AM — Egypt is back in JPMorgan’s EM bond index

Good morning, friends, and welcome to the very last day of January. The Colonel always told us that time accelerates as we get older, but really? The end of January? Already?

We’re a little bit bleary-eyed this morning after trying to work (and study with the resident 14-year-old) while keeping tabs on Rafael Nadal beating Daniil Medvedev to bag a record 21st grand slam title with a come-from-behind victory in the Australian Open — and Canada cruise to a 2-0 victory over the United States in World Cup qualifying (uh, sorry, American friends — or not).

Oh, and the Pharaohs played last night. The national team managed to eek out a 2:1 victory in last night’s Afcon quarter-final against Morocco, a match that was described as everything from “scrappy” to “dismal.” The prognosis was less than hopeful after Morocco scored a penalty within the first seven minutes — but Mohamed Salah’s second-half equalizer carried us into extra time, where a great run by the Liverpool star set Mahmoud Trezeguet up to clinch goal #2. What was a less than edifying spectacle from the football side of things was more than made up for by endless drama, with both sides racking up plenty of fouls. But hey, we’re through — and will now face hosts Cameroon in Thursday’s semi-final.

Thursday’s kickoff: 7pm CLT.

PSA- We’re looking at cold weather all week long: The national weather service is predicting another cold week ahead, with Cairo seeing highs between 15-18°C and overnight lows in the single digits all week long. Strong winds will make it feel colder still, it said.

WHAT’S HAPPENING TODAY-

We’re officially back in JPMorgan’s EM bond index today: Egypt is rejoining JPMorgan’s Emerging Markets Bond Index (EMBI) today, Finance Minister Mohamed Maait told CNBC Arabia (watch, runtime: 5:26), a move that could potentially bring bns of USD in new passive flows into EGP-denominated debt. Egyptian bonds will have an estimated weighting of 1.8% in the index, Maait said. Egypt will also become a constituent of JPMorgan’s green bond index with a weighting of 1.2%, he said.

THE BIG STORY ABROAD-

Russia’s threatened invasion of Ukraine remains the focus of the international press this morning.

The UN Security Council will meet to discuss the crisis today — and the US is trying its best to pile on the pressure ahead of the talks, the Associated Press reports. US lawmakers yesterday promised Moscow will face “the mother of all sanctions” if it does invade its neighbor — and senators could pass legislation on the measures as soon as this week, according to Reuters and the Financial Times.

Potentially relevant to us here at home: The New York Times is warning that the sanctions could take a “wide toll,” noting that top US security officials have “been talking with executives from some of Wall Street’s largest banks, including Goldman Sachs, Citigroup, JPMorgan Chase and Bank of America, about the stability of the global financial system in the wake of potential sanctions.”

Meanwhile, Ukrainian leaders remain unflappable in the face of Russian grandstanding, says the Washington Post.

ALSO- Egypt gets plenty of mention in “Does the EBRD still finance freedom?” in the Financial Times, which notes that we’re one of the institution’s most important markets. The EBRD does tons of good here, investing in people, small businesses and infrastructure, but the FT’s Big Read for today suggests EBRD isn’t doing enough to push us on democracy issues.

MORNING MUST READ-

CEOs, CFOs and investor relations officers aren’t wrong to feel that something is a bit off in how ESG reporting is done today. At the center of the problem: So many would-be advisors are so hungry for a piece of a pie that could be worth bns of USD in fees globally that they’re trying to wear multiple hats. They want to advise you on what you need to report on when it comes to environmental, social and governance (ESG) issues. Come up with and abatement programs that make your business look more sustainable. Implement that program with you. Help you report to the constituencies who need to hear from you. And then audit and certify your progress on your “ESG journey” (depending on which of the 6.02×10^23 competing and confusing reporting standards you choose to follow).

In finance terms? It’s like your external auditor coming in and wanting to get a mandate that sees them re-factor your operations. Set up your finance and accounting systems. Build your financial statements. Help you move all the numbers move in the right direction. Choose whether to go with EAS or IFRS (or whatever). Communicate about numbers with those who matter. Oh, and be paid to audit and certify how well you’re doing in the process.

In other words: The folks who rate how we’ll you’re doing when it comes to ESG are also trying to sell you on services that will help you improve that rating — and it’s a conflict of interest. If you feel the burn (or care about doing better for both your people and our planet as you try to make a buck), you’ll want to read this story that got plenty of attention on the Wall Street Journal yesterday.

MARKET WATCH-

The US Federal Reserve could consider “supersize” interest rate increases of half a percentage point this year if inflation continues to run high, a Fed official told the Financial Times. Fed Atlanta head Raphael Bostic is calling for three quarter-point rate increases in 2022 — but said a more aggressive approach was also on the table if necessary. The Fed last week indicated that it will go ahead with its first rate hike in March.

Meanwhile in Europe: The Bank of England is set to announce further tightening for the second time in under two months in its meeting on Thursday, bringing its main rate up to 0.5% in a bid to curb inflation, which has reached a near-30-year high, Reuters reports. The European Central Bank, meanwhile, is continuing its asset purchases and will likely leave rates unchanged when it meets on the same day — marking a growing divergence among major economies in the transitory-vs-permanent debate raging over inflation, Bloomberg notes.

Permanent inflation could mean lower returns on stocks and bonds in the foreseeable future, Nicolai Tangen, who runs Norway’s sovereign wealth fund (the largest in the world), tells the Financial Times.

CLOSER TO HOME- The Central Bank of Egypt will also hold its first policy meeting of 2022 on Thursday, where it is widely expected to hold rates steady, according to our regular interest rate poll. All analysts we surveyed expect Egypt to maintain the current rates for a while longer, as they anticipate our rates continuing to attract portfolio inflows even amid Fed tightening and global inflationary pressures. “We have inflation readings looking tame so far, and the outlook for 2022 looks well within the CBE target,” Al Ahly Pharos’ Israa Ahmed told us. “The CBE succeeded to withstand similar pressures back in 2H2018 without rushing into rate hikes,” she added, noting that “raising interest rates is not a costfree decision. It has large implications particularly on the budget and public debt trajectory, let alone the private investment and the financial markets.”

CIRCLE YOUR CALENDAR-

January PMI figures for Egypt, Saudi Arabia, and the UAE are due out on Thursday.

The US Embassy in Cairo is now accepting applications for Cultural Property Agreement Implementation projects that would help Egypt protect its cultural property from looting, theft, and illicit trafficking. The guidelines state that concept notes should be sent in by this Thursday, 3 February, while shortlisted applicants will need to submit full applications by 4 May. Each project will receive USD 50-100k, with around USD 500k earmarked for the entire program.

OPEC+ will meet this Wednesday, 2 February: The cartel is expected to agree to another gradual oil production increase. Planned production increases by the cartel have so far failed to meet the recovery in demand as several member countries struggle to up their output. The tightening of the oil market has pushed prices to a seven-year high this month. Some analysts say Brent could breach the USD 100 / bbl mark this year unless supply is increased.

The Cairo International Book Fair continues today at the Egypt International Exhibition Center. The event runs through to 7 February.

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

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed. Blackboard appears every Monday in Enterprise in the place of our traditional industry news roundups.

In today’s issue: Education management companies — which either own and operate schools in their portfolio or operate schools owned by other investors — are currently booming in Egypt, leading education players tell us. Today, we outline Egypt’s education management landscape and how these companies are growing in both scale and number.

Privatization program to resume in March -Maait: We can expect more state-owned companies to offer shares on the EGX in the coming weeks, according to Finance Minister Mohamed Maait, who told Bloomberg Asharq (watch, runtime: 3:26) yesterday that the state privatization program will resume in March. This comes a few days after Planning Minister Hala El Said said that the government plans to accelerate privatization by selling stakes in state-owned firms every month or two.

New momentum: The government’s privatization drive started to gain momentum late last year with the successful IPO of state fintech firm e-Finance and a secondary stake sale by Abu Qir Fertilizers. Before then, the program had only delivered one secondary offering in the three years since its announcement, due to poor global market conditions and the pandemic.

What is the pipeline looking like? While El Said declined to name which companies the government is planning on offering to investors, we know that state-owned Ghazl El Mahalla FC is set to offer a 67.5% stake in early February.

Further out: Heliopolis Housing and Development could finally go ahead with its secondary offering by the middle of 2022 in a revival of its plan to tap the EGX, while state fertilizer producer Mopco is also in the chute to tap the EGX before the end of the current fiscal year, Public Enterprises Minister Hisham Tawfik said in November. Meanwhile, the hotly-anticipated IPO of Banque du Caire could also be back on after it was postponed due to the pandemic, Tawfik said. Misr Ins. Holding could also pull the trigger on the IPO of its Misr Life Ins. subsidiary, which it said in November would happen during the second half of this year.

We likely won’t join Euroclear until 2H2022: Local Egyptian debt probably won’t be made “Euroclearable” until the second half of 2022 due to an unresolved “technical point” between the government and the Belgium-based clearinghouse, Finance Minister Mohamed Maait told CNBC Arabia (watch, runtime: 5:26).

Why is Euroclear a big thing for us? Having local debt cleared in Europe will make EGP bonds more accessible to foreign investors, who can currently only access the market through a small number of local banks. Making it easier for foreign funds to invest should translate into greater inflows into Egyptian debt.

A long time coming: The government has been working to meet Euroclear’s conditions since signing the initial agreement back in 2019. The ministry was originally expecting a final agreement in 4Q2021, which was then pushed into early 2022 as talks dragged on.

The hitch? Possibly the withholding tax on government debt, according to Euroclear’s head of global capital markets, Sudip Chatterjee, who said last year that the way Egypt calculates the tax needs to be brought in line with international norms. Egypt has fulfilled the remainder of the clearinghouse’s requirements, Maait said, which included setting up a central securities depository in addition to a number of technical, logistical and administrative terms.

Green bonds, round 2: The Finance Ministry is looking to take to the green bond market for a second time with another USD 750 mn issuance, Maait told CNBC.

There’s no word on when the sale could go ahead: Maait said that consultations are still ongoing regarding the timing of the sale. Egypt debuted sovereign green bonds in the MENA region in 2020 with a USD 750 mn issuance.

Issuance of Samurai bonds + sukuk are also in the offing: Maait said last week that Egypt is planning on issuing USD 500 mn in JPY-denominated bonds during the first six months of 2022. We’re also expecting the country’s maiden sovereign sukuk sale to take place before the end of the fiscal year in June.

EU v Egypt at the World Trade Organization: The European Union is challenging Egypt’s import registration rules at the World Trade Organization (WTO), calling them “arbitrary” and in violation of WTO rules, the EU Commission said in a statement on Wednesday. The EU says that exports to Egypt have fallen 40% since 2016, which it blames on the country’s compulsory import registration requirements.

The rules: The government in 2016 began requiring some foreign companies to register with Egyptian authorities before exporting goods to Egypt. Registration is currently required for 29 categories of goods, including agricultural and food products, cosmetics, toys, textiles, garments, household appliances, furniture, and ceramic tiles.

The rationale: Government officials said the move was designed to improve quality control of imported goods, while some observes had suggested at the time that it was intended to slow demand for foreign exchange.

The problem: The EU alleges that the registration process is arbitrary and can take years, and that authorities “have failed to process the applications of many EU companies,” despite appeals by the EU and the companies themselves. “These import restrictions are illegal under WTO rules and we regret that Egypt has not acted to remove these, despite our repeated requests and efforts to resolve this issue,” EU Trade Commissioner Valdis Dombrovskis said.

Our response: “The Egyptian government is keen to strengthen its economic and trade relations with the EU,” a Trade Ministry source said in an official statement. Egypt remains committed to international trade rules, they added.

Digitization to the rescue? The authorities are working on combining the import registration system with the new digital customs system Nafeza, which would house all importers on a single platform and possibly resolve the issue with the EU, Khaled Nassef, technology advisor for Egyptian Company for E-commerce Technology (MTS), which set up the ACI system, told us.

WTO action has been six years in the making: The threat of a formal complaint at the WTO has existed ever since the rules were introduced. The trade body wrote to the government in 2016 asking for an explanation for why it had introduced rules that were negatively impacting its trading partners, and the EU urged the Trade Ministry to scrap them from the outset.

Coming next: Egypt and the EU have 60 days in which to resolve the issue via consultations. If they fail to find a solution, the EU can ask the WTO to set up a panel to rule on the matter, according to the European Commission statement.

Another step toward simpler property registration rules: The House of Representatives’ Legislative Committee yesterday gave the nod to amendments to the Real Estate Registry Act, Al Mal reports. The amendments aim to streamline registry procedures by significantly reducing the number of required documents, digitizing parts of the procedure, and putting a time ceiling on the entire process.

Though not without some contention: Some MPs expressed concern that unlike the old law, the newly amended bill does not specify that registration forms are filed with tax offices at no cost. They asked for any fee to be set out in the law and not left to be set in the executive regulations without legislators’ oversight.

A refresher: As things stand, registering real estate requires on-the-ground inspections by notaries, documentation of provenance, and other steps that usually take months and have in the past discouraged property owners from notarizing their deeds. Prime Minister Moustafa Madbouly decided to streamline the process in order to encourage more notarizations, and the cabinet approved the amendments in November.

What’s next for the bill: The bill will be up for further discussion at a House plenary session (the next is scheduled for Sunday, 6 February). If it gets the final nod, it will be sent to President Abdel Fattah El Sisi to be signed into law.

Egypt-based app-maker Splendapp has raised an undisclosed six-figure pre-seed round from a group of Saudi angel investors, Magnitt reported last week citing a company statement. The company will use the funding to expand into the GCC within the next six months, and invest in its product and team.

About Splendapp: Founded in 2020, the startup offers a software-as-a-service (SaaS) platform that allows users to easily develop their own iOS and android mobile apps without the need for expertise or technical assistance.

Abu Dhabi Islamic Bank Egypt’s board has agreed to sell a 50.9% stake in subsidiary Cairo National Securities, according to a bourse filing (pdf). The disclosure didn’t disclose the identity of the buyer or the value of the transaction.

ADIB Egypt will also go ahead with a EGP 2 bn capital increase that will double its issued capital to EGP 4 bn, by issuing 200 mn additional shares at a nominal value of EGP 10 per share. The bank will call shareholders to a general assembly meeting to approve the capital increase.

Egypt’s Afcon quarter-final victory over longtime rivals Morocco was virtually all the talking heads wanted to discuss last night. Praise was doled out for the Pharaohs' resilience in another unusually long game — in spite of an early penalty for the Moroccan team, and multiple injuries and substitutes throughout — on Kelma Akhira (watch, runtime: 6:18; 11:15), Al Hayah Al Youm (watch, runtime: 55:20), and Ala Mas’ouleety (watch, runtime: 57:04). Masaa DMC (watch, runtime: 3:47), Al Qahera Wel Nas (watch, runtime: 2:44), and El Hekaya (watch, runtime: 2:11) also took note of the victory.

There’s little mention of Egypt in the international press this morning. Reuters picked up a story from state news agency MENA, which reported that death sentences have been handed down to ten unidentified members of the Ikhwan for planning attacks against the police.

A fifth consecutive record for daily covid case numbers was set yesterday, as the Health Ministry reported 2,210 new covid-19 infections, up from 2,018 the day before. Egypt has now disclosed a total of 423,688 confirmed cases of covid-19. The ministry also reported 38 new deaths, bringing the country’s total death toll to 22,604.

Expect case numbers to keep setting fresh highs for a few weeks: The current Omicron wave is expected to peak in mid-February before cooling off in early March, manager of Vascera allergy center Amgad El Haddad said on Saturday.

The vaccine tally: 25,928,356 people are now fully vaccinated against the virus, while some 11.3 mn people have received only their first shots and 618,761 people have received booster shots.

Tourism workers could be next in line for boosters: Acting Health Minister Khaled Abdel Ghaffar directed that booster shots be administered to workers in the tourism sector in the near future, according to a ministry statement. The government has been rolling out vaccines for tourism workers since April last year, with all workers in the Red Sea fully vaccinated by May.

Fresh batch of AstraZeneca jabs: We received 115k AstraZeneca doses from Latvia on Saturday, according to a Health Ministry statement.

There’s a new variant on the block (kind of): The BA.2 variant is a subvariant or “close cousin” of Omicron — with a difference: it’s 1.5x more contagious, Reuters reports citing Danish health officials. The variant may account for around 82% of new covid cases in Denmark, 9% in the UK, and 8% in the US.

…and it has landed close to home: Algeria has recorded several BA.2 cases, the director of an Algerian biomedical stop-allergy-meds.com research institute said in a radio interview, making the country the first in the Arab world to report cases of the new variant.

But don’t panic just yet: We knew the next variant would have to be more transmissible than omicron to overtake it as the dominant strain. The question is whether BA2 leads to more severe symptoms, and/or is more resistant to existing vaccines. So far, initial studies suggest that’s not the case, and the World Health Organization has not yet tagged BA.2 a variant of concern.

Another landmark moment for UAE-Israel ties: Israeli President Isaac Herzog met de facto UAE ruler Crown Prince Sheikh Mohammed bin Zayed Al Nahyan yesterday in Abu Dhabi, marking the first visit to the country by an Israeli head of state, UAE state news agency WAM reported. The two held bilateral talks, where Herzog told Al Nahyan that more Arab countries should follow the Emirates’ lead and normalize relations, according to a statement from the president’s office. The meeting comes just a month after Israeli Prime Minister Naftali Bennett made his landmark visit to the UAE, and a year after the two countries signed an agreement to normalize relations.