Monday, 20 June 2022

AM — Some MPs criticize debt spend in next fiscal year’s budget, call for more austerity

TL;DR

WHAT WE’RE TRACKING TODAY

It’s the unofficial legislation and policy issue, ladies and gentlemen, with debates in the House of Representatives over the budget and key legislation and public discussions on privatization begin.

MbS in town today: Diplomacy continues to feature heavily as well, especially as Saudi Crown Prince Mohamed bin Salman is in Cairo today for talks with President Abdel Fattah El Sisi. This is part of a three-day tour that will take the kingdom’s de facto leader to Jordan and Turkey. On the agenda: the impact of Russia’s war in Ukraine on the region and US President Joe Biden’s visit to Riyadh next month.

Lebanon gas pact tomorrow? Egypt could sign a final agreement to export gas to Lebanon tomorrow, a step which would — assuming the US approves the arrangement — pave the way for gas shipments to begin later this year.


THE BIG STORY here at home- Some MPs are registering their criticism of the Finance Ministry’s draft FY 2022-23 budget, saying it doesn’t go far enough to combat rising debt service costs.

Budget discussions continue today in the House: MPs will discuss the government’s FY 2022-2023 budget and socio-economic development plan for a second day today ahead of a possible vote tomorrow.

In brighter news, it’s full steam ahead for the government’s privatization strategy as it gauges the temperature in public consultations that kicked off yesterday with the agriculture sector.

THE BIG STORY ABROAD- It’s bad news for French President Emmanuel Macron this morning, who has lost majority control of the National Assembly (the lower chamber in France’s bicameral parliament) in a shock result following yesterday’s elections. Both left and far-right candidates saw an upswing in popularity, leading to fears of an ever-more fragmented and divisive political landscape in the country. More from the BBC, Politico, the Financial Times, CNN, Reuters, and France24.

WHAT’S HAPPENING TODAY-

The Central Bank of Egypt’s (CBE) first VC summit wraps up today at the Nile Ritz-Carlton in Cairo, according to a statement (pdf). Billed as Egypt’s largest venture capital event, the two-day conference is in partnership with GIZ Egypt and German fund of funds AfricaGrow, and organized by accelerator Changelabs. It brings together some 400 participants — including VC experts, high-profile LPs and GPs, commercial banks, and officials — to talk VC funding for fintech and fintech-enabled firms.

The Egyptian Builders Forum takes place today at the JW Marriott Hotel Cairo. The event brings together business leaders, investors and policymakers involved in the construction and contracting sectors to discuss the industry in Egypt, the Middle East and Africa.

LATER THIS WEEK-

The Aswan Forum for Sustainable Peace and Development will kick off in Cairo tomorrow and runs until Wednesday.

It’s interest rate week: The Central Bank of Egypt will meet on Thursday to discuss interest rates. A majority of analysts and economists we surveyed expect policymakers to leave rates unchanged, according to our customary poll.


DATA POINT- Almost 70k people have applied to take part in the upcoming national dialogue, El Watan reports. The state has invited more than 400 public figures to participate in the forum, set to kick off during the first week of July.

What national dialogue? Head to our explainer to learn more.

KUDOS- The IMF has given a nod to our climate change efforts, acknowledging last Thursday policies such as our National Climate Change Strategy and issuing the region’s first sovereign green bonds. It also noted the increased role the private sector is having in our climate adaptation efforts.

CORRECTION- Apologies to Dr Mahmoud Mohieldin, whose title we goofed on yesterday. Mohieldin is the special envoy of the UN Secretary General and Executive Director at the International Monetary Fund, in addition to being the UN Climate Change High-Level Champion for Egypt. He is no longer the World Bank Group's senior vice president for the 2030 Development Agenda, as we incorrectly said yesterday. Apologies again to Dr Mohieldin, whose work we’re very familiar with and are fans of at Enterprise. The story has since been corrected on our website.

More expensive cancer sticks cigarettes around the corner? Local tobacco maker Eastern Company will meet at the end of the month to discuss its prices amid rising production costs and raw materials shortages, CEO Hany Aman reportedly told Hapi Journal. Supply chain snags are posing problems for the company, which Aman said last month is facing shortages and shipping disruptions.

PSA- A friendly neighborhood reminder to FILE YOUR TAXES before 30 June to benefit from a potential partial waiver on late fees. Legislation being prepared by the Finance Ministry would waive a portion of interest payments and late fees on overdue income tax, VAT, stamp duty, and development fees. The bill got coverage last night from DMC’s Al Youm (watch, runtime: 4:33) and Sada El Salad’s Salet El Tahrir (watch, runtime: 5:48).


WAR WATCH- Ukraine war could last for “years,” says Nato chief: Supplying Ukraine with additional arms is crucial if the country is to push Russian forces out of the country, which could potentially take “years,” Nato Secretary-General Jens Stoltenberg said, according to Reuters.

But Ukrainian grain can’t wait years for export: As Ukrainian farmers prepare for the new harvest, silos remain at near full capacity with last year’s grain as Russia’s blockade in the Black Sea leaves the country unable to export, the Wall Street Journal writes. Some 30 mn tons of grain are trapped inside the country, and with little capacity for the new harvest the government says it’ll need another 10-15 mn tons of capacity once the harvest begins later this year.

The EU and US could lend a hand: The EU has offered to store Ukrainian grain while the US says it will build temporary silos on the Polish border.

And the EU is still hoping for a corridor to get grain past the Russian blockade: EU Foreign Ministers will discuss today at a meeting in Luxembourg how to move forward plans for a UN-backed corridor to get Ukrainian grain through blockaded Black Sea ports, Reuters reports, after talks between Russia and Turkey on the plan collapsed earlier this month. It’s not yet clear whether the EU is considering offering military escorts for any ships that might navigate through the blockade.

CIRCLE YOUR CALENDAR-

The Big 5 Construct Egypt (pdf) construction industry exhibition runs from 25-27 June at the Egypt International Exhibition Center (EIEC) in Cairo.

Amcham AGM later this month: Our friends over at Amcham will hold their annual general meeting on Monday 27 June at the St. Regis Cairo Hotel. Finance Minister Mohamed Maait will address the gathering.

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

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*** 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: What are the key factors that will shape the future of MENA’s K-12 education sector? The education sector is growing in importance across Egypt, KSA, and Dubai, and increasingly accounting for more of GDP. Rising population figures have made it essential to increase investments in K-12 education, with both the public and private sectors playing a role in making sure there are enough seats to accommodate new students. However, affordability when it comes to quality education remains a hurdle for the region.

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BUDGET WATCH

MPs want … more austerity?

MPs aren’t happy with borrowing plans in FY2022-2023 budget: The government’s estimates for sovereign debt in the upcoming fiscal year’s budget drew criticism from MPs during the first day of budget debate in a plenary session at the House of Representatives yesterday. Representatives from various parties voiced their concerns that the government should rein in its borrowing plans and impose more austerity measures to put a cap on the country’s debt levels.

Debt service was of particular concern: Debt service costs are expected to account for around a third of the total budget spend, while the government’s interest bill will rise 19% to EGP 690.1 bn next fiscal year, accounting for a third of spending and 49% of revenues. “I wonder why these frustrating figures have not compelled the government to resort to real austerity measures and fiscal discipline,” Reform and Development Party Spokesperson Ayman Aboul Ela said.

The government has already committed to cutting our debt-to-GDP ratio, which next fiscal year’s budget aims to bring down to 84%. The goal is to bring that figure down to 75% over the next four years, “even though this is not an easy goal, considering unfavorable global conditions,” Prime Minister Moustafa Madbouly said last month.

FinMin reminds everyone this is a crisis budget and that it’s subject to change: “We drafted the budget as a tentative spending plan, with the expectation that worsening global economic conditions will force us to spend more in the new fiscal year,” Finance Minister Mohamed Maait said during the session. Madbouly had also stressed the same notion to MPs last month, telling them that global conditions continue to shift the goalposts.

As if we needed reminding: The price of commodities such as oil and wheat have skyrocketed over the past few months, with Brent crude currently trading at USD 113.12 per barrel (up from USD 60 penciled into the FY 2021-2022 budget) and a ton of wheat rising to USD 500 (up from USD 250-320 before the Russia-Ukraine war), Maait reminded MPs. “We are under severe financial pressure,” the minister said.

And monetary tightening = higher interest bill: Global central banks, including the US Federal Reserve, have been raising interest rates in the past few months, which is driving up our debt service costs, Maait said. “We were borrowing money at an interest rate of 5%, but now we’re borrowing at 11% interest. We had to hedge against this pressure by increasing our allocations for debt interest to EGP 690 bn, from EGP 630 bn previously,” he said.

Ultimately, expect the budget to pass through parliament (albeit begrudgingly): A handful of MPs have flat out said they will not endorse the budget, including Maha Abdel Nasser, speaking on behalf of the Egyptian Socialist Democratic Party, and independent MP Diaa Eldin Dawoud. But the wider majority of independent MPs and parties — including Al Wafd and Protectors of the Nation (Homat El Watan) — signaled that they would vote in favor of the budget, despite their reservations on borrowing and certain areas of spending that they see as unnecessary. Both Al Wafd spokesperson Soliman Wahdan and House Economics Committee head Ahmed Samir called for gradually scaling back foreign borrowing and said the government should do more to achieve greater fiscal discipline.

In a league of his own: MP Mostafa Bakry, who decided he doesn’t want to endorse the budget because of the state privatization program and the government’s plans to liquidate what he calls “productive factories”' (aka the financially-stricken El Nasr for Coke and Chemicals). Bakry had a theatrical moment in parliament earlier this month during which he (falsely) claimed that the company has sound financials that do not warrant liquidation. Public Enterprises Minister Hisham Tawfik has since provided parliament with the company’s financials, which showed it ended last year in the red.

WHAT’S NEXT- Representatives will likely put the budget to a final vote on Tuesday, House Budget and Planning Committee Chairman Fakhri El Fiqi said last week.

Need a refresher on the full budget process? We’ve got you covered with our explainer.

LEGISLATION WATCH

House discusses amendments to Competition Act

House gets down to business on Competition Act amendments: The House’s Economic Affairs Committee yesterday discussed giving greater powers to the Egyptian Competition Authority (ECA) under proposed amendments to the Competition Act. The amendments, which have been up in the air since last year, will regulate mergers and acquisitions and place them under the supervision of the ECA to prevent monopolistic practices in the market.

Want an M&A? You’ll have to get through the ECA first: ECA would have the power to approve or block M&As under the legislation, said Ahmed Samir, head of the House’s Economic Affairs Committee. Fending off monopolistic practices would require that the ECA is given more power to stand up to M&As that could be a threat to competition on the market.

How it’s done now: The ECA’s role is currently limited to raising red flags, but only after a transaction is concluded. Successive antitrust bosses have sought the power to approve or reject M&As for years now.

As to what constitutes an approved M&A, from what we’re hearing, the definition is shaky at best. We’re told that the ECA would only greenlight those transactions that help save defaulting companies or improve economic efficiency, without an explanation on what that would mean.

The amendments would also change the definition of “economic concentration,” a key principle in evaluating the potential market impact of a transaction. M&A transactions would be banned by the ECA that are found to restrict or cause harm to freedom of market competition, especially when the consolidation leads to a “controlling position” or reinforces an existing “controlling position,” Samir said.

This is all too vague for comfort: We’re still getting the same, general antitrust statements we’ve been hearing since the amendments were first announced and we’ve yet to hear any details on what constitutes bad corporate practice. Is it the unfair quashing of competitors or the fleecing of customers? Can I still acquire companies if I am the dominant player? Can I acquire a company and still become a dominant player? Where does that leave current market and sector regulators (FRA on capital markets)? As always, the devil will be in the details.

A positive: The House wants some transparency from the ECA: The House committee recommended that the ECA submit quarterly reports on its performance and targets to the chamber. It also wanted a report on the ECA’s supervisory powers and how much money was transferred to the state treasury from settling competition disputes in FY 2021-2022.

The ECA got a boost in finances recently, with the House committee approving an EGP 50.5 mn budget for the authority in the upcoming fiscal year that starts in July, up from EGP 40.8 mn this fiscal year.

ECONOMY

Fitch slashes Egypt’s GDP growth forecast for next fiscal year by more than 1 point

Fitch has cut Egypt’s GDP growth forecast for FY2022-2023 to 4.4% from a prior projection of 5.5%, saying the economy will grow more slowly next fiscal year due to inflationary pressures, it said in its monthly outlook on North Africa.

What they said: “We estimate that growth has slowed to 3.6% in 1H2022 and will continue to weaken over the coming quarters as a double-digit inflation weighs on household income, public investment slows and a full recovery in the tourism sector is delayed,” Fitch Solutions said.

REMINDER- Egypt’s annual inflation hit a three-year high of 13.5% in May as rising global commodity prices and the devaluation of the EGP put upwards pressure on consumer prices, leaving it further outside of the central bank’s 7% (± 2%) target range.

It’s not only us: Fitch says it holds a “pessimistic macroeconomic outlook” for most North African countries after the Russian invasion of Ukraine sent food and energy prices soaring. Hardest hit will be the region’s net oil importers Morocco, Egypt and Tunisia, as the crisis weighs on their economic activity and fiscal and external deficits, it said.

North Africa’s real GDP growth will decelerate from 5.4% in 2021 to 4.2% in 2022 and 3.8% in 2023, Fitch predicts, as inflation and monetary tightening continue to impact private consumption and slower economic growth in Europe hits exports.

Higher rates across the region? Central banks will continue a monetary tightening cycle, Fitch predicts, forecasting the Central Bank of Egypt (CBE) to hike interest rates by an additional 100 bps during the remainder of 2022 in a bid to bring inflation down. The CBE has hiked rates by 300 basis points (bps) since March, when it also allowed the EGP to slip against the USD. Most analysts we polled expect the bank to keep rates unchanged in its upcoming meeting on Thursday, though many are also predicting another 50-200 bps in hikes by the end of the year.

PRIVATIZATION WATCH

Public weighs in on state plans to fully exit from parts of agriculture sector within three years

The gov’t is taking the public’s pulse on its privatization plans. First up: Agriculture. The government yesterday began the first of a series of public consultations on its ambitious state ownership policy document, according to a cabinet statement. Cabinet’s Information and Decision Support Center (IDSC) laid out the state’s plans to exit from parts of the agricultural sector in a workshop with officials and businessmen involved in the sector.

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. 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.

IDSC head Osama El Gohary laid out government plans to exit parts of the agriculture sector, including:

  • An exit within three years from most farming activity, including fruit and vegetable farming, all grain farming except for wheat, forestry, fishing and fish farming, and livestock. The state would maintain its presence in the dairy sector, though it could lower its investments.
  • The lease of livestock and fish farms to the private sector, community associations, and foreign investors.
  • Boosting the private sector’s role in national agriculture projects, including the mega 1.5 mn-feddan reclamation project.

USD 10 bn in export potential — if challenges can be addressed: Obstacles facing growth in the sector include water scarcity, wasted crops, financing hurdles, underemployment, and a lack of modern production technologies and R&D funding, the IDSC said. But if the private sector can step in to help address these challenges, there are gains to be made — with an estimated USD 10 bn in untapped export potential alone.

Participants welcomed the plans — with some pushback: Some agricultural industries might need continued government support, for example on modern irrigation techniques and exports, said former agriculture minister Adel El Beltagy. The state would need to enforce regulating the use of water by the private sector following exits and to continue to criminalize encroachment on agricultural land, he added. Ayman Farid Abu Hadid, another former agriculture minister, said a three-year timeframe for exits could be hard for some parts of the sector — particularly land reclamation.

REMEMBER- Every Sunday and Tuesday will see workshops on how privatization plans will affect specific industries, with a food industries-focused workshop planned for this Tuesday. Each Thursday is reserved for workshops with the House of Representatives or the Senate, along with think tanks. You can find more details on the online platform for the consultations.

SPOTLIGHT

ASDC’s Ibrahim El Missiri on putting Soma Bay on the map, building its identity, and making it a first-home destination

How ASDC is transforming Somabay to a first-home destination: When Somabay first emerged as a tourist destination over two decades ago, it had little to offer other than its gorgeous 11-km coastline with a five-and-a-half km sandy beach. Fast forward to today and developer Abu Soma Touristic Development Company (ASDC) has made Somabay a home to a wide selection of luxury hotels and residential properties that exude a certain lifestyle.

Enterprise sat down with Ibrahim El Messiri, the CEO of ASDC — the master developers of Somabay — who talks us through his strategy to make Somabay a first-home destination where people and families can live, work, study, and enjoy themselves. For El Messiri, this meant finding the right target market and creating the right identity and lifestyle for Somabay.

El Messiri is no stranger to creating communities and developing cities, having worked with the likes of Bechtel for 15 years and Madinet Nasr Housing for three. His career saw him work on projects such as the Doha International Airport, the Channel Tunnel in the UK, and Abu Dhabi Port.

** LISTEN TO THE DISCUSSION AS A PODCAST on our website (runtime: 48:48) or tune in via Apple Podcasts | Anghami | Google Podcasts | Spotify). Or you can read edited excerpts of his own words below:

The origin story of Somabay is quite interesting: The story I hear is that people from the Swedish Embassy were touring the area to see the progress of projects in the area at the time and they saw this bay and all its reefs and people slowly started going there for diving.

Private developers soon acquired the land and there was a gentleman called Wagih Hanna who worked with the original shareholders to start building hotels on the property. The idea of Somabay began in the late ‘80s and the company was set up officially in 1991 with financing from the World Bank. The first hotels opened in 1998 which were the Sheraton and the Robinson.

I joined Somabay in November 2014 and I inherited a business that had five hotels — most of them at the end of their lifecycle and needing renovation — a golf course, a spa, and a semi-finished marina. This was at a tumultuous time for the tourism industry and the company was under a lot of duress and our staff were loyal, but demotivated.

Transforming Somabay to what it is now was quite a daunting task. The first thing we needed to do was plug the cashflow gap so that I could pay salaries. The second thing is that we needed to rebuild everything in a way where it was both functional and stylish.

There were certain aspects that we couldn’t ignore if we wanted to turn Somabay into a first-home destination. The three biggest components to make Somabay family-friendly were shopping, education, and healthcare. Initially we started with a medical center — it picks up maybe 95% of all cases, while more critical cases go to Hurghada or El Gouna. As for education, we recently signed with GEMS to launch a school, and I think it’s a necessary investment because there’s a big gap in the Red Sea when it comes to quality education. We’re now going through the final steps to get approvals from the necessary ministries.

Somabay was for those too young to have bought into El Gouna: When I was younger I would spend my vacations in El Gouna and by the time I was established enough to buy something there, I realized I had missed the boat. Everything was already sold and young people who wanted to be part of that community could only find small units that were far away from the sea. So these people in their late 20s and 30s — who want to wake up, put on their flip-flops, and head to the beach — are one of our main target markets. We said, “Okay we need to bring like-minded people and they’ll bring their friends.” And that’s what happened. One person would bring 10 more and so on, and it grows with time.

And a big part of it is sports: The activities we provide at Somabay reflect a growing trend among our generation here in Egypt. However, the international community is also taking notice and we realized that a lot of sports teams set up camps in Somabay. We’re very close to signing an agreement to launch an aquatic center for premier league swimmers who would prefer to swim and train here than in cold European countries. We’ve also previously signed a long-term agreement with TriFactory to host their endurance festival and last year we introduced the Oceanman race. Soma also has lawn tennis, foot golf, kite surfing, and much more.

We wanted to create a new architectural design that would define our character. El Gouna already had that Nubian style architecture so we wanted to do something different. We engaged one of the coolest architects in town, Raef Fahmi Architects, and they made us this really avante-garde design. You know it’s going to work when people hate it when they first see it [laughs]. If something is controversial, then it starts a conversation.

The current real estate climate is a bit difficult amid the surge in building materials prices — but history has taught us well: In 2016 during the devaluation, we learned a very harsh lesson and we were able — with difficulty — to mitigate and absorb the hardships at the time. We’ve actually taken a lot of hits in the past 10 years, and over time you learn how to get through it. First of all is understanding that this is a crisis that will end and then you start using different tactics. The biggest risk is finishing materials so you start off with building your inventory and securing those rates even if it puts a lot of burden on your cashflow.

Looking forward, we’re now adding three new hotels to the mix, but we haven’t yet signed contracts so I can’t say much.

MOVES

Telecom Egypt (TE) has appointed its senior finance director Wael Hanafy as the company’s new head of investor relations, TE said in an email to Enterprise. Hanafy replaces Sarah Shabayek, who said she is taking on an unspecified new role outside telecoms but will continue to serve TE as an investment advisor for capital markets transactions.

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LAST NIGHT’S TALK SHOWS

Leading the airwaves: Yesterday’s tripartite summit between Egypt, Jordan and Bahrain in Sharm El Sheikh got coverage from Kelma Akhira (watch, runtime: 1:00) and Al Hayah Al Youm (watch, runtime: 1:59).

The Egyptian, Jordanian and Bahraini leaders welcomed the upcoming Riyadh summit in July that will see US President Joe Biden meet with the leaders of the GCC countries, Egypt, Iraq, and Jordan, a statement by Ittihadiya read. President Abdel Fattah El Sisi, Jordan’s King Abdullah, and Bahrain’s King Hamad bin Isa Al Khalifa also discussed ties between the three countries, and developments in the region and abroad.

EGYPT IN THE NEWS

In a quiet day for mentions of Egypt in the foreign press, Reuters takes a look at the small community of stranded Ukrainian tourists forging a new normal on our Red Sea coast.

Also making headlines:

  • Hollywood celebrities read out an extract of the book written by activist Alaa Abdel Fattah. (Evening Standard)
  • AUC students’ invention could help us save energy: Four AUC undergraduate students created a glow-in-the-dark concrete as part of their graduation project. (Al Monitor)

ALSO ON OUR RADAR

The number of mobile internet users in Egypt grew 12.8% in 1Q2022 to some 64.6 mn users, according to a CIT Ministry report (pdf). ADSL subscribers rose 11.6% y-o-y during the January-March period to 10.3 mn subscribers. Mobile subscribers in Egypt dropped some 5.7% y-o-y to 94.1 mn subscribers, read the report, which attributed the drop to a switch in methodology to only count active lines rather than all registered lines.

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

  • HSBC Egypt is now offering low-interest personal green loans that can be used to purchase electric vehicles and household solar panels. (Statement, pdf)
  • The El Gouna Film Festival, which was scheduled for October, has been postponed until next year, with the festival’s organizing committee citing “current global challenges.” (Statement)
  • Cairo-based furniture e-commerce startup Beyooot has launched its platform in Egypt. The company is targeting customers in Saudi Arabia and the UAE and plans to expand to other GCC countries by the end of the year. (Statement, pdf)
  • The Tourism and Antiquities Ministry will offer a 50% discount on tickets for Egyptians and foreign tourists visiting archeological sites and museums in Upper Egypt until the end of August. (Statement)

PLANET FINANCE

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Time to batten down the hatches: The business press is warning of coming storms on all fronts. Investors should prepare for potentially extreme movements in the markets as central banks end years of easy monetary policy to curb inflation, writes James Mackintosh in the Wall Street Journal. As the US Federal Reserve focuses on fighting inflation, Chairman Jerome Powell said he wouldn’t “declare victory” over inflation until it has been falling for months and spoke of the need to figure out which level of interest rates will slow the economy. This likely means that the Fed will continue hiking rates until “something breaks,” Mackintosh writes.

Don’t expect any quick fixes: One Fed official yesterday said it could take “a couple of years” for inflation to fall back to the US central bank’s 2% target, the Financial Times reports.

This is more than just a strategy shift — its a sea change for policy: The Fed’s move to hike rates marks an end to decades of easy money policy ready to back the markets whenever they wobbled, the Washington Post says, heralding the start of tougher times ahead for almost every asset class and corner of the economy.

And it’s not just VCs who are bunkering down for the nuclear winter: Private equity giants are getting nervous, too, as the cheap borrowing used by the industry to fund a transactions spree over the past two years comes to an end, the Financial Times reports. New buyout funds are now struggling to find new cash, while listed firms have seen their share prices fall heavily since November. “This is a time of reckoning for our industry,” said Phillip Freise, co-head of European PE at KKR.

None of this bodes well for stock markets: IPOs are on track for the weakest first half since 2005, according to data compiled by Bloomberg, which counts just USD 198 bn worth of IPOs and follow-on sales raised so far this year.

On the bright side: Many see M&A activity continuing in earnest despite fears of a recession because companies cannot afford to ignore disruptions in their industries from new technologies, experts at one of Wall Street’s top investment banks, Centerview, tell the Financial Times. Centerview expects M&A activity this year to match the record USD 4 tn achieved in 2021, as companies look to add new, innovative products and services to their portfolio to stay ahead of the competition, representatives from the bank tell the salmon-colored paper. Global M&A volumes hit USD 1.88 tn in the first five months of the year, down from USD 2.92 tn in 2021 but still above pre-pandemic levels of USD 1.57 tn, Refinitiv data shows.

Also worth noting:

  • Eni gets a piece of Qatar’s mega gas project: Italian energy firm Eni has acquired a stake in Qatar’s USD 29 bn North Field East (NFE) expansion project, becoming the second foreign firm to invest in the expansion project after TotalEnergies. (Statement)

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THE CLOSING BELL-

The EGX30 fell 1.4% at yesterday’s close on turnover of EGP 431 mn (48.7% below the 90-day average). Foreign investors were net sellers. The index is down 18.6% YTD.

In the green: Abu Dhabi Islamic Bank Egypt (+3.5%), Cleopatra Hospitals (+2.3%) and Housing and Development Bank (+0.5%).

In the red: Qalaa Holdings (-4.7%), GB Auto (-4.5%) and MM Group (-4.2%).

Asian markets are showing a mixed picture in early trading this morning and futures suggest a similarly checkered start for European markets, while Wall Street looks set to open in the green across the board later on today.

DIPLOMACY

Shoukry, Borell agree on Egypt-EU 2027 partnership priorities: Foreign Minister Sameh Shoukry and EU High Representative for Foreign Affairs and Security Policy Josep Borrell signed to endorse the Egypt-EU Partnership Priorities, which will guide projects between Egypt and the bloc until 2027, according to a tweet by Foreign Ministry spokesman Ahmed Hafez. The two men met in Luxembourg yesterday for the EU-Egypt Association Council.

blackboard

Comparing education markets in Egypt + KSA + UAE and how they’re expected to grow: Although their demographics and geographic distribution vary, Egypt, Saudi Arabia, and the UAE have similar education market dynamics. All three markets have similar distributions of private and public schooling — and all three are expected to see more investments as the market grows to accommodate new students and increase the quality of education for existing ones.

By the (student) numbers: As the Arab world’s most populated country, Egypt has the largest student population among the three countries, with an estimated 23 mn K-12 students in 2020. Greater Cairo houses around 20% of the total K-12 students (or 4.6 mn), according to a report (pdf) by Colliers. This is a massive number that is more than double the 9.1 mn K-12 students (pdf) Colliers says were in Saudi Arabia as of 2019.

State investments in public education : Egypt has earmarked nearly 26.8% of its 2.1 tn budget for FY2022-2023 to the education sector, with the EGP 555.6 mn to go towards plugging teacher and classroom shortages and developing school infrastructure. Meanwhile, Saudi Arabia is putting aside 19.4% of its SAR 955 bn budget for FY2022 for education, which is a smaller percentage of its overall spending plan but a larger monetary figure than at approximately EGP 922.4 bn. In the UAE, the government is spending 16.27% of the total budget — AED 9.6 bn (c.EGP 48.9 bn) — to public and university education programs.

And private schools are growing their share of the region’s education market in Egypt…: In Egypt, private schools accounted for only 10.6% of the total student population in 2020. However, private sector student enrolment rates hit a compound annual growth rate (CAGR) of 6.3% versus 3.6% in the public sector, which Colliers notes indicates “a growing preference towards private schools.” Meanwhile, in Greater Cairo, the private sector represented 29% of total student enrolment.

…And the GCC: The trend holds true as well in Saudi, where less than 20% of all schools are private, and only 6% of all schools are internationally branded. On the other side of the spectrum, UAE started its expansion of the private sector in education long ago, with 73% of schools in the Emirates being owned by private players as of 2017.

Ultimately, both public and private schooling are expected to grow further to accommodate rising populations: Egypt’s population growth by 2030 is expected to increase the demand for additional school seats by 11 mn nationwide with 2.3 mn in Greater Cairo, based on Colliers projections. Out of the total seats, 2.1 mn are expected to be delivered by the private sector nationwide with 1 mn in Greater Cairo. Saudi’s population is expected to grow to 44.9 mn by 2030 compared to 33.4 mn in 2019, with Colliers estimating that the kingdom will need an additional 1.1 to 2.1 mn student seats by 2030. While a similar comparison wasn’t available for the UAE, Dubai alone will need 370k private schools by 2030, compared to 290k in 2018, according to Colliers estimates.

Private sector growth is being primed by reductions in foreign ownership limits: The Egyptian government in late 2019 imposed a 20% cap on foreign ownership of both private and international schools but later allowed all K-12 schools to formally apply for exemptions to the ownership cap if needed. The UAE also eased its investment process for schools and other sectors last year. Early to the party, Saudi Arabia fully lifted its foreign ownership limitations back in 2017 to allow investors from abroad to own 100% of K-12 schools. The move was effective, with Colliers writing “the education sector has become one of Saudi Arabia’s leading investment sectors with many regional, international investors, and operators actively planning or entering the K12 market.”

But affordability is key to making sure the private sector can attract enough students: The issue of affordability was flagged as a major obstacle to increasing demand for private education by Colliers (pdf) a few years back as well as the more recent analysis on Saudi that we’ve cited above. In Egypt, while the amount of households that can afford upper-middle or high-priced schooling is expected to grow, the vast majority of schools will need to continue to serve middle-income households and below. In 2020, around 97% of schools nationwide were affordable for middle-income, low-middle, economic, and low-cost households. If the private sector will expand its education offerings, it will need to incorporate these households into its pricing strategy.

And rolling out new curriculums could also make them stand out: As of 2020, Egypt’s most prevalent curriculum among top private school in Greater Cairo is the British System at 31%, followed by the International Baccalaureate (29%), American (26%), Canadian (7%), and French, German, and other systems contributing the final 7%. Almost 35% of these schools offer more than one curriculum, Colliers notes.


Your top education stories for the week:

  • Senate wants the gov’t to up education spending: The Senate Financial and Economic Affairs Committee has recommended the government allocate another EGP 2.5 bn to education in FY 2022-2023.
  • A transport-focused research college will be set up under an agreement signed by the higher education and transport ministries.

CALENDAR

OUR CALENDAR 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.

JUNE

20 June (Monday): Egyptian Builders Forum, JW Marriott Hotel Cairo.

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

21-23 June (Tuesday-Thursday): Commonwealth Business Forum, Kigali, Rwanda.

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

25-27 June (Saturday-Monday): Big 5 Construct, Egypt International Exhibition Center.

26 June (Sunday): 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.

27 June (Monday): Amcham annual general meeting, St. Regis Cairo Hotel.

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: Egypt and Israel will sign an agreement with the EU to increase LNG exports.

June: Eastern Company meets to decide on prices of its tobacco products amid rising production costs and scarcity of raw materials.

JULY

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

July: Actis’ expected sale of its majority stake in Lekela to Infinity and Masdar’s Infinity Power.

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

First week of July: The national dialogue called for by President Abdel Fattah El Sisi kicks off.

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.

August: Sharm El Sheikh will host the African Sumo Championship

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: Estate Waves Egypt will launch its first real estate exhibition through metaverse technology in September.

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

6-9 September (Tuesday-Friday): Gate Travel Expo 2022, El Kobba Palace, Cairo.

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.

26–27 September (Monday-Tuesday): The Africa Women Innovation and Entrepreneurship Forum (AWIEF) at the Cairo Marriott Hotel.

OCTOBER

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.

10-16 October (Monday-Sunday): World Bank and IMF annual meetings chaired by CBE Governor Tarek Amer, Washington, DC.

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.

3-5 November (Thursday-Saturday): Egypt Fashion Week.

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

7-18 November (Monday-Friday): Egypt will host COP27 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.

MAY 2023

22-26 May (Monday-Friday): Egypt will host the African Development Bank (AfDB) annual meetings in Sharm El Sheikh.

EVENTS WITH NO SET DATE

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.

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.

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.

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