AM — The government wants to exit almost 80 industries over the next 3 years

The news flow just won’t give us a break right now. Not that we’re complaining, but it would be nice to have one day when the world takes a break from making news.

Making the headlines in Egypt today: We have a clearer idea of how the government intends to start reducing its footprint in the economy after local media yesterday got their hands on a draft copy of its state ownership policy. Coming just a few days after the PM laid out his government’s plans to double the private sector’s share of the economy, the document reveals that the state intends to withdraw from as many as 79 economic activities over the next three years, and provides new information on which sectors it will ring fence as strategic. All that and more in this morning’s news well, below.

THE BIG STORIES ABROAD-

Russian forces have taken Mariupol: Ukrainian fighters holed up in a giant steelworks in Mariupol have surrendered following a weeks-long siege, handing Russian forces control of the strategic Black Sea city. (WSJ | Reuters | AP)

Elon Musk is still getting the headline treatment in the business press after Twitter said it plans to enforce the USD 44 bn price tag for his takeover of the company. The Tesla and SpaceX boss indicated on Monday that paying less for the transaction was not “out of the question” after he raised doubts about the volume of spam accounts on the platform. (Financial Times | Bloomberg)

Dominating the front pages in the US press this morning: Gubernatorial primary races in Pennsylvania saw Trump acolyte state Senator Doug Mastriano win the Republican nomination. He’ll face Democrat Josh Shapiro in November’s midterms, who was nominated after running unopposed in the primary. (AP | Reuters | Washington Post | NYT)

WHAT’S HAPPENING TODAY-

It’s day six of the PSA world squash championships at SODIC’s Club S Allegria and at the National Museum of Egyptian Civilization. The championship, which is sponsored by CIB, has USD 550k at stake for each of the men’s and women’s categories, making this the biggest purse on record for a squash tourney.

DATA POINT- Online shopping in Egypt is booming: The value of online purchases in Egypt rose 75% y-o-y in 1Q 2022, with Egyptian consumers spending EGP 10 bn online during the three-month period, Al Mal quotes the Central Bank of Egypt’s Assistant Sub-Governor for Banking Operations and Payment Systems Ehab Nasr as saying. PoS transactions also rose 43% to EGP 10 bn. Some 500k transactions have already taken place via Egypt’s new national digital payment app, InstaPay, since its launch in March, according to Nasr.

MORNING MUST READ-

Rich nations need to act now to prevent instability in the developing world from mushrooming into a global crisis: So says Allianz chief economist and all-round market sage Mohamed El Erian, who writes in his latest column for Project Syndicate that the spread of “little fires” in developing countries caused by rising interest rates and surging food and energy prices threaten to engulf the global economy if governments in advanced economies fail to act. Serious debt relief, fresh development aid, and measures to strengthen food and energy buffers of commodity importers all need to be on the table, else low- and middle-income countries risk falling into polycrises of falling economic growth, food and energy shortages, and debt distress. “If that nightmare scenario materializes, the effects will be felt far beyond individual developing countries — and will extend well beyond economics and finance,” he writes.

MARKET WATCH-

Italian energy firm Eni is the latest to open a RUB account in order to keep buying Russian gas, according to a statement. Eni’s move comes as the EU has had conflicting messages on whether or not this would be considered a breach of sanctions, according to Bloomberg. The bloc had earlier this week given European companies the green light to open accounts at Gazprombank and pay up in RUB, a move that would allow Moscow to circumvent sanctions. Moscow has threatened to cut gas supplies to the continent unless it is paid in local currency. As of last week, 20 buyers had opened accounts in Russia and sources indicated yesterday that Eni will join them this week.

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CIRCLE YOUR CALENDAR-

The Grand Egyptian Museum will be ready to open its doors by September: Construction of the long-awaited Grand Egyptian Museum (GEM) is set to finish by 30 June, the Tourism Ministry said earlier this week. Work on the interior of the EGP 20 bn museum will be finalized by the end of September, it added. It stopped short of naming an inauguration date, but a tourism official said last month that the GEM would launch in the fourth quarter of this year.

It’s interest rate week here at home: The Central Bank of Egypt will likely raise interest rates when it meets this Thursday, according to a near consensus of analysts and economists we surveyed last week. Six of the seven respondents see the Monetary Policy Committee going ahead with a rate hike to combat inflation and stem portfolio outflows, with five forecasting rates to rise by up to 200 bps.

PSA: Tourism registration for Hajj has been extended: You can now register for this year’s Hajj through tourism companies until next Monday, 23 May, after the deadline was pushed from this Friday, 20 May, the Tourism Ministry said in a statement.

The Islamic Development Bank will hold its 2022 annual meetings in Sharm El Sheikh from 1-4 June under the slogan “post-pandemic recovery: resilience and sustainability,” according to a statement from the Planning Ministry. Several Egyptian ministries and representatives from the bank’s 57 member countries and other financial institutions are set to attend the meetings.

Venture capital 101: The Egyptian Private Equity Association (EPEA) is hosting a paid crash course in all things venture capital at the Zamalek Marriott on 21-23 May. Led by Avanz Capital Egypt MD Hany Assaad, the three-day course will cover everything you need to know about Planet VC, from fund structures and portfolio-building to due diligence and valuations.

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

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, and urban development, as well as social infrastructure such as health and education.

In today’s issue: The state’s infrastructure spending plans for FY2022-2023: More than half of the state’s proposed budget for the upcoming fiscal year is earmarked for public investment in Egypt’s infrastructure projects, with EGP 1.1 tn out of the entire EGP 2.07 tn budget earmarked for the government’s investment plans — up 17.9% from the current year’s budget. We dive into the government’s new priorities in light of the unstable global economic backdrop against which the budget was drafted, its renewed focus on economic recovery and its new target to increase the volume of “green projects” in next year’s budget.

The draft of the government’s ownership policy just leaked: The government intends to fully withdraw from as many as 79 industries over the next three years as part of plans to restructure the economy in favor of the private sector, according to a draft of its state ownership policy obtained by Al Masry Al Youm yesterday. Coming two days after Prime Minister Moustafa Madbouly announced new details of the government’s privatization plans, the draft document outlines the industries which the government plans to open up to private companies and the ringfenced strategic sectors which will continue to see heavy state involvement.

REFRESHER- The government wants to double the private sector’s role in the economy over the next three years in a bid to attract bns of USD of fresh investment into the country, Madbouly announced Sunday. It is aiming to raise USD 40 bn over the next four years by selling stakes in state-owned assets to local and international investors.

The document obtained by AMAY divides the economy into three groups:

#1 “Take it all”: There are 79 sectors that the government intends to “fully exit” over the next three years. These include the automotive sector, some manufacturing industries like furniture, electrical appliances, leather and glass, fertilizers, and agricultural production (minus wheat).

Caveat: “Fully exit” doesn’t necessarily mean fully exit: Some industries in this group ⁠— such as food and drink ⁠— the government intends only to hand over management to the private sector, and will retain ownership of the assets.

#2 “We’ll give you some of these”: The government will phase out its involvement in another 45 sectors. Heavy industries such as cement, iron and aluminum manufacturing, and consumer-facing industries like meat and cigarettes are listed here. It also includes some infrastructure: energy infrastructure such as oil refineries, power plants, transmission and distribution networks and renewable energy projects, as well as wastewater treatment plants and desalination projects will all see greater private sector participation.

#3 “Hands off”: These are sectors the government considers strategic and are mostly infrastructure-related. Think: transport networks, telecoms infrastructure and water systems. Wholesale trade, health, education and pharma are also listed here as are some financial services such as brokerages and ins. The document notes that the private sector will be allowed to increase ownership in some of these sectors, without providing details.

NOTE- The document says that privatization will be “phased and gradual” to minimize “unfavorable” repercussions on revenues and employees.

High-tech sectors are earmarked for PPPs: The document says that the government will explore public-private partnerships (PPPs) in 18 tech industries, including artificial intelligence, the Internet of Things (IoT), cybersecurity and energy storage, to support the country’s digital transformation. There are also plans to set up a dedicated committee made up of government and private sector representatives that will assess the legal and regulatory environment to shift the economy towards next-generation technologies.

The ECA would get sharper teeth: The Egyptian Competition Authority (ECA) would be handed new powers to take “proactive steps” to limit market entry barriers and prevent state interference in the economy. The regulator doesn’t currently have the authority to enforce competition laws or penalize anti-competitive practices by the state.

THE BIG REVEAL: The final document will be published by the government before the end of May.

Software startup Instabug has raised USD 46 mn in series B funding, it announced in a press release (pdf). The round was led by New York-based software investor Insight Partners, with participation from existing investor Accel, as well as new investors US-based VC Forgepoint Capital, and Endeavor.

About Instabug: Founded over a decade ago in Cairo by CEO Omar Gabr and CTO Moataz Soliman, Instabug began as a background tool for mobile app users to send feedback or report errors by shaking their phones, before evolving into a performance tracker for mobile app teams. More than 25k apps use its platform and its software development toolkit (SDK) runs on over 2.7 bn mobile devices. Instabug raised USD 5 mn in series A funding in 2020, after closing a USD 1.7 mn seed round in 2016.

The funding will be used to build a mobile observability and performance monitoring platform to help provide more complex insights into mobile bugs for app developers. The new platform will expand on Instabug’s existing “proactive issue detection, advanced debugging and alert management capabilities,” Gabr told Enterprise. It will also help the startup expand its portfolio of partners, which currently includes the likes of DoorDash, Verizon, IHG, and Porsche.

SOUND SMART- What do you mean, “observability”? In a nutshell, observability is looking at the data any system produces to see what’s going on with that system internally. Instabug’s mobile observability platform aims to help app developers increase “the depth of visibility that is provided about issues including device, network, and session data as well as stack traces that provide info about where in the application an error occurred,” Gabr said.

Instabug has opened a San-Francisco HQ — but it will still invest in its Cairo operations: Egypt-born Instabug currently operates globally, with dual headquarters in San Francisco and Cairo. “We're incredibly proud of the team that we have in Cairo and we’re planning to invest in expanding it,” Gabr said.

Automobile manufacturer Stellantis is interested in assembling electric vehicles in Egypt, cabinet said in a statement yesterday following talks between Prime Minister Moustafa Madbouly and company officials. The automaker is reportedly interested in taking advantage of the government’s incentives for the auto sector, and is considering establishing a factory to produce EVs for the local and overseas markets, the statement said, without providing further details.

Stellantis is one of the largest car manufacturers in the world and was formed in 2021 following a merger of Fiat Chrysler and PSA. Its brands include Peugeot, Fiat, Citroen and Chrysler.

Egypt’s rising oil import bill could cancel out any gains from higher gas export revenues this year, Oil Minister Tarek El Molla told CNBC Arabia yesterday (watch, runtime: 11:49). “It’s possible that the extra [income] we get from our gas exports could be canceled out by the increase in the price of oil and its products,” the minister said on the sidelines of an energy conference.

Egypt enjoyed an oil trade surplus last year: Egypt reported a USD 2.1 bn oil trade surplus last year, according to balance of payments figures. The central bank is yet to release figures for 1Q 2022, which coincided with a spike in oil and gas prices on the back of the war in Ukraine. Egypt is a net importer of oil but exports gas.

There’s no knowing where prices are going: El Molla said he hoped to “maintain '' gas export revenues this year compared with 2021, but added that gas and oil prices remain volatile, making the outlook difficult to predict. The value of Egypt’s petroleum exports rose 84% in 2021 on the back of a five-fold increase in our LNG and natural gas exports. “We’re positive in general about conditions,” El Molla said.

Natural gas prices have spiraled to new record highs in Europe in response to the Russia-Ukraine war, potentially providing an opportunity for Egypt to offset some of the pain caused by the oil price spike. El Molla previously signaled that Egypt could capitalize on the current market conditions and raise LNG exports.

Investments in the energy sector could reach USD 7-8bn this fiscal year, the minister told Al Arabiya (watch, runtime: 3:22) at the conference. Rising oil prices globally could push the figure even higher following review, he added. Investments by foreign oil firms fell 26% to USD 5.4 bn in FY 2020-2021.

India softens wheat ban after sparking panic among traders: India will allow the export of wheat shipments that are waiting for customs clearance, easing restrictions announced last week that threaten to aggravate global food shortages, the government said in a statement yesterday. All shipments registered with customs before 14 May will be allowed to leave the country in addition to cargoes under existing letters of credit.

REFRESHER- On Saturday, India announced a ban on wheat exports to all except vulnerable countries in response to rising domestic prices and a weaker-than-expected harvest. The restrictions have heaped pressure on global food markets and caused chaos in India, where L/Cs accounted for less than 20% of the cargoes waiting at the country’s ports, according to Reuters.

We could be a candidate for an exemption: Egypt is currently in talks with India to be made exempt from the ban after New Delhi said last week that vulnerable developing countries may be permitted to continue purchasing wheat. As the world’s largest importer of wheat, Egypt has been hit hard by the grain shortage triggered by the Russia-Ukraine war. We usually source north of 80% of our wheat imports from the two countries, and are facing at least an additional EGP 15 bn burden on this year’s fiscal budget as a result of spiraling grain prices.

We’ve locked in at least one shipment from India: The country has approved a 61.5k-ton wheat shipment to Egypt upon a request from our government, India said in the statement yesterday. It is unclear whether this is the same 55k-ton shipment — our first from the country — that had already passed the inspection of Egyptian officials.

But the fate of the 500k-ton purchase is unclear: Supply Minister Ali El Moselhy said Monday that agreement to buy 500k tons of Indian wheat will not be impacted by the ban, but clarified yesterday that the purchase has been agreed but not signed, Reuters reported. “We have agreed but we haven’t made the contract,” the minister said, reiterating that it would not be impacted by the ban. India’s statement doesn’t mention the purchase, and it’s not clear at what stage of delivery it currently stands.

The story is getting attention in the foreign press: Reuters and Bloomberg had the story.

FROM THE DEPT. OF BAD NEWS-

Some 300k tons of wheat booked for February and March delivery for Egypt are stranded in Ukrainian ports, traders told Reuters. One cargo is still stuck in port while four others are yet to be loaded, they said.

GASC isn’t letting contractors off the hook: State grain buyer GASC has granted an extension to secure the shipments, which were purchased before Russia invaded Ukraine and blockaded its ports. However, GASC is not planning to release traders from fulfilling the shipments due to force majeure (unforeseeable circumstances), the traders said, adding that GASC’s tender book does not include a force majeure clause. The Grain and Free Trade Association (GAFTA) could arbitrate in the case of any disputes, one trader added.

The wheat will have to come from somewhere: GASC is requiring delivery of the four unloaded cargoes, even if it has to be secured from other origins, the newswire reports traders as saying.

Is stranded Ukrainian wheat being counted in our reserves figures? Potentially, according to traders, who told the newswire that the reserves figures are calculated on the basis of purchases rather than fulfilled deliveries. Prime Minister Moustafa Madbouly said this week that the government currently has enough wheat reserves to cover four months, up from 2.6 months in early April.

Egypt could receive around 7.5 mn tourists this year, an official at the UN World Tourism Organization (UNWTO) told Enterprise yesterday. The number of German tourists visiting the country is likely to rise this year, helping offset the loss of Russian visitors, said Said El Batouty, who is also a member of the UN Economic Commission for Europe and a board member of the German Travel Association (DTV). “I expect a growth rate in the German market for Egypt of up to 30% as of fall 2022,” El Batouty said. “This will compensate for a good part of the lost Russian market.”

We don’t know what this means year-on-year: The government is yet to release annual tourism figures for 2021, though we know that around 3.5 mn tourists visited the country during 1H 2021. Some 13 mn tourists visited Egypt in 2019. The government is not expecting tourism activity in 2022 to exceed 2021 levels.

Germans made up the largest group of tourists to Egypt pre-covid, with 1.8 mn visiting the country in 2019, according to Germany’s Federal Foreign Office. That number dropped dramatically in 2020 and 2021 due to the pandemic, with just 350k Germans traveling to Egypt last year.

The war in Ukraine is hurting the industry: Russia and Ukraine together accounted for 31% of our inbound tourism market before the war broke out in February.

Egypt has been reaching out to Germany and other European markets to fill the Russia and Ukraine-shaped holes in our tourism market: Officials have either lined up or begun talks with Germany, France, the UK, Italy, Poland and Estonia on ways to drive inbound tourism. Egypt has also widened the number of people eligible to obtain a visa on arrival or a pre-arrival electronic visa as it looks to support the tourism sector, and it launched a new tourism campaign (#FollowTheSun) targeting high-value markets in Europe and the US.

Amazon has five years to swap EFG GDRs for valU shares: EFG Hermes has given Amazon a five-year window to exercise its option to convert its global depository receipt (GDR) holdings into an equity stake in the bank’s consumer finance arm valU, the bank said in an EGX disclosure (pdf). The e-commerce giant recently agreed to purchase USD 10 mn worth of EFG’s London-listed GDRs with an option to convert them into a 4.255% equity stake in the company. This can be done before or in the event of a “qualified liquidity event” such as if a third-party investor invests in valU, or if the company is sold, IPOed, or otherwise listed. The transaction represents about 1% of EFG’s GDRs, which have a current market cap of USD 976 mn.

Egypt to partner with Emirati company to produce biofuels: State-owned Egyptian Petrochemicals Holding Company (ECHEM) signed an agreement with the UAE’s Rega Energy to produce algae oil, the Oil Ministry announced in a statement yesterday, without disclosing the details of the agreement. Algae oil is a feedstock for bio-jet fuel and green naphtha, which can be used to make environmentally-friendly petrochem products, the statement read.

Could this algae oil feed our big green petrochem plans? The Oil Ministry last week announced plans to build some USD 1.25 bn worth of new green petrochemical projects, including a USD 600 mn biofuel production plant set to produce biofuels from algae oil.

The European Bank for Reconstruction and Development (EBRD) has tapped Hamza Al Assad (LinkedIn) as its new associate director for Climate Strategy and Regional Delivery in the Bank’s southern and eastern Mediterranean (SEMED) region, it said in an emailed statement yesterday. A dual Egyptian and Jordanian national, Al Assad will lead the delivery of the bank’s green transition investments with public and private sector partners in Egypt, Morocco, Tunisia, Jordan, Lebanon and the West Bank and Gaza. Al Assad previously led the EBRD’s municipal and environmental infrastructure team in Jordan, and worked at the bank in Egypt between 2013 and 2017.

The government’s privatization drive got top billing on the airwaves again last night after local media got a hold of a draft document laying out its roadmap to increase private sector involvement in the economy. Kelma Akhira’s Lamis El Hadidi (watch, runtime: 2:33) and Masa’a DMC’s Ramy Radwan (watch, runtime: 10:44) both covered the story.

The transport minister gave more details on the mooted listing of Egyptian ports on the EGX: Ports in Alexandria, Damietta, East and West Port Said, Adabiya, Sokhna and Safaga will be merged into the holding company announced by the PM last week, before it is floated on the EGX, Kamel El Wazir to Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 3:10).

Also getting a mention: Cooking oil prices have risen by almost 25% since 15 May due to soaring production costs on the back of the war in Ukraine and pandemic-related supply chain disruptions, Karim Baraka, a member of the Food Export Council, told El Hadidi (watch, runtime: 4:41)

It’s a mixed bag in the foreign press this morning: AFP spotlights Egyptian composer Hesham Nazih, who scored the soundtrack to Marvel’s recent TV series Moon Knight, the National takes a look at the harsher rules placed on wheat farmers to raise local production, and Business Insider Africa talks to Sherif Taher, founder and CEO of trucking startup Naqla.

Rameda Pharma will work with the International Finance Corporation (IFC) to improve the sustainability of its operations, according to a joint statement (pdf) out yesterday. The partnership will help reduce the company’s carbon emissions and water usage, and optimize resources used for production.

The Sovereign Fund of Egypt has been made a full member of the International Forum of Sovereign Wealth Funds (IFSWF), a global network of sovereign wealth funds from over 40 countries, according to a statement. The SFE was made an associate member of the organization in 2019, which required it to implement the Santiago Principles, which consist of 24 principles that promote transparency, good governance, accountability and prudent investment practices for SWF, for three years.

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

• Majid Al Futtaim opened Supeco, a low-cost store in Sixth of October City that combines a traditional supermarket and a wholesale outlet. (MAF, pdf)
• Aspire Capital has received a license for its microfinance arm, Kheir Microfinance. (Hapi Journal)
• The National Council for Human Rights has called on the Interior Ministry to transfer imprisoned activist Alaa Abdel Fattah to the Wadi Al Natrun correctional facility for its “advanced medical facilities” in response to his ongoing hunger strike. (Ahram Online)

The Biden administration needs to do more to resolve the deadlock over the Grand Ethiopian Renaissance Dam (GERD), Egyptian Ambassador to the US Motaz Zahran told Al Arabiya. “We haven’t seen that kind of pressure for the past year, and what is needed is to continue the effort that had been spearheaded by the previous administration,” Zahran said.

The dam has long been a source of tension between Egypt, Ethiopia and Sudan: Talks over the filling and operation of the dam have been deadlocked for the past year as Ethiopia perseveres with filling the reservoir without an agreement with Cairo and Khartoum. Earlier this year, Ethiopia began to generate power from the dam and plans to go ahead with the third filling this summer, raising tensions with Egypt.

Clashes in Tripoli as rival PM tries to take power: Fighting broke out in Tripoli after the prime minister appointed by the parliament, Fathi Bashagha, attempted to overthrow the government in Tripoli, Reuters reports. Bashagha entered the capital in an attempt to take control of the government from Abdul Hamid Dbeibah who has refused to cede power after national elections were delayed in December. Dbeibah was appointed the country’s interim prime minister following UN-backed talks in 2021, and was supposed to step down ahead of the planned vote. This prompted the country’s parliament to appoint Bashagha as the country’s prime minister in March.

Egypt is following the latest developments “with concern,” the Foreign Ministry said in a statement yesterday, and urged all parties to remain calm.

Hezbollah and its allies lost their majority in Lebanon’s parliament in Sunday’s general election, according to a final tally by Reuters. The Iran-backed group secured around 62 of parliament’s 128 seats, down from the 71-seat majority they had after the 2018 election.