AM — Madbouly to make major economy announcement as early as today

Good morning, everyone, and welcome to a news day that is all about what the fallout from Vladimir Putin’s war in Ukraine means to us. The Madbouly government is expected to hold a presser today on how it is facing down the economic impact of the war. This comes as inflation continued to damen business activity in April and as the government works overtime to source key commodities including wheat.

We have coverage of all of this and more in this morning’s news well and our roundup of Last Night’s Talkshows, below.

PSA- It’s going to be hot today. Look for the mercury to hit about 35°C today in the capital city and 28°C in Alexandria.

WHAT’S HAPPENING TODAY-

Can we expect a major policy announcement from the PM today? Cabinet told us yesterday to expect a press conference from Prime Minister Moustafa Madbouly at the beginning of this week to announce new details of the state’s response to the economic turmoil caused by Russia’s war in Ukraine.

Infrastructure, energy, health, education and the digital transformation top the list of sectors to which cabinet wants to attract fresh foreign and domestic investment through what it called “urgent measures.” The PM signaled last month that the government would announce a strategy to privatize state-owned firms and boost private-sector participation in the economy after Eid.

The Sisi administration has put privatization front and center of its policy agenda in recent days. In a pre-Eid address, President Abdel Fattah El Sisi said his administration will use privatization to unlock USD 40 bn in fresh investment from the private sector over the next four years, and urged the government to IPO several military-owned firms on the EGX before the end of the year. On Saturday, Public Enterprises Minister Hisham Tawfik said that the government will resume its privatization program in September. The government originally aimed to sell shares in up to 10 companies this year before the war in Ukraine upended global markets.

All of this comes as we remain in talks with the IMF for a new assistance package. Removing barriers to private-sector involvement in the economy has been one of the IMF’s key concerns during previous loan talks. Further reforms designed to make life easier for the private sector are key as the government pushes for a third program in six years.

ALSO- We have more PMIs landing this morning, with figures for Saudi Arabia and the UAE out by 6:15am CLT (you can find the reports here). Data from Qatar will be published tomorrow.

SMART POLICY- The FRA is going to be working an extra hour each day. The Financial Regulatory Authority (FRA) is officially operating nine hours a day as of yesterday in what it says is a bid to life easier for non-banking financial services companies. The FRA’s workday will now end at 5pm CLT. (Statement)

FOR TOMORROW-

Inflation figures for April are due out tomorrow: Consumer prices accelerated at their fastest rate in almost three years in March as the spillover effects from the war in Ukraine fed through to the Egyptian economy. With commodity prices still feeling the effects of the conflict, the devaluation of the EGP, and the traditional Ramadan inflationary hit, we’re not expecting the figures to have been any better in April.

MORNING MACRO-

Egypt’s foreign reserves inched up to USD 37.12 bn at the end of April, from USD 37.08 a month earlier, according to central bank figures out yesterday. FX reserves declined in March for the first time since the early days of the pandemic as the central bank deployed funds to cover portfolio outflows and imports in response to what it said were “massive sell-offs” in emerging markets triggered by the conflict in Ukraine.

FOR OUR FELLOW WORD NERDS- If you think English was quirky, you’ve never tried to decipher Old English, the branch of the language brought to Britain by settlers from northern Germany and Scandinavia in the fifth century. Hana Videen is one of the few people who understand Old English outside of college settings — she’s been posting a word a day on her Twitter for years and has now published The Word Hord, billed as “an entertaining and illuminating collection of weird, wonderful, and downright baffling words from the origins of English.” Videen’s book gets a nice notice this morning in the Wall Street Journal.

THE BIG STORY ABROAD-

A school bombing and an oil ban will mark Russia’s WW2 Victory Day: Today’s celebrations in Russia of victory against Nazi Germany is being juxtaposed by its ongoing war in Ukraine, which as the foreign press notes will be held one day after Russian forces were accused of bombing a school and G7 countries reiterated their resolve to ban imports of Russian oil. Everyone from Reuters and the AP to Bloomberg and the Washington Post has coverage.

Spooks, politicians and business leaders alike will be paying attention to Moscow’s Red Square later today as Vladimir Putin presides over the traditional military parade marking the occasion. Pundits believe Putin will use the occasion to rattle his saber at the west — and hint at what could be next in the war in Ukraine. The story is getting plenty of attention in the global business press, from the Wall Street Journal to Reuters.

MARKET WATCH-

You can practically hear the bears salivating at the prospect that the techapocalypse could gain steam and further savage listed equities. More and more US startups are trimming staff, scaling back spending, and looking up the word “profit” on Investopedia, as we’ve noted in recent days. Public market investors are now wondering “whether technology companies are set for a deep retrenchment or if growth is simply slowing from pandemic highs,” the Wall Street Journal writes in The tech industry’s epic two-year run sputters.

Saudi Aramco is cutting prices for the first time in four months: Saudi Arabia has lowered oil prices for June shipments to Asia as covid lockdowns in China hit demand, according to Bloomberg. The state-owned company will sell its Arab Light crude grade at USD 4.40, down from USD 9.35 in May. Aramco also lowered the price of almost all grades for buyers in the Mediterranean and north-west Europe, though prices for US buyers remained unchanged. Saudi oil prices reached record levels in the past two months after prices surged on the back of the Russia-Ukraine war.

LIVE FROM PLANET STARTUP-

Eight Egyptian startups are among top 45 African firms long-listed for the first edition of the AfricaTech awards, launched by VivaTech in partnership with the International Finance Corporation (IFC), according to a press release from VivaTech. The program showcases startups in fintech, health tech, and climate tech, with 15 businesses chosen from each sector from over 300 applications.

Who’s in the running? Bekia | BokDoc | Chefaa | Farmtopia | Neqabty | Seavo | SUNPave | Welnes.

Egypt was among African countries showing the highest participation rates, the statement added. The final winners — one in each category — will be announced between 15-18 June in Paris.

CIRCLE YOUR CALENDAR-

A huge US “GreenTech business mission” is inbound next week. More than 40 US companies will be in Egypt during 15-17 May to kick the tires on green investment and potential business partnerships in sectors ranging from energy to healthcare, agriculture, aviation, construction and water resource management. The high-level delegation will meet with members of the business community and senior government officials.

The Central Bank of Egypt will meet to review interest rates on Thursday, 19 May.

The last of this season’s earnings releases will drop by 31 May after the Financial Regulatory Authority granted listed companies a two-week deadline extension.

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

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed. Blackboard appears every Monday in Enterprise in the place of our traditional industry news roundups.

In today’s issue: As inflation rears its head, what’s the future of the tuition fee cap for private schools? Since 2019, private schools have faced a more stringent cap on tuition fee hikes after parents lobbied the Education Ministry to put a stop to what they said were unfair increases. Private providers are now only allowed to raise prices by 7% each year, down from 14% previously. Fast forward three years and the cap is still in place, but private schools are facing greater cost pressures as inflation rises and the EGP falls. Today, we look at how schools are responding to the costs without raising tuition beyond 7% — and whether a policy change could be on the table.

Egypt’s non-oil private sector continued to contract in April, buffeted by inflation that has been turbocharged by the war in Ukraine as well as by falling demand, according to the S&P Global purchasing managers’ index survey (pdf). Business activity contracted at a slightly slower pace during the month, with the index inching up to 46.9 from 46.5 in March — but remaining below the 50.0 mark that separates expansion from contraction. The index reflected “a solid deterioration in business conditions” that was the second-fastest in almost two years.

November 2020 seems a long time ago: This is the 17th consecutive month Egypt’s non-oil private sector has been in contraction since mounting a brief recovery from the shock of covid in 2020.

What they said: “Non-oil business activity in Egypt continued to fall sharply in April as businesses faced a further increase in material and energy costs due to the war in Ukraine and a devaluation of the EGP in late-March,” said S&P Global economist David Owen.

Inflation remains key: “Despite softening marginally, the rate of overall input price inflation was strong and remained above the average seen in 2021,” S&P Global said. Inflation almost doubled during 1Q 2022, reaching a near three-year high of 10.5% in March.

Employment saw its sharpest drop in a year, with firms holding back from making new hires as rising prices dented client demand.

Manufacturers continue to bear the brunt of adverse conditions: “Manufacturers remained the most exposed to these setbacks, with increased raw material prices and supply shortfalls leading to a solid cut in goods production.” Wholesalers and retailers also continued to feel the strain.

On the bright side: Construction activity and new work increased for the first time this year.

The outlook: more of the same. While confidence picked up from an all-time low in March, businesses expect price and supply issues to persist as the war continues, “resulting in another relatively downbeat outlook for business activity," Owen said.

The foreign press is taking note: Reuters covered the latest PMI release.

The Finance Ministry will set oil prices at USD 80 a barrel in the FY 2022-2023 budget, according to a document seen by Bloomberg Asharq, coming in at the bottom range of the USD 80-85 a barrel range signaled by Vice Minister of Finance Ahmed Kouchouk last month.

This is significantly higher than last year — but below some analysts’ expectations: The current FY 2021-2022 budget had assumed an average Brent crude price of USD 60 but we’re currently paying almost double that thanks to the supply squeeze brought on by war in Ukraine. Brent is now trading at more than USD 112, up 45% from the start of the year, and some analysts are expecting it to remain above USD 100 a barrel for the remainder of this calendar year as the spillover effects from the Ukraine conflict continue to weigh on an already tight market.

We’ll also be spending a lot more on fuel subsidies: The government is also upping its petroleum product subsidy spend by more than 50% to EGP 28 bn, up from this year’s EGP 18.4 bn.

The gov’t is expecting the int’l wheat markets to calm slightly: Next year’s budget assumes an average price of USD 330 per ton of wheat — substantially higher than the USD 255 per ton in this year’s budget, but lower than current prices after Russia’s war blocked Ukrainian exports. The government in early March said rising wheat prices would cost it an additional EGP 15 bn this fiscal year, penciling in the cost at around USD 350 per ton. US wheat futures rose back above USD 11 per bushel last week, and are up 45% since the start of the year.

No plans to significantly adjust food subsidy spending: The government is expecting to spend some EGP 90 bn on food subsidies next fiscal year, compared with EGP 87.2 bn this fiscal year. Plans to overhaul Egypt’s costly bread subsidy system have been put on hold after the price of the food staple rose sharply in March, forcing the government to step in with price caps on unsubsidized bread.

Rising wheat prices are forcing Egyptian companies to get inventive

Wheat alternatives gain traction among local food producers looking to cut costs: Egyptian pasta-maker Egyptian Swiss Group — the maker of pasta brands Zeina and Rawaa — is “experimenting” with rice, corn, and lentil flours as a substitute for wheat, as the war in Ukraine continues to drive price inflation for the grain, Bloomberg reports.

“The price is the name of the game,” Egyptian Swiss Group General Manager Ahmed El Sebaie was quoted as saying. The food manufacturer joins firms across Africa exploring local alternatives to imported wheat, which has become around 40% more expensive so far this year.

State grain buyer GASC has purchased around 13% less wheat so far this year compared with the same point in 2021, according to Bloomberg. Egypt usually sources some 80% of its wheat imports from Russia and Ukraine, but the government has pivoted to focus on the local harvest amid the price spike.

The Madbouly government wants to bring Egypt’s debt-to-GDP ratio down to 84% in FY 2022-2023, according to a document seen by Bloomberg Asharq. This is the first time the debt target for next fiscal year has been revised since the Finance Ministry in January said it hoped to bring the public debt down to below 90% of GDP. Egypt’s debt-to-GDP ratio is expected to come in at around 85% this year.

Revenue forecasts have also been revised upwards: The state is now expecting to bring in EGP 1.52 tn in FY 2022-2023, up from a previously expected EGP 1.45 tn — and more than 10% above projected revenues for the current fiscal year.

This ties in with state plans to bring down the debt: In a speech before the Eid break, President Abdel Fattah El Sisi said his administration would announce a plan to reduce public debt and the budget deficit over the next four years, without specifying when to expect the announcement.

OTHER KEY FIGURES- The government is still targeting a 6.1% budget deficit next year, down from a projected 6.2% by the end of this fiscal year, and a primary surplus of 1.5%, up from an expected 1.3% by the end of this fiscal year, Bloomberg Asharq reports. Government spending is also still set to rise 12% next year to reach EGP 2.07 tn. Growth for next year is penciled in at 5.5% of GDP.

FinMin releases fresh 2021-2022 figures

A primary surplus in 9M 2021-2022: Fresh fiscal data released by the Finance Ministry has shown that Egypt generated a 0.4% primary surplus in the first nine months of the fiscal year, remaining more or less unchanged from the same period last year. Egypt hopes to achieve a 1.3% surplus by the end of the fiscal year in June, down slightly from its original 1.5% target in the state budget.

Deficit narrows: The budget deficit narrowed to 4.9% of GDP during the nine-month period, from 5.4% in 9M 2020-2021. The government is forecasting the deficit to fall to 6.2% of GDP by the end of the current fiscal year from 7.4% last year.

Revenues + spending rise: Revenues rose almost 8% during the July-March period from the year before thanks to a 13% increase in tax receipts. This was outpaced by a growth in spending, which rose almost 10% thanks to the government’s higher wage bill, a rise in debt servicing costs and increased spend on goods and services.

FinMin needs at least another EGP 6 bn for debt repayments: The House Budget Committee has approved legislative amendments that would unlock an extra EGP 6 bn to help Egypt meet its debt repayments as interest rates rise at home and abroad, Youm7 reports.

But that’s not likely going to be enough: It doesn’t appear that the Finance Ministry was prepared for the Federal Reserve to be quite as hawkish with its tightening cycle, penciling in a quarter-point rate hike instead of the 50-bps increase we saw last week. A Finance Ministry official said at the committee meeting yesterday that the amendment was drafted before the Fed’s decision. This leaves the ministry facing higher-than-expected payments on USD-denominated debt, potentially requiring more than EGP 6 bn to cover the costs.

More rate hikes are coming: The Central Bank of Egypt may move to hike rates for the second time in two months when it meets next week, while the Fed has indicated that it will continue to tighten aggressively through the year as it tries to get a handle on soaring inflation.

Draft legislation aiming to tighten anti-money-laundering regulations has landed in the House and will now be reviewed by the House economic affairs and constitution committees, Speaker Hanafy El Gebaly said yesterday, Ahram Online’s Gamal Essam El-Din reported. The anti-money laundering bill aims to form an anti-money laundering unit affiliated with the Central Bank of Egypt (CBE). Cabinet signed off on the bill last month.

Also making its way to the House: The hajj will be regulated under a new bill that would set up a unified online portal for would-be pilgrims seeking travel visas to Saudi Arabia to undertake the pilgrimage. Data on the pilgrims will be available on the portal, with each pilgrim having a code number to be stamped on their passport.

Eastern Company’s bottom line fell 1% y-o-y to EGP 1.3 bn in 3Q 2021-2022, the company said in an earnings release (pdf). The drop in earnings came despite a 7% rise in net revenue to reach EGP 4.2 bn. The local cigarette maker reported a 9% rise in earnings in the first nine months of its fiscal year, which came in at EGP 4.3 bn. Revenues rose 5% to EGP 12.8 bn over the same period. Eastern’s fiscal year runs July-June.

Supply chain snags are posing problems for the company, which is facing raw material shortages and shipping disruptions, CEO Hany Aman told CNBC Arabia (watch, runtime: 5:00) yesterday. “We were able to overcome most of the challenges. … If we find a problem [in the access] to any raw material, we search for replacements,” he said.

Leading the conversation on yesterday’s talks shows: Saturday’s terrorist attack in Sinai, which met yesterday with condemnation from Arab and world leaders. The attack, which Daesh yesterday claimed responsibility for, resulted in the deaths of at least 11 soldiers. ِAl Hayah Al Youm (watch, runtime: 2:39), Masaa DMC (watch, runtime: 13:15) El Kahera w Nas (watch, runtime: 4:39) and Ala Mas’ouleety (watch, runtime: 1:41) all covered the story. We have more in this morning’s Diplomacy section, below.

Are expectations of a fresh devaluation sparking more demand for the USD? More people are rushing to buy the greenback due to “rumors” in the market, Ali El Hariri, secretary-general of the Foreign Exchange Bureau Division at the Federation of Egyptian Chambers of Commerce told Kelma Akhira’s Lamees El Hadidi (watch, runtime: 3:57). Lamees attributed demand for the USD to speculation that the central bank could further devalue the EGP in the coming days in response to growing pressure caused by rising US rates and fallout from the war in Ukraine.

The good news? A weaker EGP could help make our exports more competitive abroad, economist and former deputy prime minister Ziad Bahaa El Din told Al Kahera W El Nas’s Hadith Al Qahera (watch: runtime: 14:04).

This isn’t a given, though: Exporters are going to need the support of the government to improve local production and marketing, especially given the downward trend in global growth, he said.

The bad news: Bahaa El Din doesn’t see the global economy settling anytime soon, estimating that it might take another year or two before conditions normalize.

The state is going to have to up its subsidy spend next year as global prices rise: The government will raise its subsidy spend by around EGP 35 bn in the coming fiscal year, and increase allocations to the health and education sectors, Yasser Omar, deputy chairperson of the House Budget Committee, told Salet Al Tahrir’s Azza Mostafa (watch, runtime: 3:32). “It’s difficult, because we don’t know when the crisis will end,” Omar said.

No new taxes will be imposed on citizens, he stressed, adding that the new budget sees higher tax revenues without placing further pressure on the public.

Also getting a mention on the airwaves last night:

• Car dealers are facing losses due to a recent decision by the Consumer Protection Agency to clamp down on the “overpricing” of cars, the head of the Egyptian Automobile Dealers Association, Osama Abou El Magd, told El Hadidi (watch, runtime: 4:21). The decision has forced the closure of several showrooms, according to Abou El Magd, who said that suppliers are due to meet with the CPA head to voice their complaints.
• The Giza Plateau redevelopment project could be inaugurated in July or August, Masaa’ DMC’s Ingy Al Qadi said last night (watch, runtime: 2:22). Tuk-tuks have now been banished from the site ahead of the unveiling, she said. We have more on the overhaul of the area here.
• In related tourism news: President El Sisi has issued a decree reshuffling the board of the Supreme Council of Tourism. Per the decree, the new board will be headed by the president, and will include several key ministers. Masaa DMC has the details (watch, runtime: 22:54).

Dominating the conversation on Egypt in the international press this morning: Islamic State’s local branch of Daeshbags has claimed responsibility for an attack east of the Suez Canal on Saturday that killed at least 11 soldiers, Reuters and the Associated Press report.

Also making headlines: Thirteen boys were arrested over the harassment of two female tourists at the Giza Pyramids during Eid. The arrests came after a 34-second video clip of the incident went viral on social media, sparking debate over the safety of tourists at heritage sites. (The National)

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

• SODIC will open a new civil registry office in The Strip mall at SODIC West by the end of June. (Statement, pdf)
• Alfa Ceramics is adding a new production line at a cost of EGP 135 mn, company head Wageeh Besda was quoted as saying. (Al Borsa)

Arab states condemn terror attack in Sinai: Saudi Arabia, the UAE, Jordan, Bahrain, Qatar, Oman, Tunisia, Kuwait and Yemen have condemned the attack that took place Saturday on a water-lifting station east of the Suez Canal, killing 11 troops and leaving five others injured. The US, the EU, Italy and Turkey also each condemned the attack.

Arab leaders make calls to El Sisi: President Abdel Fatah El Sisi received calls from Jordan’s King Abdullah, Tunisian President Kais Said and Sudan’s military leader General Abdel Fattah Al Burhan, who all expressed condolences for the attack.