AM — Gov’t ups domestic wheat purchase targets as war in Ukraine challenges global market

Good morning, wonderful people. The big story here at home is fallout from the war in Ukraine as the Madbouly government took quick steps yesterday to shore up our wheat reserves and domestic harvest amid ongoing disruptions in the international market for the grain.

What they’re doing: As we report below, the government will buy substantially more wheat from local farmers this harvest season — and make it easier for smaller farmers to grow the crop ahead of the next planting season.

Take a nice, deep breath: It’s natural that the global market is in a bit of disarray right now, but markets have a tendency to work things out — and state grain buyer GASC is the biggest, most experienced player in that global market. With a four-month stockpile in place and the government now buying more domestically, GASC has some breathing room. Its goal: Not to buy now at exorbitant prices if it expects some measure of order to slowly return to the market in the coming days and weeks.

HERE’S WHAT YOU NEED TO KNOW about the war in Ukraine this morning:

• Russia stepped up its assault on Ukraine’s biggest cities, firing missiles (and, reportedly, cluster munitions) on urban areas as the war rages on for the seventh day. Cities hit include Kyiv and Kharkiv.
• There won’t be another round of peace talks unless Russia stops targeting Ukrainian civilians, Ukrainian President Volodymyr Zelenskiy told Reuters yesterday.
• Reshaping the global order, Part 1: Erdogan isn’t opposed to Nato enlargement, more EU politicians are talking favorably about immediately making Ukraine a member (a decision could come as early as next week), and China is putting some daylight between itself and Moscow.
• Reshaping the global order, Part 2: Moscow demanded that Western countries pull back from bases in countries that used to be part of the Soviet Union — and doubled down on its (so far baseless) claim that Ukraine is seeking nuclear weapons.
• Fund managers: Kiss your dividends goodbye. The forecast heading into 2022 was that dividends would grow slower this year than last (a record year for divvies). With a Second Cold War now clearly underway and a high-inflation environment here to stay a while, the Financial Times suggests dividends are going to come under even more pressure.

AT THE SAME TIME- The G7 is acting more like a bloc on foreign policy. The group of leading industrialized economies said yesterday it will offer “significant” financial support to Ukraine — and promised more sanctions for Russia.

G7 ambassadors in Cairo also released a statement yesterday calling on Egypt to stand with Ukraine. The statement (pdf) has gotten traction here at home (Al Shorouk | Al Mal) and wide pickup in Gulf media (The National). The G7 ambassadors said they welcomed Egypt’s support for Ukrainian tourists stranded here, noting our “uniquely Egyptian sense of warmth and hospitality.” They then name-checked Gamal Abdel Nasser, our long history of careful diplomacy, and “the honour of standing up for the rights of others” as they asked Egypt to stand with Ukraine when the UN General Assembly meets this week. Egypt maintains good relations with both Russia and Ukraine, which together account for about a third of our inbound tourism market and as much as 80% of our wheat supply.

HAPPENING NOW-

“We are inflicting pain on Russia and supporting the people of Ukraine.” That was the central message of US President Joe Biden’s State of the Union speech, which is wrapping up just as we press “send” on this morning’s issue. Biden promised to redouble the economic attack on Russia, including by closing off US airspace to Russian planes and seizing oligarchs’ “ill-begotten gains” in tandem with European partners. The economy was the other central theme of the annual address, with Biden pitching his plan to combat high prices by boosting domestic production, after US inflation reached its fastest pace in four decades.

It wouldn’t be a Biden speech without a slip of the tongue: “Putin may circle Kyiv with tanks, but he'll never gain the hearts and souls of the Iranian people,” Biden said. The world was quick to point out that the people of Kyiv are Ukrainians, not Iranians.

TWEET OF THE MORNING- “Honestly if you don't use shatafa / bidet you have 0 legs to stand on calling the rest of us uncivilized.” –Former Guardian Mideast correspondent Kareem Shaheen

SIGN OF THE TIMES #1- Serena Williams is now a big-time venture capitalist. A reminder you can always have a second act in life. One of the best players to ever pick up a racquet, Williams is a longtime angel investor and apparently didn’t break a sweat raising a USD 111 mn inaugural fund. You can check our her Serena Ventures site here or catch a glimpse of her appearance on CNBC’s Squawk Box here.

SIGN OF THE TIMES #2- Urban adventure photographer (and crypto fan) Drifter Shoots just became the first Black photographer to make it to auction at Christies. He celebrated with a highlight video that you do NOT want to watch if you have a fear of heights.

SIGN OF THE TIMES #3- The UAE has relaxed covid-19 restrictions and will no longer require masks be worn outdoors.

HAPPENING TODAY- You can expect OPEC+ to stick to its gradual supply increases when it meets today, Bloomberg reports. Analysts and traders expect the oil cartel will agree to another 400k barrel per day oil production increase — which won’t do much to stall rocketing prices as Russia’s invasion of Ukraine exacerbates a preexisting supply crunch.

Cue: An emergency release of US reserves to the rescue? Members of the International Energy Agency (IEA) will deploy 60 mn barrels of emergency oil stockpiles in a bit to tamp down prices. The US will contribute half the amount from its strategic reserve, while the rest will come from IEA members in Europe and Asia, Bloomberg quoted unidentified sources as saying.

The IEA’s announcement hasn’t cooled the markets so far: Brent crude closed up a whopping 7.1% yesterday at USD 104.97 per barrel.

MEANWHILE- (Some) smokes are getting more expensive- Eastern Company has hiked the prices of several of its own brand cigarettes by EGP 0.5-1 per pack, according to a regulatory filing (pdf). The changes came into effect yesterday. The company last hiked price points last year. Both sets of increases came on the back of the VAT Tax amendments approved in 2020, which placed additional taxes on cancer sticks cigarettes.

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

HAPPENING TOMORROW- PMI: Purchasing managers’ index figures for February for Egypt, Saudi Arabia, the UAE, and Qatar will be released tomorrow at 6:15am CLT. Non-oil business activity in Egypt contracted for the fourteenth consecutive month in January on the back of weaker demand and inflationary pressure, recording the lowest reading since April 2021 and falling below the series average.

CIRCLE YOUR CALENDAR-

Key news triggers to keep your eye on over the next few weeks:

• Foreign reserves: February’s foreign reserves figures will most likely be announced this week or next.
• Inflation: Inflation figures for February will be released on Thursday, 10 March.
• Interest rates: The Central Bank of Egypt (CBE) will hold its next monetary policy meeting on Thursday, 24 March.

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

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 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, and urban development, as well as social infrastructure such as health and education.

In today’s issue: The government now has a database to boost transparency and efficiency in public-private partnership (PPP) projects, after the International Monetary Fund lent us some technical assistance. In this week’s Hardhat, we delve into the report from the IMF’s technical team, unpacking how the database will work, what we stand to gain from implementing it, and where we can exploit the potential of the PPP model to turbocharge the national infrastructure drive.

The Madbouly government plans to buy 5.5 mn tons of wheat from local farmers during the upcoming season, Supply Minister Ali El Moselhy said in an interview with Ala Mas’ouleety’s Ahmed Moussa (watch, runtime 1:47:10) last night, upping previous purchase plans by more than a third as Russia’s invasion of Ukraine has thrown the global grain market into disarray.

This is a 38% increase from the government’s previous target. The state had previously expected to collect 4 mn tons, which El Moselhy last week said would help cover Egypt’s needs through the end of the year alongside the current four-months stockpile. The 5.5 mn tons the government now plans to buy would cover the equivalent of around a quarter of local consumption for the 12 months through the end of September 2022, on the basis of the most recent estimates (pdf) from the US Foreign Agricultural Service.

BACKGROUND- State grain buyer GASC has called off two tenders in recent days due to a shortage of offers and high prices as the grain market sorts out the impact of Russia’s invasion. Together, the two countries account for nearly a third of the world’s wheat supply, and some 60-80% of our grain imports at any given time.

Targeting a better harvest: Prime Minister Mostafa Madbouly has given orders to increase the number of wheat collection points and slash red tape with a view to making it easier for small farmers to grow wheat, El Moselhy said in the interview. The government also brought back to life the decades-old Toshka agricultural project in December, which El Moselhy said is expected to save about USD 1 bn in the country’s wheat budget by 2025.

How much of the wheat we need can we feasibly grow ourselves? Egypt aims to achieve 60-62% self-sufficiency in the grain this season, Agriculture Minister El Sayed El Quseir told Bloomberg Asharq last month, adding that the country has cultivated 3.6 mn acres with wheat, which should produce 9.5 to 10 mn tons.

Homegrown wheat isn’t totally insulated from global price hikes: Even before war broke out, the government had agreed to pay 13% more for local wheat this season than it did in 2021, after a global supply squeeze saw prices hit a ten-year high and the price of inputs such as fertilizer rose. The price hikes were expected to take an additional EGP 12 bn out of the state budget this fiscal year — again, before conflict hit the Black Sea and prices spiked yet further. Chicago wheat futures closed up 5.4% yesterday.

On the imports front, we’re still pushing to diversify supply. Egypt has extended its imported wheat moisture level specifications for an additional year, as the government looks to diversify its supply sources amid the Russia-Ukraine crisis, the Trade Ministry said in a statement. The decision, which will be in force until April 2023, caps moisture content in wheat shipments at 13.5%, 0.5 percentage points higher than the normal 13% limit. The government is also still studying hedging wheat.

Could the international community do more to help? As fuel, food, and fertilizer prices rise on the back of Russia’s war, food security professors Michael J. Puma and Megan Konar are warning of “an accelerating food crisis rippling outward from Ukraine” to vulnerable African countries in the New York Times. They’re calling on Western countries to avoid restricting grain exports, make sure sanctions don’t threaten food security, work to reduce fertilizer costs by suppressing energy prices, divert some oil and corn currently used to create fuel and ethanol back to the food markets, and increase financing for humanitarian aid.

WATCH THIS SPACE- New capital company taps CI Capital to advise on planned IPO of subsidiaries: State-owned Administrative Capital for Urban Development (ACUD) is moving forward with plans to list its subsidiaries on the EGX and has hired CI Capital as its advisor, chairman Ahmed Zaki Abdeen was quoted by Bloomberg Asharq as saying yesterday. The company plans to offer shares in its “subsidiaries that operate in the fields of electricity and management,” Abdeen reportedly said, without disclosing their names or the potential stake sizes on offer. The listing is expected to take place in two years’ time, he said.

We had been expecting ACUD itself to IPO on the same timeline, according to statements from President Abdel Fattah El Sisi last summer. El Sisi said the “record IPO” could take place within the next two years. ACUD — the company responsible for management of the new capital — owns EGP 100 bn worth of liquid assets, holding between EGP 3-4 tn in assets under management, El Sisi said — meaning its EGX debut would be Egypt’s largest-ever listing.

GB Capital is mulling a partial sale of its Netherlands-based finance subsidiary MNT Investments, which is majority owned by the GB Auto subsidiary, the company announced in a regulatory filing (pdf). The statement did not specify the number of shares GB Capital is looking to sell, but said it began considering the transaction after other MNT Investment shareholders expressed interest in selling a portion of their stakes to an unnamed investor.

Who’s selling? The company did not name the shareholders intending to sell stakes in MNT. We do know that Africa-focused private equity firm Development Partners International is among the company’s current shareholders. GB Auto also sold a 5% stake to “unnamed foreign investors” last year.

Advisors: Arqaam Capital has been appointed to advise GB Capital on options to “enhance the benefit of its investments and contributions in subsidiaries.”.

IN OTHER M&A NEWS-

Recycle Key in talks with potential partners for new factory: E-waste recycling company Recycle Key is in talks with three similar companies to potentially enter a joint venture set up its new EGP 200 mn recycling facility in Sadat City’s industrial zone, Al Borsa quotes company head Mohamed Sayed as saying. Recycle Key is also in talks with Banque Misr, the National Bank of Egypt, and Suez Canal Bank to potentially finance the factory as an alternative to a JV.

Saudi B2B wholesale marketplace Sary has acquired Egyptian e-commerce platform Mowarrid for an undisclosed amount, in the first step of Sary’s plan to expand into MENAP markets, the companies announced in a statement (pdf) yesterday.

About Mowarrid: Founded in 2018, the company operates in B2B food and grocery, offering more than 1k products to more than 10k retailers, according to the statement.

About Sary: The Saudi platform connects MSME F&B businesses with big wholesale and FMCG retailers. Sary has raised a total of USD 112 mn since it was founded in 2018, over several series rounds led by the kingdom's sovereign wealth fund's fully-owned subsidiary Sanabil Investments, according to the National.

EFG Hermes topped the EGX’s brokerage league table once again in February, with a market share of 25.1%, according to figures from the EGX (pdf). Rounding out the top five were CI Capital (9.5%), Arqaam (4.4%), Mubasher (4%), and Naeem (4%).

Students make it home to Egypt from war-torn Ukraine: An Air Cairo flight carrying 175 Egyptian students who managed to flee Ukraine through the border with Romania landed at Cairo Airport last night, Emigration Minister Nabila Makram told Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 11:01). The news was also highlighted on Yahduth Fi Masr (watch, runtime: 3:07) and Hadith Al Kahera (watch, runtime 10:50). More than 1.2k students have arrived safely in Poland from Ukraine, Makram said on Monday..

The war's impact on the Suez Canal is not yet clear, Suez Canal Authority (SCA) chairman Osama Rabie told Ala Mas’ouleety (watch, runtime 6:45). The SCA has flexibility to offer financial incentives as the situation develops to attract traffic to the canal if necessary, said Rabie, adding that the US has not made requests to close off the Suez Canal to transiting Russian vessels (watch, runtime 5:19). The SCA’s recent directive to raise tolls by up to 10% also got some attention from Al Hayah Al Youm (watch, runtime 5:46) and Masaa DMC (watch, runtime 9:11).

Political moves in Europe right now are “unprecedented” since World War II, political commentator Mostafa El Feky told Yahduth Fi Masr (watch, runtime 1:39), as our nation’s talking heads dissected the latest developments of the Russia-Ukraine war. Al Hayah Al Youm (watch, runtime 21:32), Ala Mas’ouleety (watch, runtime 15:!5), Hadith Al Kahera (watch, runtime 16:14), and Masaa DMC (watch, runtime 6:35) all had coverage.

There’s a slow trickle of Egypt-related headlines in the international press this morning, while the front pages remain dedicated to the war in Ukraine.

In culture, New York-based nonprofit the World Monuments Fund has spotlighted Upper Egypt’s Abydos in its 2022 watchlist of the world’s 25 most endangered cultural sites, saying the ancient city is “under pressure from urban and agricultural encroachment.” Bloomberg and CNN took note. Meanwhile, Bedouins clinging to a nomadic way of life on the outskirts of Kafr El Sheikh are the subject of a Reuters feature.

Suez Canal revenues jump in February after toll hikes: Revenues were up 15.1% y-o-y to post USD 545.5 mn last month, canal authority head Osama Rabie said in a statement. The authority hiked transit tolls by 6% for most ships at the start of February, followed by another increase of up to 10% for all transiting vessels from yesterday. Canal revenues are expected to hit USD 7 bn this year, up 11.1% from last year’s record haul.

Regulation for the cosmetics industry: The Egyptian Drug Authority (EDA) has launched a new online platform, EgyCosm, to regulate the cosmetics industry through a database for registered products.

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

• The UAE has launched a distanced-learning school targeting 20k underprivileged children and refugees in Egypt and four other countries.
• Taqa Arabia signed an MoU (pdf) with Tanzania to cooperate on natural gas distribution.
• The Cairo Economic Court has imposed (pdf) an EGP 40 mn fine on Speed Medical’s former chairman Mahmoud Lasheen for the two FRA lawsuits filed against the company. Last week the company appointed (pdf) a new board, with Ahmed Farid tapped as non-executive chairman to replace Lasheen.
• Pfizer eyes investing in digitizing our healthcare system: Pfizer is in discussions with the government and other healthcare stakeholders to help digitally transform Egypt’s healthcare field.
• The Financial Regulatory Authority has approved raising the maximum policy for microinsurance products to EGP 200k from EGP 100k.

The Health Ministry reported 1,322 new covid-19 infections yesterday, down from 1,523 the day before. Egypt has now disclosed a total of 485,093 confirmed cases of covid-19. The ministry also reported 36 new deaths, bringing the country’s total death toll to 24,110.

Daily cases have now been declining steadily for over three weeks, from a peak of 2.3k on 6 Feb, as the omicron wave subsides.

Another sign we’re well over the worst of omicron: Covid hospitalizations are down by almost half nationwide. Covid-19-related hospital admissions saw a 40% drop across the country in the two weeks up to 25 February, compared to the preceding two weeks, Acting Minister of Health Khaled Abdel-Ghaffar said, according to a ministry statement.

Egyvax clinical trials kick off: Forty-five volunteers will be given doses of Egypt’s second experimental covid-19 vaccine, Egyvax, in clinical trials that launched yesterday, according to a Higher Education and Scientific Research Ministry statement. If all goes well, production is set to start by the end of this year, with an expected capacity of 500 mn doses annually for both domestic use and export, the statement read. The new jab is set to be manufactured by Eva Pharma, which is currently a local manufacturer of Sinovac vaccines.

Foreign Minister Sameh Shoukry reaffirmed Egypt’s commitment to nuclear disarmament in a recorded speech during a UN multilateral disarmament conference in Geneva, the cabinet said in a statement yesterday. During the conference, Ukraine's foreign minister called for a special meeting on Russian “war crimes” and weapons of mass destruction, Reuters reports.

Will Libya have two governments again? Libyan lawmakers approved a new government led by Prime Minister Fathi Bashagha yesterday, but the incumbent administration, led by embattled Prime Minister Abdul Hamid Dbeibah, remained defiant and refused to cede power, Reuters reported. This marks the latest blow to a fragile peace process amid international efforts to end a decade of political chaos for our Mediterranean neighbor.