AM — Fintech law gets House approval

Good morning, friends, and welcome to your first full-length workweek of 2022. News flow this morning is dominated by the House of Representatives (habemus fintech law) and government policymakers (an outlook on the next budget). With the lawmakers pushing hard on multiple fronts, we expect more regulatory and policy news in the weeks to come even as corporates return from winter break and get back into the swing of things.

SIGN OF THE TIMES #1- Mobile wallet use rose again in 2021, with the number of mobile wallets surging 27% y-o-y to 25 mn in 2021, the Central Bank of Egypt (CBE) said in a press release (pdf). Users executed some 227 mn mobile wallet transactions last year — double the number of transactions made in 2020 — with the total value rising 160% y-o-y to EGP 233 bn.

You can now manage your mobile wallet subscription without needing to visit a provider’s physical branch through a new platform the Central Bank of Egypt (CBE) has launched, the CBE press release added. The without-charge Meeza wallet management platform allows users to check if their phone number is linked to a mobile wallet, cancel their mobile wallet subscription, and inquire about service options.

ALSO- Over 31k companies have so far registered on the government’s electronic invoicing platform for B2B transactions, Egyptian eInvoicing, the Tax Authority said (pdf) last week. The authority is currently processing more than 650k invoices daily and that figure to rise to 1 mn daily by the end of March.

---

THE BIG STORY ABROAD- US offers (limited) compromise ahead of Russia talks: The US looks set to offer some concessions over its military presence in Europe ahead of direct talks with Russia in Geneva tomorrow, which are aimed at defusing tensions over Ukraine. Everyone in the US and Russian media is talking about it this morning from the Wall Street Journal, the AP and the Washington Post to Sputnik, RT and Tass. The Journal says this is “the most dangerous moment for Eastern Europe in decades,” while the New York Times makes clear the Biden administration is preparing a range of possible sanctions ahead of the talks.

SMART POLICY- The UAE experienced its first working Friday as the country officially shifted to a Monday-Friday work week — though the dreaded rush hour never materialized, according to the National, suggesting that many continue to work and study from home as part of the country’s bid to quell covid-19. The UAE is the first country to implement a 4.5-day work week, with public sector workers and schools ending the last day of the week no later than 12:30pm.

SIGN OF THE TIMES #2- IMF delays its global forecast to factor in latest covid disruptions. The International Monetary Fund will release its updated World Economic Outlook on 25 January, a week later than planned, to give it time to incorporate the latest omicron-related developments, Reuters reported. IMF chief Kristalina Georgieva last month primed us to expect further downgrades to global growth projections thanks to omicron’s arrival.

SIGN OF THE TIMES #3- No jab, no job: Citigroup will fire unvaccinated US employees. The Bulge Bracket bank will fire workers who have not been vaccinated by the end of this month unless they have been granted a religious or medical exemption, the Financial Times reports.

---

WHAT’S HAPPENING TODAY-

It’s the first day of Afcon: The football tournament gets underway at 6pm this evening, when hosts Cameroon play their opening game against Burkina Faso. Keep an eye out for the Pharaoh’s first match of the championship against Nigeria at 6pm on Tuesday.

Our national team is heading to Afcon more than a few men short, after eight covid cases were confirmed among staff and players, including goalkeeper Mohamed Abou Gabal, goalkeeping coach Essam el-Hadary, and Ibrahim Adel, one of three players put on the reserves list for precautionary measures. All those who tested positive were forced to stay behind in Cairo. It’s unclear if they will miss the whole tournament, which runs until Sunday, 6 February, or will be able to join the team later.

FOR TOMORROW-

Inflation figures for December are due out tomorrow. Annual urban inflation slowed for the second month running in November and dipped to its lowest since July as pressure on food prices continued to ease, but some analysts have flagged a potential acceleration in inflation figures.

The World Youth Forum kicks off in Sharm El Sheikh tomorrow and runs until Thursday, 13 January.

Subscribe to Enterprise

MARKET WATCH-

It could be a rocky few weeks for global equities: Som pundits are calling an end to the historic tech equity bull run as bond yields rise in response to the Federal Reserve’s hawkish turn. The yield on US 10-years rose to its highest level since January 2020 and stocks sold off last week after a weak US jobs report had traders anticipating that the Fed could hike rates in March. Higher returns in the bond market could see investors increasingly rotate out of tech stocks, indicated last week by the Nasdaq 100 which suffered its worst week in almost a year as the attractiveness of growth stocks dimmed. (Bloomberg)

Inflation, interest rates and the Federal Reserve will continue to dominate the conversation this week as US inflation figures are released and Fed chair Jay Powell appears before a Senate panel. (CNBC)

US earnings season is also upon us: US banks are expected to announce record annual earnings this week and the next thanks to huge investment banking fees. Citi and JPMorgan are up first this coming Friday, Goldman Sachs reports on 18 January, and Bank of America and Morgan Stanley are on 19 January. (Financial Times)

---

CIRCLE YOUR CALENDAR-

SODIC shareholders will vote on the company’s new board of directors at an extraordinary general meeting on Sunday, 16 January. The formation of the new board comes after an Emirati consortium of real estate giant Aldar Properties and Abu Dhabi sovereign wealth fund ADQ in December acquired 85.5% of SODIC in an all-cash, EGP 6.1 bn transaction.

Bringing home Egyptians stranded in Morocco: National flag carrier EgyptAir will operate one flight from Casablanca to Cairo on 19 January, to bring home Egyptians stuck in Morocco following border closures, the Egyptian Embassy in Morocco said in a statement. Moroccan authorities have twice extended the suspension of all passenger flights in and out of the country first introduced at the end of November amid the emergence of omicron, with the flight ban now set to last until at least the end of January.

First interest day of 2022 is set: The Central Bank of Egypt (CBE)’s monetary policy committee will hold its first policy meeting of 2022 on Thursday, 3 February.

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

*** It’s What’s Next day: We have our weekly deep-dive into what makes and shapes pre-listed companies and startups in Egypt, the UAE and KSA, touching on investment trends, future sector insights and growth journeys.

In today’s issue: In Part 2 of our Year-in-Review series, we look at what it was like to be an investor in Egypt last year, which we think we can safely dub the year of investor adaptation. Investors are moving away from the typical models as they look to adapt to market needs and fill the gaps they’ve identified along the way.

Fintech, consider yourself regulated: Legislation to regulate the fintech industry received final approval from the House of Representatives on Wednesday, according to Al Borsa. The bill, which was first drawn up by the Financial Regulatory Authority (FRA) in 2020, hands the regulator broad powers over licensing and corporate governance in the sector, as well as the power to penalize firms that breach legislation.

What other activities count as fintech? Robo-advisory, nano-finance, insurtech, and (tech-enabled) consumer finance, among others, according to the bill.

The law grants the FRA the power of regulation for the fintech industry, including issuing licenses and approvals for fintech businesses and services, according to the House CIT Committee report (pdf) on the bill. The FRA is also mandated with taking steps to using fintech tools to promote financial inclusion, which the law defines as expanding the use of banking and non-banking financial services (NBFS).

Want to apply for a fintech license? You’ll need to submit a standard request form, along with proof of sufficient issued capital for the product / service you’re providing and of having onboarded an auditor. NBFS players seeking a fintech license will also need to have the necessary tech, database and data protection infrastructure, as per FRA requirements.

It seems there will be a separate, time-limited fintech license for startups. Startups can apply for a short-term fintech startup license that is valid for a maximum of two years, the law stipulates. We expect the final executive regulations to make clear where the dividing line is for regular vs. startup fintech licenses.

What other powers will the FRA have? The act will also see the FRA lay out data protection regulations, task it with protecting users who rely on fintech products or services, and “raise awareness” of the fintech services available to consumers. The FRA will also need to prepare and publish studies and statistics to help encourage fintech activity. It will also regulate a testing environment (akin to the Central Bank of Egypt’s sandbox) to test new fintech products.

The act empowers the regulator to set out further requirements pertaining to businesses’ governance, including ownership and board of directors’ structure, the price of each license (although the law sets an EGP 50k ceiling), and the experience that will be required to register with the FRA as a service provider. Providers will also need to comply with anti-money-laundering regulations and procedures.

Penalties: A business that is no longer compliant with one or more of its licensing requirements, or otherwise violates the law, can see the FRA issue a warning; decide to hold a board or general assembly meeting to assess and resolve the issue; disband its board and temporarily instate an FRA delegate to manage the business for up to one year; suspend the business’ activity for six months; and / or revoke the license altogether. Unlicensed operators face minimum prison terms of six months, and / or fines ranging from EGP 200k-1 mn. License holders who fail to comply with data privacy regulations also face prison sentences of at least three months and / or an EGP 200k-1 mn fine. Any disputes that arise from implementing the law will be mediated by the nation’s economic courts.

Fintech players have a six-month window, starting from the date the executive regulations are published, to comply with the requirements under the legislation. The FRA has the right to grant three further extensions of six months each, with the law setting a maximum of two years in total for compliance. The prime minister has the right to grant a further two-year extension.

What’s next? President Abdel Fattah El Sisi will need to sign off on the legislation before the executive regulations are made public in the Official Gazette.

ALSO IN FINTECH LEGISLATION- The ban on brokerages using fintech firms’ payment solutions only applies to transactions carried out online. Transactions processed at fintech firms’ branches are accepted as long as the proper identity checks are carried out, according to an FRA statement (pdf).

ALSO ON THE LEGISLATION FRONT-

Annual surplus from ministerial funds going to state coffers: The House of Representatives also approved in its Wednesday plenary session a bill to funnel a percentage of the annual surplus generated by ministerial “private funds” to the state treasury, according to Al Borsa. The bill is expected to generate a combined EGP 2.5-3 bn for state revenues, Al Borsa reported, equalling some 7-8% of the annual EGP 36 bn surplus. The legislation, which was first approved in 2018 and provides for between 5-15% of surplus ministerial funds to be channeled to the treasury, sunsets each year and requires renewal.

A bill that will scrap the Hydro Power Plant Authority was passed by the House on Wednesday, Al Borsa reports. The law, which now requires ratification from President Abdel Fattah El Sisi, will put the New and Renewable Energy Authority in control of the country’s hydroelectric assets. Cabinet proposed the legislation two years ago.

The draft Labor Act earned a preliminary thumbs up from the Senate last week. The bill would lay out new rules on how employees can be dismissed, making it harder for employers to fire staff for illnesses but allowing workers to lose their jobs if convicted of a felony. The bill would also set a minimum annual raise requirement equal to 3% of the amount covered by social ins., according to Masrawy. It is unclear to us where the dividing line is between the private and public sectors as regards the amendments.

What’s next? The Senate is set to finish discussing the law when it resumes plenary sessions on 16 January, according to Ahram Gate.

EDITOR’S NOTE: This story was corrected on 12 January, 2022 to reflect that the body responsible for the country’s hydroelectric assets after the scrapping of the Hydro Power Plant Authority is the New and Renewable Energy Authority. 

The Finance Ministry is penciling in 5.7% growth for its FY2022-2023 state budget, Finance Minister Mohamed Maait said in a statement on Wednesday. That’s more or less on par with the 5.5-5.7% growth rate the government expects for the current fiscal year, which ends in June. Our growth is expected to gradually accelerate over the coming years to reach 6% in FY2024-2025, Maait said.

The budget deficit is expected to narrow to 6.1% in the upcoming fiscal year, with an eye to trim it further to 5.1% in FY2024-2025. The ministry is also looking to achieve a 2% primary surplus in the medium term, the statement says. Our primary surplus is expected to increase to 1.5% during the current fiscal year from 0.9% a year prior, with the ministry previously forecasting it dipping slightly to 1.3% in the upcoming fiscal year.

Medium-term debt strategy is moving forward: The government is planning to bring down our debt-to-GDP ratio to below 90% in FY2022-2023 and 82.5% by June 2025. Our debt service bill is also set to decline to 30% of total state expenditure next fiscal year, compared to 31.5% penciled in for FY2021-2022. The ministry is looking to achieve these debt targets by expanding its debt diversification strategy to extend the average tenor of our debt to five years, rather than the current average of 3.4 years.

Education and healthcare spending will also ramp up next fiscal year, the statement says. Maait did not break down the expected spending figures, saying only that the government plans to ramp up spending on the Decent Life initiative.

WHAT’S NEXT- The Finance Ministry plans to begin public consultations on the budget and the government’s strategic targets this month, ahead of shipping the draft bill to the House of Representatives for discussion and approval. Reuters also had the story.

Sovereign Sukuk Act exec regs about to drop? The government is looking to finalize the executive regulations of the Sovereign Sukuk Act by the end of the month, setting the stage for the country’s c.USD 2 bn maiden issuance before the end of the fiscal year in June, Mohamed Hegazy, head of the Finance Ministry’s debt unit, told Bloomberg Asharq. The Financial Regulatory Authority (FRA) and Al Azhar are working with the ministry on the regulations, which were previously expected to be issued by November last year.

Maiden USD 2 bn sovereign sukuk issuance could come in 1H2022: Egypt could make its first sovereign sukuk issuance to the tune of USD 2 bn within the next five months, Hegazy said. His comments confirm details set out by Finance Minister Mohamed Maait last summer on the potential timing and size of the issuance. Maait made the remarks after the long-awaited Sovereign Sukuk Act was signed into law in August

What we know about the issuance: Returns and trading on the securities will be subject to the same tax rules as treasury bonds, Maait said previously, adding that the sharia-compliant bonds will be issued on both the local and international stock exchanges.

Issuing sovereign sukuk is part of a wider strategy to reduce government debt and shift towards longer-term borrowing. To diversify its debt portfolio, the ministry completed its maiden green bond issuance in 2020 and is planning to sell new “floating rate” bonds, and is focusing on selling longer-term bonds to increase the average maturity.

The state is also looking to issue green bonds greater in value than those issued in 2021, Hegazy added. The government held the region’s first sovereign green bond issuance last September, raising USD 750 mn from investors to channel into green projects. Private sector bank CIB issued Egypt’s first corporate green bond back in November, raising USD 100 mn in a five-year, fixed-rate offering.

A shot in the arm for private sector participation in the economy? The government is preparing a strategy to enhance the role of the private sector in development, Prime Minister Moustafa Madbouly said last week, according to a cabinet statement.

Expect the details “soon”: The statement says little about what the strategy might entail, saying only that Madbouly is circulating a document to his ministers to review ahead of an upcoming meeting with private sector players. The details of the plan will be announced soon, Madbouly said.

The strategy could tackle the perception that there has been a “crowding out”: The planned strategy comes on the heels of a recent study reviewed by cabinet’s economic group, meant to guide the government as it looks to strengthen private sector participation in national projects. Based on the study, cabinet has already committed to a review every two years of which state-owned enterprises it needs to keep in the government’s portfolio as well as to an annual consultation with private business on the state of play. Ministers are also looking into the possible setup of a body that will “supervise and manage” the companies of which the state retains ownership.

ALSO APPROVED LAST WEEK-

• Tourism industry regulation: A draft law aimed at reorganizing the structure and electoral system of the Egyptian Tourism Federation and other tourism-related unions and bodies.
• Establishing Helwan National University and Al Mansoura National University as part of the state’s push to build more nonprofit universities in partnership with international and private universities.
• An increase to African Development Bank’s callable capital through the issuance of temporary shares.
• A government committee recommendation to regularize the status of 141 churches and their affiliated buildings, bringing the total number of regularized church buildings to some 2.2k properties.

It was a quiet night on the airwaves after Kelma Akhira’s Lamees El Hadidi and El Hekaya’s Amr Adib — married IRL — both tested positive for covid-19 over the weekend. It’s unclear when they’ll be back on our TV screens.

Former CBC owner Mohamed El Amin was detained on Friday and is being held for four days pending investigation on charges of of human trafficking and the assault of girls in an orphanage he established. Ala Mas’ouleety’s Ahmed Mousssa held an extended interview with Social Solidarity Minister Nevine El Kabbaj (watch, runtime: 54:26) on the arrest.

Sixteen people died and 18 were hospitalized after a bus and a microbus collided in South Sinai on Saturday, the Health Ministry said yesterday. The injured were taken to hospitals in Sharm El Sheikh and El Tor, and are receiving treatment, the statement said. Masaa DMC covered the story (watch, runtime: 1:34).

Topping coverage in the foreign press this morning: Egyptian-Palestinian activist Ramy Shaath gave up his Egyptian citizenship as a precondition for his release, his family said at the weekend. He is now in France after being deported to Jordan. The story is everywhere from Reuters to AFP and the AP.

Also making headlines:

• Egypt’s prison overhaul is part of the plan to repurpose underutilized state assets, with 11 prisons across the country — including a few in the Tora complex — to be closed following the relocation of prisoners to newly opened Wadi El Natrun prison. (The National)
• The small village of Shubra Beloula produces more than half of the world's supply of jasmine, an essential ingredient in many iconic perfumes. (BBC)

Meeza cards to replace all gov’t payroll cards by the end of January: Around 4.3 mn public sector workers will be receiving their salaries via Meeza debit cards by the end of the month, according to a FinMin statement. The ministry had previously hoped to complete the rollout by the end of 2021.

Background: The government began rolling out Meeza cards in 2019 and trialed their use to pay salaries in August. Employees can receive a 30% salary advance at no charge for card purchases made in the first six months of using the card.

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

• The Industrial Development Authority will tender five industrial complexes for SMEs after the World Youth Forum this week.
• Dana Gas collections from Egypt rose 141% y-o-y to USD 193 mn in 2021, the company said (pdf) last week, after a payment of USD 48 mn in December reduced our arrears to their lowest levels since the company began operating here in 2007. The company initially said in December that it collected USD 184 mn from Egypt in 2021.
• Ismailia murderer handed death sentence: The Ismailia criminal court has sentenced to death the man who beheaded another man on the streets of the city last year in November.

The world needs about 22 bn doses of mRNA vaccines to slow the pandemic’s spread, which means that we need to produce an additional 15 bn doses this year, according to a report from public health advocates and scientists titled ‘22 bn in the hole’ (pdf). Increased demand from wealthy nations for booster shots will make harder for poorer nations to get their hands on enough doses — and as long as so many in the developing world remain unjabbed, there's a chance the virus will continue to mutate, bringing us more variants, according to experts cited by the Washington Post.

Kazakhstan just pledged to give us 5 mn doses of its homemade vaccine: Kazakhstan will donate 5 mn shots of its QazVac covid vaccine to Egypt as soon as our regulators approve it, the country’s ambassador to Egypt told interim health minister Khaled Abdel Ghaffar, the Health Ministry said yesterday. The two-shot vaccine has been used in Kazakhstan since April, but the World Health Organization is yet to approve its use, and only one other country — Kyrgyzstan — has given it the green light. The results from last year’s phase 3 trials are expected to be published early this year.

The Health Ministry reported 830 new covid-19 infections yesterday, up from 821 the day before. Egypt has now disclosed a total of 391,945 confirmed cases of covid-19. The ministry also reported 29 new deaths, bringing the country’s total death toll to 21,938.

Omicron may be an easy come, easy go variant: While omicron caused a spike in cases worldwide, countries who were hit by the variant early on are now indicating that the spread might have “peaked,” writes CNBC. Nationwide case numbers in South Africa — where the strain was first discovered — began to decrease in the final week of 2021, while experts say London may also now be seeing cases plateau.

ALSO- Hong Kong has banned incoming flights from eight countries including the US and UK for two weeks and tightened restrictions as authorities look to ward off a fifth, omicron-fuelled wave of the virus, Reuters says.