AM — Putin eyes the nuclear button as West stands firm against Russia’s invasion of Ukraine

Good morning, friends. The big news is once again the state of play in Russia’s invasion of Ukraine. Here’s what you need to know this morning:

• Kyiv, the capital, is still holding out against Russian troops, who have taken or are advancing toward several sizable Ukrainian cities. The country’s second largest city, Kharkiv, is under fire, as are strategic ports in the south, the Associated Press reports. (If you're struggling to understand the geography of the conflict, head to Reuters' map for key updates.)
• Vladimir Putin has put his strategic nuclear forces on alert. Russia has some 1.5k nuclear warheads deployed and a large stockpile of smaller “tactical” nuclear weapons, the latter being of the type that could (theoretically) be deployed on the battlefield.
• The international backlash against Russia is growing, with more sanctions and a rare UN General Assembly meeting likely to happen today.
• Ukraine has agreed to talks with Russia on the border with Belarus, though few pundits expect anything to come from them.

SIGN OF THE TIMES- Norges bank, Norway’s massive (USD 1.3 tn) sovereign wealth fund, is getting out of Russia, saying it would freeze the shares it holds there and then start working on a divestment plan, the Financial Times reports. The news comes as oil major BP said it would exit its 20% stake in Russian producer Rosneft. The move will see the British company take a USD 25 bn charge and slash both its production and reserves.

TWO BIG THINGS that matter greatly to Egypt here (beyond concern over the human toll) amid this clash between two nations with whom we’ve been friends for a long time:

1- State wheat importer GASC could be forced today to call off its wheat tender as the global grain market looks increasingly in disarray. Ukraine and Russia together account for 60-80% of our grain imports at any given time.

2- Thousands of Ukrainian holidaymakers are stranded in Egypt. At least 16k Ukrainian tourists are currently in Hurghada, Sharm El-Sheikh, and Marsa Alam, Ahram Online reports Ukrainian Chargé d’Affaires in Egypt Ruslan Nechai as saying. With their country’s airspace closed, the tourists are unable to fly back home but could resort to returning through Ukraine’s borders via “friendly” countries, Nechai said. The Madbouly government has directed Egyptian hotels to extend stays of Ukrainian tourists stranded here.

MEANWHILE- Borders are open to Egyptians leaving Ukraine: Ukrainian border guards were given orders to allow Egyptians to leave the country through borders with Romania, Hungary, Poland, and Slovakia, according to a statement by our embassy in Kyiv.

^^ We have more detail in this morning’s War Watch, below. It’s a hell of a note on which to end the month of February.

HAPPENING TODAY-

The Senate is set to continue debate of the unified ins. act after giving the bill preliminary approval yesterday, Ahram Online reports. The bill. which has been at least three years in the making, will make the Financial Regulatory Authority the primary regulator for the sector and make ins. compulsory for SMEs and freelancers, among other things.

It’s your last day to apply for the incubator and accelerator program for digital transformation-focused startups from the Information Technology Industry Development Agency and US-based VC firm Plug and Play, in partnership with our friends at USAID. The “Smart Cities” innovation hub will select 20-30 Egypt-based companies for its inaugural three-month program, which starts in March.

The Future of Data Centers Summit takes place today and tomorrow at the InterContinental CityStars.

LATER THIS WEEK-

The Suez Canal Authority (SCA) will increase tolls by up to 10% for laden and ballast vessels, starting 1 March, Reuters reported yesterday. The decision comes in line with “the significant growth in global trade,” along with “the Suez Canal waterway’s development and transit service enhancement,” Hapi Journal reported the SCA as saying, citing authority circulars.

Back-to-back hikes: The authority at the start of February hiked transit fees by 6% for most ships, excluding LNG carriers and cruise ships, as it works to wind down pandemic-era incentives and reductions.

IT’S ALSO A BIG WEEK for folks who care about the Fed, oil, and US politics.

1- Let’s start with a look at the Fed’s thinking in light of Russia’s war. Market watchers hope for hints from US Federal Reserve Chair Jay Powell on how the Russia-Ukraine conflict is set to impact the central bank’s plans to hike interest rates when he appears before Congress on Wednesday and Thursday, Bloomberg reports. Powell, who is seeking a second term as Fed boss, is expected to downplay the impact of war in Ukraine (and the ensuing sanctions against Russia) on plans to start hiking interest rates from March. Pundits now seem to think Powell wills signal a more gradual series of quarter-point hikes over the year rather than starting with a half-point jump..

Other central banks are closely watching Ukraine: The central banks of Canada, Australia, Malaysia, Sri Lanka, Hungary — and Ukraine itself — hold their policy meetings this week. The Central Bank of Egypt next meets to discuss rates on Thursday, 24 March.

2- OPEC+ likely won’t budge on output when it meets this Wednesday: The oil cartel is expected to stick to its strategy of gradual output increases — even after the Ukraine conflict sent crude prices soaring over USD 100 per barrel at the end of last week, Bloomberg reports. The news comes despite a report that the cartel has slashed its forecast for this year’s oil market surplus by some 200k barrels per day.

3- Joe Biden faces a tough audience at tomorrow’s State of the Union address: Only 37% of Americans approve of US President Joe Biden and the work he’s doing in office, according to a new Washington Post-ABC News poll. That’s a low only reached by two other presidents in US history ahead of a State of the Union speech (and yes, Donald Trump was one of them). Biden will look to reassure Americans that he has a handle on a raft of crises, from the Russia-Ukraine conflict to the ongoing pandemic.

Biden’s big issue: It’s the economy, stupid. Inflation hit a 40-year high in January. Some 75% of Americans polled say the economy is “not so good or poor,” while three times more people believe the economy has gotten worse under Biden than those who think it’s improved.

CIRCLE YOUR CALENDAR-

Contemporary art and culture center Darb1718 is hosting its 3031 Art Festival from 4-12 March on its premises in Fustat, Old Cairo. Unique collections of multidisciplinary art will be on display along with live music, dance, theater performances, and interactive workshops. Guest speakers Adsum Art Consultancy will be on hand to discuss investing in art. Catch a full day of activities from 1:00pm–9:30pm on weekends and weekdays from 4:00pm–10:00pm.

Consoleya is holding its second Women Meet-up this Wednesday, 2 March to discuss topics including inclusivity in investment. The agenda includes a panel discussion on gender-lens funding here in Egypt.

The Diarna Handicrafts Fair kicked off last Thursday and runs through 7 March at Cairo Festival City from 10am until 10pm daily.

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: Over the past six years, the Education Ministry has been rolling out new schools that use a Japanese approach to education, as part of the ministry’s efforts to overhaul the K-12 education system. These schools, set up through a partnership with Japan, are primarily geared towards middle-income families, with the ministry targeting setting them up in governorates where classroom overcrowding is particularly problematic. Today, we look at the project, including how far we’ve come and the government’s plans for more of these schools.

President Vladimir Putin has put Russia's nuclear forces on high alert in what he says is in response to Western leaders stepping up sanctions over Moscow’s invasion of Ukraine.

Putin’s threat drew ire from many corners: A senior US defense official said the “escalatory” step risked a dangerous miscalculation, while declining to say whether the US had adjusted the position of its nuclear readiness in response. Nato also condemned the move, while Canada and Poland moved to request an emergency meeting of the UN’s atomic energy agency on Wednesday on Ukraine’s behalf. Meanwhile, Belarus yesterday voted in a referendum to renounce its non-nuclear status, as Russia’s friendly neighbor throws its weight behind Putin's troops.

Is Moscow seriously considering the nuclear option? Probably not — but we just don’t know. Analysts are split on whether Putin would risk an all-out nuclear conflict, though most agree that the threat alone could push the Russian president toward pariah status on the international stage — making his moves even more difficult to predict or control.

Kyiv and Moscow agree to hold talks: Negotiations “without preconditions” are set to be held at the Belarusian-Ukrainian border, Ukrainian President Volodymyr Zelensky’s office announced, while Reuters reported Russian state news agency TASS as saying that talks would start this morning. The Ukrainian president is "skeptical" talks with Russia would lead to a ceasefire, but is willing to give it a shot if there’s a chance it could end the war.

Also happening today: the UN Security Council will hold a rare emergency special session of the 193-member General Assembly on the invasion.

The West is throwing all its support behind Ukraine: As fighting enters its fifth day, Reuters is characterizing Western powers’ “political, strategic, economic and corporate response” as “unprecedented in its extent and coordination.” The EU is planning to send weapons to a nation at war for the first time in its history, with a source telling Reuters the bloc could send arms worth EUR 450 mn to Ukraine. The EU’s top diplomat Josef Borrel told a press conference yesterday that the aid would include fighter jets. Meanwhile, you can keep tabs on the list of sanctions against Moscow — which the EU is discussing expanding — with this handy rundown from the Financial Times. The EU has also closed its airspace to every Russian plane, including oligarchs’ private jets.

Energy sanctions could also be on the table, White House Press Secretary Jen Psaki said. Western policymakers have mostly left Russia’s energy sector out of the equation so far, mainly to protect their own supply, the Wall Street Journal points out. Russia provides around 40% of Europe’s natural gas.

British oil giant BP is offloading its nearly 20% ownership of Russian-state owned oil company Rosneft, ending its three-decade long operations in a move that could result in losses of up to USD 25 bn, the company said yesterday. Norway’s USD 1.3 tn oil fund is also letting go of its Russian investments.

Russian exports will face severe disruptions: Oil and commodities traders told Reuters that the country’s flows to the West will likely be disrupted, if not totally halted, for weeks until there is clarity on exemptions. Exports to Asia, especially China, will likely continue since both countries have been developing alternatives to the Swift payment system, from which Russia has been given the boot. It remains unclear what will happen to exports to MENA, with dozens of countries across the region, including Egypt, relying heavily on Russia’s supplies of wheat.

Expect pain for the RUB when markets open this morning. Russia’s currency will likely crash by c. 25% as it trades for the first time since sanctions against Russian banks and the Swift ban were introduced, according to the Guardian.

More signs sanctions are having the desired effect: Two Russian billionaires — one of whom has been slapped with targeted sanctions — have appealed for an end to the conflict.

More than 360k people have fled Ukraine so far, according to the UN. Ukraine’s interior ministry yesterday put the death toll at 352 Ukrainian citizens, including 14 children, while some 1.7k have been wounded.

An Egyptian man is among the wounded and is being treated in a Kharkiv hospital, according to a Foreign Ministry statement.

Meanwhile, the US called on its citizens to leave Russia while they still can, as increasing numbers of commercial flights from the country are canceled.

Traders have warned GASC of supply difficulties ahead of today’s wheat tender as conflict rages between major growers Russia and Ukraine, Bloomberg reports. Some traders have told GASC they won’t be able to offer Black Sea wheat due to the turmoil triggered by Russia’s invasion of Ukraine, according to anonymous sources. The two Black Sea countries together account for nearly a third of the world’s wheat supply — and around 80% of supply to Egypt.

Who are our best alternative suppliers? If Ukraine and Russia remain off the table, we could go for wheat from the US, France, Romania, Kazakhstan, or Germany, Internal Trade Development Authority head Ibrahim Ashmawy told Bloomberg Asharq, adding that these countries produce wheat that conforms to Egyptian specs.

Surging costs + sanctions will likely impact today’s tender. Some traders said they would sit out the tender altogether because of the surging cost of wheat from other countries, rising ins. and shipping costs, and “uncertainty due to the fast-moving changes on sanctions and other restrictions.” Suppliers have reportedly asked some Egyptian traders and agents to switch from Russia’s Sberbank, which has been hit by US sanctions.

Meaning GASC could be forced to cancel again: The authority is “prepared to cancel the tender again if needed,” Bloomberg cited an unidentified person as saying. GASC called off a wheat tender last Thursday after receiving only one offer for French wheat.

We have enough wheat stockpiled to last up to four months, Supply Minister Ali El Moselhy told President Abdel Fattah El Sisi at a meeting yesterday, according to an Ittihadiya statement, as the war’s effect on our wheat supplies continues to top the government’s agenda. El Moselhy added that the local wheat production season is set to start in April and the government’s target is to reach 4 mn tons this year, which will help cover Egypt’s needs until the end of this year.

Minds are focused on making sure state coffers weather the wheat crunch: Prime Minister Mostafa Madmbouly discussed the financing needed to ensure our commodities supplies remain intact in a meeting yesterday with El Mosehly, Central Bank Governor Tarek Amer, Finance Minister Mohamed Maait, and other officials, according to a cabinet statement.

Especially when it comes to subsidized foods: The government is paying a close eye to market prices for subsidized foods, for which the state bears the cost of any increases, Madbouly noted. It’s not yet clear whether the mayhem in the wheat market will impact the government’s plans to taper bread subsidies for the first time in decades. Details on the plan are expected to be announced by the end of next month.

Ramadan reserves: El Sisi also reviewed the status of our strategic commodity reserves and preparations for the approaching month of Ramadan, during which consumption typically spikes. As of this morning, there are 33 days left until the start of the holy month.

All B2B invoices issued by businesses based in the Greater Cairo Area will be automated by June, director of taxpayer services at the Tax Authority Mohsen El Gayar told Enterprise.

B2C invoices across the country will be fully automated by December, as will B2B invoices from firms in the Delta, Lower Egypt and Upper Egypt, El Gayar said. Since fewer companies operate in these governorates, automating their invoices will be less time-consuming, he explained.

This is sooner than expected: The ministry started its tax automation process for B2B invoices two years ago, originally saying it would have all companies using the B2B e-invoicing system by April 2023.

The system kicked off in 2020: The first phase of the Tax Authority’s e-invoicing system was up and running in November 2020 with a selected 134 companies who were chosen to kick off the system by logging their invoices electronically to the Finance Ministry’s platform. The system is designed to clamp down on tax evasion and compel companies that have not registered with the Tax Authority to do so.

How does it work? Businesses must obtain an e-signature using the steps outlined here and register their products and services to an account on the Tax Authority’s platform. Using the account, they log all of their invoices on the platform. The authority will then be able to track each transaction back through the customer’s regular tax filings, which will include the invoice.

Our digital customs system will also be in full implementation by June, El Gayar said, confirming the timeline previously suggested to us by Khaled Nassef, technology advisor for the Egyptian Company for E-commerce Technology. FinMin’s Nafeza system went live for maritime importers in October and the ministry is looking to extend the system to air freight soon.

Eleven companies are reportedly planning to bid on desalination projects worth a combined USD 2.8 bn, Al Borsa reports, citing government sources it says have knowledge of the matter. The projects would be part of the government’s plan to raise Egypt’s desalinated water production capacity to 2.9 mn cubic meters per day within the next five years, the sources say.

Among the companies signaling their interest: The familiar faces of Metito Holdings, ACWA Power, Al Nowais, Schneider Electric, and Orascom Construction. The companies seeking funding from the International Finance Corporation, European Investment Bank, the European Bank for Reconstruction and Development, German development agency GIZ, Export-Import Bank of China, and Credit Agricole, among others.

We’ve heard of a portion of this before: Metito Africa Managing Director Karim Madwar said earlier this month that the UAE-based company’s consortium with Scatec Solar and Orascom Construction is currently in talks with the government to build a USD 1.5 bn water desalination plant that would be powered entirely using renewables.

What will debottleneck the investments? The companies are reportedly waiting on the government to issue regulations on investments in desalination projects, which will reportedly include a map of the available land plots for the facilities, regulations on how land will be allocated, and the tariff for the water produced from the plants. The regulations are also expected to require that any desalination plant be operated entirely on renewable energy and use reverse osmosis technology.

Passenger car sales were up 13% y-o-y in January, according to industry figures released yesterday. Data from the Automotive Information Council (AMIC) showed that nearly 16.9k cars were sold during the month, up from 14.9k in January 2020.

January saw car sales extend a strong run of growth from last year, despite industry insiders telling us they expect a supply crunch, including potential price hikes and local production cuts. Last year saw the sector shrug off the global chip shortage as strong demand pushed sales to their highest levels since the EGP float in 2016.

But buses and trucks are not doing so well: Around 1.3k buses were sold during the month, down 33.5% y-o-y. Truck sales also fell 22% y-o-y to just under 3k units. Overall, the auto industry sold nearly 21.2 k vehicles in January, inching up 2.2% from the same month last year.

AMIC data is self-reported by member distributors, who include the majority of (but not all) industry participants.

Online B2B fruit and veg platform FreshSource has bagged an undisclosed seven-figure USD seed round led by 4DX Ventures and Wamda, the company announced in a statement (pdf). The agri-supply chain startup plans to use the funds raised to expand across the country, invest in its tech platform, and grow its team, “while also keeping an eye on future expansion in the region.”

About the company: FreshSource is the MENA region’s first B2B agri-supply chain platform, according to the release. Launched in 2019 by siblings Omar and Farah Emara, the startup connects small farmers with businesses including restaurants, hotels, and online and traditional retailers in an attempt to streamline the agri-supply chain and reduce food waste. The company currently operates in 11 Egyptian cities, and in 2020 became Otlob’s (now rebranded as Talabat) first fresh food supplier. FreshSource was last year among four Egyptian startups selected to take part in a Google-led three-month digital accelerator program in MENA.

ALSO FROM PLANET STARTUP-

Online law education platform Kouncel has raised funding and support worth EUR 1.2 mn in a pre-seed round, according to a release (pdf). The round was led by the African Development Bank (AfDB), the Academy of Scientific Research and Technology (ASRT), the Entrepreneurship Development Project in Egypt (Tanmia wa Tatweer), and Zaldi Capital. EUR 250k of the funding will be disbursed in banknotes, while the remaining amount will be provided in-kind as services, company founder and CEO Ibrahim Saleh told Enterprise.

Kouncel is the first online law education platform in the MENA region to offer “modern learning” to lawyers and companies, according to the release. The platform offers online and custom-made courses for Egyptian and Gulf-based litigators in arbitration, litigation drafting, corporate law, intellectual property, and banking and non-banking finance, among other fields.

The Russia-Ukraine conflict continued to headline the talk shows last night. Egyptian Ambassador to Kyiv Ayman Gamal spoke on a call with Al Hekaya’s Amr Adib (watch, runtime: 13:32) to discuss the situation for Egyptians stuck in the war-torn country. Eastern Ukraine — where the largest number of Egyptian students reside — is particularly dangerous, he said, adding, “We’ve asked them to stay home or seek refuge in shelters.”

In a video call with Amr Adib, Russian Ambassador to Egypt Georgy Borisenko said Ukrainian President Volodymyr Zelensky “crossed all red lines” when the president allegedly made statements to the effect that Ukraine wants to own nuclear weapons, which would directly threaten Russia’s national security (watch, runtime: 1:33).

FACT CHECK- Ukraine gave up its nuclear arsenal in return for Western security pledges in the mid-1990s after the Soviet Union fell — and has made no suggestion that it wants to rebuild a stockpile. The Ukrainian president has called on Western nations to hold up their end of the post-Soviet pact by protecting his country. The New York Times calls claims that Ukraine wants to regain nuclear arms a “conspiracy theory” propagated by Putin.

There are enough nukes in circulation to “destroy the entire world,” said the former head of the Egyptian Atomic Energy Authority Ali Islam in a phone-in with Kelma Akheera’s Lamees El Hadidi (watch, runtime: 6:57), during which he outlined the dangers of resorting to nuclear weapons.

President Abdel Fattah El Sisi’s review of the status of our strategic commodity reserves got shout outs from Masaa DMC (watch, runtime 00:44) and Kelma Akheera (watch, runtime: 1:37). More on that story in this morning’s Commodities section, above.

The Egyptian citizen who was injured in the ongoing Ukraine clashes also got significant coverage. Mohamed Zayed was injured during an airstrike in Kharkiv, but is currently in stable condition in a hospital after undergoing surgery, according to reports from Masaa DMC (watch, runtime: 1:10), Al Hekaya (watch, runtime: 5:34), and Al Hayah Al Youm (watch, runtime: 23:52).

The Health Ministry reported 1,521 new covid-19 infections yesterday, down from 1,743 the day before. Egypt has now disclosed a total of 482,248 confirmed cases of covid-19. The ministry also reported 48 new deaths, bringing the country’s total death toll to 24,040.