Wednesday, 27 April 2022

AM — El Sisi wants to attract USD 40 bn in private investment through sale of state assets over the next four years

TL;DR

WHAT WE’RE TRACKING TODAY

Good morning, wonderful people, and welcome to the next-to-last workday of Ramadan. It’s another huge news day today, so we’re going to jump straight in with this public service announcement:

PSA #1- The whole of next week will be a bank holiday to celebrate Eid al Fitr, the Central Bank of Egypt (CBE) said overnight. The country’s banks will be closed from Sunday, 1 May through Thursday, 5 May. Shortened Ramadan hours will end when banks reopen for business as usual on Sunday, 8 May. With banks closing for the week, you can expect an announcement any moment now from the EGX that it is following suit.

REMINDER- 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 has said. Now it’s up to you (or your bosses) to decide if your company will bridge the entire week.

PSA #2- Only e-invoices will be accepted as proof companies have paid VAT on goods and services starting 1 July, the Finance Ministry said in a statement. The Tax Authority will accept paper invoices issued before companies were obligated to join the e-invoice system, as well as from companies granted exceptions by the authority.

What e-invoicing system? The Tax Authority launched a pilot for the B2B e-invoicing program with 134 companies in late 2020, before extending the system to all large taxpayers last July. 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 recently told Enterprise, while all B2B and B2C invoices across the country should be fully automated by December.

More than 70k companies have registered for the e-invoicing system so far and have sent north of 200 mn e-invoices, FinMin said.

PSA #3- Some Indomie noodles pulled from the shelves over safety concerns: Indomie Egypt has 48 hours from yesterday to recall all its chicken and vegetable flavored instant noodles, as well as those with chili packets, from the Egyptian market, after the National Food Safety Authority declared them unfit for consumption due to the presence of aflatoxins and pesticide residues in unsafe quantities, state-owned news portal Ahram Gate reports. Indomie was also ordered to remove claims from its packaging that products contain vitamin B, iron, zinc, and calcium. The company has already recalled more than 770k products following the decision.

SO, WHEN DO WE EAT? You’ll be breaking your fast at 6:30pm CLT this evening in the capital city, and fajr prayers are at 3:42am.

FROM THE DEPT. OF GOOD NEWS- The majority of Egyptian adults are now banked. More than 56% of Egyptian adults — nearly 37 mn people — held a bank account, mobile wallet or pre-paid card at the end of 2021, up from almost 53% the year before, according to central bank figures (pdf) released yesterday. The figure has more than doubled since 2016, when just north of a quarter of over-16s owned a “transactional” account, a definition that includes bank accounts as well as Post Office savings accounts. That includes some 16 mn women — up 171% since 2016. It’s a far cry from the “two-thirds of the country is unbanked” figure that had held for a decade prior to the CBE’s financial inclusion drive.

SIGN OF THE TIMES- Nearly seven in 10 payment transactions in the Middle East and North Africa will be digital in 2023. So says the MENA Fintech Association in a new report (pdf) that anticipates the rise of cashless payments to accelerate this year and the next. Digital payments are growing at a 20% CAGR, putting them on track to surpass USD 20 bn next year, more than double what was spent digitally in 2019. The report doesn’t break out Egypt-specific figures.

Driving the acceleration: Greater smartphone adoption in the region, a growing number of young, tech-literate demographics, and the increasing numbers of POS devices and fintechs offering services like buy-now-pay-later (BNPL) and closed loop payments .

DATA POINT- Those 18% CDs are still being snapped up: Investors have now poured some EGP 600 bn into 18% CDs at Banque Misr and the National Bank of Egypt — that’s EGP 23 bn in inflows in the past seven days, according to our math. Some EGP 410 bn is in deposits at the NBE, while the remainder is parked at Banque Misr, Al Mal reports. The CDs launched last month, following the central bank’s 100-bps interest rate hike.

THE BIG STORY ABROAD this morning is the weaponization of energy in Europe, after Poland and Bulgaria announced that Russia will completely cut off gas exports to the two countries from 8am CLT today. Ukraine’s government said the move hailed the beginning of Russia’s “gas blackmail of Europe.” Moscow earlier this month said it would demand payment in RUB for its key gas exports to “unfriendly countries” (read: pretty much all of Europe). Meanwhile, concerns that the war is escalating were further stoked by reports of military attacks in a pro-Russian breakaway region of neighboring Moldova. Reuters, the Financial Times, and Bloomberg all have more.

INFLATION WATCH-

High food and energy prices are set to stick around for years, the World Bank has warned in its latest commodities report (pdf). While the medium-term outlook will hang heavily on how long war continues in major food and fertilizer exporter Ukraine, prices are set to “remain elevated” through 2023-2024 compared with the last five years, the WB says. Energy prices had more than quadrupled by March 2022 from their April 2020 low, fertilizer prices have tripled, and food prices are up 84% — leading to “major humanitarian and economic impacts and exacerbating food insecurity and inflation in many countries,” the lender writes.

ON THE BRIGHT(ISH) SIDE- Indonesia’s ban on exports of palm oil is not as comprehensive as first reported. Indonesia has clarified that its export ban on palm oil only encompasses processed products like cooking and frying oil, and not crude palm oil. Indonesia accounts for some 30-40% of the world’s supply of processed palm oil, so the restrictions will still have a major impact on the global edibles oil market — which is already reeling from the war in Ukraine — when they come into effect on 28 April, Bloomberg writes.

That’s probably not going to be a source of comfort to Egyptian firms: UN data shows that the bulk of the palm oil imported by Egyptian companies last year was not crude. Egypt is one of the largest buyers of palm oil in the world, and Indonesia accounted for almost 90% of our supply in 2020.

CIRCLE YOUR CALENDAR-

Businesses have four days left to file their corporate tax returns. Companies with financial years ending 31 December have to file their returns by Saturday, 30 April.

Also on the final day of the month: The fixed customs exchange rate introduced last month following the EGP devaluation will be lifted. Greenbacks used for importing essential items such as basic commodities and materials used for manufacturing are currently changing hands at a fixed rate of EGP 16, a move introduced to minimize exchange rate volatility in the wake of the deval.

ITIDA has begun accepting applications for its annual Export IT program: The program is designed to encourage local IT companies to boost exports while reducing related costs. Interested companies have until 31 May to send in their applications, and can check the details here.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

enterprise

*** 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: Like other infrastructure players, Egypt’s real estate sector is taking a hit from rising raw and building material prices off the back of the war in Ukraine, along with higher borrowing costs, and the Central Bank of Egypt’s decision to let the EGP slide against the USD, sources tell us. Still, developers with more advanced projects that have amassed land and inventory will likely be well positioned to absorb cost increases and recoup losses, they add — particularly over multi-year project cycles.

enterprise

Let’s Footgolf and go on an adventure. Explore a floodlit nine-hole footgolf course at Somabay Golf, the first of its kind in Egypt. Open: Friday – Monday, 6:00pm-10:00pm. For more information, visit: https://somabay.com/golf/

INVESTMENT WATCH

State puts out welcome mat for private business, looking to net USD 40 bn in investment over four years

The state wants to attract USD 10 bn in fresh investment annually over an unspecified four-year period by opening the door to “private sector participation in state-owned assets,” President Abdel Fattah El Sisi said in a televised speech yesterday at the Egyptian Family Iftar event. You can catch the full speech here: (watch, runtime: 1:00:25). El Sisi did not offer further details in the speech, which is getting wide attention in the domestic press as well as a pickup from Reuters.

The president also used the speech to direct the Madbouly government to list military-owned firms on the EGX by the end of this year. Smart money is on bottled-water maker Safi and filling station operator Wataniya, which are currently being prepared for public or private offerings before summer, Sovereign Fund of Egypt chief Ayman Soliman said earlier this week. El Sisi also wants to see the government offer for sale stakes in other state-owned companies that have no military shareholders.

LOOK FOR MORE DETAILS as early as next week after Eid: The government is set to announce its strategy to privatize state-owned firms and boost private-sector participation in the economy at a press conference after the Eid El Fitr holiday.

What to watch for: The government has previously signaled it will bring new assets to market, including fresh IPOs; sales of additional stakes in already-listed, state-controlled companies; and shares in military-owned companies — and had hoped to sell shares in as many as ten state-owned companies on the EGX in 2022, before Russia’s invasion of Ukraine upended the global economy.

ON A RELATED NOTE- The Madbouly gov’t wants state institutional investors to pour more into the EGX, particularly through pension and ins. funds, according to a cabinet statement. Prime Minister Mostafa Madbouly said the move would boost liquidity and bring more foreign investment to the bourse. The PM was quoted after meeting with EGX boss Mohamed Farid, public and private pension and ins. fund managers, and representatives of other government agencies.

What to watch for: Fund managers are set to receive guidance on how to up their EGX investments and the advantages of doing so, the statement read. Earlier this year, Sovereign Fund of Egypt (SFE) CEO Ayman Soliman said that pushing ins. funds’ investments in EGX-listed stocks to 10% could “revive” the market.

BACKGROUND- The Madbouly government has been looking for years now to sell state assets as part of a revived privatization program, but has run into obstacles including a global selloff from emerging markets (2018 and into 2019) and then covid (2020, 2021). It has managed so far to sell an additional stake in already-listed Eastern Company, the state tobacco monopoly, and successfully took fintech and payments company e-Finance to market last fall.

ALSO FROM EL SISI’S SPEECH-

  • El Sisi said he has directed the gov’t to hold a press conference on its plans to deal with the ongoing global economic crisis. Egypt has already made significant moves in response to the war’s fallout, including allowing the EGP to devalue, introducing an emergency 100 bps interest rate hike, announcing a raft of stimulus measures, bringing in support from the GCC, and reaching out to the IMF for another potential round of emergency assistance.
  • The latest local wheat harvest will cover domestic consumption for around nine months and we could reach self-sufficiency in sugar by the end of the year, El Sisi said. The government is working to maximize the local harvest after the war in Ukraine put around 80% of Egypt’s wheat imports at risk and sent global grain markets spiraling.

M&A WATCH

Swvl to acquire Turkish transit company Volt Lines

Cairo-born mass transit firm Swvl is continuing its buying spree, announcing this week an agreement to purchase Turkish firm Volt Lines in what is the company’s fourth acquisition in the past eight months.

The details: The acquisition will be executed with a mix of cash and shares, with the “vast majority” of purchase being paid for with shares linked to earnout targets, Swvl CFO Youssef Salem told Enterprise. The transaction could value Volt at almost USD 40 mn should it reach its targets in the next two or three years, he said. Salem expects the transaction to close this quarter (2Q 2022) and Swvl will follow it up with a USD 25 mn investment to expand the business’s footprint in Turkey, he added.

About Volt Lines: Founded in 2018, the company provides monthly subscriptions to employees of over 110 companies for shared bus commutes in Istanbul and Ankara. CEO Ali Halibi will remain at the company’s helm, Swvl said in the statement.

"The acquisition of Volt Lines expands on Swvl’s position as a leader of mobility solutions, with a clear [chance] to scale the platform globally. Volt Lines brings an extensive list of multinational customers that we are excited to continue to grow relationships with as we provide them with the transportation solutions they need,” Salem said in the statement.

This is Swvl’s fourth acquisition since last August, when it acquired mobility platform Shotl, a Spanish firm that operates in 10 countries including Brazil and Japan. Swvl in November took a controlling stake in transit company Viapool, which operates in Argentina and Chile, and recently entered Central Europe with its acquisition of German company Door2Door, which it expects to finalize later this quarter.

Swvl made its Nasdaq debut earlier this month after it concluded its SPAC merger with Queen’s Gambit Growth Capital. The company offered a 35% stake to investors in a sale that originally valued it at USD 1.5 bn.

Swvl’s shares are mounting a comeback after a volatile start to their life on the Nasdaq. Its stock fell almost 60% in the three weeks its debut, but has rallied over the past week and is now some 36% below its IPO price. The tech-heavy Nasdaq is itself down 23% from its most recent high — well into bear market territory — as traders pivot from growth stocks due to risk-off sentiment triggered by the war in Ukraine, inflationary pressure, and rising interest rates.

M&A WATCH

PIF subsidiary ups stake in EGX-listed Rameda + El Garhy buys Nat’l Glass and Crystal from ADIB Egypt

Saudi PIF subsidiary ups stake in Rameda: The Saudi Seventh Investment Company (SSIC) has purchased another 6.5% of Rameda Pharma, raising its total stake to 11.01%, the EGX announced (pdf) yesterday. SSIC, a subsidiary of the Public Investment Fund (PIF, KSA’s sovereign wealth fund), purchased 65 mn shares for EGP 135.2 mn on Thursday, less than two months after first investing in the company. SSIC purchased a 4.51% stake at the beginning of March as part of a block transaction with Rameda’s largest shareholder, Equinox, Rameda’s head of institutional investor relations, Yasmine Negm, confirmed to Enterprise. Negm declined to disclose who sold the shares.

PIF loves Egypt: SSIC’s latest share buy came after KSA and Egypt inked an agreement last month that would see the sovereign fund invest up to USD 10 bn in Egypt’s healthcare, education, agriculture and financial services sectors, part of a raft of support measures from our friends in the Gulf to help shore up Egypt’s fiscal position amid global volatility triggered by the war in Ukraine. As we noted yesterday, the Saudi cabinet and Shura Council have both signed off on the PIF ramping up investment here.

ADIB Egypt sells National Glass and Crystal Co. to El Garhy Steel

A subsidiary of El Garhy Steel has acquired a majority stake in the National Glass and Steel Co. from ADIB Egypt, according to a regulatory filing (pdf). Garhy Steel unit El Wehda Industrial Development bought around 13.3 mn shares at EGP 2.25 per share for a total of EGP 30 mn, Al Borsa reports, citing EGX trading data. ADIB announced plans to offload its 88.3% stake in the glassmaker earlier this year.

El Wehda upped its offer: El Wehda had submitted a mandatory tender offer to buy 100% of the National Company for Glass and Crystal at EGP 1.35 per share, before upping its offer in the face of competition. ADIB received an offer from another firm — identified by local media as Kandil Steel — of EGP 2.40 per share. The Emirati bank will make up the EGP 0.15 difference for any minority shareholders who wish to exercise their option to also sell their shares to El Garhy, it said.

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STARTUP WATCH

Saudi’s Foodics closes largest-ever SaaS series C round in Mideast

Saudi food startup closes blockbuster series C round: Saudi restaurant management platform Foodics has raised USD 170 mn in the biggest software-as-a-service (SaaS) series C funding round in the MENA region, it said in a press release last Wednesday. The round was led by global tech investor Prosus and Sanabil Investments, an investment company owned by the Saudi sovereign wealth fund. Foodics also received backing from Sequoia Capital India and existing investors including STV, Endeavor Catalyst, and Vision Ventures.

Where the money’s going: The funding will back the platform’s international expansion and help finance acquisitions to deepen its market penetration, the company said. It is also looking to launch new fintech, micro-lending and supply chain management services, as well as “non-food micro-retail outlets.”

EARNINGS WATCH

Etisalat Misr revenues up 15% on subscriber growth in 1Q 2022

Mobile network operator Etisalat Misr reported revenues of AED 1.3 bn (c. EGP 6.55 bn) in 1Q 2022, up 15% from the same quarter last year, according to parent company e& (etisalat and)’s earnings release (pdf). Top line growth was mainly driven by an increase in subscribers and mobile data and voice revenues.

The company’s subscriber base in Egypt grew 6% y-o-y to reach 28.1 mn. Egyptian users accounted for almost 20% of the company’s total subscribers at the end of the quarter.

Etisalat Misr spent AED 0.3 bn (c. USD 82 mn or EGP 1.5 bn) acquiring spectrum in 1Q, according to the release. The company bought 40 MHz of new bandwidth from the National Telecommunications Regulatory Authority (NTRA) in February for an undisclosed sum. In total, Etisalat Misr more than tripled its capex to AED 600 mn, including new spending on 4G and network capacity.

Across the entire group: e&’s revenues inched up 0.8% y-o-y to AED 13.3 bn in line with the company’s 2022 guidance. Strong performance in the UAE and Egypt helped to offset “unfavorable exchange rates” in Egypt, Pakistan and Morocco, which the company said had “impacted” 1Q revenues. The results are a “testament to the effectiveness” of the company’s operations, Group CEO Hatem Dowidar said.


Private equity firm B Investments’ net income fell 63% in 2021 to EGP 105.3 mn, according to the company’s consolidated financial statements (pdf). Revenues dropped 56% to EGP 162.7 mn during the year.

MOVES

Moharram & Partners joins US-Egypt Business Council as vice-chair

Our friends at public policy firm Moharram & Partners have been tapped as one of the vice-chairs of the US-Egypt Business Council (USEBC) according to a statement (pdf). Bechtel, BP, and PepsiCo are also vice-chairs on the council, which is chaired by oil producer Apache. Moharram & Partners, founded by Moustafa Moharram (who also acts as CEO), specializes “in all aspects of political/policy risk analysis, public policy, government relations, and strategic corporate communications in the Middle East and Africa.” Moharram said the firm aims to drive “stronger trade and foreign direct investment relationships between our two nations.” In the same statement, USEBC Executive Director Steve Lutes noted that M&P is a “platinum sponsor of the USEBC centennial celebration.”

What’s USEBC? Founded in 1979 by President Anwar Sadat and and US President Jimmy Carter, the USEBC calls itself “​​the leading advocacy organization representing America’s top companies doing business in Egypt.”

enterprise

LAST NIGHT’S TALK SHOWS

President Abdel Fattah El Sisi’s speech at the “Egyptian family iftar” dominated the airwaves last night. El Sisi used the speech (watch, runtime: 1:00:25) to signpost a few key priorities for the country looking forward, including plans to boost the role of the private sector in state-owned enterprises. We have all the details in the newswell, above.

EGYPT IN THE NEWS

Human rights is getting more attention: The AP reports that several political activists, journalists and lawyers have been released from detention as part of the government’s pre-Eid amnesty, which saw more than three dozen prisoners freed. Meanwhile, Human Rights Watch wants late economist Ayman Hadhoud’s autopsy to be made public to allow for further investigation from independent forensic experts to determine whether he was tortured in custody.

Restoration and preservation are also trending in the international press this morning: Egyptian volunteers are reviving Egypt’s Jewish heritage, Haaretz reports. Meanwhile, this Associated Press photo essay documents car enthusiast Mohamed Wahdan’s work to restore vintage cars to their former greatness. And archaeologists have uncovered the remains of a temple to Greek god Zeus in the Tell el-Farma archaeological site in northwest Sinai, say the AP and Xinhua.

WATCH THIS SPACE- The planned demolition of a large part of Cairo’s oldest cemetery, the City of the Dead, to make way for a flyover bridge linking central Cairo to the new administrative capital, receives criticism from both historians and Egyptians with ancestors buried in the area. Photographer Heba Khamis’ accompanying images are fantastic. (New York Times)

Also making headlines:

  • The gig economy is providing jobs but at what cost? Delivering more than 1 mn orders a day, workers are being “bled dry left and right,” one driver says. (AFP)
  • Former MP sent to prison for smuggling antiquities: An Egyptian court has sentenced former MP Alaa Hassanein and four others to 10 years in prison for smuggling antiquities, while 18 others, including businessman Hassan Rateb, were sentenced to five years. (Associated Press)
  • Can Cairo become a safe haven for Russian oligarchs? The Nidaa Masr party is urging the government to follow in Dubai’s footsteps and welcome Russian b’naires to Egypt so the country can benefit from their exile from Western markets. (Al Monitor)

ALSO ON OUR RADAR

The Madbouly government is in talks with an international automaker to produce vehicles to replace tuk-tuks, Public Enterprises Minister Hisham Tawfik said last week, without providing further details. Industry observers are closely watching to see what class of vehicles (and which incentives) the government authorizes to replace tuk-tuks, which largely serve peri-urban areas with streets too narrow or congested for standard four-wheeled vehicles.

ALSO- Automotive industry players are still waiting for news of the so-called “automotive directive” — a long-in-the-works package of incentives and regulations designed to spur investment in vehicle assembly and manufacturing in Egypt. Our Inside Industry vertical, presented in association with our friends at IDG, had a deep dive last month into what you can expect.

MEANWHILE- ABB will soon open an EGP 180 mn factory in Tenth of Ramadan City that will manufacture components for electric trains. It will source up to 40% of its components from local suppliers, and sell some 25% of its products to the local market. (Al Mal)

AND- Cabinet approved amendments to the Anti-Money Laundering Act that would see an independent money laundering and terrorist financing unit set up at the Central Bank of Egypt. (Statement)

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

  • Cabinet approved a USD 373 mn funding agreement with the Arab Monetary Fund to support the government in overcoming the effects of the covid pandemic, and a USD 60.6 mn financing agreement from the South Korean government to upgrade the signaling systems on the Luxor-High Dam railway line. (Statement)
  • Banks opened letters of credit worth USD 11.6 bn in the six weeks since 1 March, when the CBE’s new rule requiring businesses to use L/Cs to import goods came into effect. (AMAY)
  • The 2016 crash of Paris-Cairo EgyptAir flight MS804 was the result of a fire sparked by a cigarette, according to a report conducted by French aviation experts that Italian paper Corriere della Sera claims to have seen. British newspaper the Telegraph also has the story.
  • German development bank KfW has agreed to lend us EUR 26 mn to finance the renovation of hydropower stations in Aswan. (Statement)
  • The Women Entrepreneurs Finance Initiative (We-Fi) has allocated USD 15 mn to the African Development Bank to extend digital services and training to women-owned SMEs in Egypt, Cameroon, Kenya, Mozambique and Nigeria. (Statement)

PLANET FINANCE

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Earnings season + Musk’s Twitter bid drive Wall Street losses: US stocks extended their April losses yesterday on the back of falls in big tech firms and continued angst over inflation and heightened covid restriction in China, the Wall Street Journal writes. Shares in Microsoft and Google owner Alphabet both dropped following the release of their 1Q earnings — but the biggest loser of the day was electric carmaker Tesla, which fell over 12% to knock some USD 110 bn off the electric carmaker’s valuation, the Financial Times reported. The drop comes as investors fret that Tesla boss Elon Musk will need to sell a major stake in his firm to raise liquidity for his planned takeover of Twitter in a USD 44 bn, all-cash transaction. The S&P 500 dropped 2.8%, while the tech-heavy Nasdaq lost around 4% to see its lowest close since late 2020.

ALSO- HSBC income hit by Ukraine war, China property crunch: HSBC’s pre-tax earnings fell 28% y-o-y in 1Q 2022 after reporting almost USD 650 mn in expected credit losses from exposure to Russia and China. The bank said further stock buybacks — after USD 3 bn in buybacks unveiled over the last two quarters — would be “unlikely” for the rest of the year. The story is getting wide pickup in the global financial press, including Bloomberg. (Earnings release, pdf)

BREXIT, SHMEXIT- London was 2021’s top city for foreign investment in finance: The UK capital attracted GBP 600 mn into 114 financial and professional services projects in 2021, according to a report published by the City of London Corporation, putting it ahead of Dubai and Singapore, which came in second and third place, respectively. (Report)

Up

EGX30

10,682

+1.3% (YTD: -10.6%)

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USD (CBE)

Buy 18.46

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Buy 18.47

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None

Interest rates CBE

9.25% deposit

10.25% lending

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13,503

-0.3% (YTD: +19.7%)

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10,041

-0.0% (YTD: +18.3%)

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3,666

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4,175

-2.8% (YTD: -12.4%)

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7,836

+0.1% (YTD: +0.0%)

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3,721

-1.0% (YTD: -13.4%)

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USD 104.99

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USD 6.82

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USD 1,907.20

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BTC

USD 38,320

-4.8% (as of midnight)

THE CLOSING BELL-

The EGX30 rose 1.3% at yesterday’s close on turnover of EGP 708 mn (22% below the 90-day average). Foreign investors were net buyers. The index is down 10.6% YTD.

In the green: AMOC (+5.4%), EFG Hermes (+4.9%), and Abu Qir Fertilizers (+4.9%).

In the red: Fawry (-6.8%), MM Group (-4.9%) and Cleopatra Hospital (-4.4%).

Major Asian benchmarks are solidly in the red at dispatch time, with the Nikkei leading the decline (-1.8%), followed by Seoul’s Kospi (-1.1%). European benchmarks and the TSX Composite are set to follow suit later today at the opening bell, while futures suggest Wall Street could buck the trend.

DIPLOMACY

USAID’s Samantha Power, Al Mashat discuss food security, COP27: USAID wants to help Egypt mitigate the impact of rising food prices amid war in Ukraine, agency administrator Samantha Power told International Cooperation Minister Rania Al Mashat during talks on Monday, USAID said in an official statement. The two sides also discussed Egypt's preparations to host the COP27 climate summit and human rights.

“Egypt condemned the incursion of the Israeli occupying forces into Al Aqsa Mosque and called for respecting the status quo in East Jerusalem” in a UN Security Council meeting yesterday, Egypt's Permanent Representative to the UN Osama Abdel Khalek said in a tweet. Tensions have been running high in the Israeli-Palestinian conflict in recent weeks amid a spate of clashes at Jerusalem’s Al Aqsa mosque.

hardhat

How are Egypt’s real estate developers being impacted by inflation and the recent devaluation of the EGP? Egypt’s infrastructure players are being squeezed by rising raw and building material prices, higher borrowing costs, and the Central Bank of Egypt’s (CBE) 21 March decision to let the EGP slide against the USD, we reported recently. Today, we talk to some of the country’s leading real estate developers to understand how the sector is being impacted. They tell us they’re taking a hit from the significant price hikes, but that players with projects at a more advanced stage — and those that have amassed land and inventory — are relatively well placed to absorb increases and recoup losses over the course of multi-year project cycles.

Many key materials have seen costs soar since war broke out in Ukraine: Within the last two months, key building supplies and materials have seen cost increases of anything from 15-40%, MNHD CEO Abdallah Sallam tells Enterprise. Steel rebar — which accounts for almost 10% of a developer’s construction budget — has jumped to an estimated EGP 20-22k per ton, from EGP 14-15k, ORA Developers CEO Haitham Mohamed tells us. Cement has doubled in price to EGP 1.5-1.6k per ton, from EGP 800. Aluminum has almost tripled to over EGP 120k per ton, from EGP 43k, and steel rebar has increased to EGP 20k per ton, says O West CEO Tarek Kamel.

This inflation is both a local and global phenomenon: When we look at cost increases, steel prices can be used as a benchmark because they impact everything, RedCon Construction Vice Chairman Tarek El Gamal tells Enterprise. Steel price increases in Europe are within the same range as what we’re seeing in Egypt, he adds.

But with the recent EGP devaluation, Egyptian developers are facing an extra hit: The EGP has slid around 17% against the USD since last month’s devaluation, says Kamel. And though many real estate construction materials are sourced locally, all have some level of FX exposure. For example, cement — for which there are several local manufacturers — is significantly exposed to global energy prices, with soaring coal prices alone accounting for some 50% of the increase in cement prices, industry players told us previously.

FX rate changes, supply shortages and general panic have all played a role in driving inflation, says Kamel. The war in Ukraine brings fundamental supply shortages, with Russia and Ukraine being key suppliers of raw materials used in steel production, says El Gamal. Not all materials are in equally short supply, but shortages are being seen everywhere, says Sallam. The war caused a chain reaction that hit multiple areas — tourism, wheat, Egypt’s ability to import goods — in a very short period, before the additional shock of the devaluation. “If it was just one factor, rather than this whole combination, it could have been a bit easier to hedge or digest without the dramatic effects in the market,” he adds.

Uncertainty about supply chain creates its own vicious cycle: A big chunk of the price increase in raw materials is driven by uncertainty, says Kamel. After the war ends, there will likely be a backlog of demand, and no one knows how quickly factories will recover and begin supplying goods again, he adds. And this is all very normal given that the market is facing devaluation and inflation so soon after facing covid, notes Mohamed. “You still have excess demand and low supply. But this will stabilize in a couple of years,” he predicts.

So are these increased costs hitting margins? While answers vary, the overall consensus is “yes”: “If we don’t do anything, cost increases will definitely impact our margins,” says Sallam. “But we’re trying to take some measures [to reduce the impact].” RedCon is already feeling the hit to its margins, says El Gamal. “We’re revisiting our studies to see how to face this kind of spike in costs and absorb it in different ways,” he adds.

Meanwhile, contractors are don’t have clarity on where raw materials prices are heading, making it difficult for them to commit to pricing during what most in the industry hope is simply a messy transition period.

But developers also note that factors like the status of projects will affect the size of the hit — so the impact on individual firms varies greatly: “In my specific case, for O West, the impact isn’t big — and the main reason for this is that we’ve already awarded the biggest chunk of our units to contractors, so development and construction are already happening,” says Kamel. “But this might vary from one developer to another, based on project status. High sales with little awarding and contracting is high-risk, while awarding and contracting in parallel with selling is almost no risk,” he adds.

This is closely linked to the developer’s financial capability, Kamel continues. A developer with shaky finances has to keep selling, to collect money and then award to contractors, whereas developers with solid financials can sell and award simultaneously, to an extent, he notes.

Companies that have amassed land and inventory — which are typically larger players — are often in a better position to absorb extra costs and recoup losses, several sources note. Projects that already have their infrastructure in place are at an advantage compared to ones that don’t, notes Kamel. A project that’s been there for a few years has probably sourced a lot of its material already, and has plenty in stock, he adds.

This is crucial, because land in particular is poised to get a whole lot more expensive: Land normally appreciates by 10% annually, but developers buying new land will definitely find it substantially affected by inflation, notes Mohamed.

But ultimately, developers need to look at average costs over several years to assess how their margins could be impacted: Adopting a medium to long-term view, Mohamed believes that cost increases will be absorbed so that, on average, margins won’t be affected over a period of several years. But possible caps on price hikes could limit how much developers could increase prices within a single year, he notes. “I’m expecting to take a hit in 2022, but we can overcome this in 2023 and 2024 because prices will increase more than normal. So margins will go back to normal,” he says.

This kind of hedging is a fundamental part of the industry, El Gamal notes. “The nature of our industry is that it takes years to build our products, so we’re always looking at averages,” he says.

Keep an eye out for part two, wherein we look at what steps real estate developers are taking to mitigate the short-term fallout from raw material cost increases and the devaluation, and whether project deliverability is being impacted.


Your top infrastructure stories for the week:

  • Egypt signs major agreements to produce green energy in the SCZone: Egypt signed agreements with French energy giant EDF Renewables and Emirati energy firms AMEA Power and Masdar to build plants producing green forms of energy including hydrogen and ammonia
  • US conglomerate Honeywell wants to invest USD 200 mn in petrochemicals and the production of green aricraft fuels in Egypt, saying our location could see us become a pivotal center linking Europe to the Middle East in green fuel projects.
  • Egypt is mulling establishing a local fleet of bulk carrier ships and auxiliary units to transport Egyptian exports and imports, according to a statement by the Transport Ministry.
  • Mokattam Corniche will get a new look: State-owned El Nasr Housing has signed an agreement with engineering firm Scope International for the EGP 32 bn development of Mokattam Corniche, according to a cabinet statement.

CALENDAR

OUR CALENDAR NOW APPEARS in two sections:

  • Events with specific dates or months are right here up top
  • Events happening in a quarter or other range of time with no specific date / month appear at the bottom of the calendar.

APRIL

April: Ghazl El Mahalla shares will begin trading on the EGX.

April: A delegation from a major Belgian shipping company will arrive for talks on building an international shipping supply center in Egypt.

30 April (Saturday): Deadline for submitting corporate tax returns for companies whose financial year ends 31 December.

30 April (Saturday): Fixed customs exchange rate lifted.

30 April – 5 May (Saturday-Thursday): National holiday in observance of Labor Day and Eid Al Fitr.

Late April through 15 May: 1Q2022 earnings season

MAY

May: Investment in Logistics Conference, Cairo, Egypt.

May: General Authority for Land and Dry Ports to issue the conditions booklet for the tender to establish and operate the Tenth of Ramadan dry port.

1 May (Sunday): Labor Day.

1 May (Sunday): Suez Canal Authority raises tolls for different vessels.

2 May (Monday): Eid Al Fitr.

3-4 May (Tuesday-Wednesday): Federal Reserve interest rate meeting.

4 May (Wednesday): 3 February (Thursday): Deadline to send in applications for Cultural Property Agreement Implementation projects to the US Embassy in Cairo.

10-12 May (Tuesday-Thursday): EBRD Annual Meeting and Business Forum, Marrakesh, Morocco.

15 May (Sunday): Last day for EGX-listed companies to file 1Q2022 earnings

19 May (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

19 May (Thursday): EFG Hermes’ general shareholders’ meeting to discuss, among several things, a capital increase of EGP 973 mn to finance the distribution of bonus shares to the company’s minority shareholders.

25 May (Wednesday): The deadline for private companies to pre-register ahead of bidding for the second phase of the PPP national project to establish and operate 1k language schools.

31 May (Tuesday): The application deadline for ITIDA’s annual Export IT program.

JUNE

5-7 June (Sunday-Tuesday): Africa Health ExCon, Al Manara International Conference Center, Egypt International Exhibitions Center, and the St. Regis Almasa Hotel, New Administrative Capital.

9 June (Thursday): European Central Bank monetary policy meeting.

14-15 June (Tuesday-Wednesday): Federal Reserve interest rate meeting.

15-18 June (Wednesday-Saturday): St. Petersburg International Economic Forum (SPIEF), St. Petersburg.

16 June (Thursday): End of 2021-2022 academic year for public schools.

21-22 June (Tuesday-Wednesday): Aswan Forum for Sustainable Peace and Development, Cairo.

23 June (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

27 June-3 July (Monday-Sunday): World University Squash Championships, New Giza.

30 June (Thursday): June 30 Revolution Day, national holiday.

30 June (Thursday): Deadline for bids for National Democratic Party HQ redevelopment contract.

JULY

July: A law governing ins. for seasonal contractors will come into effect.

July: Fuel pricing committee meets to decide quarterly fuel prices.

Early July: Polish President to visit Egypt.

1 July (Friday): FY 2022-2023 begins.

1 July (Friday): Official rollout of e-receipt system begins.

8 July (Friday): Arafat Day.

9-13 July (Saturday-Wednesday): Eid Al Adha, national holiday.

21 July (Thursday): European Central Bank monetary policy meeting.

26-27 July (Tuesday-Wednesday): Federal Reserve interest rate meeting.

30 July (Saturday): Islamic New Year.

Late July – 14 August: 2Q2022 earnings season.

AUGUST

August: Work to extend the capacity of the Egypt-Sudan electricity interconnection to 600 MW to be completed.

18 August (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

SEPTEMBER

September: Egypt will display its first naval exhibition with the title Naval Power.

September: Central Bank of Egypt’s Innovation and Financial Technology Center to launch incubator for 25 fintech startups.

8 September (Thursday): European Central Bank monetary policy meeting.

18 September (Sunday): Deadline for brokerage firms, asset managers and financial advisors to register with the Egyptian Securities Federation.

20-21 September (Tuesday-Wednesday): Federal Reserve interest rate meeting.

22 September (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

OCTOBER

October: World Bank and IMF annual meetings in Washington, DC

October: Fuel pricing committee meets to decide quarterly fuel prices.

1 October (Saturday): Use of Nafeza becomes compulsory for air freight.

6 October (Thursday): Armed Forces Day, national holiday.

8 October (Saturday): Prophet Muhammad’s birthday, national holiday.

18-20 October(Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria, Egypt.

27 October (Thursday): European Central Bank monetary policy meeting.

Late October – 14 November: 3Q2022 earnings season.

NOVEMBER

November: Cairo Water Week 2022.

1-2 November (Tuesday-Wednesday): Federal Reserve interest rate meeting.

3 November (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

4-6 November: The Autotech auto exhibition kicks off at the Cairo International Exhibition and Convention Center.

7-18 November (Monday-Friday): Egypt will host COP 27 in Sharm El Sheikh.

21 November-18 December (Monday-Sunday): 2022 Fifa World Cup, Qatar.

13-14 December (Tuesday-Wednesday): Federal Reserve interest rate meeting.

15 December (Thursday): European Central Bank monetary policy meeting.

DECEMBER

22 December (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

JANUARY 2023

January EGX-listed companies and non-bank lenders will submit ESG reports for the first time.

January: Fuel pricing committee meets to decide quarterly fuel prices.

EVENTS WITH NO SET DATE

1H2022: Target date for IDH to close its acquisition of 50% of Islamabad Diagnostic Center.

1H2022: e-Finance’s digital healthcare service platform, eHealth, will launch its services.

1H2022: The government will respond to private companies’ bids to build desalination plants.

1H2022: Egypt’s second corporate green bond issuance expected to be announced.

14 March-30 June: The “Escape to Egypt” exhibition at the Coptic Museum, in celebration of its 112th anniversary.

2Q2022: The Sovereign Fund of Egypt will invest in two companies in the financial inclusion and non-banking financial services sectors.

End of 2Q2022: The Financial Regulatory Authority’s new Ins. Act should be approved.

End of 2Q2022: Door for bidding for the contract to redevelop the site of the former National Democratic Party HQ to close.

End of 1H2022: Emirati industrial company M Glory Holding and the Military Production Ministry will begin the mass production of dual fuel pickup trucks that can run on natural gas.

2H2022: The inauguration of the Grand Egyptian Museum.

2H2022: IEF-IGU Ministerial Gas Forum, Egypt. Date + location TBA.

2H2022: The government will have vaccinated 70% of the population.

3Q2022: Ayady’s consumer financing arm, The Egyptian Company for Consumer Finance Services, to release its first financing product.

End of 2022: e-Aswaaq’s tourism platform will complete the roll out of its ticketing and online booking portal across Egypt.

2023: Egypt will host the Asian Infrastructure Investment Bank’s Annual Meeting of the Board of Governors in 2023.

**Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish above between the actual holiday and its observance.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

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