AM — Urban inflation rises to 5.9% in December, below expectations

Good morning, friends, and happy hump day. Two themes stand out in a very busy issue this morning: The crazy progress we’ve made building out green energy infrastructure in the past decade (see Coffee with… and Going Green, below) and continued strong interest in retail (where the sports segment is about to see high-energy UAE competitor GMG invest here).

EARTHQUAKE WATCH: A magnitude 6.4 earthquake off the coast of Cyprus in the early hours of this morning was felt in Egypt, with some of us residing in the People’s Republic of Maadi noticing a slight tremor soon after 3am. We weren’t the only ones: Hundreds of people in Egypt have taken to social media to report feeling the shake. No damage has been reported in Egypt or Cyprus.

WHAT’S HAPPENING TODAY-

Egypt kicks off its Afcon 2021 campaign today, meeting Nigeria in the opening game of Group D at 6pm. The other tie in the group will see Sudan play Guinea-Bissau at 9pm.

It’s day two of the World Youth Forum in Sharm El Sheikh, which got underway yesterday. You can check out the full agenda for the forum here (pdf). President Abdel Fattah El Sisi met with Lebanese Prime Minister Najib Mikati yesterday on the sidelines of the forum, according to an Ittihadiya statement.

Chinese ride-sharing app DiDi started operating in Cairo yesterday, a few months after it entered Egypt with its launch in Alexandria.

CIRCLE YOUR CALENDAR-

PSA- Calling seed-stage fintech startups: You have until Tuesday, 15 February to apply to Orange Ventures’ seed challenge for a shot at EUR 500k. To qualify you need to have a seed-stage fintech business that has raised less than EUR 1 mn so far. You can apply here.

Abu Dhabi Sustainability Week looks ahead to COP27: The UAE will host heads of state, business leaders and policymakers at Abu Dhabi Sustainability Week (ADSW) from 15-19 January. ADSW will see 45k attendees from 175 countries meet to discuss climate action. Expectations for the UN’s COP27 summit in Sharm El-Sheikh in November will likely be high on the agenda. COP28 is set to be hosted by the UAE in 2023.

South Korean President Moon Jae-in is due in town from 20-21 January on an official visit, during which he will meet President Abdel Fattah El Sisi. Bilateral ties and how to deepen cooperation on environmentally-friendly businesses are high on the agenda, according to Youm7 and the Korean press. Egypt is the last leg of a Middle East tour that will also take Moon to the UAE and Saudi Arabia.

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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THE BIG STORY ABROAD- Federal Reserve vice chair Richard Clarida will step down two weeks early amid questions about his trading activity during the early days of the pandemic. Clarida’s four-year stint was supposed to wrap at the end of the month but the central bank announced yesterday he will resign on Friday.

The news is getting the headline treatment in the global business press, from the Financial Times to CNBC and the Wall Street Journal.

And now back to the Fed’s regularly scheduled programming: Fed head Jay Powell will go before the Senate’s banking committee today in a hearing to confirm his nomination by President Joe Biden for a second four-year term at the helm. Fed governor Lael Brainard’s confirmation hearing to replace Clarida as vice-chair is set for Thursday.

The Fed is still teasing coming rate hikes: The central bank will “use the tools” at its disposal to “prevent higher inflation from becoming entrenched,” Powell will say in prepared remarks at today’s hearing, indicating the bank’s readiness to hike interest rates this year.

A changing of the guard is also underway at the IMF: UC-Berkeley economist Pierre-Olivier Gourinch will be the IMF’s new chief economist, replacing Gita Gopinath, the fund announced in a statement yesterday. Gopinath will become the fund’s first deputy managing director.

The progress (or lack thereof) in yesterday’s talks between US and Russia is featuring heavily on the global front pages this morning. Talks aimed at calming tensions over Ukraine didn’t get very far yesterday after the US indicated that Moscow’s key demand — preventing Ukraine from entering Nato — is not up for discussion. The story is getting prominent treatment in the Washington Post, Reuters and the AP.

*** 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: Over the next five years, the International Energy Agency expects countries in the MENA region to more than double their renewable energy production, with an eye on building a post-hydrocarbon future. But even as the regional growth in renewables — led by Egypt and others — gains momentum, MENA continues to lag behind other parts of the world that are pushing forwards with that shift at a faster pace.

Annual urban inflation rose to 5.9% in December from 5.6% in November, ending a two-month downward trend despite a slowdown in food price inflation, according to figures released yesterday by statistics agency Capmas. On a monthly basis, consumer prices fell for the first time in 11 months, dipping 0.1% due to a 1.1% fall in food prices. The annual rate remains at the lower end of the central bank’s 7% (±2%) target range by 4Q2022.

Annual core inflation hit its highest level since June 2019, climbing to 6% y-o-y from 5.8% in November, according to Central Bank of Egypt data (pdf). The core index removes volatile items such as food and fuel from the headline annual urban rate.

What’s behind the headline figure? Less expensive vegetables didn’t outweigh an unfavorable base effect: A slower-than-expected rise in food and beverage costs led to a more muted rise in the annual headline figure than some had anticipated. Food and beverage costs (which make up the largest component of the basket of goods used to measure prices) rose 8.4% on an annual basis but fell 1.0% from November, Capmas said. Vegetables were the only item included in inflation figures to register a y-o-y decrease in price, falling 9.6% on an annual basis and 7.1% on a monthly basis.

Analysts were expecting prices to rise faster: December’s headline rate was lower than CI Capital’s expectation of around 6.5% y-o-y, but in line with their 2H2021 estimate average of 6%, according to a note. The latest reading takes the average rate for the second half of 2021 to almost 5.9%, it added. The figure also came in lower than Prime Research’s 6.1% prediction, the brokerage said in a note.

Also rising last month: Housing and utility prices rose by 4.2% y-o-y, largely on the back of an 11.6% increase in gas, electricity, and other fuel prices, while clothing and footwear rose to 2.7% from 1.2% the month prior. Healthcare costs rose 2.7% annually, transport increased 4.8%, while recreation and culture rose by 14.8%.

LOOKING AHEAD- EFG Hermes said in a note yesterday that it expects “inflation to accelerate to an average 7% in 2022, from 5.2% in 2021, as more of global inflation filters through into the local market.”

Egypt aims to increase export revenues to USD 60 bn a year by the middle of the decade as part of plans to eventually reach USD 100 bn a year, Trade Minister Nevine Gamea said in a phone-in with Al Arabiya (watch, runtime: 7:37).

This would nearly double the record USD 31 bn export revenues recorded in 2021. The 2021 figure was up 22.5% from 2020, when proceeds from exports came in at USD 25.3 bn, according to Gamea. Rising demand as the global pandemic eases, ramped up government support, and the increased attractiveness of Egyptian exports in light of rising global shipping costs helped drive last year’s increase, Gamea said last week.

More than 15% of the target could come from African business: The government previously announced plans to push African exports to USD 10 bn by 2025, with an interim target of USD 7 bn this year. The first phase of a three-phase strategy to boost African exports is slated to begin this month, targeting 10 countries. The ministry’s export subsidy program and other forms of support are also helping exporters tap new markets, including in Africa, Gamea said.

A long way to go: During the last fiscal year, Egypt’s exports to Africa (excluding Arab countries) recorded USD 607 mn, accounting for only 2.1% of our total exports, according to Central Bank of Egypt data.

Increasing exports is one of the key targets of the government’s new structural reform program, which aims to ramp up agricultural, manufacturing, telecoms and IT exports through the subsidy program and supportive reforms.

More UK tourists heading to Egypt after covid test rules eased: The UK arm of travel agency TUI is reporting a rise in bookings to Egypt after the UK government relaxed covid testing requirements last week, according to Bloomberg. The company has seen an “immediate and strong uptick in bookings” to Egypt, as well as Mexico, the Dominican Republic, the Canary Islands and Cape Verde, it said.

PCR tests for UK travel are history: This comes just a few days after the UK replaced requirements for incoming travelers to take a PCR test before and after flying with a cheaper lateral flow test on the second day after arrival. “There’s no doubt the positive travel changes have given Brits the reassurance that travel will once again be easier and more affordable,” the company said in a statement. TUI now expects bookings for the summer to be “normalized,” it said.

Egypt’s tourism sector is firmly in recovery mode: The rebound in Egypt’s tourism sector — which prior to the pandemic accounted for 12% of GDP — gathered pace through 2021 as international travel began to normalize, with the most recent data showing revenues rose 20% y-o-y in the first half of the year.

Homzmart is eyeing South Asian expansion: Furniture and home goods marketplace Homzmart is targeting expansion into South Asian countries, Al Mal quotes company head Mahmoud Ibrahim as saying. The company entered Saudi Arabia in November, giving it access to a USD 15 bn market that’s growing 10% each year.

Local expansion is also on the wishlist: Homzmart wants to serve between 20-25 mn homes and is eyeing new customers in the new administrative capital and on the North Coast. The company currently has between 100k-200k customers, Ibrahim said. No timeline was given for the local or international expansion plans.

More funding coming? The company is currently holding talks with investors to raise more financing, the company head said, without giving any details. Investors from Europe and the US are finding Arab markets increasingly appealing, he said.

About Homzmart: Founded in 2019, Homzmart connects suppliers with consumers, showcasing 55k furniture products from different brands and merchants. Last year, the company landed USD 15 mn in a series A round led by China’s MSA Capital and Emirati-Saudi VC firm Nuwa Capital, bringing the total amount raised by the company to USD 17.2 mn.

Veteran American diplomat David Satterfield will replace Jeffrey Feltman as the United States’ special envoy for the Horn of Africa, Secretary of State Anthony Blinken announced last week. The statement did not disclose when Feltman will step down from his position but sources told Reuters last week that he will leave this month.

Out: Since being appointed by the Biden administration in April, Feltman has taken charge of the US diplomatic response to a number of crises in the region, including the dispute over the Grand Ethiopian Renaissance Dam (GERD), the Tigray conflict in Ethiopia, and the military coup in Sudan in October.

In: Satterfield has more than four decades of diplomatic experience in the Middle East, and has served as the country’s ambassador to Lebanon and Jordan, as well as completing stints in Saudi Arabia, Tunisia, Iraq, Syria and Algeria. He most recently served as the ambassador to Turkey, ending his term in Ankara last week.

Coffee with Mohamed Mansour, co-founder and CEO of Infinity: 2021 marked a big year for renewables in Egypt, with several big projects being announced including new wind and solar generation capacity, green hydrogen, carbon capture, and of course, our natgas transition plans and electric vehicles (EV) push. And this was all ahead of our selection to host the COP27 global climate summit this year. One of the major players on the scene is renewable energy provider Infinity, which is building the infrastructure of EV charging stations across Egypt. The company, which is the largest local solar energy producer at the Benban solar park in Aswan, is now looking to substantially raise its output in Egypt and the region.

The CEO at the center of it: Mohamed Mansour (linkedin), who prior to founding Infinity in 2014 was managing director of Manfoods — fast food giant McDonald’s Egypt franchise — where he helped push its expansion throughout Egypt. Mansour has led Infinity’s growth from a small solar start-up to becoming one Egypt’s largest utility-scale renewable energy company in solar, wind, and EV charging solutions.

We sat down for coffee to discuss all things renewable, from the viability of Egypt’s renewable energy targets, to scaling a thriving EV industry, to Infinity’s pipeline and his expectations for COP27.

Below are edited excerpts from our conversation:

The future is looking bright for renewables in Egypt: Egypt’s ambition to raise the supply of electricity generated from renewable sources to 42% by 2030 is not only on track, but can even be surpassed. That would require the manufacturing industry to pick up and increase demand for electricity, and the quick adoption of electric vehicles.

But what about the electricity supply glut? We likely won’t see renewable energy generation feeding into the national grid in 2022 due to the oversupply of electricity. A smart solution to this problem is to have water desalination and new green hydrogen projects drive growth in the renewable energy sector, which is what is currently being implemented. This is why sales growth over the next three to five years will primarily be driven by these types of projects.

We plan to at least double our capacity in 1Q2022 across Egypt and the region. Currently, we are generating 538 GWh a year with our six assets in Cairo and Aswan, powering around 240k homes with an installed capacity of 236 MW. We’re looking to generate an extra 630 GWh per year from wind energy at the Ras Ghareb wind farm. We will sign on an additional 200 MW of wind capacity in Egypt this quarter, which should be operational by 2024.

We're looking at two or three acquisitions in 2022 in Jordan and South Africa. These include approximately 300 MW of assets in Jordan. We're also participating in a solar tender in South Africa for a capacity of approximately 600 MW.

In total, we'll be generating around 2 TWh of energy per year by the end of 2022 — 60% of which would be generated in Egypt alone. This could power around 1 bn homes across Egypt, Jordan and South Africa.

A growing EV landscape: Currently, there are approximately 1,500 EVs on Egypt’s streets used as secondary cars, but we expect that number to go up to 2-3k in 2022. Starting this year, the number of EVs in Egypt will grow substantially as we see models from global brands being offered. By 2025, we expect there will be 40-50k EVs on Egypt’s roads.

…And a drop in prices: While EVs are more expensive than fuel-powered cars, prices are expected to be on par with fossil fuel vehicles by 2025. We expect locally made electric cars to be priced within the EGP 350-400K range this year. (Editor’s note: The average EV price in Egypt currently stands at around EGP 840k, according to our calculations based on Electrified EV data.)

Egypt is the right place for a burgeoning EV market: I would love to see more EV manufacturers here, especially as Egypt has several advantages. We are perfectly situated geographically so we can export to Europe and Africa. The cost of production here when it comes to labor, transportation and energy are competitive. So, we have all the fundamental elements to make this work.

What is needed is the right partner and the right product, which we will probably see fall into place in the next 12 months. Turning El Nasr Automotive into an EV manufacturer was a great idea to get it up and running, and make it a viable automaker. Unfortunately, things fell through with Dongfang, but I’m expecting them to find another partner in 1Q2022.

But for EVs to get traction in Egypt, you need a holistic approach: You need to incentivize the consumer, the manufacturers and distributors, and infrastructure providers, which are companies like ourselves. In most countries, infrastructure players are supported by their governments either through rebates or tax holidays.

Tariffs for EVs currently in the works: We are waiting for the official announcement from Egyptera regarding the tariff and the regulations governing the EV industry in Egypt, before we can begin charging consumers. Currently, the government-proposed tariff is between EGP 1.69 per KWh and EGP 1.89 per KWh, depending on whether the charging station is in a no-rent zone (public space designated by the government for providers like Infinity) or in private areas such as compounds, where providers have to lease the land for their stations.

The proposed tariff for EV charging is a work in progress. While it isn’t ideal, it’s a start and we want to get the ball rolling. As an infrastructure player ourselves, Infinity is adamant in supporting the government’s EV plans while ensuring we are able to service and bill customers at our EV stations appropriately. The global standard is that charging an EV should cost the car owner one third of what it would take to fuel a normal car. That ratio needs to be in place. Furthermore, while the electricity cost is factored into the tariff, the value for the duration of the charge is not appropriately correlated. Depending on the charger and the vehicle, the time it takes for EVs to fully charge is different. For instance, a super-fast 350 kW charger can fully charge an EV in 15-20 minutes, depending on the model. A 50 kW charger would take more time.

On private sector financing for renewables: There is a misconception that the private sector is not involved in green economy financing. All the sector’s equity funding comes from the private sector, while the primary function of development finance institutions (DFIs) is to come in with debt funding. The bulk of the financing (sometimes up to 80%) for all these infrastructure projects comes from the DFIs through a debt facility, and I think that will always be there.

The question is when will Egyptian commercial banks start participating with private equity and developers. These projects need very long tenors of 15-20 years, and need to be financed in USD because components will be bought from abroad, which local banks are not allowed to do. If this is ever changed, and banks have a stronger appetite for longer tenors, we’ll see more local banks getting into the game.

COP27 will be the perfect showcase for Egypt and will come with a lot of exciting announcements, I expect. We may hear more about recently-announced projects, including Orascom Construction’s plan to build a green hydrogen facility and water desalination projects powered by renewable energy will be announced and awarded. We may even hear more initiatives on new technologies like carbon capture. And we may also see commitments by foreign companies in local projects in green hydrogen and EVs.

I expect the government may also commit to certain targets. This would include the reduction of fossil fuel consumption, more capacities for renewable energy generation and more initiatives for energy efficiency.

Why we all should look forward to it: In the past six years, Egypt has been outrunning the rest of Africa in the green economy space by putting more capacity on the grid than even South Africa. The industry has also opened up to the private sector to participate and build, which is great. The fact that you have half the country covered with EV charging stations today is a big statement, and hopefully when COP27 comes around, we'll have the whole country covered.

The World Youth Forum practically had the airwaves to itself last night, with most of the nation’s talking heads (those who aren’t down and out with covid) covering the opening day live from Sharm El Sheikh. Masaa DMC (watch, runtime: 17:30), Al Hayah Al Youm (watch, runtime: 1:43 | 2:03), and Ala Mas’ouleety (watch, runtime: 4:04) all had coverage.

Human rights is getting attention in the foreign press this morning: The Associated Press picks up a statement from local human rights organization, the Arabic Network for Human Rights Information, which yesterday announced it has closed down due to government pressure. Over in Italy, the judge overseeing the trial of four Egyptian security officials over the death of Giulio Regeni has called on the Italian government to intervene to push the case forward, according to local news agency ANSA.

Also making headlines: Egypt’s investment in green energy is getting attention from China’s Xinhua, while Offshore Energy is covering Eni’s award of five new exploration licenses, and the Red Sea mountain trail is getting coverage as one of the New York Times’ 52 best global destinations for 2022.

UAE-based retailer GMG plans to open over 100 sports retail stores in Egypt by 2026, it said in a statement (pdf) yesterday. The conglomerate has established a local office in Cairo to support the expansion, which will start by opening several stores in the capital this year. GMG sports retailer Sun & Sand Sports will open branches at the City Center Almaza and the Mall of Egypt. The company is also considering entering the local e-commerce market alongside local distributors, the statement said.

MEANWHILE- The Central Bank of Egypt has issued a circular (pdf) that puts in place a mechanism under which it could in the future provide emergency liquidity to banks that request it. The mechanism is primarily designed to provide liquidity to solvent banks if they are unable to obtain it from the interbank or financial markets. The mechanism is purely a precautionary move mandated by the Central Bank and Banking Act of 2020, bank deputy governor Gamal Negm told Al Arabiya late yesterday. Having the mechanism in place is both good governance and in line with international norms.

Negm stressed that local lenders have some of the strongest liquidity positions in emerging markets. His interview is getting domestic attention from Ahram Gate.

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

• MoneyFellows and e-Finance subsidiary e-Cards are partnering (pdf) to provide financing for recipients of government and union pensions and state support programs.
• e-Finance will provide smart cards to distribute fuel quotas to parties contracted with Misr Petroleum.
• Carton manufacturer El Wessam Pack will ramp up its investments to EGP 400 mn over the next two years to add new production lines and revamp existing ones.
• President Abdel Fattah El Sisi has given the green light to the establishment of ‘Innovation University’ — a private, nonprofit university in Tenth of Ramadan City that will teach scientific subjects such as engineering, IT, business administration and physiotherapy, according to a decision published yesterday in the Official Gazette.

The Health Ministry reported 951 new covid-19 infections yesterday, up from 912 the day before. Egypt has now disclosed a total of 393,808 confirmed cases of covid-19. The ministry also reported 31 new deaths, bringing the country’s total death toll to 21,995.

Had a cold lately? It may offer some protection against covid-19: A small UK study found high levels of T cells — protective immune cells created by the body to fight some colds — in those who didn’t contract covid-19 despite being in close contact with an infected person, Bloomberg reported. T cells tend to survive longer in the human body than antibodies from covid vaccines and protect against a wider range of pathogens, potentially making them effective against different variants.

Pfizer’s omicron-specific booster will be ready in March, while Moderna’s will land in the fall, the CEOs of the two drugmakers told CNBC in separate interviews. Pfizer is already manufacturing its jab and expects trial results within days. Moderna’s booster is scheduled to enter clinical trials soon.

The US continues to break records: A record 132.6k people in the US are currently in hospital due to covid-19 as omicron sweeps the country, according to a Reuters tally.

UN launches talks to try to solve Sudan’s political deadlock: A UN mission yesterday began a series of separate meetings with civil society groups and the military, designed to stabilize the country following the army’s October takeover. The UN’s envoy to Sudan told journalists the talks were not formal negotiations, but rather “consultations” aimed at building confidence, reducing violence and eventually finding “some consensus” to ease the stalemate between protestors and the military.

Some of Sudan’s key protest groups have rejected the talks, demanding that the military first cede power.