Sunday, 26 June 2022

AM — Central Bank of Egypt leaves rates unchanged in its latest monetary policy meeting

TL;DR

WHAT WE’RE TRACKING TODAY

It’s looking like another week packed with new, ladies and gentlemen, with the House of Representatives looking to get done with as much of its legislative agenda as it can before the summer recess. Meanwhile, the Madbouly cabinet is pressing ahead with its consultations on privatization.

Oh, and we got some good news today from the auto sector, which has seen a dearth of good news of late.

And it’s a short week, too, as the nation takes Thursday off in observance of the 30 June Revolution. Prime Minister Moustafa Madbouly confirmed over the weekend that public and private sector workers will take the day off.

enterprise

** BUT BEFORE WE GET STARTED, we’re very excited to announce our first official event. Longtime readers will know we often hold lunches and breakfasts with small groups of readers. We’re going much bigger later this year.

This fall, we’re gathering an exclusive group of CEOs, C-suite officers, finance folks and more to talk about how we’ll finance green projects in Egypt in the wake of COP27. The idea is to keep the conversation going post-COP and dive into the nitty gritty of the financing tools, laws, projects, problems and ideas that will be necessary to drive a fundamental shift in our economy.

Want to learn more? Drop us a line. Whether you’re interested in attending or want to discuss how to put your brand front and center, reach out to us on climatex@enterprisemea.com.

Stay tuned for more details…


THE BIG STORY here at home has to be the Central Bank of Egypt (CBE) choosing to hold rates during last Thursday’s crucial Monetary Policy Committee (MPC) meeting. While the decision came as a surprise to some, most of the economists we polled had predicted the move as May’s inflation data was below expectations. And while the Fed had raised rates earlier this month for the first time in four years, the CBE does see inflation as being transitory. Not to mention the government emphasizing reliance on FDI over hot money in the past week. We break down what the CBE said in today’s Economy section.

Competition Act debate continues this week: The House Economic Committee will meet today to discuss the contentious amendments to the Competition Act (also known as the Antitrust Act), which give greater powers to the Egyptian Competition Authority (ECA) to regulate M&As. After spending last week discussing proposed amendments to the Competition Act, officials from the central bank, the Financial Regulatory Authority (FRA), the EGX, and the Egyptian Competition Authority (ECA) had been ironing out differences of opinion on the proposed amendments (likely over jurisdictions).

Where’s the beef? These have largely been settled, said Ahmed Samir, who chairs the House Economic Committee. There are some differences outstanding between the FRA and ECA and today’s discussions are hoped to put these to bed, he said. Once that’s done, the committee is expected to prepare its report on the amendments and debates.

WHAT’S HAPPENING TODAY-

The government is holding another round of public consultations today over the state ownership policy document — which will govern how the state plans to exit key sectors of the economy. Every Sunday and Tuesday will see workshops on how privatization plans will affect specific industries, with each Thursday reserved for workshops with the House of Representatives or the Senate, along with think tanks.

Today’s sector? Electronics manufacturing, according to the cabinet’s online platform for the consultations.

FOR TOMORROW-

Will President Abdel Fattah El Sisi travel to Oman tomorrow? El Sisi will hold talks with Omani officials over a two-day visit to the country that kicks off Monday, according to the state-run Oman News Agency (ONA, which cites a statement from Oman’s Diwan of Royal Court.

Amcham AGM: Our friends over at Amcham will hold their annual general meeting tomorrow at the St. Regis Cairo Hotel. Finance Minister Mohamed Maait will address the gathering.


The Road to COP27: As the clock ticks down towards the all-important COP27 climate conference, Narrative PR is hosting a series of web talks with the organizers, leaders and policymakers shaping the agenda in Sharm El Sheikh this November.

Mohieldin talks investments versus loans: Mahmoud Mohieldin, the special envoy of the UN Secretary General, executive director at the IMF, the UN Climate Change High-Level Champion for Egypt and one of the leading figures building support for COP27’s agenda, makes a second appearance in the talks to call for ramping up investments in renewable energy projects rather than relying on debt. The world needs to implement USD 4 tn-worth of renewable energy projects, which has become an easier task seeing as climate mitigation technology has seen its cost decrease 85-90% over the past decade, he added.

What we’ve been doing right: Egypt has a huge potential for renewable energy projects and has signed several MoUs with international companies in the past period, he said. He also pointed out the importance of implementing other climate mitigation initiatives such as recycling and industrial optimization to reduce emissions. Separately, Mohieldin also gave a shout out to the Decent Life initiative which is now incorporating climate mitigation projects as part of its multi-year infrastructure investment plan designed to develop the country’s rural areas.

You can watch his segment here (watch, runtime: 07:51).

Speaking of COP27 and financing, African nations are worried the climate commitments could actually hinder development, as concerns over carbon emissions take precedent over developing countries’ growth using traditional energy sources, several leaders said at the African Energy Forum in Brussels on Thursday, Reuters reported. “At COP27, we are expecting the G7 and all developed countries to consider in the energy transition letting African countries develop gas which finances electricity for our citizens and helps industrialize our countries,” said Senegalese Vice Petroleum Minister Cheikh Niane. COP26 in Glasgow failed to deliver financial support to developing countries to mitigate and adapt to the effects of climate change.

COP 27 will focus on agreements to finance fuel and power projects, especially climate-friendly ones like ramping up green ammonia for shipping in the Suez Canal, said Ayman Soliman, CEO of the Sovereign Fund of Egypt. “We want to do projects and to unlock financing … we've been trying to speak the language of the rest of the world but now the world needs to look at us and speak our language.”


THE BIG STORY ABROAD continues to be the US Supreme Court’s landmark ruling on Friday that overturned Roe v. Wade, removing women in the country’s constitutional right to abortion and paving the way for states to enact abortion bans. Demonstrators have flocked to the court to protest the ruling. Abortion now already is or is soon to become illegal in at least 16 US states. The story is getting ink everywhere: Reuters | AP| NPR | New York TImes | Washington Post.

MARKET WATCH-

More signs that the EU’s rift with Russia is imperiling Europe’s green transition: Germany will propose a delay at the G7 summit kicking off today to a prior commitment to stop financing overseas fossil fuel projects by the end of 2022, Bloomberg reports, citing people it says are familiar with the issue. Per a draft text seen by Bloomberg, Germany wants to push the group of wealthy nations to “acknowledge that publicly supported investment in the gas sector is necessary as a temporary response to the current energy crisis.” Germany is among the nations with most to lose if Moscow withdraws its gas supply to Europe, which sources some 40% of its gas from Russia. The G7 summit runs from today until Tuesday in Bavaria.

CIRCLE YOUR CALENDAR-

Key stats from OPEC drop Tuesday: The oil cartel will release its annual statistical bulletin on Tuesday, 28 June, the organization announced in a press release. The flagship publication provides data on the global hydrocarbons industry, with a focus on the 13 OPEC member countries. Market watchers will be paying close attention to the figures this year, given rising energy prices brought on by a major supply-demand imbalance, the ongoing energy crisis in Europe, and ever-louder calls to transition away from polluting fossil fuels.

The deadline for companies to submit bids for the redevelopment of the National Democratic Party headquarters is this Thursday, 30 June.

The government’s fuel pricing committee will likely meet to review fuel prices as part of its quarterly review sometime next week.

The national dialogue to set Egypt’s political and economic roadmap will also kick off next week. President Abdel Fattah El Sisi had called for the dialogue in April. Check out our explainer on the dialogue, its agenda, participants, and targeted outcomes here.

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

enterprise

*** It’s What’s Next day: We have our weekly deep-dive into what makes and shapes pre-listed companies and startups in Egypt, the UAE and KSA, touching on investment trends, future sector insights and growth journeys.

In today’s issue: 2021 was a bumper year for fintech funding in Egypt, with total investments in the sector more than quadrupling to USD 159 mn from 2020. Now, CBE-backed initiative Fintech Egypt released its Fintech Investment-Focused Landscape Review, which looks at what went down in the first half of this year.

***
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enterprise

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ECONOMY

A less hawkish CBE?

The Central Bank of Egypt (CBE) kept interest rates unchanged in its meeting last Thursday, breaking a run of rate hikes in its two previous meetings to tackle high inflation. The CBE left the overnight deposit rate at 11.25% and the lending rate at 12.25%, while the main operation and discount rates remain at 11.75%, it said in a statement (pdf) following the meeting. The bank’s monetary policy committee (MPC) has hiked rates by 300 bps since March.

The move was predicted by most analysts we polled: Five of eight analysts and economists surveyed by Enterprise expected the MPC to leave rates unchanged in its meeting after inflation in May came in lower than expectations despite reaching a three-year high of 13.5%. They forecasted the committee would take some time to weigh the impact of its latest 200 bps hike.

But it came as a surprise to others: The decision defied expectations of a 50 bps hike in the benchmark rate and a 25 bps hike in the lending rate in a wider poll conducted by Reuters. Only three of 13 analysts Bloomberg surveyed expected rates to remain unchanged.

Rationale #1: High inflation is an import resulting from the war in Ukraine, and will likely prove transitory. “The MPC treats the developments stemming from the Russo-Ukrainian conflict to be among the exogenous shocks that are outside the scope of monetary policy and yet may lead to transitory deviations from pre-announced target rates,” the CBE said in its statement.

Rationale #2: The CBE needs time to assess the impact of prior hikes. “The MPC takes note of its policy rate hikes in the previous two meetings and will continue to assess their impact on inflation expectations and other macroeconomic developments over the medium term,” the committee said. With its recent rate hikes, the MPC has already “frontloaded expectations of marginal increases in future inflation,” Naeem Brokerage’s Allen Sandeep said in a note, adding that he expects inflation to stabilize in the coming months “as global commodity indices cool off.”

Most expect inflation to peak this summer: Beltone, CI Capital, and Arqaam all expect inflation to peak in August, with estimates ranging from c.15-18%, and to end the year above the CBE’s target range.

A less hawkish CBE? The central bank reiterated that inflation rates above its 7% (±2%) target will be “temporarily tolerated” until 2023, when it expects rates to decline.

What about our carry trade? The central bank’s earlier hikes have yet to reflect on treasury yields, according to Beltone’s Alia Mamdouh, adding that “the decision was key to assess the pace of treasury yields developments in the meantime.” Our real yields remain in negative territory as a result of inflationary pressures.

FDI > hot money: Government officials have been emphasizing the need to shift our priorities to FDI and increased exports over hot money in recent weeks, after risk-off sentiment and global monetary tightening spurred some USD 20 bn in capital outflows since the start of the year.

Slower economic growth expected in the near term: The CBE is expecting economic activity to “expand at a slower than projected pace, mainly as a result of the unfavorable spillovers emanating from the Russo-Ukrainian conflict,” it wrote.

TRANSPORT

USD 659 mn in contracts signed for Cairo’s Metro Line 4

Thales, Orascom Construction and Colas Rail have landed a contract for construction work on the first phase of Cairo’s fourth metro line, Thales said in a statement last week.

The contract is worth some USD 659 mn, with USD 159 mn of that for Colas, the company said in a separate April statement (pdf).

About Cairo Metro Line 4: The first, 19-km phase of the line will connect Cairo, Giza and Sixth of October City. It will feature 16 stations, and provide access to the Grand Egyptian Museum and the Giza Pyramids. It is expected to take six years to complete. The second, 23.5-km phase, will connect to New Cairo.

Who’s doing what: Colas will be responsible for overseeing the project as well as installing the power supply and assisting with building the track and signaling. Orascom will handle the civil engineering works and build the control center, while Thales will supply and install the comms, control and ticketing systems.

Financing: The project is being financed by a JPY loan provided by the Japanese International Corporation Agency (JICA).

It isn’t clear exactly what Mitsubishi’s role is now: Mitsubishi and Orascom signed an initial USD 800 mn contract (pdf) in October 2020 to carry out most of the works, including the signaling, power supply, comms, ticketing, track work and the depot. Under the agreement, the Japanese conglomerate will supply equipment for the railway systems. Mitsubishi will also supply 23 trains for the line under a EGP 5.8 bn contract.

Other parties: A consortium of Hassan Allam Construction, Arab Contractors, Petrojet, and Concord are building (pdf) 12 of the stations along the line.

ELSEWHERE ON THE METRO –

Alstom will submit its bid for Cairo Metro Line 6 by the end of July, Andrew DeLeone, president of Alstom for Africa, Middle East and Central Asia, said at a meeting with International Cooperation Minister Rania Al Mashat. (Statement). An Alstom-led French consortium is set to work on systems, tracks, and the manufacture and supply of “mobile units” for the new line.

DEBT WATCH

GB Auto’s Drive closes first bond issuance

GB Auto’s car finance arm Drive Finance has closed its first EGP 700 mn corporate bond issuance as part of a wider EGP 2 bn program, according to a press release (pdf).

Where the money’s going: The proceeds will be used to “deleverage Drive’s balance sheet” and unlock further chances for growth, the release read. The issuance is designed to diversify Drive’s sources of funding, Marina Kamal, investor relations head at GB Auto, told Enterprise.

Further down the road: Drive expects to go ahead with the rest of the program over the next two years, Kamal told us.

About Drive: A subsidiary of GB Auto’s financing arm, GB Capital, Drive offers factoring and car loans to individuals and companies. The company landed a consumer finance license in 2021.

Advisers: CIB was the sole arranger and adviser for the issuance. Dreny and Partners acted as the legal advisor, and Change Consultants audited the issuance, Kamal told Enterprise.

EDITOR’S NOTE- Corrected on 26 June, 2022

An earlier version of this story incorrectly stated that the program is for securitized bonds. Drive’s program is for regular corporate bonds. The story has also been updated to reflect that CIB was the sole arranger and adviser for the issuance.

INVESTMENT WATCH

German-Egyptian EV + Aldi setting up shop?

German-Egyptian EV cooperation in the works: An as of yet unnamed German car manufacturer will soon sign an agreement with an Egyptian company to cooperate on the local production of electric vehicles, Trade Minister Nevine Gamea said following a visit to Berlin, according to a ministry statement on Thursday. Gamea did not disclose the names of the companies.

The government is looking to attract more German automakers to Egypt to produce both conventional and electric cars for the Egyptian market and for export across the region, as part of government efforts to localize the automobile industry, Gamea said. The minister discussed potential cooperation with German companies through the localization of German auto industry tech. She also spoke with an unnamed German firm that manufactures steel for the automobile industry about partnering with an Egyptian firm to set up a factory here.

We already have a German partner in EV batteries: Enterprise recently learned that El Nasr Automotive is partnering with Germany’s FEV Group to consult on how to build the EV battery sector from scratch while also looking for a Chinese partner to help with the manufacturing.

Separately, Mercedes-Benz recently received a plot of land in the Suez Canal Economic Zone (SCZone) for a logistics base that will distribute cars locally and for re-export, raising hopes that the company could restart local assembly in Egypt after it shut it down in 2015.

IN OTHER INVESTMENT NEWS-

Is Aldi coming to Egypt? Supermarket chain Aldi is also looking at potentially expanding to Egypt, according to the Trade Ministry statement, which said Gamea held “extensive meetings” with the chain’s officials to discuss the plans. Aldi officials are expected to visit Cairo in September to look into opening up branches here. Aldi operates over 10k stores in 20 countries.

AUTOMOTIVE

We’re not done with auto news just yet

Abou Ghaly Motors is now in the final stage of negotiations with Chinese automaker Geely to begin producing their cars in Egypt under a long-term contract, Abou Ghaly’s commercial director, Tamer Kotb, told Enterprise. Abou Ghaly is conducting feasibility studies and the two sides are now finalizing details including pricing, volumes, local component usage rates, and what kits to import, he explained. Geely is expected to provide the know-how, technical support, and quality control.

Contracts are expected to be signed by the end of July, with an eye to starting production in August 2023, Kotb added. The cars will be produced at the factories of the Arab Organization for Industrialization’s Arab American Vehicles Company in West Cairo. The company plans to start by producing 4k cars in the first year and grow output by 20% annually until it reaches 7k cars per year, Kotb said.

Abou Ghaly is accelerating the timeline as importing cars to the Egyptian market becomes more difficult, Kotb added. The move also comes amid the state’s local manufacturing push — including the launch of its Egyptian Automotive Industry Development Program (AIDP). The automaker will begin by using 45% local components and gradually increase that percentage with time, he told us.

The local automaker will start with one of Geely’s traditional economy lines before moving into EVs: Abou Ghaly plans to soon shift to manufacturing Geely’s electric vehicles (EVs), but is waiting for local demand to grow and the infrastructure to develop, Kotb explained.

The longer-term strategy is to build a dedicated factory for Geely cars with the aim of making Egypt the Chinese company’s manufacturing hub for MENA and later Europe, Kotb told us. The factory will have the capacity to manufacture 20k cars every year, but a timeline has not yet been set for its launch.

IN OTHER AUTOMOTIVE NEWS-

Some 20k vehicles were delivered in FY2021-2022 in the government’s natgas vehicle replacement strategy, where traditional passenger cars, taxis, and microbuses are replaced by dual-fuel vehicles that run on natural gas, a statement by the Finance Ministry read. The government has received some 39k requests to participate to date in the scheme.

The state has so far spent some EGP 465 mn on the plan and recently added Sharm El Sheikh to the initiative, which now includes Luxor, Aswan, Cairo, Giza, Qalubiya, Alexandria, Port Said, Suez and the Red Sea, the statement read.

The plan was expected to see 250k old cars swapped out with natgas-run cars by the end of 2023, Trade Minister Nevine Gamea said in 2020, but shortages and price hikes for raw materials have caused issues. Companies participating in the program were last month given the greenlight to hike prices by up to 45% in response to rising inflation.

DIPLOMACY

Qatari emir in Cairo as tensions thaw further: Qatari Emir Sheikh Tamim bin Hamad Al Thani held discussions with President Abdel Fattah El Sisi on Saturday, during the Sheikh’s first visit to Egypt since the two countries normalized relations in early 2021.

Investment at the top of the agenda: The two leaders discussed boosting cooperation in energy and agriculture, upping trade flows, and “maximizing Qatari investments in Egypt,” according to an Ittihadiya statement. However, no concrete investments were announced by the time the emir left Cairo on Saturday evening.

We’re expecting inflows from Qatar: Trade Minister Nevine Gamea and other officials have been in Doha to drum up Qatari investor interest in our economy in recent weeks. The country has joined its Gulf neighbors Saudi and the UAE in offering to help shore up our economy amid global headwinds, in March pledging to invest USD 5 bn.

It’s a summer of love in the neighborhood: Diplomacy has been a priority for our Gulf neighbors lately. Saudi Crown Prince Mohammed bin Salman last week visited Egypt, Turkey, and Jordan in a landmark tour, in part to pave the way for the upcoming July summit hosted by Saudi Arabia between US President Joe Biden, GCC countries, Egypt, Jordan, and Iraq. El Sisi and Bin Hamad Al Thani welcomed the approaching summit.

This has renewed calls for a MENA Nato: Jordan’s King Abdullah II yesterday told CNBC that he would back the formation of a Middle East version of Nato. “I’m hoping what you’re seeing in 2022 is this new vibe, I guess, in the region to say, ‘how can we connect with each other and work with each other’,” he said.

Bin Hamad Al Thani’s visit got wide coverage from the international press: The Associated Press | Reuters | AFP | The National.

ALSO IN DIPLOMACY-

  • Ethiopia has branded as “biased” and “unacceptable” a joint EU-Egypt statement that references the need to return to African-Union led negotiations over the Grand Ethiopian Renaissance Dam (GERD). (Ethiopian News Agency)
  • President Abdel Fattah El Sisi gave a virtual speech at a BRICS summit between Brazil, Russia, India, China and South Africa, where he said developing countries should not be forgotten amid the global economic crisis. (Speech)

enterprise

LAST NIGHT’S TALK SHOWS

The visit by Qatari Emir Sheikh Tamim bin Hamad Al Thani to Egypt led the conversation at home with coverage from Kelma Akhira (watch, runtime: 1:41), Al Hayah Al Youm (watch, runtime: 3:47), Al Youm (watch, runtime: 2:48) and others.

In business news: The final draft of the state ownership policy document will be released after public consultations conclude, Cabinet Spokesperson Nader Saad told Salet El Tahrir (watch, runtime: 6:43). The final version will be ready in three months, he said.

What state ownership policy? The Madbouly government has laid out in a document its plans 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.

The state last week began a series of public consultations on the document, and has so far had economists as well as the agriculture and food industries chime in. You can find more details on the online platform for the consultations, and read the latest draft of the document (pdf) here.

Government health officials took the airwaves to warn us that covid is still a thing. Covid remains present and people are still contracting it, Ittihadiya health advisor Mohamed Awad Tag El Din told El Hekaya’s Amr Adib during the weekend (watch, runtime: 8:43), adding that we should make face masks a part of our lives to avoid the spread of covid as well as other respiratory diseases.

Could we be getting another booster shot? By October the state will be able to assess whether or not citizens are in need of an additional booster shot, Tag El Din said. The state has so far been administering a booster shot to those who have received both doses of the vaccine.

Our vaccination drive continues in force: The Health Ministry’s door-to-door vaccination initiative has been yielding results, so much so that it is expanding to seaside resorts starting in July, Higher Education Minister and Acting Health Minister Khaled Abdel Ghaffar told Ala Mas’ouleety (watch, runtime: 3:05).

Also getting a mention:

  • Some projects in the presidential Decent Life initiative could be delayed thanks to raw materials shortages triggered by the war in Ukraine, Cabinet spokesperson Nader Saad said. (Akher El Nahar | watch, runtime: 1:48:02)
  • Citizens will be able to withdraw cash using their bank cards over the counter at over 400 gas stations nationwide, without needing to use an ATM. (Al Youm | watch, runtime: 0:46)

EGYPT IN THE NEWS

Not much coverage of Egypt is going on in the foreign press apart from our warming ties with Qatar.

Otherwise, the murder of university student Naira Ashraf by a male classmate is getting more attention in the foreign press, including from CNN.

Meanwhile, planned demolitions of house boats along the Nile are stirring indignation from Cairenes on social media who say they’re an important historical feature, according to The National.

PLANET FINANCE

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Not predicting a recession in the US this year or next: The IMF, which said in a statement Friday that it expects the US to “narrowly avoid” going into recession before 2023, as curbs to inflation help protect real income and sustain growth over the medium term. Economists and analysts have been falling over themselves to forecast a recession, with some predicting a 50% chance of a downturn in the US this year or the next.

The lender expects the Fed’s tightening to work: The US Federal Reserve’s hawkish cycle will result in an “upfront tightening of financial conditions which will quickly bring inflation back to target,” IMF Managing Director Kristalina Georgieva told reporters, according to Bloomberg,

That doesn’t mean it’ll be plain sailing: The IMF slashed its growth forecast for the US this year to 2.9%, down from the 3.7% it had predicted as recently as April. Georgieva stressed that there are “very significant” downside risks for the US economy both this year and next.

A rare good Friday for US stocks helped snap their three-week losing streak, the Washington Post reports. After the worst week for global stocks since March 2020 the week before, US indices rallied on Friday and managed to stage a comeback for the week. The S&P 500 was up 6.5% on the week before, the Dow Jones climbed 5.4%, and the tech-heavy Nasdaq — which has taken a battering in a tighter monetary environment — gained 7.5%.

Don’t get your bull horns on just yet: “Even though the market has started to recover, the concerns that caused the bear market are still with us, such as inflation, an aggressive Federal Reserve, high oil prices and geopolitical tensions,” one chief investment officer said in a note cited by the paper.

ALSO IN PLANET FINANCE-

  • Ride-hailing service turned super app Careem has acquired UAE food delivery subscription platform MUNCH:ON for an undisclosed sum. (Press release)
  • Barclays has approved buying UK specialist mortgage lender Kensington Mortgage from Blackstone Inc. and Sixth Street in a GBP 2.3 bn (USD 2.8 bn) transaction. (Bloomberg)

Down

EGX30

9,439.85

-1.8% (YTD: -21.0%)

None

USD (CBE)

Buy 18.71

Sell 18.79

None

USD at CIB

Buy 18.73

Sell 18.79

None

Interest rates CBE

11.25% deposit

12.25% lending

Down

Tadawul

11,311

-0.1% (YTD: +0.3%)

Down

ADX

9,238

-0.1% (YTD: +8.8%)

Up

DFM

3,202

+0.1% (YTD: +0.2%)

Up

S&P 500

3,912

+3.1% (YTD: -17.9%)

Up

FTSE 100

7,209

+2.7% (YTD: -2.4%)

Up

Euro Stoxx 50

3,533

+2.8% (YTD: -17.8%)

Up

Brent crude

USD 113.12

+2.8%

Down

Natural gas (Nymex)

USD 6.22

-0.3%

Up

Gold

USD 1,830.30

+0.0%

Up

BTC

USD 21,481

+1.2% (YTD: -53.6%)

THE CLOSING BELL-

The EGX30 fell 1.8% at Thursday’s close on turnover of EGP 386 mn (53.7% below the 90-day average). Foreign investors were net sellers. The index is down 21.0% YTD.

In the green: Abu Dhabi Islamic Bank (+2.6%), Rameda (+0.9%) and AMOC (+0.6%).

In the red: MM Group (-4.9%), Madinet Nasr Housing (-4.1%) and CIB (-3.0%).

whatsNext

Who is investing in Egypt’s fintech startups? 2021 was a bumper year for fintech funding in Egypt, we wrote earlier this year, as per the Central Bank of Egypt’s (CBE) fintech data, which were released by CBE-backed initiative Fintech Egypt. Total investments in the sector more than quadrupled to USD 159 mn last year, up from USD 37.1 mn in 2020. Now, Fintech Egypt released its Fintech Investment-Focused Landscape Review (pdf), which looks at what went down in the first half of this year — and boy, did Egypt do well.

The value of investments in Egypt’s fintech startups reached an all-time high of USD 167 mn across 31 transactions in 1H2022, according to the report. This includes five investment rounds that surpassed USD 10 mn each, while series A and B funding accounted for some 90% of total investments. The biggest rounds we heard of in the sector were Paymob’s USD 50 mn series B, Khazna’s USD 38 mn series A, and Lucky’s USD 25 mn series A.

There are several factors driving this growth: The report attributes the growth to the regulatory reforms implemented over the last few years, coupled with the increase in the total number of investors who started to invest in Egypt over the last few years. The report also points to a large ripe domestic market given our population size and a vast reservoir of young talent and tech calibers as key driving factors. Lastly, there’s mega initiatives in place to support the sector, such as the CBE’s Regulatory Sandbox, fintech fund “Nclude,” and fintech innovation hub “Grid” that will open its doors in 2022.

Bootstrapping is still the most common source of funding for fintechs, with some 42% of surveyed startups finding it to be the easiest route, the report finds. However, their growth from one stage to the next compels them to seek VC funding, which 37% state is the second-easiest and common source of funding. This is followed by angel investors (29%), PE (27%), incubators and accelerators (16%), debt financing (4%), banks and asset management (4%), and M&A (2%).

So which sub-sectors dominated VC fintech investments in 1H2022? Mainly payments and remittances, the data says. Some 58% (USD 96.8 mn) of the funding amount was directed to startups operating in the payments and remittance sphere, according to the report. This was followed by lending and alternative finance (26%) and wealth management and savings (12%). The remaining 6% were distributed among other sub-sectors, including B2B marketplaces, data analytics, insurtech, and payroll and benefits.

And who is investing in them? Among the 26 surveyed fintech investors, 69% were VCs, 23% were accelerators, and 8% were angel investors. Some 27% of them have a fintech-focused fund or program, and just over a quarter of the portfolio of 19 investors consists of fintech or fintech-enabled startups, the report adds.

More regional and international investors have started funding Egyptian fintechs. While 53% of fintech investors of 1H 2022 are headquartered in Egypt, 19% are based in the US, 8% in Saudi Arabia, 4% in Jordan, and 4% in China, according to the study.

What are those investors looking for? A solid team, unanimously. All surveyed investors named a startup’s team as the main priority when making investment decisions. Unit economics and post-revenue generation came in second place (86%), and investment thesis fit and impact both came in third (71% each). Other key areas of focus included founders’ leadership ability, revenue model, and innovative product (57% each), as well as track record, sector-specificity, serviceable obtainable market, and reasonable money burn rate (29% each).

And what are startups looking for when approaching VCs? Almost half of those surveyed cited connection and expertise, followed by the name and reputation of the VC (46%). Previous track record and past transactions came in a close third at 42%, with support services (besides funding) coming in fourth at 39%. Those were followed by terms of agreement (33%), industry focus of the VC (26%), alignment (22%), financing amount (21%), startup autonomy (6%), and location of the VC (1%).

Funding is far and away the most-needed support area fintechs and fintech-enabled startups seek from investors, with 86% citing it as their top priority. This is followed by networking (44%), mentorship (22%), and PR and marketing (13%). Other areas include talent management (5%), coworking space (1%), and domain expertise (1%).

So what’s next for fintech startups seeking funding? Some 70% of investors have pre-set future plans for fintech or fintech-enabled investments in the next three years in Egypt, according to the report. Of those, 29% want to invest USD 10-20 mn and 24% are looking to invest more than USD 50 mn. Ticket sizes of up to USD 5 mn and between USD 20-50 mn come tied in third place (18% each), and 11% are planning to write USD 5-10 mn checks.

Currently, 108 startups are seeking over USD 600 mn in funding — with the vast majority seeking early-stage funding, the report states. Almost half of them are seeking to raise funding in the next 12 months. Some 45% are approaching VCs now, and 7% are looking to join an acceleration program. More than half (55%) are looking for seed rounds, 21% are looking at pre-seed, and the remainder is divided between series A (19%), series B (4%), and series C (1%).

EGX IPOs are seen as a future potential exit strategy for startups, according to 53% of surveyed investors and 26% of startups. Investment firm Foundation Ventures is quoted as saying that even “dual-listing between the EGX and other global stock exchanges are hopefully going to become more prevalent in the future.”

Investors are keeping an eye on the open banking trend, the survey suggests. Open banking is the idea that financial institutions and ins. companies open up their APIs for fintech companies to capture and pass data. Three-quarter of the surveyed investors believe that the open banking and infrastructure sub-sector has a high growth potential in the near future in Egypt.

Lending and alternative finance, B2B marketplaces, and insurtech are a close second at 70%. They are followed by payments and remittance (65%) and agritech (45%). 40% of the investors see high growth potential in payroll and benefits, personal finance management and financial literacy, and data analytics and AI. The trends to watch out for also include proptech (35%), accounting and expense management (30%), wealth management and savings (30%), regtech (25%), and rotating savings and credit associations (ROSCA) — think “gameya” (25%).


Your top stories on future trends for the week:

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

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

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: 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, Naval Power.

September: Estate Waves Egypt real estate exhibition through metaverse technology.

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

September: The sixth session of the Egyptian-German Joint Economic Committee.

September: A delegation from Germany’s Aldi will visit Egypt to look at potential investments.

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.

6-18 November (Sunday-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.

December: The Sixth of October dry port will begin operations.

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: 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.

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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