AM — World Bank hikes Egypt growth forecast to 5.5% in 2021-2022

Good morning, wonderful people, and happy almost-THURSDAY. We have plenty of good news on the economic front today — and an encouraging sign that the nation’s sukuk market may be starting to wake up. Less good: The Pharaoh’s lackluster performance at Afcon last night.

Egypt’s Afcon campaign got off to a dismal start yesterday: The Pharoahs lost 1-0 to Nigeria in their opening game of the tournament. Leicester City striker Kelechi Iheanacho put the West African side ahead on the half-hour mark, with a lovely top-corner finish on the half volley. Despite having the lion’s share of possession, the Pharaohs were toothless in attack, registering only two shots on target over the 90 minutes, and will have to improve in their next game against Guinea-Bissau if they want to progress to the next round. The other tie in Group D between Sudan and Guinea-Bissau finished goalless.

MEANWHILE- It’s day three of the World Youth Forum in Sharm El Sheikh. You can check out the full agenda for the forum here (pdf).

THE BIG STORIES ABROAD- Powell downplays economic impact of incoming rate hikes: Federal Reserve chair Jay Powell has sought to calm nerves about the bank’s plan to raise interest rates this year, telling senators yesterday that efforts to fight inflation can be done without inflicting harm on the economy. Speaking at his confirmation hearing, Powell reiterated the dangers posed by rapidly rising prices but characterized the end of pandemic-era stimulus as a return to normalcy rather than a hawkish turn towards ultra-restrictive policy. Powell, who was renominated by the Biden administration to lead the Fed for a second term, is trying to navigate a tricky course between calming inflation, which last year reached multi-decade highs, and minimizing damage to the economy.

The story is everywhere in the global business press this morning: Reuters | Financial Times | Bloomberg | Wall Street Journal.

Powell’s words pleased the financial markets, leading US stocks to rebound and calming the sell-off in the bond market.

Yesterday’s rally is continuing in Asia this morning, where indexes across the region are solidly in the black. Futures indicate that shares in the US and Europe will open in the green later today.

READ THIS- China is putting the brakes on its loans to Africa, the Financial Times writes in its Big Read as controversy continues over what some in Africa (and the west) call its “predatory” lending — and one day after Sri Lanka asked Beijing to restructure its debt payments.

Another day, another covid record in the US: Covid hospitalizations in the US have reached record highs, rising to more than 145k yesterday as the omicron variant sweeps across the nation. The story is all over the US press from the Washington Post and the Wall Street Journal to CNN and CNBC.

???? FROM THE DUMPSTER FIRE that is our social media on this fine winter morning:

• Startup accelerator Y Combinator is getting plenty of attention for its new, larger “standard [offer].”
• As the WHO says it’s too early to declare that covid-19 is “endemic,” Wired reminds us all that the debate is going to be messy: “The task of 2022 will be figuring out how much action we’re willing to take and how much disease and death we’ll tolerate.”
• 2022 is not being nice to star stock picker Cathie Wood, Fortune reports.
• Windoze users: Your antivirus program of choice? It probably comes with a built-in cryptominer, according to the good people at Kaspersky.
• Greener pastures? A Turkish farmer has fitted his cows with VR glasses to try to convince them that they’re outside in summer pastures.

And from The Strobist himself (aka David Hobby): Twitter explained in 15 seconds.

MARKET WATCH-

World Bank projects slowdown in global growth this year: The World Bank is projecting a 1.4 percentage-point slowdown in global GDP growth to 4.1% in 2022. Global growth surged to 5.5% in 2021, according to the WB’s latest semi-annual economic outlook — far stronger than the 4% expected this time last year. But the boom isn’t set to last, with the bank downgrading its 2022 forecast by 0.2 percentage points on the back of covid-19 flare-ups, supply bottlenecks, and decreased fiscal support. Growth will slow further to 3.2% in 2023, according to the report.

And developing economies are in for a “hard landing”: The World Bank is predicting a “pronounced slowdown” among developing countries as pandemic support is withdrawn and low vaccination rates prolong the pandemic. Growth will slow to 3.4% this year, down from an estimated 5.1% in 2021, while an “unprecedented” increase in debt could leave EMs particularly exposed, prompting bank president David Malpass to call for “a concerted effort to mobilize external resources and accelerate debt relief.”

What about Egypt? We have all the details on the bank’s forecasts for Egypt and MENA in this morning's news well, below.

Our friends at Abu Dhabi-based investment firm Chimera Capital have just launched their fifth exchange-traded fund, they said in a press release (pdf). The sharia-compliant ETF — which will be listed on the Abu Dhabi exchange — tracks the performance of the 30 most-liquid sharia-compliant, Saudi-listed equities, allowing investors to capitalize on Saudi Arabia’s “attractive economic fundamentals.” Chimera’s ETFs have attracted inflows of AED 300 mn in under 18 months, the release notes.

Background: Chimera is run by CEO Seif Fikry (LinkedIn), an Egyptian veteran of the regional capital markets scene and founder of the region’s first UCITS-compliant ETF. The investment firm is a significant backer of Nasdaq-bound transportation play Swvl and recently closed its first VC fund at USD 75 mn. A unit of Chimera Capital also recently bought 25% of Sawiris vehicle Gemini Global Development, which owns Ora Developers Egypt.

Dubai’s PMI rose in December to its highest level since June 2019 to sit at 55.3, up from 54.5 in November, according to IHS Markit’s purchasing managers’ index survey (pdf). The growth was driven by a robust uptick in new orders amid easing travel restrictions and Expo 2020.

CIRCLE YOUR CALENDAR-

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.

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.

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, urban development as well as social infrastructure such as health and education.

In today’s issue: Water is big on the government’s radar amidst the threat of GERD and climate change. The year ahead promises a continuation of the push to secure our water supply for drinking and agriculture through the building of several wastewater treatment and desalination plants across the country. Egypt is also attempting to mitigate the impact of a number of challenges that could stifle our progress in the water sector such as the supply chain crisis and heightened inflation.

The World Bank has revised upwards its prediction for Egypt’s GDP growth by 0.5 percentage points to 5.5% for FY2021-2022. The bank said in October that it expected growth to come in at 5.0%, but in its latest Global Economic Prospects report hiked its forecast, citing rising exports, growth in our tech and natural gas sectors, and a rebound in tourism. Growth will remain steady at 5.5% next fiscal year, the bank said.

This tallies with other estimates: The Planning Ministry said last month we’re on track to see the economy grow somewhere between 5.5% and 5.7% in FY2021-2022, while the IMF projected growth of 5.2% in its most recent forecast.

You can read the full report here (pdf), or visit the landing page here.

Strong growth to start the year: Preliminary figures released by the Planning Ministry last year showed the economy growing at a 9.8% clip during the first quarter — its quickest pace in two decades. The ministry has penciled in 6-7% growth for 2Q.

Egypt’s economy grew at an estimated clip of 3.3% in FY2020-2021, faster than initially expected, the bank said, leaving its October estimate unchanged. That tallies with the latest planning ministry figures. The economy benefited from strong consumption on the back of pent-up demand, growing remittances, and “contained inflation relative to recent history.” Unemployment also remained and near record lows, while employment rose above pre-pandemic levels, though labor participation remains low.

We’re still going to be growing a bit slower than we did before covid hit: Growth prior to the pandemic had been as high as 6%, boosted in part by the government’s structural and economic reforms, the bank said.

But we’re going to be growing faster than the regional average: Growth in MENA economies is expected to accelerate to 4.4% in 2022 — an increase from the 4.2% predicted in October— before leveling off at 3.4% in 2023, the report said. That represents a faster acceleration on average than in the decade before the pandemic. The upward jump is being driven by the recovery of contact-heavy sectors, higher oil and natural gas prices, and the easing of oil production cuts. MENA economies have also been supported by a “generally accommodative policy environment,” the report said.

The pandemic’s “lasting economic scars” are still being felt: The gap in average per capita income between MENA and advanced economies is expected to widen despite the recovery, the report said. The regional economy contracted by around 4.0% in 2020, driven by covid-19 disruption and the collapse in oil prices and demand.

Omicron could pose an obstacle: Less than two-fifths of MENA’s population is fully vaccinated. Omicron’s rapid spread could hit global demand and spur a retrenchment in oil prices. Meanwhile, a rise in oil prices could hit importers and keep upward pressure on inflation. The increasing frequency of climate change-driven natural disasters will also continue to hit MENA economies, threatening agriculture, food security, water resources, and lives, it adds.

Egypt’s bond market is poised for more gains this year thanks to our attractive interest rate, which is currently the world’s highest after adjusting for inflation, several global asset managers tell Bloomberg. Amid a global bond rout prompted by the Federal Reserve’s decision to accelerate plans to hike rates, analysts and fund managers are bullish on Egyptian debt and are expecting double-digit returns this year, bolstered by the addition of EGP bonds to JPMorgan’s emerging bond index.

Egypt’s local bonds were the world’s second-best performing worldwide last year, with returns reaching 13%, according to Bloomberg data. By comparison, local emerging market debt saw an average loss of 1.2%. Egyptian debt has seen a return of 156% over the past five years, as the IMF-backed reform program and Gulf financing attracted investor inflows — beating out emerging markets’ 26% and the S&P 500’s 133% returns over the same period.

Analysts expect this to continue: PineBridge Investments and Renaissance Capital both see EGP bonds delivering double-digit returns this year, the latter of which expects a 17% gain.

Passive inflows will give us another boost: Already a favorite among emerging market investors, Egypt’s debt market will be bolstered further by joining JPMorgan’s Emerging Markets Bond Index (EMBI) this month — setting the market up for more inflows from passive funds. Egypt currently has USD 26 bn of eligible government bonds.

Will we withstand US interest rate hikes? Egypt has remained attractive for investors, even as the outlook for emerging markets and the global bond market at large has darkened in response to the Federal Reserve’s hawkish turn. We were one of only a few emerging markets to have delivered decent returns since December, when the Fed announced decisive action to combat inflation and hike rates soon in 2022. Egypt’s real interest rate — the rate adjusted for inflation — is 2.35%, as opposed to a negative 6.55% for the US, according to the report. “With real rates that high, we don’t think the Fed raising rates modestly this year will be a key driver for Egypt bonds,” Jim Barrineau, head of emerging-market debt at Schroders, told Bloomberg.

Inflation remains within comfort zone: Egypt’s annual urban inflation rose to 5.9% in December from 5.6% in November, ending a two-month downward trend, but remaining within the lower end of the Central Bank of Egypt’s 7% (±2%) target range by 4Q2022, helping EGP-bonds go against a global trend of negative returns. “The ability to keep inflation relatively contained has been key,” Barrineau said.

And it’s not just us — EM LCY bonds are trending. Local currency bonds saw their biggest inflows in six months on Monday, Bloomberg reports, as investors turn to the long-troubled asset class amid a global rout in USD-denominated debt. US investors poured USD 71 mn into JPMorgan’s EM local bond exchange-traded fund, its biggest daily gain since June. Local bonds have underperformed for a decade and are usually the first to be sold off in a crisis — but high real interest rates in developing nations amid expected Fed tightening, USD weakness and low valuations have helped EM local bonds outperform both US treasuries and corporate debt in recent weeks.

Madinet Nasr Housing and Development (MNHD) has closed its first EGP 300 mn issuance as part of a three-year, EGP 3 bn securitization program, according to a statement (pdf). The bond is backed by a receivables portfolio of EGP 373.9 mn and consists of three fixed-interest tranches rated A through AA+. This is the first issuance from MNHD since 2019, when the company issued EGP 370.5 mn in securitized bonds. The company had signed an EGP 750 mn sale and leaseback agreement with EFG Hermes in December, which will include a few securitization issuances as follow-on transactions.

Advisors: Our friends at EFG Hermes acted as sole financial adviser, transaction manager, book-runner, arranger and co-underwriter on the issuance. CIB also acted as an underwriter and custodian.

This is the latest in a string of corporate paper to hit the market, with some EGP 7.2 bn in securitized bonds issued so far this year. GB Lease completed the sale of EGP 4.3 bn of securitized bonds last week after CI Capital’s leasing arm Corplease kicked off the year with an EGP 2.4 bn issuance. Premium Card also closed a EGP 170 mn short-term securitized bond sale. A total of 19 securitized bond issuances with a combined value of EGP 15.8 bn went to market last year, by our count.

And there’s more to come: Al Oula is looking to issue EGP 900 mn in securitized bonds in 1H2022, Al Mal quotes MD and Vice Chair Ayman Abdel Hamid as saying. Al Oula is currently in the process of appointing advisors for the issuance.

Also in the pipeline: The Financial Regulatory Authority has okayed issuances by Cairo Housing and Development and its subsidiaries worth a combined EGP 336 mn. Premium Card is also looking to tap the securitized bond market again this year with a two-tranche, EGP 500 mn issuance.

This quarter could see our first corporate sukuk sale of the year: Palm Hills Developments (PHD) could close a EGP 3 bn sukuk sale this quarter, which is being managed by Contact Financial Holding’s (formerly Sarwa Capital) sukuk arm, Ayman Elsawy, head of Sarwa Promoting and Underwriting, told Enterprise, confirming a story yesterday in Al Borsa. The Financial Regulatory Authority still needs to give the sale the go ahead.

Advisors: The company has appointed Banque Misr and its investment arm Misr Capital as underwriters and promoters for the issuance. Our good friends at ALC Alieldean Weshahi & Partners are legal advisors, while KPMG Hazem Hassan is serving as auditor.

More sukuk sales ahead: Wadi Degla Developments’s EGP 2 bn sukuk sale — which we were expecting last summer — and Amer Group’s EGP 1.1 bn sale are expected to happen during the first half of the year, Elsawy confirmed to us.

This comes after a very quiet year for sukuk: By our count, 2021 only witnessed a single sukuk sale from Contact Financial Holding, which closed a sukuk issuance worth EGP 2.5 bn back in July.

IN OTHER DEBT NEWS-

SMART POLICY- The Central Bank of Egypt and Financial Regulatory Authority have launched a “responsible lending” initiative directed at all SME lenders they regulate, according to a FRA press release (pdf). The initiative, which comes in partnership with the World Bank, aims to educate SME lenders to better assess a borrower’s credit rating and ability to repay loans — and to offer them incentives to do the same. The WB has committed funding to train members of the Egyptian Microfinance Federation in best practices with curriculum from international institutions specialized in responsible finance.

Egypt will produce its first locally assembled electric vehicles next year, President Abdel Fattah El Sisi said in an address to the World Youth Forum yesterday (watch, runtime: 10:26). His comments come after the government last week said it was in talks with two Chinese companies to partner with El Nasr Automotive to produce electric cars in Egypt, with a view to signing final contracts by March.

A Dongfeng-derived delay: El Nasr was aiming to have Egypt’s first 100 homegrown EVs ready by July-August 2022 — then negotiations with Chinese auto firm Dongfeng to locally assemble its E70 cars collapsed in November. The company has since narrowed seven proposals from new potential EV partners down to the two Chinese firms, with an eye to finalize terms later this month.

General Motors and Al Mansour are also in the running to jointly produce EVs: The two companies signed an MoU on the plan in December and are working to present a study to the government sometime within the next few months.

And incentives could be announced soon: The Madbouly government is finalizing incentives to the local industry under a long-delayed automotive strategy. The measures could offer manufacturers customs discounts for using locally-produced components, potentially linked to their added value (i.e cost). It could also provide buyers of locally-made EVs subsidies worth up to EGP 50k. The incentives were expected to come out in December

Also in store: The government will invest at least EGP 450 mn to roll out the infrastructure required to make EVs viable on Egyptian roads, led by industry leader Infinity, which will set up 6k electric vehicle charging points across 3k stations nationwide. An official announcement on EV charging tariffs and regulations governing the industry is also expected soon.

The rise of the EV: Infinity co-founder and CEO Mohamed Mansour expects 40-50k EVs on our roads by 2025, up from a current 1.5k, as we see models from global brands being offered, he told us earlier this week.

The World Youth Forum continued to dominate proceedings on the nation’s airwaves last night, with everyone and their cousins featuring coverage of the second day of the event. Yahduth Fi Masr (watch, runtime: 4:30), Masaa DMC (watch, runtime: 3:02), Al Hayah Al Youm (watch, runtime: 1:38:31), Hadith Al Kahera (watch, runtime: 3:16) Ala Mas’ouleety (watch, runtime: 3:29) all had coverage.

Afcon blues: Egypt’s disappointing 1-0 loss to Nigeria in their opening game at the Africa Cup of Nations didn’t generate quite the same level of coverage. The post-mortems were provided by Hadeeth Al Kahera (watch, runtime: 2:55) and Masaa DMC (watch, runtime: 2:40).

International media is picking up on statements made by President Abdel Fattah El Sisi at the World Youth Forum yesterday, with the Associated Press noting his critical remarks about European immigration policy, and Bloomberg Asharq noting his comments on the government’s attitude towards human rights and the problem of accelerating population growth.

Also making headlines: An accident that saw a truck slide off a ferry into the Nile just outside Cairo, leaving two dead and eight still missing, was covered by the Associated Press and China’s Xinhua. Meanwhile, the possibility of a thaw in tensions between Turkey and Egypt amid a reconciliatory wave sweeping MENA got ink in Bloomberg, and GQ interviewed Liverpool star Mohamed Salah on his ongoing contract negotiations.

Covi Vax phase 1 trials end next week: Egyptian researchers will complete phase 1 clinical trials for locally-made covid vaccine Covi Vax next week, head of the National Research Center’s virus department Mohamed Ali said in an interview last night (watch, runtime: 5:23).

Covi Vax ready in July? The second and third phases are expected to take six months to complete, potentially allowing the vaccine to be assessed by regulators early in the third quarter.

The Health Ministry reported 932 new covid-19 infections yesterday, down from 951 the day before. Egypt has now disclosed a total of 394,740 confirmed cases of covid-19. The ministry also reported 19 new deaths, bringing the country’s total death toll to 22,014.

Half of Europeans will catch the ‘cron in the next six-eight weeks if it continues to spread at its current rate, according to the World Health Organization, which yesterday characterized the variant as a “west-to-east tidal wave sweeping across the region.” (AFP)