AM — The central bank isn’t backing down on its decision to require importers use letters of credit

Good morning, wonderful people, and happy almost-THURSDAY. With the work week rushing to a close, we expect a final rush of news from the Egypt Petroleum Show (Egyps), which is entering its third and final day today, capping an eventful two days that saw a slew of energy news, from fresh financing and oil field discoveries to the signing of MoUs and high-level talks.

Yesterday’s highlights: Israeli Energy and Water Minister Karine Elharrar pledged to increase Israel’s natural gas exports to Egypt by up to 50% by the end of February, while the International Islamic Trade Finance Corporation lent us a fresh USD 800 mn for petroleum imports as part of a bigger USD 1.5 bn financing package. On the oil discovery side, Dragon Oil announced it has struck oil in the Gulf of Suez. We have more on these stories in this morning’s news well, below.

ALSO- Environment Minister Yasmine Fouad met with International Energy Agency Executive Director Fatih Birol to discuss increasing bilateral cooperation ahead of COP27, according to a ministry statement. Meanwhile, Schneider Electric and Aveva signed a memorandum of understanding (MoU) with the Egyptian General Petroleum Corporation to establish a digitally enabled control center to manage Oil Ministry assets and resources in the new capital, Hapi Journal reports.

The two-day EU-AU summit kicks off in Brussels tomorrow, where President Abdel Fattah El Sisi is set to meet with Prime Minister Alexander De Croo to talk diplomatic relations and regional issues. The president is also scheduled to meet Belgium’s King Phillipe and a group of Belgian business leaders.

Also on the agenda for the summit: Look for El Sisi to speak about the integration of African countries into the global economy, ramping up foreign investment across the continent, and supporting developing countries in their green transition — all of which are key action points for COP27 in Sharm El Sheikh this November.

SOUND SMART- That’s unless everyone in Brussels takes Friday off: Belgian employees will be given the option to work four days a week after the country’s government approved a new “flexible working” labor accord, Reuters reports. Employees will have the right to request a three-day weekend by working longer hours throughout the week. The UAE became the first country to implement a 4.5-day work week in January, while the UK followed its lead (kind of) with a six-month pilot of the four-day work week for 30 companies.

Foreign Minister Sameh Shoukry, who is also in Brussels for the summit, met with European Commissioner Oliver Varhelyi yesterday to discuss boosting cooperation with the EU on COP27 and Egypt’s green transition, the ministry spokesperson said in a tweet.

THE BIG STORY ABROAD- The United States had telegraphed that today is the day that Russia was to invade Ukraine — but US President Joe Biden is now telegraphing that while Russian leader Vladimir Putin can still “back away from the brink of war,” adding that there is still “plenty of room for diplomacy.”

Buden used a televised speech from the White House yesterday to issue a stark warning to Russia of the damage that any invasion of its neighbor would bring, saying “the world will not forget that Russia chose needless death and destruction.”

What happened to yesterday’s de-escalation talk? Reports that Russia had started to withdraw troops from its border have not yet been confirmed, Biden said, adding that US intelligence estimates Russia has now amassed 150k troops at the border — 50k more than previous estimates. The Russian defense ministry had signaled it would start to stand down some of its troops after completing exercises yesterday, rallying global markets after days of volatility over the crisis. Meanwhile, Ukraine appeared to blame Russia for a cyberattack that yesterday targeted some of the country’s banks and its defense ministry.

The news is everywhere, from the Financial Times, Reuters and New York Times to Bloomberg, the Associated Press, and the Washington Post.

LATER THIS WEEK-

The G20 nations’ finance ministers and central bank heads will hold their first gathering of 2022 in Jakarta tomorrow and on Friday against a dramatic backdrop of rising inflationary pressures and heightened expectations for rate hikes. Investors are betting on the fastest pace of interest rate hikes in over a decade across developed markets, which are now pricing in six Federal Reserve rate hikes this year, Bloomberg reports. Policymakers across the group of wealthy nations face a tough balancing act to curb inflation while minimizing impact on the economy. It’s all a far cry from the last time the group met in October, when everyone was still insisting that price hikes would be transitory.

CORRECTION- In an article published last week, we misidentified US environmental firm Okeanos with Okyanus, a Turkish construction company. The firm last week held talks with the government over setting up a factory for producing alternatives to plastic in partnership with Income Egypt, rather than Income International as we had originally reported. We have amended the story on our website.

*** 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, and as social infrastructure such as health and education.

In today’s issue: Electricity oversupply is a global problem, and Egypt is no exception. We have capacity to generate almost twice our peak consumption — and that power glut is jeopardizing the chances of meeting targets to up the proportion of renewable energy in the mix. In today’s Hardhat, we ask whether batteries could be part of the answer, following reports that the government could consider using industrial-scale batteries to store energy for when it's needed by the grid.

The Central Bank of Egypt (CBE) is not about to reverse its decision requiring importers to get letters of credit (L/Cs) for their purchases, CBE Governor Tarek Amer told the state-owned Middle East News Agency yesterday. Amer urged businesses to comply with the new requirements and “not waste time in controversy that has nothing to do with the stability and sound performance of Egypt's foreign trade.”

That’s not what importers wanted to hear: Heads of several industry groups have called on the government to reverse the decision, which the CBE notified banks of over the weekend. They argue that the move would cause supply issues, pressure production costs and local prices, and freeze SMEs out of the industry because it would be harder for them to obtain L/Cs.

What decision? And what are L/Cs? Documentary collection from exporters will no longer be accepted by banks to facilitate the import of goods into Egypt from the beginning of March, according to a decision by CBE taken over the weekend. Instead, the CBE has instructed banks to only accept LCs to facilitate the purchase of imports. L/Cs guarantee exporters that the bank will pay them if the importer defaults for whatever reason, offering exporters more protection.

The flip side is that L/Cs tend to tie up capital, with many importers seeing the banks freezing the value of the facility in the importer’s accounts for so long as the L/C is open. Dealing with L/Cs is also sufficiently complicated that some SME-sized importers may not have the institutional capacity to do so.

Exempt from the decision: Branches of foreign companies and their subsidiaries do not have to abide by the new decision. Banks are also allowed to accept invoices for goods that had already been shipped before the decision was issued.

Unemployment falls slightly in 4Q2021: Egypt's unemployment declined fractionally to 7.4% in 4Q2021 from 7.5% the previous quarter, according to the latest data from statistics agency CAPMAS (pdf). The rate is now up slightly from 7.2% in 4Q2020.

The jobless rate has remained more or less flat over the past year, with only mild fluctuations since spiking to a near-two-year high of 9.6% in 2Q2020 on the back of the lockdown and economic disruption that accompanied the pandemic.

This only includes people who are looking for work, though: The labor force participation rate — which counts everyone aged 15-64 either in work or actively looking for work — remained low in 4Q, edging up 0.1 percentage points to 43.8% from the previous quarter.

Youth unemployment increased: The number of 15-29 year-olds out of work accounted for 64.3% of all jobless people, up from last quarter’s 58.4%.

And unemployment among women remains a dark spot, rising to 17.8% from 15.3% in 3Q2021. In contrast, unemployment among men fell to 5.2% from 5.9% last quarter.

Job creation has slowed in the private sector: Employment has been falling in the private sector for three consecutive months, according to the latest PMI, with lower demand bringing stable backlogs and reduced workloads.

IN OTHER ECONOMY NEWS- State-owned enterprises will raise the minimum wage to EGP 2.7k for their workers as of 1 July, in line with the incoming wage hike for public sector workers, the cabinet announced in a statement. This is the first time that the public sector minimum wage has been applied to public enterprises, the statement read.

SCA eyes floating three of its units: The Suez Canal Authority (SCA) is considering selling 20% stakes in two or three of its companies on the EGX, authority boss Osama Rabie was quoted as saying by CNBC Arabia. Rabie named Canal Rope alongside Canal Harbor and Great Projects as two of the companies the SCA is considering for the float, without disclosing an expected timeline.

IPO momentum is picking up on the EGX: The government is gearing up to revive the state privatization program this year, with Prime Minister Moustafa Madbouly, Planning Minister Hala El Said, and Finance Minister Mohamed Maait all signaling over the past couple of weeks that we should expect to see several state listings this year. Maait pledged last month to restart the privatization program in March, a few days after El Said said that the government could sell stakes every month or two. Macro Group’s debut on the bourse last week marked our second IPO of the year, after Al Khair River Development and Investment (aka Nahr El Khair) got the ball rolling last month.

The SCA’s new investment fund is expected to have as much as EGP 100 bn in capital by 2027, up from the initial capital of EGP 2 bn with which it will set up the fund, Rabie added. The authority is establishing the fund to help finance its “economic and investment activities,” and to backstop the authority’s finances during emergencies. Cabinet sigend off on the fund in January and it is currently awaiting discussion by the House of Representatives.

Canal expansions to cost EGP 3 bn: Work to widen and deepen the waterway is expected to cost EGP 3 bn and be completed by June 2023, Reuters quoted Rabie as saying at a news conference. Work is underway on the project’s first phase, which will make an additional 10 km of the canal accessible to two-way traffic, up from a current 75 km, Rabie said. The second phase will widen and deepen another 30-km stretch where the Ever Given got stuck in March. The move will improve safety rather than transit times, Rabie said, adding that it would have been too expensive to widen the canal’s entire length.

The SCA expects to hit USD 7 bn in revenues this year, after it posted a record USD 6.3 bn in 2021 on the back of an all-time high net tonnage transiting the canal amid a 10% increase in the number of passing ships.

The Financial Regulatory Authority (FRA) could soon issue licenses for green and Islamic microfinance products, FRA’s Deputy Chairman Islam Azzam told Daily News Egypt. Azzam added added that the regulator is currently working on developing new financial products, with a particular focus on microfinance. An FRA spokesman confirmed the substance of the story when we asked yesterday.

What else the FRA has planned for 2022: The FRA is in the process of developing micro and macro digital finance products and a product to serve the agricultural sector in addition to the microfinance offerings, Azzam told the newspaper. The regulator is also reportedly looking into direct financing products for SMEs.

At least two green bond issuances expected this year: The authority is currently looking into two green bond issuances that should go to market some time this year, Azzam said, without providing further details.

One sukuk issuance wrapping up: The FRA is currently finalizing one sukuk issuance, according to Azzam, and expects four more this year for a total of EGP 8 bn in 2021 issuances. Azzam didn’t disclose any company names.

What we do know: State-owned Banque Misr’s investment arm, Misr Capital, is working on sukuk issuances for three EGX-listed companies this year, with the first expected in 2Q2022. Palm Hills Developments is expected to close a EGP 3 bn issuance later this quarter, while Wadi Degla Developments EGP 2 bn sale and Amer Group’s EGP 1.1 bn issuance are in the pipeline for the first half of the year.

The futures exchange will launch within the next six months, says Azzam. The FRA has completed the feasibility study for the planned futures exchange, according to the deputy chairman.

More investment funds coming: A fund administrator has reportedly sent the FRA a request to establish a fund to finance non-banking financial activities, according to Azzam. The regulator is currently looking into several requests for more funds, including “two funds to invest in precious metals (gold), a private equity fund aiming to invest in SMEs, a stock fund, and finally a private equity fund to engage in venture capital activity to support companies operating in the field of non-Egyptian financial services,” he said.

Israel will increase its natural gas exports to Egypt by up to 50% by the end of February, Israeli Energy and Water Minister Karine Elharrar has said, according to Bloomberg. Chevron and Delek Drilling, which operate Israel’s two biggest offshore reservoirs — the Tamar and Leviathan gas fields — will increase their exports to Egypt by 2-2.5 bn cubic meters (bcm) per year. The minister did not disclose any financial details.

The announcement meshes with the Oil Ministry’s plans to increase the amount of gas it pipes in from Israel for re-export to Europe. Late last year, the Madbouly government signed agreements with Greece and Israel laying the groundwork to up import and re-export volumes.

But do we have the capacity to liquefy the additional gas? Oil Minister Tarek El Molla said in December that Egypt’s Idku and Damietta LNG terminals are both running at full capacity. We’re currently exporting the equivalent of around 1.6 bn cubic feet per day (bcf/d), helped by the resumption of operations at the Damietta LNG plant and skyrocketing gas prices in Europe, El Molla had said.

The extra gas could come in handy by summertime: El Molla had said that our LNG exports are expected to fall to 1 bcf/d this summer due to rising domestic consumption.

Background: We first started importing gas from Israel in 2018, through a landmark USD 15 bn contract between Noble Energy (which Chevron acquired in 2020) and Delek Drilling via Egypt’s Dolphinus Holdings. In 2019, the Israeli side agreed to increase the supply of natural gas to Egypt by 34% to 85.3 bn bcm over 15 years, pushing the value of the agreement to USD 19.5 bn.

Dragon Oil strikes for the first time — and strikes big — in Suez concessions: Emirates National Oil Company (ENOC) subsidiary Dragon Oil has discovered a 100-mn-barrel oil field in the Gulf of Suez concessions it acquired from BP in 2020, the company said during a sit-down with Oil Minister Tarek El Molla, according to a ministry statement. The discovery is one of the largest made in the area over the last two decades, the ministry said. Dragon Oil acquired BP’s Gulf of Suez assets for USD 500 mn in 2020.

The ITFC is lending us another USD 1.5 bn for petroleum + commodities imports: Egypt has signed a fresh USD 1.5 bn financing agreement with the International Islamic Trade Finance Corporation (ITFC) to fund imports of petroleum and basic commodities, ITFC CEO Hani Sonbol told Bloomberg Asharq. The agreement earmarks USD 800 mn for petroleum, and USD 700 mn for commodities. No details were given on when it would be disbursed.

We were expecting the Madbouly government to finalize a financing program with the IITFC in February, but it’s unclear whether this is the same package referred to in the statement. Separately, Sonbol last month said the corporation had approved USD 2.6 bn in funding for “development projects” in Egypt, without giving further details on where the money would be spent, nor when it would be disbursed.

2021 was “a record year” for ITFC funding to Egypt, Planning Minister Hala El Said said recently. The ITFC provided the General Authority for Supply Commodities (GASC) and the Egyptian General Petroleum Corporation USD 2.3 bn in financing last year for the import of basic commodities including wheat, and petroleum products.

Amanat is still looking at potential healthcare and education acquisitions in Egypt, Saudi Arabia, and the UAE following a “transformative year” in 2021, CEO Mohamad Hamade told Bloomberg TV. Hamade confirmed his previous statements that Amanat is eyeing education and healthcare firms in Egypt, but did not provide further details on the planned acquisitions. Amanat registered (pdf) a 28x y-o-y increase in net income to reach AED 280.8 mn (c. EGP 1.2 bn) in 2021.

Amanat has been eyeing Egypt for a few months now: Hamade said last year that the Dubai-listed education and healthcare investment firm had some AED 1 bn (c.EGP 4.3 bn) in investments lined up to acquire majority shares in Egyptian, Saudi and Emirati firms — though the “lion’s share” would be earmarked for the KSA and the UAE. Amanat’s current portfolio is focused squarely on the Gulf, with companies based in Saudi Arabia, the UAE and Bahrain.

ALSO IN INVESTMENT- Alta Semper eyes healthcare investments: UK-based private equity outfit Alta Semper is reportedly looking to invest part of the proceeds from the sale of its 33% stake in Macro Group’s IPO into the Egyptian healthcare sector, Daily News Egypt quotes CEO Ahmed Rady as saying. Alta Semper is currently considering four potential investments in the healthcare sector, one of which it expects to close in 1H2022.

AND- PwC Legal Middle East is looking at setting up shop in Egypt, Oman, and Jordan as it looks to double its staff in the region and expand to new markets, legal services leader and head of corporate Darren Harris told Law.com International. Harris did not provide a timeline for the planned expansion nor an estimate of the size of PwC’s planned Egypt office.

Spanish engineering firm EOSOL Group will acquire a 50% stake in an engineering and construction subsidiary of B Investments’ Giza Systems, according to a press release. The value of the stake sale in Giza Systems Electromechanical (GSEC), which the companies are in the process of finalizing, was not disclosed.

The acquisition will help GSEC enter new markets and increase its exposure to the renewable energy sector through EOSOL’s renewables portfolio, while GSEC will become EOSOL’s “construction arm” in the Middle East and Africa, according to the release. EOSOL has a presence in more than 40 countries, while GSEC operates across the MEA region, with offices in Cairo, Riyadh, Dubai, Doha, Nairobi, and Dar-es-Salaam, among other locations.

What they said: “The joining of forces is a compelling advantage as it brings together industry-leading expertise in renewables and infrastructure projects to contribute towards national projects,” Giza Systems CEO Osama Sorour wrote in the release.

Internet browser turned e-commerce super app Wasla has scored a USD 9 mn investment from Contact Financial Holding, TechCrunch reports. Wasla wants to use the funds to roll out new online shopping products and is eyeing regional expansion, with “immediate plans” to enter Nigeria. The company is looking to introduce a secure payment method at checkout, before integrating financing or buy-now-pay-later solutions.

What’s Wasla? Founded in 2018 by Egyptian entrepreneurs Serag Meneassy, Taymour Sabry and Mahmoud El Said, Wasla started out as a platform that allows lower income users to browse the internet without data charges, but has since evolved into an e-commerce super-app that aggregates price breaks and offers for shoppers. Back in 2019, Wasla secured USD 1 mn in funding from investors including Egypt Ventures, Glint Ventures, and Ebtikar for Financial Investments.

Want to know more about super-apps? Read our What’s Next deep dive into the topic: Part One, Part Two and Part Three.

ALSO IN PLANET STARTUP-

MoneyHash announces USD 3 mn round as its platform goes live: The local fintech startup raised a USD 3 mn pre-seed round led by Emirati VC COTU Ventures, along with MENA fintech fund VentureSouq and European fund VentureFriends, the company said in a statement yesterday, where it also announced the hard launch of its payments aggregator platform.

Who else participated: Nuwa Capital, The Continent Venture Partners, First Check Africa, Fox Ventures, Kepple Africa Ventures and Lofty Inc Capital Management, as well as several angel investors. The funding is an extension of an undisclosed six-figure USD round announced back in June.

MoneyHash has now launched its platform across the Middle East and Africa, the statement said. The company has been in beta since last year, with 17 companies using its sandbox to test the product. It aims to be the “fastest way to integrate your network of pay-in, pay-out, and value-added providers.”

About MoneyHash: Founded by Egyptians Nader Abdelrazik and Mustafa Eid and American Anisha Sekar in 2020, the US-based company’s unified platform allows companies to offer payment and fintech services at checkout as well as collect data and track analytics through a single dashboard.

Saudi-based football talent platform Grintafy is entering the Egyptian market as part of the company’s regional expansion plan, Waya reports. Ahmed Zalat has been tapped as the company’s director in Egypt. No further details were provided on Grintafy’s expected timeline or how much it plans to invest in the expansion.

About Grintafy: Founded in 2018 by Majdi Allulu, the platform is designed to help emerging football players go professional by connecting them with each other, talent scouts, and clubs.

Palm Hills Developments saw sales rise 35% y-o-y last year to EGP 17.3 bn — marking the company’s highest ever new sales figure and surpassing its EGP 15 bn target, according to a statement (pdf). Sales were driven by an 82% y-o-y increase in the number of units sold, as well as a rise in average selling prices, with the growth squarely concentrated in Palm Hills’ residential segment. The company delivered 1.3k units in 2021, more than double the year before. Meanwhile, spending on construction was up 80% to register EGP 2.7 bn.

Eastern Company’s net income dropped 4% y-o-y in 2Q2021-2022 to EGP 1.3 bn, according to the company’s latest financial results (pdf). Revenues were essentially flat y-o-y, coming in at EGP 4.2 bn during the quarter.

Industry officials and banking experts spoke up on the airwaves last night about the CBE’s new import rules, after the bank announced it would not amend its decision requiring importers to get letters of credit (L/Cs) for their purchases despite complaints from importers. Head of the Egyptian Businessmen’s Association Ali Eissa spoke with Al Kahera Wal Nas (watch, runtime: 9:34) and Yahduth Fi Misr (watch, runtime: 7:28) to discuss the potential impact of the decision, which he said comes at a difficult time, with the global supply chain crunch already pressuring importers and local producers. Mohamed El Sallab, deputy chair of the House of Representatives’ industry committee, also discussed the objections to the new rules with Kelma Akhira (watch, runtime: 2:23), while Suez Canal Bank’s Mohamed Abdel Aal shared his perspective on the decision’s merits in a phone-in with Kelma Akhira (watch, runtime: 1:43). We have more on the story in this morning’s Trade section, above.

The Health Ministry reported 2,117 new covid-19 infections yesterday, down from 2,129 the day before. Egypt has now disclosed a total of 459,198 confirmed cases of covid-19. The ministry also reported 56 new deaths, bringing the country’s total death toll to 23,465.

The vaccine tally: 29,236,376 people are now fully vaccinated against the virus, while some 9.5 mn people have received only their first shots and 811,171 people have received booster shots.