AM — Bread price controls could be coming, cabinet spokesman says

Hello, everyone, and welcome to a brisk Wednesday in which domestic business news takes second seat to the latest from Eastern Europe.

THE BIG STORY everywhere today remains Russia’s invasion of Ukraine. Egypt is uniquely impacted as a country that has long had strong ties to both countries, who together account for up to 80% of our wheat supply and a third of our inbound tourism market. Ukrainian companies invest here and are working on transport projects. Russia has plans to build an industrial zone and a nuclear power plant.

Russia-Ukraine coverage dominates this morning’s edition, from the latest on disruptions to the global energy and commodities markets to the Madbouly government’s warning it could move to temper rising bread prices — and a suggestion from JPMorgan that it’s not impossible we’ll be talking again with our friends at the International Monetary Fund for a new assistance package if the fallout continues. The Madbouly government has so far done a very solid job of leading us through a dicey situation that was not of our making; it makes eminently good sense for us to explore options now to hedge against a day when the global environment could become even more challenging. As the hoary old adage goes: An ounce of prevention is worth a pound of cure.

An ominous warning: Nato boss Jens Stoltenberg warned Russia against attacking the supply lines of member states who are supplying Ukraine with weapons and material, saying that to do so would be a “dangerous escalation of the war raging in eastern Europe,” Canada’s CBC reports.

MEANWHILE- IT WAS A GOOD NIGHT FOR Apple nerds, who got a glimpse of the future with the Mac Studio — and for the first time in years (and years and years) were rewarded with a stand-alone display. The all-new super-powered desktop computer targets creators, scientists, designers and others with crazy compute needs and has (mercifully) tons of ports. It also runs quiet and cool thanks to the M1 Ultra processor, which makes its debut in the Mac Studio.

The company’s first product event of the year also saw it unveil a new iPhone SE that includes a 4.7-inch display and support for 5G, a new iPad Air with M1 chip (plus 5G in the wifi + LTE version), and new colors for the iPhone 13 (green and alpine green). You can watch a replay of the event here or check out the Verge’s rundown on everything that Apple announced here.

One more thing? The Mac Studio is even more powerful than then Mac Pro, which tops Apple’s Mac line, but it won’t be for long — a top Apple exec teased last night that a new Mac Pro is in the works.

PSA #1- The weather is starting to cool today, with the mercury set to ease to 24°C in the capital city before hitting 20°C tomorrow and then slipping into the high teens from Friday through Monday.

PSA #2- Our fellow coffee nerds may wish to attend the three-day 2022 National Barista Championship, which gets underway tomorrow at the Egypt International Exhibition Center. Hit up IG for more.

KUDOS- With the pre-Ramadan silly season at its apex for folks in the ad industry, our friends at Tarek Nour Communications have launched a wellness program with Singapore’s MindNation. You can learn more about it here (pdf) and as you read, ask yourself: Is there anything you can do as a leader at your company to make life better for your team? TNC’s year-round program will walk the company’s people through issues including work-life balance and goals for their mental health and physical well-being.

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MARKET WATCH-

It was another day of volatility in the financial markets yesterday as investors reacted to Washington’s decision to go ahead with a ban on Russian energy imports. Following a heavy sell-off on Monday, US stocks whipsawed through the session, eventually closing slightly in the red. The S&P 500 ended almost 1% down after being up 2% earlier in the session, leaving it in correction territory. Bloomberg has more.

Volatility in the commodities markets also continued following the oil ban, which we recap in this morning’s news well, below.

Shares in Asia are mounting a slight recovery in early trading this morning, with most indexes in the region in the green. Oil and gold are continuing where they left off yesterday and are seeing early albeit gains. Stock futures in Europe and the US indicate that shares will open in the green later today.

THIS WEEK + BEYOND-

Turkish and Israeli heads of state will meet today for the first time in over a decade. Israeli President Isaac Herzog is in Ankara for talks with Turkish President Recep Tayyip Erdogan, who is hoping to mend bridges with a longtime foe, Reuters reports.

US Deputy Secretary of State Wendy Sherman will be in town for two days this week starting tomorrow. Sherman will meet with Foreign Minister Sameh Shoukry and “other senior officials,” including National Council for Human Rights chief Moushira Khattab.

Inflation figures for February will be released tomorrow: Annual urban inflation hit its highest level in almost two and a half years in January due to rising food prices and an unfavorable base effect.

Contemporary art and culture center Darb1718 is hosting its 3031 Art Festival until this Saturday, 12 March on its premises in Fustat, Old Cairo.

Green energy forum: The German Arab Chamber of Industry and Commerce is hosting the Egyptian German Green Energy Forum on Tuesday, 22 March. Planning Minister Hala El Said, Vice Minister of Finance Ahmed Kouchouk and German Ambassador Frank Hartmann are among those slated to attend. The even runs 5:30-9:00pm CLT at the InterContinental Cairo Semiramis.

Interest rates: The Central Bank of Egypt will hold its next monetary policy meeting on Thursday, 24 March.

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: Think Cairo’s traffic is bad? There are 40 cities in the world worse than us.

Oil reaches new heights after US + UK announce Russian oil ban: Global oil prices closed at their highest levels since 2008 yesterday after the US and UK announced they would ban the import of Russian fossil fuels, marking a significant escalation of the economic warfare being waged against Moscow for its invasion of Ukraine. As part of its sweeping sanctions package, US President Joe Biden announced that his country will aim for "the main artery of Russia's economy" by banning all energy imports from Russia, which supplies 17% of the world’s gas and 12% of its oil.

The UK isn’t going all-in right away and instead will phase out imports of Russian oil by the end of 2022, it announced yesterday. Russia, the world’s second-largest crude exporter, currently provides around 8% of the country’s total oil consumption. The government is also looking into reducing imports of natural gas, which only makes up 4% of its supply.

The market response: Brent rose as much as 7% to USD 133.00 before falling back to close at USD 129.20, up 5%. US crude ended the session up 4.9% to USD 123.70, having eclipsed USD 129.00 earlier in the session.

The US is trying to limit the fallout on its economy by unlocking 30 mn barrels of crude from its reserves, part of a coordinated effort with other countries to shore up global supply that will see the release of 60 mn barrels.

How much higher can it go before demand destruction kicks in? Goldman Sachs raised its 2022 spot price forecast yesterday to USD 135 — and said that the world is facing one of the “largest energy supply shocks ever.” Norwegian consultancy Rystad Energy believes it could reach an unprecedented USD 200 in the worst case scenario that Europe joins the embargo.

The move is unlikely to strike a critical blow to Russia’s energy sector: The country provides only around 8% of the US and the UK’s oil and will likely find willing buyers in Asia. The oil embargo would be most damaging if it included Europe, which is heavily reliant on Russian energy imports.

The response: Russia will move to ban exports of certain raw materials until the end of the year, according to a decree signed yesterday by President Vladimir Putin introducing “special economic measures” to “ensure Russia’s security.”

The details remain sketchy: The Kremlin has not announced which raw materials it will block and said only that the government will decide in the next two days which countries will face restrictions. As well as being one of the world’s largest energy producers, Russia is also a major exporter of nickel, palladium and uranium.

In other commodities news: Trading didn’t quite match the frenzy of Monday’s session though it was hardly a normal day at the office either:

• Nickel trading has been suspended by the London Metals Exchange until at least 11 March after prices doubled to more than USD 100k a tonne yesterday.
• Gold was close to closing at record highs, with futures rising 2.9% to close at USD 2,054.

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EGYPT IN THE WAR-

Ukraine wants Egypt’s weapons: Ukraine has submitted an official request to Egypt to affirm its support for Kyiv by supplying it with weapons, defense equipment, ammunition, fuel and humanitarian support necessary to confront Russian forces, Ukrainian Charge d’Affaires in Egypt Ruslan Nechai told Al Monitor in an interview.

Egypt has so far refrained from explicitly taking sides in the conflict. In its first reaction to the violence, the Foreign Ministry voiced “deep concern” and called for a political settlement (and an emergency meeting of the Arab League), but avoided directly criticizing Russia, with whom we have strong trade and military ties with. However, at last week’s emergency session of the UN General Assembly, Egypt sided with Ukraine and joined 140 countries in condemning the invasion. Some 35 countries abstained, but Egypt and the GCC temporarily abandoned neutrality and joined the vast majority of the international community in censuring Moscow.

THE HUMAN TOLL-

More than 2 mn people have now fled Ukraine in the 13 days since the war started, according to the UN, and almost half of them are children. The UN High Commissioner for Refugees has called it the fastest-growing refugee crisis in Europe since World War II.

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EXODUS-

McDonald’s, Starbucks, Coca-Cola and Pepsi suspend Russian operations: More major Western companies are suspending business in Russia in objection to its invasion of Ukraine. The latest raft of high-profile exits include Coca-Cola and Pepsico, which will now not sell soft-drinks in the country, McDonald’s, which said it’s temporarily suspending operations at its 850 locations, and Starbucks, which is suspending all business activity in Russia including shipment of its products. Meanwhile, consumer goods giant Unilever became the first major European company to halt imports and exports out of Russia.

One Western company that won’t be leaving is Danone, whose CEO has ruled out abandoning its operations or selling its businesses, the Financial Times reports.

Russia should nationalize factories owned by the boycotting companies, a senior figure in the ruling United Russia party has said, according to Reuters.

European energy firms are continuing to exit Russia: Shell said it will pull out of Russia entirely, suspending the purchase of Russian crude oil and phasing out involvement in Russian hydrocarbons extending from oil to LNG, it said in a statement. The company had already said it would exit its JVs with Russian state-owned gas producer Gazprom. BP also announced it would stop buying Russian energy after last week cutting ties with Rosneft.

And Chinese companies look to be moving in: Chinese state companies could score a bargain as they look to buy or increase stakes in Russian energy and commodities companies, Bloomberg reported yesterday. Companies such as Sinopec and China National Petroleum are reportedly considering making potential investments in Russian companies to boost its energy supplies and food security, “not as a show of support for Russia’s invasion,” according Bloomberg’s unidentified sources.

House approves amendments unlocking agricultural land for national development projects: MPs voted through amendments to the Agrarian Reform Act that reallocate some state-owned agricultural land to development projects, according to Masrawy. The amendments aim to help repurpose unutilized land to meet needs in rural areas, including for hospitals and schools affiliated with the government’s Decent Life initiative.

Educational programs in prisons: The House also approved a draft law that aims to introduce rehabilitation and education programs in Egypt’s prisons, Masrawy reported.

Next steps: Both bills will now make their way to President Abdel Fattah El Sisi to be signed into law.

Real estate giant SODIC’s net income nearly doubled during 4Q 2021, rising 89% y-o-y to EGP 518 mn, according to the company’s latest earnings release (pdf). Revenues rose 81% for the quarter to record EGP 3.6 bn. For the full year, net income was up 5% to EGP 860 mn, while revenues rose 24% to EGP 6.9 bn.

What drove the growth? Strong revenue growth in both the fourth quarter and the full year was driven by deliveries at East Cairo projects, which made up 84% of deliveries by value in the fourth quarter, and three-quarters of deliveries by value over the year. But the surge in revenues didn’t fully trickle down to SODIC’s bottomline in 2021, as margins were impacted by “one-off costs” and a “sharp decline” in net finance income due to lower interest rates.

REMEMBER- For real estate companies, sales ≠ revenues. They book a sale when you sign a contract to buy a home. But they only record (some or all) of the value of the unit it sold you when it (a) delivers the unit to you or (b) hits a percentage completion on a total project.

Sales: SODIC sold 928 units with a gross contracted sales value of almost EGP 6 bn during the fourth quarter, marking a 59% y-o-y increase in the number of units sold and an 81% rise in sales value. The company set new annual records for both number and value of units sold in 2021, selling 1.7k units for a total EGP 11.4 bn — up 54% in value on 2020. The growth came despite the temporary suspension of sales at the company’s New Zayed project in West Cairo, after the Housing Ministry decided to move it to a new location.

SODIC is under new management: The release is the SODIC’s first since an Emirati consortium of real estate giant Aldar Properties and Abu Dhabi sovereign wealth fund ADQ acquired 85.5% of the company for EGP 6.1 bn in December. The Aldar-ADQ consortium “has communicated its objective to advance SODIC’s position as a leading national developer by scale and reputation, growing the company’s portfolio of mixed-use residential communities in Greater Cairo, the North Coast, and other major markets,” the release read.

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Arabian Cement returns to the black: Arabian Cement recorded net income of EGP 52 mn in 4Q 2021 after posting a EGP 78 mn in the same quarter in 2020, according to the company’s latest earnings release (pdf). Revenues were up 44% to EGP 774 mn during the October-December period as market prices began to recover from an extended supply glut.

Breadfast has appointed Eugene Hooi (LinkedIn) as its first chief financial officer, according to a company statement (pdf). Hooi joins the local grocery delivery startup from the food investments team at US-based VC firm Prosus Ventures, before which he worked as an investment banker at Goldman Sachs.

Rising bread prices featured heavily on the airwaves again last night: The government could consider introducing price controls on unsubsidized bread if sellers continue to raise their prices, cabinet spokesperson Nader Saad told Ala Mas’ouleety’s Ahmed Moussa (watch, runtime 5:25 | 5:12). Saad also appeared on Kelma Akhira (watch, runtime 9:37).

The mechanism could be similar to how the government regulates fuel prices across the country, according to Saad. The government currently fixes the prices of fuel sold at the pump and to factories, and reviews them at the beginning of every quarter according to movements in the global market.

The price of unsubsidized bread in the Greater Cairo area has risen by as much as 50% in the course of a week in response to global wheat prices. Saad accused sellers of hiking prices “unnecessarily” and urged them not to take advantage of the current global situation.

One wheat shipment is on its way from Russia, Saad said. Egypt has struggled to access regular grain shipments from the Black Sea region since the start of the conflict, with two cargoes stuck in Ukraine and another two tenders canceled due to high prices and a lack of bids.

In non-Ukraine news: President Abdel Fattah El Sisi’s meeting with Saudi Crown Prince Mohamed bin Salma in Riyadh yesterday got coverage on several of the talk shows. Al Hayah Al Youm’s Mohamed Sherdy gave us live coverage from Riyadh (watch, runtime 9:48) to cover the meeting. The leaders discussed boosting their cooperation on fighting terrorism, increasing economic and investment partnerships, along with bolstering trade, real estate development, and tourism between the two countries. Ala Mas’ouleety also had coverage (watch, runtime 13:59).

Will the Madbouly government open talks with the International Monetary Fund on an assistance package to help us get through the fallout from Russia’s war in Ukraine? Analysts at JPMorgan think that there is a “reasonable probability” in the event that “market conditions continue to deteriorate, according to a note to investors that Reuters picked up on.

The problem: The war in Ukraine is turbo-charging global commodity prices, putting further pressure on state finances here and in emerging markets around the world. The prices of wheat and oil, which together make up the bulk of Egypt’s import spend, have reached highs not seen in years. Egypt imports c. 80% of its wheat needs from Russia and Ukraine, and our tourism sector stands to lose out on revenues as holidaymakers from Russia and Ukraine drop.

Who’s saying what: Fitch said in December (before the war broke out) that Egypt could require another IMF programme in the event of a liquidity squeeze, and top cabinet members including Mohamed Maait, Ali El Moselhy and Tarek El Molla (here and here) have been very blunt in public that Egypt is being uniquely squeezed as a result of the war. The IMF was tight-lipped in December when Masrawy asked about whether Egypt would sign up for a new assistance program, saying the ball was squarely in Cairo’s court.

BACKGROUND- We have turned to the lender twice in the past six years. Once in 2016 when we took out a USD 12 bn facility to back an ambitious program of economic reforms coinciding with the float of the EGP — and again after the onset of the covid-19 pandemic, when we borrowed USD 8 bn to cushion the economic impact of the outbreak.

The Transport Ministry will soon pay out EUR 150 mn to the Alstom-led consortium implementing the Sixth of October-new capital monorail for recent construction work, Al Mal reported, citing sources it claims have knowledge of the matter. This is the second payment to the consortium, which also includes Orascom Construction and Arab Contractors, after it received USD 280 mn from the government in October, the sources reportedly said. The USD 4.5 bn project is expected to be completed in May 2023.

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

• EFG Hermes’ fintech platform valU has partnered (pdf) with online marketplace Noon to provide installment plans for customers.
• Contact Financial Holdings has signed an EGP 100 mn factoring agreement providing finance for B2B marketplace Capiter.
• Juhayna will temporarily resume operations at the Assiut yogurt factory it shuttered in 2016, as the dairy giant starts preparing for Ramadan when demand is expected to triple.
• Abu Dhabi Islamic Bank will lend HoldiPharma EGP 1 bn to bring its meds production up to international standards in a bid to boost exports.
• Palm Hills Developments has acquired (pdf) a 7.97% stake in Incolease in an EGP 65.4 mn transaction.