due to uncertainty over foreign inflows and inflation. A Reuters poll out yesterday pointed to the same consensus, with all those surveyed predicting a hold.

ALSO-

• The UN Convention Against Corruption in Sharm El Sheikh is on its second day today. The event wraps this coming Friday, 17 December.
• The Food Africa expo wraps later today at the Egypt International Exhibition Center, after kicking off on Sunday.
• The Arab Conference on the Peaceful Uses of Atomic Energy in Aswan is underway and runs until Thursday.

FOR TOMORROW-

Cairo-based joint stock companies and investment companies have until tomorrow to register for the government’s e-invoicing platform.

SIGN OF THE TIMES- Elon Musk is Time’s Person of the Year: Time magazine has named Elon Musk its “Person of the Year'' after a busy — and admittedly momentous — year for the world’s richest person. A quick rundown of the year of Musk: The maverick added USD 100 bn to his wealth to surpass Amazon’s Jeff Bezos and his EV company Tesla hit a market cap of USD 1 tn.

ENERGY WATCH-

Germany shuns Nord Stream 2, sending gas futures soaring: European gas futures surged yesterday to their highest levels since early October after German Foreign Minister Annalena Baerbock said Russia’s Nord Stream 2 pipeline would not be permitted in its current form because it does not comply with EU laws, the Financial Times reports. Benchmark futures for January delivery surged. As we suggested last month, this isn’t great news for Europe this winter, but could be a boost for Egypt’s ambitions as a regional energy hub.

Throw in a drop in oil production and you have Saudi ringing the energy crisis alarm: Global oil production could drop 30% by the end of the decade — with daily output falling by 30 mn bbl — due to decreased spending on fossil fuels, potentially resulting in an “energy crisis,” Saudi Arabia Oil Minister Abdulaziz Bin Salman said, according to Bloomberg reports. Global spending on oil production has been on the decline in recent years, and recent climate pledges are expected to push figures down even further.

CIRCLE YOUR CALENDAR-

EgyptAir will resume weekly flights between Cairo and Johannesburg on Thursday, 16 December, the airline said Thursday. Flights were suspended from South Africa and six other countries at the end of November to prevent the Omicron covid-19 variant from entering Egypt. Current precautionary measures for travelers entering Egypt from South Africa will remain in place.

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

*** It’s Going Green day — your weekly briefing of all things green in Egypt: Enterprise’s green economy vertical focuses each Tuesday on the business of renewable energy and sustainable practices in Egypt, everything from solar and wind energy through to water, waste management, sustainable building practices and how you can make your business greener, whatever the sector.

In today’s issue: A report from the International Energy Agency forecasts that Egypt’s renewable capacity will rise by 68% or 4 GW over the coming five years, led primarily by growth in our wind energy capacity. Although the pace of growth in renewables is not particularly swift, considering the timeline, the expansion of renewables must be balanced with the prospect of a supply glut, which has hurt projects in the past.

A raft of new tax hikes, duties and development fees (pdf) proposed by the Madbouly government got the greenlight from the House Planning and Budgeting Committee yesterday, Youm7 reports.

The breakdown:

• Finished durable goods will be subject to a 2% development fee while locally-produced and imported soft drinks will be subject to a development fee equivalent to 5% of their values, with a minimum of EGP 0.25. Look for the Finance Ministry to define what qualifies as a durable good for the purpose of the development fee.
• ِAn entertainment tax: Entry to theaters, parks, clubs, sports events, and other entertainment venues would be subject to a 5-20% tax.
• Duty notfree: A tax will be imposed on purchases from dutyfree shops equivalent to 3% of the product’s value with a USD 1.50 minimum. The purchase of a single bottle of spirits will be taxed at the same rate but every additional bottle will be charged a higher 10% rate (or a USD 12 minimum). Members of the foreign diplomatic and consular workers are exempted from this fee, and dutyfree shops are obliged to collect the fee and submit it to the Egyptian Tax Authority.
• Stamp tax hike: Stamp tax on most ins. premiums would be raised by 1% under amendments to the Stamp Tax Act. This means that policyholders and ins. companies would each see a 0.5% tax increase due to a clause in the legislation that requires the tax to be split 50/50.
• Exit tax to double: The existing EGP 50 exit tax for folks leaving the country would be raised to EGP 100 across the board, with the exception of tourists visiting the Red Sea, South Sinai, Luxor, Aswan and Matrouh governorates, whose exit fee would remain fixed at its current EGP 50. The tax would not be applied to bus or truck drivers transporting passengers or goods out of the country.

Wait, we have an exit tax? Yes, indeed we do. We also have airport fees and other charges — all of which are embedded in the final price of your plane ticket.

This isn’t the first tax hike that has been announced in recent weeks: The government has hiked import tariffs on mobile phones, demanded illegal private tutors start paying tax on their earnings, and announced plans to get online content creators to pay income tax and remit VAT as it looks to raise revenues.

OTHER NEWS FROM THE HOUSE-

Who says your education is top notch? The House also gave initial approval to a draft law that would establish a national authority for quality assurance and accreditation in technical and vocational education, Youm7 reports.

You’re also going to jail for longer if you smack around your MD: MPs have asked the constitutional and health committees to look at a bill that would toughen criminal penalties for assaulting medical staff.

Qatar Energy is set to acquire a 17% stake in two Shell-operated oil and gas exploration blocks in the Red Sea, the oil supermajor announced yesterday in a statement. The agreement, which is subject to government and regulatory approval, signals the first entry by the Qatari energy giant into Egypt’s upstream oil and gas sector.

The details: Upon closing of the agreements, Shell will hold 43% of block three, Qatar Energy will hold 17%, BHP will hold 30%, while Egypt’s Tharwa Petroleum will hold 10%. At block four, Abu Dhabi’s Mubadala will hold 27%, Shell will hold 21%, BHP will hold 25%, QatarEnergy will hold 17%, and Tharwa will hold 10%.

What’s next? The agreement is still subject to customary approvals from the Madbouly government and is expected to be concluded within the next few months, Shell told Enterprise.

The agreement comes a few months after the company sold its onshore oil and gas assets in the Western Desert to Cheiron Petroleum and Cairn Energy as it shifts its focus more towards offshore gas. Thirteen onshore concessions were acquired by the two companies in a transaction that could be worth up to USD 926 mn.

Don’t take this as a sign that Shell is farming out of Egypt: The Dutch company has no plans to exit the Egyptian market and will remain the main operator of blocks three and four, Shell Communications Manager Sherine Nehad told Enterprise. “Bringing a partner into our concessions is part of our global exploration strategy and a common industry practice to share costs and expertise,” she said.

This isn’t the first time Shell has diluted its interest in the blocks: Having owned 90% of both blocks when it was awarded exploration rights in a 2019 bid round, Shell has sold shares to several companies this year, trimming its ownership substantially in both blocks. Agreements with Abu Dhabi’s Mubadala Petroleum (pdf) and BHP Petroleum (which is still waiting on regulatory approval) reduced its holdings in Block 3 to 60% and Block 4 to 38%.

Shell’s upcoming plans for the Red Sea blocks: The energy giant’s exploration program covers an initial three-year term, and consists of a seismic acquisition program in block four and geological studies in block three. The company expects to conduct a 3D seismic survey in 1Q2022 and they have a drilling program planned for 2022 and 2023, Shell told Enterprise.

Proof we’re turning over a new leaf with Qatar? The acquisition signals the strengthening of Egypt-Qatari ties, after the two countries re-established diplomatic ties earlier this year. Qatar’s Energy Affairs Minister and Qatar Energy CEO Saad Sherida Al Kaabbi thanking the Egyptian authorities for “their valuable support and cooperation” in a statement.

Qatari entities have limited involvement in Egypt’s strategic energy sector, and until now have been largely confined to Qatar Energy’s minority ownership of Qalaa Holdings’ Egyptian Refining Company and the Qatar Investment Authority’s indirect stake in the Zohr gas field via its holdings in Russian petroleum company Rosneft.

Eastern Company has inked an agreement to jointly manufacture Davidoff Evolve cigarettes with Mansour International Distribution Co at Eastern’s facilities, according to an EGX disclosure (pdf). The international cigarette brand is produced in only three other factories worldwide, the state-owned company notes, and will be sold within the mid-price segment, at EGP 32 a pack. Davidoff is an Imperial Tobacco brand represented in Egypt by Mansour.

Tender for a second smoke-maker is still ongoing: The joint production contract comes after the Industrial Development Authority (IDA) relaunched a tender for a license that would allow a second company to enter the tobacco market as a manufacturer and seller of tobacco products — an industry on which Eastern currently has a monopoly. Eastern said in its statement that the manufacturing agreement with Mansour reflects “the confidence of international companies in the capabilities of Eastern Company, and the strength of the relationship between Eastern Company and its local and international partners,” the tobacco giant said in its statement.

As they stand today, the terms of the new license do not give the new entrant carte blanche to enter the protected, mass-market “low-tax” cigarette segment, which is currently dominated by Eastern’s Cleopatra line. Instead, the new player would be allowed to approach Eastern to ask that the two companies jointly produce a product in that segment at Eastern’s facilities. In that case, the new mass-market product could be made in Eastern’s plant on a toll-manufacturing or joint-venture basis, a senior company executive told Enterprise — provided the two sides reach a commercial agreement in the first place. The current terms of the tender would give Eastern a 24% stake in the new license holder.

Fast fact: Only three other Imperial Tobacco-owned plants globally produce the Evolve line.

Hermes Securities Brokerage (HSB) has closed a EGP 550 mn securitized bond issuance managed by EFG Hermes, according to a company statement (pdf). This is the third tranche in the brokerage’s EGP 2 bn two-year program, and the first it has issued this year. The one-year securities were rated BBB+ with a stable outlook by ratings agency MERIS.

The corporate bond program: The EFG Hermes unit began the program with a EGP 400 mn issuance of one-year bonds in December 2019, ending a decade-long dry spell for corporate bond issuances. New regulations introduced in 2018 now allow joint-stock and limited liability companies, banks, financial institutions, and SMEs to sell short-term debt instruments with maturities of less than two years to retail and institutional investors. Then it sold a second EGP 500 mn tranche of unsecuritized bonds late last year.

Advisors: EFG Hermes acted as the financial advisor, transaction manager, and bookrunner, underwriter and arranger. Zulficar & Partners provided legal counsel.

Leading the conversation on the airwaves last night: The Interior Ministry’s investigation into a leaked phone call allegedly held between two presidential advisors, during which they discussed alleged graft in national projects. The two “advisors” — one of whom impersonated an army major general — were apparently each trying to scam the other, the ministry announced. The call went viral last week after YouTube personality Abdullah El Sherif, who authorities say is a member of the Ikhwan currently living in exile, posted the recording on his channel. The story earned coverage from Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 1:15:47), Kelma Akhira’s Lamees El Hadidi (watch, runtime: 7:58), El Hekaya’s Amr Adib (watch, runtime: 16:31), and Al Hayah Al Youm’s Mohamed Sherdy (watch, runtime: 10:13).

The investigation provided the perfect segue for the talking heads to discuss the ongoing UN Convention Against Corruption, which is currently taking place in Sharm El Sheikh. UNODC Executive Director Ghada Waly phoned in to Kelma Akhira to explain the UNODC’s anti-corruption strategy, to which Egypt is a signatory, as well the launch of a new international platform to exchange information between countries on cases of corruption (watch, runtime: 3:34). The conference also earned airtime on Al Hayah Al Youm (watch, runtime: 10:52) and Ala Mas’ouleety (watch, runtime: 8:45).

Also on the airwaves last night: A recent Education Ministry decision to merge the science and math specializations in Thanaweya Amma into one pathway has caused a hubbub in the House of Representatives, with MPs filing dozens of inquiries to clarify certain details of the decision, House Planning and Budgeting Committee Undersecretary Mostafa Salem told Lamees (watch, runtime: 5:40). Education Minister Tarek Shawki phoned in to El Hekaya to explain to Amr Adib that he’s currently in the UAE for an education conference, which is why he has been unable to before the House to discuss the change (watch, runtime: 7:39).

A handful of things we’re keeping an eye on this morning:

• State-owned Cotton and Textile Industry Holding Company will sign agreements on Thursday to secure a EUR 540 mn loan from Swiss and Italian banks.
• State-owned companies Cargas and Gastec inked two contracts worth EGP 200 mn to finance the national program to convert cars to run on natural gas over the next three years through MSMEDA.
• Uber riders can top up their wallets through new payment methods including Meeza cards and mobile wallets thanks to a new partnership between Uber and Paymob.
• Orange Egypt and the GIZ have inaugurated an Orange Digital Center in Cairo, which will offer a coding school, startup accelerator and investment fund to improve digital skills and encourage entrepreneurship.

The Health Ministry reported 799 new covid-19 infections yesterday, down from 863 the day before. Egypt has now disclosed a total of 369,997 confirmed cases of covid-19. The ministry also reported 44 new deaths, bringing the country’s total death toll to 21,104.

We’re getting AstraZeneca’s covid-19 med for the immunocompromised: AstraZeneca will supply its covid-19 antibody cocktail Evusheld to Egypt under an agreement signed yesterday between the drug manufacturer and Egypt’s Authority for Unified Procurement, Al Borsa reports. The cocktail can be used to prevent infection in individuals with weak immune systems for whom vaccines are not sufficient. Evusheld can be administered as soon as it receives regulatory approvals, although it is not clear yet who exactly will be eligible to receive it. This comes a few days after the FDA approved Evusheld for emergency use in the US, with only a handful of countries, including Bahrain and France, following in the US’ footsteps.

A second Egyptian jab on the horizon: Studies to produce a new Egyptian jab named EgyVax will begin under a cooperation agreement signed yesterday between private sector player Eva Pharma, the Supreme Council of Universities, and the Agriculture Research Center, according to an Education Ministry statement. The new jab will undergo clinical trials before getting the green light for production, Supreme Council of Universities secretary general Hossam Abdel Ghaffar said, without disclosing a timeline. The higher education and agriculture ministries will work on producing the viral antigen for the vaccine, which will be manufactured at Eva Pharma’s industrial complex. The vaccine would later be manufactured by Eva Pharma, which is currently the local manufacturer of Sinovac vaccines.

First Omicron death reported in the UK: At least one person has died in the UK after contracting the Omicron covid-19 variant, marking the first publicly confirmed death from the variant globally, UK Prime Minister Boris Johnson said yesterday, according to Reuters. It’s unclear whether the individual had been vaccinated. The UK is reporting some 200k Omicron infections each day, “dwarfing the number of officially reported cases,” the Financial Times reports.

REALITY CHECK- Health officials are correctly worried about omicron’s transmissibility (including its ability to side-step vaccines), but there is growing evidence that it produces only mild symptoms in most infected people.

Bennett visit signals warming UAE-Israel ties: Israeli Prime Minister Naftali Bennett met Emirati Crown Prince Mohammed bin Zayed in Abu Dhabi yesterday, making Bennett the first Israeli leader to conduct an official visit to the UAE. The two spent their four-hour meeting about how to work together on trade, investment and development, according to Emirati state-run news agency WAM. The meeting comes 15 months after Israel and the UAE signed an agreement to normalize relations and is being received as the latest sign that the recent warming in relations between Israel and some of its neighbors is here to stay.

ALSO- Saudi and Iranian experts took part in a security dialogue in Amman, where academics from the two rival countries discussed confidence-building measures, according Reuters.