Wednesday, 11 May 2022

AM — Relief on the L/C front? PLUS: Our analyst poll sees CBE raising rates as much as 200 bps next week

TL;DR

WHAT WE’RE TRACKING TODAY

Good morning, friends. It’s a huge day on the macro front. Data released yesterday shows prices rose last month faster than most analysts expected, adding to expectations that the Central Bank of Egypt will hike interest rates when it meets a week from tomorrow. The news came as the EBRD downgraded its expectations of how fast our corner of the world will grow — and as volatility in the global financial market continued to weigh on sentiment. Stocks in Europe and on Wall Street seesawed yesterday and startups continued to lay off staff and announce spending cutbacks. Oh, and the FT is now openly talking about “crypto-winter” with BTC down a third since the start of the year.

Amid the grimness, some optimism: A European consortium led by EBRD handed the folks at Ezdehar and their partners a very nice exit as they acquired financial services player GlobalCorp. Separately, another European consortium is stepping up to build a USD 500 mn terminal at Damietta Port. And in a move that will be cautiously cheered by manufacturers, the Sisi administration is exempting importers of raw materials and other production inputs from a requirement to use letters of credit to cover imports, a policy change dating to February that has had significant ripple effects on manufacturers and distributors alike. And in the wake of a meeting between Prime Minister Moustafa Madbouly and CBE Governor Tarek Amer, the central bank will reportedly sit down regularly with importers to make sure they have access to FX to import production materials.

THE BIG STORY ABROAD- Inflation and the market sell-off dominate the front pages of the financial press this morning.

Market post-mortem: The front pages of the financial press are dominated by the US equity sell-off on Monday. Bloomberg reports that equity analysts are cutting price targets for S&P 500 shares by the most since the covid crash in early 2020, while the Wall Street Journal says that retail dip-buyers haven’t yet been put off by the sell-off.

Fed mea culpa: With US inflation now at 40-year highs, some Fed officials are admitting their policy response was too slow and that faith in “transitory” was misplaced, the New York Times says. “It was a complicated situation with little precedent — people make mistakes,” the former vice chair for supervision said last week.

REMINDER: US inflation figures for April are out today. Economists expect consumer price growth to slow slightly to 8.1%, from 8.5% in March.

MARKET WATCH- The sea of red in the US stock market receded yesterday but trading was no less volatile: Shares whipsawed during yesterday’s trading session as investors digested Monday’s heavy sell-off and positioned ahead of today’s inflation release. The S&P closed marginally above 4,000, up 0.3%, while the Nasdaq staged a bigger comeback from Monday’s beating, climbing 1.0%. The VIX — a measure of volatility often called the “fear index” — remained above 32.5 for the third-straight session, indicating turbulence in the market.

Asian markets are looking a bit happier this morning, with most indexes in the region solidly in the green. Futures indicate that shares in Europe and the US will rise when markets open later today.

WHAT’S HAPPENING TODAY-

It’s the second day of the EBRD’s annual meeting and business forum in Marrakech, which ends tomorrow. We wrap up all the headlines from Day 1 in this morning’s news well, below. You can read the full program here.

MARKET WATCH-

SIGN OF THE TIMES- India exported a record amount of wheat in April, stepping into the market to fill the void left by Ukraine which is unable to ship grain abroad due to the war, Reuters reports. Trade sources say that the country exported a record 1.4 mn tonnes during the month, and 7 mn tonnes during the previous fiscal, an all-time high.

Egypt is set to be one of the beneficiaries, agreeing last month to purchase wheat from India for the first time as it looks to diversify wheat imports in response to the war. Ukraine and Russia usually provide around 80% of the country’s imported wheat, making it vulnerable to any trade disruption in the region.

Export volumes could rise further this month: One trader said India could ship 1.5 mn tonnes in May to buyers in Asia and the Middle East.

Gulf says no to NOPEC: US ties with its Gulf allies aren’t getting any easier as lawmakers move closer to passing legislation that would curb the market power of the OPEC oil cartel. The so-called NOPEC bill would allow antitrust lawsuits to be brought against the alliance and its members for controlling the price of oil, an idea that was firmly rejected by the Saudi and UAE energy ministers yesterday. UAE Energy Minister Suhail Al Mazrouei told CNBC that OPEC was being wrongly blamed for surging energy prices and said that prices could surge 200-300% if the US moves to try and check its power.

Will it actually pass, though? The NOPEC bill has been kicking around for years, never being passed but always finding new support when oil prices rise. The legislation was passed last week by a US Senate committee, though it’s unclear whether it would clear a vote in the Senate or whether the Biden administration would support it. White House officials have expressed reservations about the bill, warning about the potential for blowback at a time of already high prices.

OBITUARY-

iPod (2001-2022): Apple has finally decided to discontinue making its iconic mp3 player, a device that changed the way the world listens to music and consigned Walkmans to the history books. Coming at a time when some thought Minidiscs were cool (remember those?), Apple gave us the ability to carry thousands of songs around in our pockets. Portable music no longer meant carrying around a bag of cassettes or CDs. The invention of the iPhone and rise of streaming services pushed the once-ubiquitous device into irrelevance, but as Apple said yesterday, the “spirit lives on” in its new generations of products.

Want some nostalgia? Check out these classic ads from the early 2000s (here | here).

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, including Prime Minister Moustafa Madbouly and other members of cabinet. The mission is being organized by AmCham and the US Chamber of Commerce.

The PSA world squash championships get underway in Cairo this Friday, 13 May. The men’s and women’s finals will be played on 22 May. There is USD 550k at stake for each of the men’s and women’s championships, making this the biggest purse on record for a squash tourney. The CIB-sponsored championships will play out at SODIC’s Club S Allegria and at the National Museum of Egyptian Civilization.

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.

Early-stage foodtech startups have until June to apply to the second edition of the UAE Ministry of Climate Change and Environment and Tamkeen’s global FoodTech Challenge, with an earnings pool of USD 2 mn, according to a statement (pdf). Partners supporting the competition include Aspire, ADQ, Silal and Emirates Foundation.

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: With Egypt’s real estate sector strongly impacted by raw material price inflation, coupled with the recent interest rate hike and EGP devaluation, we ask industry leaders what’s being done to mitigate the fallout. They say a combination of repricing, cost cutting, and strategic talks — with the government and with one another — are helping them weather the storm, and that overall they remain confident about project deliverability and the long-term stability of the sector.

enterprise

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MANUFACTURING

Manufacturers get a break with exemption from L/C requirements for some imports; CBE will meet with some importers to make sure they have access to FX

Production inputs and raw materials will be exempt from CBE rules handed down in February that has required the vast majority of importers to use letters of credit (L/Cs) to cover imports, the presidency announced yesterday in a statement. Under the decision, businesses will be permitted to use documentary collection to speed the payment for imported goods.

L/Cs are more expensive, take more time than documentary collection, and tie up importers’ capital.

Part of the administration’s response to tough economic conditions: The decision came after a meeting between President Abdel Fattah El Sisi and the cabinet economic group to discuss the Sisi administration’s response to a very challenging macro environment. Egypt is feeling the squeeze from global economic headwinds (including turbocharged inflation and rising interest rates), supply chain disruptions, the collapse of our Ukrainian and Russian tourism markets, and rising grain prices.

Getting greenbacks to those who need them: Separately, central bank officials will regularly meet with manufacturers to assess whether they are able to access the hard currency they need to import production inputs, state-owned breaking news website Ahram Gate reported after Prime Prime Minister Moustafa Madbouly met with CBE Governor Tarek Amer and other senior central bank officials.

Manufacturers, wholesalers, and importers of production inputs will be exempt from the CBE’s requirement to use letters of credit, Alaa Ezz, the secretary-general of the Federation of Egyptian Chambers of Commerce told Kelma Akhira’s Lamees El Hadidi (watch, runtime: 3:10). The government’s priority is to keep factories open and operating, he said, with the decision mainly focused on imports of goods that cannot be locally sourced.

Business leaders welcomed yesterday’s decision: Leaders in several industries praised the decision and said it will improve the supply of goods in the country and guard against shortages. Food Export Council head and Edita CEO Hani Berzi, Marie Louis, chairwoman of the Apparel Export Council of Egypt (AECE), and the Federation of Egyptian Industries’ (FEI) cigarettes division head Ibrahim Embaby were among them.

It’s going to take time to unwind the backlog: The market will still time to move past “the negative repercussions of L/Cs … it cannot be solved with the push of a button,” Berzi said.

Could the decision make a difference to inflation? Mohamed El Sewedy, the head of the Federation of Egyptian Industries (FEI), described the decision as a “breakthrough,” telling El Hadidi that inflation could begin to ease in some areas of the economy (watch, runtime: 10:00). Prices for both manufacturers and consumers have been pushed up by a shortage of commodities, he said.

POLL

Rising inflation will prompt CBE to raise interest rates next week for the second consecutive time -poll

The Central Bank of Egypt (CBE) will likely raise interest rates for the second time since March when it meets next week as inflation continues to accelerate and rising global rates put pressure on portfolio flows. Six of the seven analysts we surveyed this week expect rates to increase next Thursday, 19 May, with five of them seeing the central bank hiking rates by up to 200 bps.

The analysts spoke after inflation figures released yesterday showed prices advanced at their fastest rate in nearly three years (see separate story, below).

REMEMBER- The CBE raised rates by 100 bps and devalued the EGP in a surprise meeting in March in response to the declining conditions. The overnight deposit rate currently stands at 9.25%, and the lending rate is 10.25%, while the main operation and disc. rates are at 9.75%.

Inflation + tight financial conditions will be the drivers: Al Ahly Pharos expects the central bank to raise rates by 200 bps, economist Esraa Ahmed said yesterday. “Inflation rates place persistent pressure on real interest rates keeping them in negative territory. The accelerated tightened monetary conditions globally and the lingering implications of the Russian war on Ukraine have a negative impact on emerging markets and drive capital outflows,” she wrote in a note.

An aggressive stance: This would be the central bank’s most aggressive tightening since mid-2017 when it moved to curb inflation following the EGP float.

Fresh inflation figures have changed some analysts’ calculations: Renaissance Capital has penciled in a 100-bps hike but following yesterday’s inflation data has flagged that there is “significant upside risk” to that forecast, said Yvonne Mhango, who heads Africa research at the investment bank. Annual urban inflation rose to another near three-year high in April, reaching 13.1% as consumer prices responded to the EGP devaluation and soaring global food prices.

“The inflation figure came above our expectation and we see inflation deviating further from the CBE's target, which calls for stronger monetary policy action,” CI Capital’s Sara Saada told Enterprise. CI Capital now expects a hike of at least 150-200 bps.

Rate hikes are currently the only short-term direct solution to maintain policy credibility while managing inflation and EGP-USD expectations, Arqaam Capital’s Noaman Khalid said. “It is important for the CBE to act as early as possible, especially with the ongoing rise in the USD against EGP in the parallel market,” he said, forecasting a 150-200 bps hike. The EGP has slipped 18% against the greenback since the devaluation in March.

Central banks are tightening the world over — and the US is setting the pace: The US Federal Reserve delivered a 50 bps rate hike — its biggest in over two decades — at its meeting last week, a move that is piling pressure on emerging-market assets and tightening financial conditions. With US inflation peaking at a four decade high, further hikes are expected. Many countries either already have or are expected to follow suit, as they look to curb inflation and maintain their fundamentals in the face of a strengthening USD.

The Fed hike + a global risk-off has dented investors’ appetite for Egyptian bonds, which until recently had offered one of the highest inflation-adjusted interest rates in the world. Rising inflation at home has turned the country’s real rates negative at the same time as US yields have hit 3.5 year-highs and economic uncertainty has provoked a sell-off in emerging-market assets.

What’s it going to take to attract inflows? BNP Paribas’ Mohamed Abdelmeguid — who expects a 200-bps hike next week — said in a note this week that policymakers will need to raise rates by another 300-400 bps before foreign investors return to EGP-denominated debt.

Higher yields may not cut it: “Real rates won’t matter that much at this stage,” EFG Hermes’ Mohamed Abu Basha told Bloomberg. “The global environment — whether the war in Ukraine or a very hawkish Fed — are likely to dent the prospects of any notable pick-up in carry trade inflows anyways.”

But 18% CDs continue to boost real deposit rates: For holders of the one-year 18% certificates of deposit offered since March by the National Bank of Egypt and Banque Misr, the real rate of return stands at 4.9%, which is likely to be the highest globally, Naeem Brokerage’s Allen Sandeep said yesterday. Investors have poured more than EGP 630 bn in the CDs so far.

ECONOMY

Urban inflation hits 13.1% in April amid global commodities spiral

Inflation rose to a near three-year high in April as rising food costs and the devaluation of the EGP in March caused consumer prices to grow at a faster pace. Annual urban inflation jumped to 13.1% last month from 10.5% in March, according to figures (pdf) released by statistics agency Capmas yesterday. This is the highest level since May 2019.

Driving price hikes in April: food (again). Food prices — the biggest component of the basket used to measure inflation — rose 26% y-o-y from 19.8% in March as supply shortages, global market volatility and higher production costs drove significant increases in the cost of fruit and vegetables, seafood, and meat. On a monthly basis the cost of food jumped 7.6%, driving overall monthly inflation up to 3.3%, the highest since June 2018.

The figure took most analysts by surprise: The headline rate was “much higher than our estimate of 11.8%,” Naeem brokerage’s Allen Sandeep said. A Reuters poll of 17 analysts had also put the median forecast at 11.8%. “Inflation came higher than expected due to a sharp rise in food prices in light of the devaluation and Ukraine war,” the newswire quoted EFG Hermes’ Mohamed Abu Basha as saying.

April’s figure is significantly above the central bank’s target: The CBE is targeting an inflation rate of 7% (±2%).

This raises the likelihood of an interest rate hike next week when the CBE meets on Thursday to review rates, our poll of analysts (above) found.

Annual core inflation rose to its highest in more than four years, recording 11.9% from 10.1% in March, according to central bank data (pdf). Core inflation strips out volatile items such as food and fuel.

When will it peak? Inflation could climb as high as 17% this year, Farouk Soussa, Goldman Sachs’ MENA economist, recently told Bloomberg TV, before falling back into the CBE target range by the end of next year. “The current global stress is not expected to fade soon, causing a prolonged pressure on domestic price levels,” Al Ahly Pharos economist Esraa Ahmed wrote in a note yesterday.

Inflation is running hot across the world: Curbing price hikes has been the top priority for many economies since the surge in post-lockdown demand and supply chain disruptions kicked off last year. Since then, Russia’s war in Ukraine has only poured fuel on the fire, causing energy and food prices to soar and inflation in advanced economies to hit multi-decade highs. This year the US joined many emerging markets to embark on an aggressive tightening cycle to curb inflation, and the European Central Bank is expected to begin raising rates later this year.

The story is getting attention from the international business press, including: Reuters | Bloomberg | Associated Press.

ECONOMY

EBRD downgrades regional growth outlook

EBRD downgrades regional growth forecasts as war continues in Ukraine: The European Bank for Reconstruction and Development (EBRD) downgraded its growth forecast for the nations in which the lender operates in its latest Regional Economic Prospects report (pdf). The EBRD now sees overall growth across its seven regions slowing to 1.1% in 2022 from 6.7% last year — a downwards revision of 0.6 percentage points since its last forecast in March. Growth is set to be hampered by high inflation, which approached a 14-year high of 11.9% across the regions in March.

A tricky spot for the region: Regional governments’ finances “have been depleted after they have injected a lot of liquidity into the covid recovery and are now struggling to do the same to moderate food price inflation,” EBRD SEMED chief Heike Harmgart said.

The EBRD is still forecasting the Egyptian economy to grow at a 3.1% clip this year, having in March revised down its projection from the 5.0% it penciled in last November on the back of rising food and energy prices. The economy should rebound to register 6.0% growth in 2023. Growth in the wider Southern and Eastern Mediterranean (SEMED) region is also still projected to register 2.5% during 2022.

Concerns about global growth are mounting: The report comes amid growing concerns about the direction of the global economy as the war in Ukraine and rising interest rates threaten to push some of the world’s biggest economies into recession. The IMF is now expecting a “significant slowdown” in global growth this year due to the conflict and signs are increasing that the eurozone, the US and China could soon fall into recession.

The report launched at a panel discussion during the EBRD’s annual meeting and business forum in Marrakech, which will wrap up on Thursday (watch, runtime: 1:08:59).

The foreign press took note: Reuters and Bloomberg picked up the report.

EBRD ON FOOD SECURITY, GREEN HYDROGEN

The EBRD is in negotiations with Egypt, Morocco and Tunisia to help raise their food storage capacities and expand food suppliers, the lender’s Southern and Eastern Mediterranean Managing Director Heike Hargmart told Reuters during the bank’s meetings. “We are in early discussions on what is needed on capital investment to boost storage facilities,” she said.

Plans to improve regional food security: The EBRD is also partnering with the World Bank to help Egypt, Lebanon and Jordan improve regional food security, she added, without disclosing further entails. It is also in discussions with financial institutions in Egypt and Morocco to uease trade financing amid increasing food demand, she said.

EBRD sees green hydrogen potential in Egypt: Egypt and Morocco are the two SEMED countries with the best potential to produce green hydrogen, Harmgart said at an Egypt-specific panel event in Marrakech yesterday, adding that the EBRD is keen to continue funding local hydrogen projects (watch, runtime: 1:04:36). International Cooperation Minister Rania Mashat, SCZone chairman Yehia Zaki, and Scatec CEO Terje Pilskog joined Harmgart on the panel to discuss the future of green hydrogen and renewable energy in Egypt. Scatec is a key player in the consortium set to build a 100 MW green hydrogen plant in Ain Sokhna, one of the landmark projects approved ahead of the COP27 climate summit in November.

enterprise

INFRASTRUCTURE

European consortium to build USD 500 mn terminal at Damietta Port

A consortium of European terminal logistics firms will invest USD 500 mn to build a new container terminal at Damietta Port, cabinet said in a statement yesterday. Eurogate Terminals, Contship Italia, and Hapag-Lloyd signed an agreement with the Damietta Port Authority (DPA) to develop and operate the terminal, and have entered into a joint venture alongside two local firms for the project.

Eurogate will manage and operate the terminal, which will serve as a “dedicated strategic transshipment hub” in the EastMed for Hapag-Lloyd.

What we know: The terminal will have a final capacity of 3.3 mn TEUs and is expected to begin operating by 2024, the consortium said in a joint statement. This will raise Damietta’s total capacity to 4.7 mn TEU by the third year of its operation, Transport Minister Kamel El Wazir said.

SOUND SMART- A TEU is a standard measurement in the shipping and terminal industry and is based on the dimensions of a common twenty-foot shipping container. The acronym stands for Twenty-foot Equivalent Unit. A double-length container, for example, would count as two TEUs.

The JV will be fully owned by the private sector: The three European companies will collectively own 98% of the joint venture, with Hapag-Lloyd holding 39%, and Eurogate and Contship Italia each owning 29.5%. Two Egyptian private sector firms — Middle East Logistics & Consultants and CREW Egypt — will each hold a 1% stake.

There’s more: A second phase of the project would see the establishment of logistics corridors through the terminal to various manufacturing centers nationwide through railway networks, the minister said.

M&A WATCH

EBRD, SPE Capital, Amethis acquire financial services player GlobalCorp

European consortium acquires GlobalCorp: The European Bank of Reconstruction and Development (EBRD), SPE Capital, and Amethis have acquired a 90% stake in non-banking financial services firm GlobalCorp, the company said in a press release (pdf). The consortium paid EGP 914.7 mn for 22.2 mn shares in an OTC transaction, Al Borsa reports, citing sources familiar with the matter. GlobalCorp CEO Hatem Samir holds the remaining 10% stake.

Cash injection + expansion ahead: The consortium plans to raise the firm’s capital by EGP 150 mn through a capital increase, Shahir ElFaramawy, head of corporate development at GlobalCorp, told Enterprise. This will help the company expand its services and the sectors in which it operates, the press release reads. It will also work with the management team to help the company develop its infrastructure and technology. GlobalCorp will retain its management team and its name, ElFaramary confirmed.

Who was a seller? Private equity outfit Ezdehar sold its 60% stake in the firm, while German development bank KfW’s Sanad fund sold its 30% stake, ElFaramary told us. The two entities were among GlobalCorp’s founding investors in 2015, and both said last year they were looking to exit the firm after hitting their target return on investment.

This is the EBRD’s first investment in an Egyptian financial institution, and its first partnership with a leasing and factoring firm in Egypt, said Heike Harmgart, EBRD’s managing director for the Southern and Eastern Mediterranean region. “This investment will support a leading financial company to provide financing to an important segment of the Egyptian economy, covering small and medium businesses,” Harmgart said.

Amethis makes its Egypt debut: The investment is also Africa-focused, Paris-headquartered Amethis’ first in Egypt, “which is now a core market for our funds,” said Investment Director Adnane Zerhouni. Amethis last year announced plans to invest more than EUR 30 mn in Egyptian SMEs after it hit a first close of its second MENA fund, and to open an office here. The acquisition marks SPE Capital’s second investment in Egypt through its SPE AIF I fund, which previously purchased a 30% stake in Future Pharma.

What is GlobalCorp? GlobalCorp provides leasing and other financial and advisory services to companies in industries including real estate, transportation, health, education and pharma. The lender also focuses on SMEs and green finance, which account for over 25% of its portfolio. The company has extended EGP 13 bn (USD 715 mn) worth of credit. “The acquisition proves how successful the company is, because it’s able to attract foreign investors through a model that sees the shareholders replaced every five years,” ElFaramawy said.

ADVISORS- Helmy, Hamza and Partners — a member firm of Baker McKenzie International — acted as legal advisor to the consortium, while PwC was financial advisor. The firm also tapped IBIS Consulting as ESG and impact advisors, as well as other commercial and technical consultants. Kamco Investment Company was was sell-side financial advisor, while Matouk Bassiouny provided legal counsel to the sellers

***
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MOVES

Visa Egypt has appointed Omar Al Attar as its head of business development government-related operations, Hapi Journal reports. Al Attar comes to Visa with over 16 years of experience at MasterCard and Vodafone Egypt, where he worked on financial inclusion, digitization and business development for national projects.

Mona Bedeir (LinkedIn) has been appointed the chief economist at Al Baraka Bank Egypt, she announced in a LinkedIn post. Bedeir joins the bank from Prime Holding, where she had worked as a senior economist since 2018.

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LAST NIGHT’S TALK SHOWS

Surprising no-one, the economy dominated the airwaves last night following the release of fresh inflation figures showing that prices accelerated in April at their fastest rate in almost three years.

Keep calm and carry on was the message delivered by President Abdel Fattah El Sisi last night, who called in to Salet Al Tahrir's Azza Mostafa (watch, runtime: 23:17) to discuss the national economic situation, among other things. The president sought to assuage the public’s fears on the economy, telling Mostafa that the conflict in Ukraine has not yet caused any shortages in Egypt. “We do acknowledge a rise in prices, but the state is trying to control the market until the end of the year and help it recover in a short period,” he said.

Industry to receive boost as import rules eased: The president’s appearance came on the same day he directed the government and the central bank to ease up on the new trade finance rules that require importers to use letters of credit, and allow businesses to import raw materials and production inputs using documentary collection. The subject got a lot of attention on last night’s shows, which we cover in detail in the news well, above.

Also on the economy front: El Hadidi looked at what is driving the surging cost of food (watch, runtime: 5:58).

ALSO FROM EL SISI- The president discussed the Personal Status Act and urged the government, lawmakers, and Al Azhar to draft a balanced and fair legislation as soon as possible. Controversial amendments to a previous bill, which critics argued attempted to take women’s rights and legal protections, was shelved by the House last year after backlash. El Sisi has asked the head of the Cairo Court of Appeal to set up a committee to help draft the bill.

EGYPT IN THE NEWS

Yesterday’s inflation figures are leading the conversation in the foreign press this morning. Reuters, Bloomberg and the Associated Press all covered the data release, which showed that prices grew at their quickest rate in almost three years in April. We have the full story in this morning’s news well, above.

The impact of the Ukraine war on Egypt’s foreign policy is being discussed in the National, which talks to analysts about how the country could navigate an increasingly polarized world order. Meanwhile, Global Capital is focusing on the economic ramifications of the conflict.

ALSO ON OUR RADAR

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

  • Matouk Bassiouny & Hennawy acted as the Egyptian legal counsel to Kora Capital on its participation in Paymob’s USD 50 mn series B round. (Statement, pdf)
  • The Environment Ministry is getting EUR 6 mn from GIZ Egypt to support the new national waste management strategy, in addition to the EUR 14 mn pledged by the EU as part of EUR 138 mn in development grants announced yesterday for Egypt from the bloc. (Statement, pdf)
  • Belgium-based mechanical engineering group John Cockerill is looking to cooperate with the Electricity Ministry on green hydrogen, electricity and renewable energy. (Statement)
  • French tourism operator Ovoyages will operate a weekly flight from Paris to Sharm El Sheikh starting 10 July, according to a government statement. It does not make clear whether this is a charter or regular flight, but we presume the former. (Statement)

PLANET FINANCE

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EFG Hermes - https://efghermes.com/

EM currencies see biggest losses since 2020: Emerging-market currencies are suffering as investors pull out of risk assets in response to rising interest rates in the US and the economic slowdown in China, according to the Financial Times. The MSCI Emerging Markets Currency Index dropped over 4% since the beginning of April, the largest fall since the onset of the pandemic in early 2020. The sell-off comes as the Federal Reserve embarks on its most aggressive tightening cycle in decades, strengthening the USD and pulling money out of risky EM assets and into the US financial system.

The same factors are weighing on EM debt, which JPMorgan strategists say are at the “mercy” of Fed policymakers. The asset class has seen USD 4 bn in net outflows since the middle of last month while a JPMorgan gauge of EM bonds has slumped 16% so far this year, with rates being responsible for “most of the losses,” the investment bank said. "The external and fundamental backdrop has become increasingly difficult for EM sovereigns," they said. "The covid lockdown in China poses further downside risks."

“What downturn?,” asks the Gulf IPO market: The world’s biggest asset managers are heading to the Gulf to get a piece of the region’s red-hot IPO market, where companies are capitalizing on the surge in oil revenues and selling shares to the public, Bloomberg reports. Middle Eastern companies have traditionally sought listings in more developed markets in the US and UK, but investors are increasingly being drawn to exchanges in the region as the volume of IPOs rises while offerings slow abroad. Two of the world’s biggest asset managers, BlackRock and Vanguard, both bought into Dubai Electricity & Water Authority’s IPO, which raised USD 6.1 bn last month.

Up

EGX30

10,811

-0.9% (YTD: -9.5%)

Up

USD (CBE)

Buy 18.44

Sell 18.53

None

USD at CIB

Buy 18.45

Sell 18.53

None

Interest rates CBE

9.25% deposit

10.25% lending

Down

Tadawul

13,509

-2.2% (YTD: +19.8%)

Down

ADX

9,915

-0.9% (YTD: +16.8%)

Down

DFM

3,598

-0.7% (YTD: +12.6%)

Up

S&P 500

4,001

+0.3% (YTD: -16.1%)

Up

FTSE 100

7,243

+0.4% (YTD: -1.9%)

Up

Euro Stoxx 50

3,555

+0.8% (YTD: -17.3%)

Down

Brent crude

USD 101.60

-4.1%

Up

Natural gas (Nymex)

USD 7.39

+5.1%

Down

Gold

USD 1,841.00

-1.0%

Down

BTC

USD 30,394

-1.1% (YTD: -33.0%)

THE CLOSING BELL-

The EGX30 fell 0.9% at yesterday’s close on turnover of EGP 637 mn (27.5% below the 90-day average). Local investors were net buyers. The index is down 9.5% YTD.

In the green: Cleopatra Hospitals (+4.6%) and CIB (+0.2%).

In the red: Abu Qir Fertilizers (-3.8%), Orascom Construction (-2.9%) and Fawry (-2.7%).

hardhat

What are Egypt’s real estate developers doing to mitigate the fallout from inflation and the devaluation? Egypt’s real estate sector is being substantially impacted by soaring raw material price increases from the war in Ukraine, along with the recent interest rate hike and EGP devaluation, several leading players told us recently. Today, we look at what the industry is doing to mitigate the short-term impact of cost increases, how consumers could be affected, and whether we should expect delays in project deliverability.

Real estate companies have been holding talks with the government to explore ways of tempering the short-term fallout from price hikes, say sources. “A lot of meetings were held with government officials,” Redcon Construction Chairman Tarek ElGamal tells Enterprise. The government has since been seriously considering giving time extensions on projects and perhaps temporarily removing the interest on land payments, he adds.

They’re also holding talks with each other: Many conversations are taking place between developers — especially those in joint development partnerships, MNHD CEO Abdallah Sallam tells us. “Everyone’s talking about the effects of the current economic challenges on consumer prices, and how big of a hike they’re willing to take, as well as construction costs and how to protect margins. Everyone’s testing the market.”

Some steps, including repricing, are already underway: Renegotiating the cost of raw material procurement with suppliers and repricing company inventory can offset recent cost increases, ORA Developers CEO Haitham Mohamed tells Enterprise. ORA has sold 20% of its total inventory, meaning it can amend the prices it sells the remaining 80% for, he adds. O West applied a 10% pricing increase on its units at the beginning of April, and will likely apply more price increases throughout the year, CEO Tarek Kamel tells Enterprise. MNHD is in strategic talks with construction companies or contractors — both on controlling the cost of construction and innovating with the terms of payment — says Sallam.

While some players aim to cut costs and diversify their product mix strategically: Limiting the hit to profit margins isn’t just about repricing, notes Sallam. “We also need to look at cash flow management and financing, and be more efficient with our hiring and corporate expenses,” he adds. “Sometimes, in moments of crisis, it’s actually the time to spend a bit more in particular areas — which is exactly what we’re doing.” MNHD is accelerating a strategic plan that involves reviewing its product mix, potentially introducing new, higher-margin products, and making use of value engineering to cut costs effectively, Sallam says.

How will all this affect consumers? A possible average price increase in the real estate market of 30% in 2022: “Initially, before the war and the change in the FX rate, we expected a price increase of 10-15% in the market this year,” says Kamel. “But now I think it will be around 30%,” he adds.

Despite these challenges, developers are committed to their deadlines: “We hope this situation doesn’t affect our schedule for deliveries — as quick delivery will help mitigate cost risks,” says Sallam. MNHD is about to award a new construction phase to a contractor, and everyone’s still committed, he adds. O West is also fully committed to its contractual delivery dates, and should start delivering by the end of 1Q 2023, says Kamel. ORA, meanwhile, is even hoping to deliver ahead of schedule, says Mohamed. “With the impact from inflation and the devaluation, once we sell, we engage contractors and fix the prices. If you work faster, you can minimize the hits of inflation and devaluation by delivering as soon as possible,” he adds.

It’s difficult to predict when the current market volatility might stabilize, sources note. The recent price spike was very sudden, notes ElGamal. “It’s not like the one that started in 2005 when the market was overheated, which took three years to peak. This one happened in days, and it’s not easy to predict how long it will last,” he adds. Sallam expects more clarity in the coming quarter: “Things will be clearer, whether this is a global crisis, or whether our market will stay resilient, adapt to the new measures and keep its momentum.”

But overall, there’s still optimism about the future of the real estate sector: “Egyptians always find safe haven in real estate, and trust the sector as a place to grow their investments,” says Sallam. “Looking at the macroeconomics of the industry, I don't see it slowing down anytime soon. Supply falls very short of the real demand in this country. And when it comes to the housing industry, we're talking about a crucial product,” he adds.

Could the issuance of proposed government regulations dampen that enthusiasm? Proposed new government regulations that could potentially prohibit developers from selling units in a development until they’ve completed 30% of the project — which have not been implemented — could face pushback from the industry, notes a legal expert speaking on condition of anonymity. Though the aim of the regulation would be to protect buyers and the market from bubbles and large-scale fraud, it would also punish financially solvent developers that operate legally and ethically, the expert adds.

Real estate players we spoke to agree the sector would benefit from some form of regulation: “I think government intervention when it comes to the real estate market is well needed at this point in time,” notes Kamel. “In the last few years, the market attracted many entities that aren’t necessarily up to the right operational standard,” he adds. It’s the role of the government to put regulations in place to protect both developers and customers, and the intention behind these proposed regulations is good, says Sallam.

But some would prefer less dramatic measures: These particular regulations could constitute one more challenge for a market already facing its fair share of challenges, Sallam notes. “I’m confident the government will cooperate with developers to introduce practical measures that regulate the market without stifling it,” he adds.


Your top infrastructure stories for the week:

  • Abu Dhabi Ports to build and run Safaga terminal, cruise ship infrastructure: ADP has signed a contract to develop, operate and manage a multi-purpose terminal in Safaga Port as part of a joint venture with the Red Sea Ports Authority and the Transport Ministry’s commercial arm.
  • BRT, Metro Line 3 extension coming soon: The next phase of the Cairo Metro Line 3 will open to the public in July and the Cairo Ring Road bus rapid transit (BRT) system will be up and running by the end of the year.
  • Eni to work on carbon capture pilot: The Oil Ministry and Eni are implementing a pilot carbon capture project at the Italian energy firm’s Meleiha concessions in the Western Desert.
  • Borg El Arab power plant upgrade: Egypt Kuwait Holding subsidiary Kahraba has awarded Finnish company Wartsila a contract to deliver equipment that will add 20 MW of capacity to the 40 MW Borg El Arab power plant.

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.

MAY

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

12 May (Thursday): Financing sustainable development in Egypt virtual roundtable, Official Monetary and Financial Institutions Forum.

13-14 May (Friday-Saturday): Target Misr Expo, Dusit, New Cairo.

13-22 May (Friday-Sunday): PSA World Championships, Cairo.

Mid-May: The trial period to extend the Advance Cargo Information (ACI) system to air freight.

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.

30-31 May (Monday-Tuesday): Egypt Can with Industry, Cairo, Egypt.

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

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

31 May (Tuesday): Extended deadline for EGX-listed companies to disclose 1Q 2021 earnings.

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.

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.

5 June (Sunday): GB Auto is hosting an extraordinary general assembly meeting (pdf).

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.

June: Egypt will launch a unified ticketing system for all means of transport at the Adly Mansour Interchange Station.

June: Polish President Andrzej Duda will visit Egypt to coordinate ways to ship Ukrainian wheat to Egypt amid the war in Ukraine.

JULY

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

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

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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