AM — IMF downgrades global growth forecasts for 2022 and 2023, but Egypt looks set to fare better than most

Good morning, friends, and welcome to a brisk news day.

PSA #1- Hello, four-day weekend: The Central Bank of Egypt confirmed (pdf) yesterday that next Sunday, 24 April, will be a bank holiday in observance of Coptic Easter. Add that to the national holiday on Monday for Sinai Liberation Day and Sham El Nessim and we have ourselves a nice four-day weekend.

The private sector won’t be taking the entire week off for Eid, unlike the public sector. The private sector will officially get Labor Day (that’s 1 May) and the first two days of Eid as paid vacation days, the Manpower Ministry said yesterday. Now it’s up to you (or your bosses) to decide if your company will bridge the entire week.

PSA #2- This is our last edition of EnterpriseAM this week. We’re taking a publication holiday tomorrow (we do this each year so we can gather as a team for iftar) in addition to the bank holiday on Sunday and Monday’s national day off. Look out this afternoon for EnterprisePM. Our AM and PM editions will be back in your inboxes at the appointed hour on Tuesday.

PSA #3- Today is the deadline to file your ESG report: EGX-listed companies and all non-bank financial services outfits regardless of listing status need to submit their first quarterly ESG questionnaire by the end of today. The regulator is making it mandatory for companies to publicly disclose their performance on key environmental, social and governance metrics each year when they submit their annual financial statements, starting 2023.

SO, WHEN DO WE EAT? You’ll be breaking your fast at 6:25pm CLT this evening in the capital city, and fajr prayers are at 3:51am.

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The Madbouly gov’t has formed a committee “to study the file of foreign borrowing and restrict it to very narrow limits,” after MPs voiced concern over the rise in the external debt during a House plenary session, Ahram Online reports. Planning Minister Hala El Said is heading up the committee. Our external debt balance rose nearly 6% q-o-q to c. USD 145.5 bn at the end of the second quarter of the current fiscal year, the domestic press reports, citing what it says is central bank data. Masrawy and Hapi Journal have the story.

ALSO- MPs yesterday gave final approval to part of the FY 2021-2022 budget, Ahram Online reports.

DATA POINT- 18% CDs are still being snapped up: Investors have now poured some EGP 577 bn into 18% CDs at Banque Misr and the National Bank of Egypt. Nearly 70% went to the NBE (here), while the remainder went to Banque Misr (here), Hapi Journal and Al Mal reported. The CDs launched last month, following the central bank’s 100-bps interest rate hike.

THE BIG STORY ABROAD– Other than a dire quarterly report from Netflix that could mark the beginning of the end of the streamer’s golden age (see more in our Planet Finance section, below), the war in Ukraine is still topping the front pages. Here’s what you need to know this morning:

• The UN has called for a four-day humanitarian ceasefire over Coptic Easter. (Statement)
• The US and allies are looking to impose more sanctions on Russia and provide Ukraine with more aid. (Statement)
• Russian troops are advancing at pace in eastern Ukraine, as part of a renewed offensive that Foreign Minister Sergei Lavrov called a “second phase” of the war. (Bloomberg)
• Russia to go to courts to recover frozen reserves… Russia’s central bank announced it plans to pursue lawsuits to recover USD 300 bn of its FX reserves that have been frozen by western governments. (Financial Times).
• …and bans stock listings on foreign exchanges in fresh blow to businesses: President Vladimir Putin signed off on legal amendments that require Russian companies to delist their overseas shares. (Bloomberg).

WATCH THIS SPACE- By the time we come back from the long weekend, France will have a new president. Incumbent Emmanuel Macron’s polling lead is widening against his far-right National Rally opponent Marine Le Pen, but the result of Sunday’s final runoff vote is far from certain, Reuters reports.

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MARKET WATCH-

Inflation-adjusted yields on US 10-year bonds are inching closer to positive territory on the back of the Federal Reserve’s tightening monetary policy for the first time since March 2020, the Financial Times reports. Real yields have surged more than 1 percentage point since early March, posting a high of minus 0.04% on Tuesday, a trend which if it continues could start causing real issues for equities, risky debt, and emerging markets.

Uh, Enterprise? How is this the case if inflation is at 8.5% and the 10-year yield is less than 3%? The Financial Times is using a version of real yields derived from Treasury inflation-protected securities (Tips). Rather than using the current rate of inflation, Tips reflect the average inflation expectation over the total term of the bond. The market currently expects inflation to average around 2.95% over the next 10 years, close to where the 10-year yield is now trading.

*** 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: What the Russia-Ukraine war means for Egypt’s trade: The war has caused already-inflated shipping and fuel prices to soar, even more disruption to supply chains, and a shortage of available shipping containers. Egypt has been scrambling to ensure that its trade activities remain stable by finding alternative markets and routes for our commodities needs. We talked to shipping industry players to find out what problems we’re now facing, what issues could arise next, and whether there are any silver linings amidst the instability.

The IMF has cut its global GDP forecast for this year and the next as surging inflation and economic fallout from the war in Ukraine hit growth prospects. The Fund revised downwards its growth projections for 2022 and 2023 to 3.6% in its latest World Economic Outlook — that’s 0.8 percentage points lower for this year (and 0.2 ppt less for next year) than in its last forecast in January. The revision marks a “significant slowdown in global growth” as the Russia-Ukraine war continues to cause “worldwide spillovers through commodity markets, trade, and financial channels.”

EGYPT IS A BRIGHT SPOT FOR GROWTH

Egypt seems set to buck the trend this year: The lender revised upwards Egypt’s growth for the current fiscal year despite soaring food and energy prices threatening to weigh on economic activity. The IMF now expects the Egyptian economy to expand at a 5.9% clip in FY 2021-2022, up 0.3 percentage points from its previous forecast in January. This is the second time the IMF has upgraded Egypt’s growth forecast this year.

That’s even more optimistic than official figures: The government recently lowered its growth outlook for the current fiscal year to 5.7% from 6.2-6.5% due to the economic impact of the war in Ukraine.

The economy won’t grow next year quite as much as previously expected: The Fund now sees our economy growing by 5.0% in FY 2022-2023, down from its previous 5.6% prediction.

Consumer prices in Egypt will rise on average by 7.5% this year, then rise at an 11.0% prace in 2022-2023, according to the IMF. The annual urban rate reached a three-year high of 10.5% in March, and analysts are forecasting inflation to continue rising in the months ahead, with some predicting it to go as high as 15%.

The war is going to hit our external position: The IMF sees Egypt’s current account falling further into deficit over the next year as the war drives up import spending, hurts tourism revenues, and drives portfolio outflows. The Fund expects the deficit to narrow to 4.3% of GDP this fiscal year before rising back to 4.6% in 2022-2023.

REMEMBER- We’re on a different reporting timeline to much of the world. The IMF’s global forecast (and most of its country forecasts) is based on data for the calendar year. Egypt is among a handful of countries whose fiscal year runs from July to June, meaning the impact of the war (which broke out at the end of February) will likely be more keenly felt next fiscal year than in the current one.

EMERGING MARKETS WILL STRUGGLE

The outlook for emerging markets is bleak in the long term: “Scarring effects are expected to be much larger in emerging markets and developing economies than in advanced economies — reflecting more limited policy support and generally slower vaccination — with output expected to remain below the pre-pandemic trend throughout the forecast horizon,” the lender writes.

Western monetary tightening poses bigger risks for EMs: “The war and the impending increase in global interest rates will further reduce fiscal space in many countries, especially oil- and food-importing emerging markets,” the Fund says, adding that these threats could create some “credit market vulnerabilities […] with implications for financial stability.” Rising interest rates could also lead to further withdrawals of capital and more currency depreciation that would, in turn drive up inflation.

The IMF is emphasizing the need for prompt — yet balanced — responses from policymakers: Policymakers are in for a tough balancing act, as they attempt to rein in the short-term implications of the war, while maintaining long-term growth, the IMF writes. It added that some economies will need to secure “adequate liquidity support to tide over short term refinancing difficulties” while others could need “comprehensive sovereign debt restructuring.”

Reminder: Egypt is in talks with the IMF for a support program, which could come under a “precautionary and liquidity line” and amount to as much as USD 3.5 bn. The PLL “could be supplemented by an extended fund facility that could take another three to six months to negotiate” with the IMF, BNP Paribas Middle East and North Africa economist Mohamed Abdelmeguid previously wrote.

MORE ON THE GLOBAL TREND

Food, oil and commodity prices pose the biggest threats to global growth: Russia is a major supplier of oil, gas, metals, and other commodities, which has led to global price elevation — exacerbating already heightened prices and supply crunches caused by pent up post-pandemic demand.

Bad news for food security: Food prices are forecast to remain high throughout the year and into 2023 after reaching a new all-time high last month, according to the IMF, with low-income countries the most affected. The Fund name-checks wheat as one of the commodities for which it expects prices to remain high into next year. Wheat prices soared almost 20% last month, as the war disrupted exports from major exporters Russia and Ukraine. As we’ve mentioned not infrequently since the war broke out, Egypt is the world’s largest importer of the grain, with Russia and Ukraine normally supplying over 80% of our imports.

But slightly better news for oil: “Although the price of oil has risen sharply, spare capacity in other countries and the release of petroleum reserves will likely mean that these increases will be contained over the medium term,” the lender notes, adding that oil prices will likely affect growth most severely in 2022.

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SPEAKING OF GLOBAL FINANCE LEADERS- Where’s the coordinated push on food security we were promised? US Treasury Secretary Janet Yellen yesterday told the World Bank and the IMF to “get concrete” on measures to battle food insecurity amid spiraling commodities prices, the AP writes, on the sidelines of the two lenders’ spring meetings. Yellen had reportedly been planning to bring the international lenders and reps from wealthy nations around a table to put together a coordinated response to the looming food crisis — but we’ve heard nothing on that front yet.

The WB is making some moves on food: WB President David Malpass told Yellen the lender would allocate USD 17 bn per year to bolster food security. The WB yesterday announced a new USD 170 bn “crisis financing target,” which will target countries taking in significant numbers of Ukrainian refugees and those (like us) facing food supply issues.

CIB management gets vote of confidence from (new) largest shareholder: Alpha Oryx, a subsidiary of Abu Dhabi sovereign wealth fund and the new holder of a 17.5% stake in CIB, has no intention of doing anything that would “negatively impact the bank’s management or the interests of its shareholders.” Alpha Oryx made the statement in a filing with the Financial Regulatory Authority (pdf) made public yesterday.

Alpha Oryx likes Egypt… The company notes that it is “continuously looking for [the chance] to support its growth ambitions internationally, particularly in a high-potential market like Egypt.”

…and it thinks CIB is a great fit, writing that the bank is a frontier emerging market standard-bearer with an “outstanding reputation across regional and international markets.” Alpha also pointed to CIB’s “strong management team and high standards of governance.” CIB CEO Hussein Abaza is widely respected in the industry — and one of the most popular EM CEOs on the global investor conference circuit, where he has a reputation for being a straight shooter with fund and portfolio managers.

What does Alpha think CIB should be doing now? It’s not getting into detail in public, but says that it wants to look for synergies and how to drive growth — and sees its investment in CIB as strengthening its own “offering and regional presence.” Alpha says its broad priorities include strengthening market position, investing in culture and talent, and driving environmental, social and governance initiatives. CIB is a good fit in that respect, having been a pioneer in sustainable finance in Egypt.

Vodafone Egypt makes first stake buys in Bee + Masary: Vodafone Egypt has acquired 10% stakes in e-payment platforms Bee and Masary, subsidiaries of non-banking financial services (NBFS) provider Ebtikar, according to a disclosure (pdf) filed to the EGX yesterday by Ebtikar parent company B Investments. The telecoms giant — which plans to eventually acquire a 20% stake in each firm — subscribed to a capital increase at par value, reducing Ebtikar’s ownership in Bee to just over 90% and its stake in Masary to 63.6%.

A year in the making: The transaction comes under the terms of an MoU signed between the two companies in early 2021 under which Vodafone signaled its intent to acquire 20% of Bee and Masary. The telecom operator wrapped up due diligence on the companies in August.

Vodafone is still planning to acquire 20% of each company: A Vodafone Egypt representative told us yesterday afternoon that it is sticking to the MoU and still intends to acquire 20% of both firms. The acquisition is taking place in two phases, and Vodafone will purchase the remaining 10% stakes after receiving final regulatory approvals, the official said.

What’s in it for Bee and Masary? The two firms “will have access to know-how, new products, market expertise and the facilitation of regional expansions,” B Investments IR Director Omar El Labban told Enterprise. “Bee and Masary are expected to benefit from expedited growth and play an even more expanded and major role in the digital transformation of the economy,” he said. Ebtikar is a joint venture between B Investments, BPE Partners and MTI.

And for Vodafone? The acquisition comes as part of the company’s plans to increase investments in Egypt and expand its footprint in the NBFS space.

Advisors: Zaki Hashem & Partners advised Masary and Bee, while Vodafone was advised by Hafez & Partners.

IN OTHER M&A NEWS-

Has Ashry Steel just taken over Arco Steel? That’s what Al Mal reported yesterday, citing “well informed sources” as saying that the company had acquired all of the company’s shares for EGP 2 bn. Ashry Steel Chairman Ayman El Ashry denied the report when we approached him for comment yesterday. “The transaction remains under discussion, which has reached an advanced stage,” he told us. Arco Steel is 80% owned by the National Bank of Egypt and the remaining 20% is distributed among state-affiliated entities such as the National Investment Bank, the Industrial Development Bank and Misr Ins. Talks on the acquisition have been ongoing since at least last summer.

Galina could revive its IPO plans: Agrifood player Galina Holding could go ahead with a public share sale on the EGX this year, Chairman Abdel Wahed Soliman told Enterprise, confirming a report that first appeared in Al Mal. The company is aiming to raise at least EGP 500 mn from a private placement and is currently in talks with institutional investors. If the company does conclude a transaction, it will move ahead with a public offering towards the end of 3Q, he said.

In detail: The private placement would be carried out via capital increase, which would see Galina issue 150 mn new shares, equivalent to a 50% stake in the company, Soliman told us. An internal financial advisor has valued the company’s shares at EGP 5 apiece. It has now appointed Perfect Consulting to conduct a fair value study.

Who’s interested? An international bank and a Gulf bank are interested in acquiring 30% of the company’s shares in the private placement, Soliman told Al Mal, adding that talks are still in their early stages and no official offers have yet been made.

A similar plan on a slightly smaller scale: This time last year, Galina was hoping to raise EGP 600 mn in a private placement ahead of an EGX listing, telling us that at least 10 foreign and local institutional players were interested in investing in the company. Soliman said at the time that the company would issue 161 mn new shares, and that subscription could be wrapped up by the end of 1H2021.

But what happened? Disagreements over valuation, Soliman told Al Mal.

Advisors yet to be appointed: Galina hasn’t yet appointed a financial or legal advisor to help it with the transaction, he told us. The company hired Renaissance Capital to quarterback the transaction last year, and was eyeing Baker McKenzie’s Cairo office to provide counsel.

Galina has been eyeing the EGX for a long time, first announcing its ambition to become a public company back in 2018.

CIRA to open three new schools in September: EGX-listed private sector education outfit CIRA is looking to open the doors of three new schools at the beginning of the upcoming school year in September, it announced in an regulatory filing (pdf) yesterday.

Two of the schools are in Sixth of October’s Cosmic Village: A branch of Futures Tech — a branded K-12 school that caters to Egypt’s middle-income segment — and another branch of Regent British School — a mid-tuition range international school that made its debut in New Mansoura in 2020. The schools are being established under a public-private partnership between CIRA, Elsewedy Capital and the Sovereign Fund of Egypt.

And there’s one in Qena: CIRA will open another Futures branch in the Upper Egyptian city. This will be the fourth branch of the school.

Further down the line: CIRA is looking to establish an international school in Assiut, dubbed Regent Assiut, to start operations in 2024.

The Coca-Cola Foundation has partnered with the Misr El Kheir Foundation and the youth and military production ministries, to launch the first phase of the “Your Bicycle, Your Revenue” initiative, which offers a source of income for young people, according to a statement (pdf). Almost 1.4k bikes will be distributed along with training and Coca-Cola products, allowing unemployed youth to start their own micro-businesses.

Our friends at ALC Alieldean Weshahy & Partners have for the first time been designated a “leading firm” by Legal 500 in its recently issued 2022 EMEA rankings, earning nods in four practice areas: banking and finance; commercial, corporate and M&A; projects and infrastructure; and arbitration. Among the individual practitioners getting nods:

• Arbitration: Ahmed Weshahi and Yehia Shahine;
• Banking and finance: Bahaa Alieldean, Elham Mabrouk and Mahmoud Al-Araby;
• Commercial, corporate and M&A: Amr Namek, Weshahi, and Alieldean;
• Projects and infrastructure: Weshahi and Alieldean.

A number of practitioners have been named to IFLR1000’s Women Leaders 2022 (in alphabetical order):

• Amira Sherif senior partner at Sarie-Eldin & Partners;
• Ingy Badawy, a founding partner a Zulficar & Partners and head of corporate M&A;
• Lamyaa Gadelhak, co-head of the banking and projects practice group at Helmy, Hamza & Partners, Baker McKenzie’s Cairo office;
• Mariam Fahmy, partner at Shalakany Law Office;
• Mona Zulficar, founding partner and chairperson at Zulficar & Partners.
• Ragia Omran, of counsel at Zaki Hashem & Partners;
• Sara Hinton, senior partner at Ibrachy Legal Consultancy;

E-payments firm Damen has signed an agreement to collect donations for breast cancer charity the Baheya Foundation through its electronic platform, Damen said in a statement.

The talking heads once again downed their mics last night as the holiday season continues. We’d like to say we’re missing the dulcet tones of the pundits on our airwaves. We really would.

A proposed marriage law on polygamy could be good news for women’s rights in the country, according to an opinion piece by Cairo-based academic Heba Yosry carried by Al Arabiya. The bill would require a man to obtain the consent of his existing spouse(s) and fiance before being allowed to marry again, ensuring that the relationships are transparent and that the man provides financially for his first wife and children.

Also making headlines:

• The suspect in the murder of an Alexandria priest has been sent to trial: The man is charged with stabbing a Coptic priest to death in Alexandria earlier this month. (The National)
• The return of mawa’id rahman (charity tables) after being suspended for two years due to covid-19 restrictions gets some ink. (Reuters)
• Egypt has begun the restoration of Old Cairo’s Ben Azra Synagogue, one of the oldest synagogues in the world. (Arab News)

SETTING THE RECORD STRAIGHT- The Damietta Port Authority has released a statement saying that an oil tanker that ran aground off the Tunisian coast last week had not departed from the port, as the Associated Press reported in a story we noted in this space earlier this week.

“Most” of the companies participating in the state’s natgas vehicle swap scheme have submitted requests to raise their prices, Shorouk News reports, citing the initiative’s spokesman Tarek Awad. Under the rules of the scheme to switch passenger cars to run on natgas, companies can request to raise their prices by up to 10% if they can justify why. Late last year the Finance Ministry approved three such requests from manufacturers amid the global supply crunch, adding EGP 3-5k to the price of some vehicles. Some 13k dual-fuel cars had been delivered by the end of January under the scheme, which is expected to see 250k old cars swapped out with natgas-run cars by the end of 2023.

Are the Green for Growth and Sanad funds close to approving loans worth USD 50 mn to two banks for on-lending to SMEs? That’s what Al Mal reported yesterday, citing an interview with Mohamed Morsy, Egypt manager of impact investor Finance in Motion — a consultant to both funds. Morsy denied the news when we approached him yesterday, telling us that talks are still at an early stage and haven’t yet agreed on the size or timeline of the loans. The two funds loaned USD 75 mn to Banque Misr for green on-lending last month.

President Abdel Fattah El Sisi called his South African counterpart Cyril Ramaphosa to offer his condolences for the recent floods that struck the city of Durban, according to a statement, adding that Egypt stands ready to assist in the humanitarian response. The pair also discussed the impact on Africa of Russia’s war in Ukraine, as well as unspecified bilateral and regional issues.

The International Renewable Energy Agency (IRENA) wants to help us with COP 27 prep, IRENA project financing head Ahmed Badr told Electricity Minister Mohamed Shaker in a meeting, according to a cabinet statement.

Rival Libyan lawmakers concluded UN-brokered talks in Cairo without reaching an agreement on a way forward to national elections, the UN said yesterday. The weeklong talks brought together lawmakers from Libya’s east-based parliament — which has called upon incumbent prime minister Abdul Hamid Dbeibah to step down — and from the Tripoli-based High Council of State, which continues to back Dbeibeh and his government.

The officials agreed to reconvene next month after Eid Al Fitr, AP quoted the UN’s special adviser on Libya, Stephanie Williams, as saying.