AM — Non-oil business activity continues to fall in July — but is inflation beginning to ease?

Good morning, wonderful people. Once again we’ve made it through the workweek together. It’s been a busy one, for those of you tuning in from Sahel at week’s end, with plenty of M&A, policy and investment news — and this morning is no exception.

COUNTDOWN TO COP27- We now have a schedule for COP27, courtesy of the UN, which has released a basic itinerary for the 11-day gathering. The conference will kick off on 7 November in Sharm El Sheikh with a two-day summit of world leaders, which will be followed by nine days of discussions on decarbonization, climate finance, adaptation strategies and others.

COP27 now has an official Facebook page: The Foreign Ministry announced the launch of the official Facebook page for the summit yesterday. Check it out here.

And speaking of climate: It’s the final day of the Egypt- and UN-led regional climate roundtable in Addis Ababa, Ethiopia: The event — the first of five regional roundtables being held around the world ahead of COP27 in November — brings together African climate negotiators and global officials to discuss climate finance for three days in the Ethiopian capital. COP27 President Sameh Shoukry, Mark Carney (UN climate envoy and co-chair of the Glasgow Financial Alliance for Net Zero) and UN Deputy Secretary-General Amina Mohamed are among those in attendance.

HAPPENING TODAY-

EGP WATCH- The EGP has continued its slide against the greenback this week. The currency has fallen more than 0.8% during the past four days, closing at 19.15 yesterday from 18.98 and edging closer to the record of 19.54 low set in December 2016. The EGP has now fallen more than 21% against the greenback since March, when the central bank devalued the currency in response to rising external pressures fuelled by the war in Ukraine.

The Madbouly government’s public consultations on its state ownership policy continue today, with experts and think tanks weighing in on the manufacturing sector. Every Sunday, Tuesday, and Thursday see workshops on how privatization plans will affect specific industries. You can find more details on the schedule of the meetings here.

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WEEKEND MUST READ- The Financial Times takes a deep dive into the chill that has come over venture capital in recent months. Regular readers will know that we’ve had a keen eye on the global slowdown in VC funding, as some startups in need of capital — including local names — face down rounds, while others look to tighten their belts. Some USD 330 bn of private capital flowed into American tech start-ups last year — double the figure recorded in 2021, which is itself double 2020’s sum. Now, the signs are that the bubble has burst and the days of easy VC money may be over as economic conditions turn hostile. For the salmon-colored paper, it all adds up to a “silent crash” that could spell the end of the boom years — possibly for good.

Reset your expectations: We’ll probably see more major devaluations along the lines of the one seen by Klarna before the VC world comes to terms with a new reality — one where earnings matter more than growth and there aren’t suitcases of bills to throw at risky innovation. “There’s no question, growth at any price is gone for the next few years,” the head of New York VC B Capital tells the FT.

SIGNS OF THE TIMES-

#1- What goes up… The layoffs sweeping the US tech sector have come to stock-trading app Robinhood, which rode the wave of frenzied retail trading in 2021 to become a household financial name. In a blog post Tuesday, CEO Vlad Tenev said the company would slash its headcount by nearly a quarter in response to “reduced customer trading activity.” The company’s share price has fallen 50% this year and it reported a 44% y-o-y drop in revenues in 2Q 2022, as rising interest rates deflate pandemic-era bubble assets such as tech stocks and crypto.

#2-The US’ latest move to hamper China’s semiconductor industry could blow up in its face: The US is reportedly considering imposing restrictions on exports of chip-making equipment to China as it tries to retain its technological supremacy in the critical semiconductor industry, Reuters reports. Unfortunately, a ban isn’t going to pass without inflicting collateral damage on US firms, some industry watchers say, claiming the curbs would be a blow to big manufacturers including Samsung and SK Hyinx, causing further disruption to supply chains and making it harder for the US’ biggest tech companies to get their hands on crucial chips.

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THE BIG STORY ABROAD-

There’s single story dominating the narrative in the global press this morning: The US press is focused on the abortion vote in Kansas yesterday, which saw lawmakers in the conservative state back a measure to protect abortion rights in the wake of the Supreme Court’s decision to overturn Roe v Wade. (AP | NYT | Washington Post)

OPEC+’s paltry supply hike yesterday is a topic of conversation: The alliance of oil producers agreed yesterday to increase output by 100k barrels a day in what is one of the smallest production increases in OPEC’s 62-year history.

Putting this into perspective: This amounts to 1/1000th of global demand — the world consumes this quantity of oil every 86 seconds. As such, it will make little difference to oil prices, which have refused to fall significantly below USD 100 a barrel since Russia invaded Ukraine in February.

“That is so little as to be meaningless. From a physical standpoint it is a marginal blip. As a political gesture it is almost insulting,” one analyst said, in reference to US President Joe Biden’s appeal to the Saudis last month to increase production. Reuters and Bloomberg have more.

Also in the business press: The Financial Times reports that SoftBank has raised USD 22 bn by selling down its stake in Alibaba as the great 2022 tech sell-off forces it into damage limitation mode. Meanwhile, the Wall Street Journal says that Walmart is preparing to shed hundreds of corporate jobs, a week after it issued a bleak outlook for the rest of the year as inflation hits consumer demand.

CLOSER TO HOME- Ukraine’s first grain shipment has been cleared to exit the Black Sea. The first Ukrainian grain shipment to make it through a newly-agreed corridor through the Black Sea has passed inspection by Russian, Ukrainian, Turkish, and UN officials and will continue on its journey to Lebanon, the UN said in a statement yesterday. The ship, which departed from the Ukrainian port of Odesa this week, is carrying some 26k tons of Ukrainian grain and should pave the way for more shipments to follow. Ukrainian President Volodymyr Zelenskiy downplayed the importance of the shipment, saying that only time will tell if more grain shipments will follow.

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CIRCLE YOUR CALENDAR-

We’re on the lookout for a number of key macro figures this week and next:

• Foreign reserves figures for July are expected between today and early next week;
• Inflation data for July will land on Wednesday, 10 August.

The Central Bank of Egypt will meet to discuss interest rates on Thursday, 18 August.

The 19-member board of trustees of the National Dialogue will hold its next meeting on 27 August, where it will choose the rapporteurs for all of the committees and subcommittees of the social, political and economic tracks, and prepare the agenda and topics of discussion for the dialogue.

PSA- Startups have until Wednesday, 31 August to apply for the fall 2022 cycle of EGBank’s Mint Incubator. The incubator, backed by Cairo Angels, offers a three-month program for startups with existing products. Startups can apply for the program here.

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

Activity in Egypt’s non-oil private sector continued to contract at a rapid pace in July as high inflation weighed on demand and output, according to the S&P Global purchasing managers’ index (pdf). Business activity fell at a slightly slower pace during the month amid signs of softening inflation, though the reading was one of the weakest since the pandemic hit the economy in 2Q 2020. The index rose to 46.4 last month, up from a two-year low of 45.2 in June, marking the biggest increase in the index in just over a year, though still below the 50.0 threshold that separates growth from contraction. This is the 20th consecutive month that activity in Egypt’s private sector has declined..

There’s cause for optimism on inflation: July’s PMI signaled “a softer decline in the health of the non-oil economy,” said S&P Global economist David Owen (My Morning Routine). “Good news was seen in inflation metrics, which dropped sharply at the start of the third quarter as fewer companies saw a rise in input costs,” he said. Some 29% of companies reported rising input costs during the month, down from 45% in June, suggesting that the recent cooling of commodity prices is having an impact on business costs.

Headline inflation has risen to three-year highs this year as global headwinds spurred by the conflict in Ukraine and the pandemic have hit home, putting pressure on the EGP and causing food, energy and raw materials prices to surge. Inflation slowed for the first time in seven months in June, though analysts expect it to pick up again in the coming months.

Demand hit as firms pass costs to customers: Businesses continued to pass higher input costs onto consumers in July, hiking prices at the second-quickest rate in four years, according to the survey. This had knock-on effects on demand that saw output and new orders fall for another month, albeit at slower rates than in June when they hit their lowest levels since 2Q 2020.

Businesses aren’t feeling optimistic: Confidence fell to one of its weakest levels on record after rising to a five-month high in June. Only 13% of companies forecast output growth over the coming year.

Also from the survey:

• Weaker demand and higher prices again dampened businesses’ spending plans, with the decline in purchasing exacerbated by ongoing supply chain issues and lengthier delivery times.
• Employment rates stabilized: July marked a break in an eight-month streak of job losses despite some businesses driving cuts based on lower new orders.

The story got ink in the foreign press: Reuters.

FROM THE REGION –

Private sector activity in the UAE continued to grow in July as demand strengthened despite inflation. The PMI (pdf) rose to 55.4 from 54.8 in June thanks to strong sales growth caused by companies absorbing higher costs and cutting prices to remain competitive.

The Saudi private sector continued to grow at a fast pace though the PMI (pdf) slipped slightly to 56.3 from 57.0 in June. Job growth registered its fastest pace since September 2019 as new business expanded on the back of higher demand, though prices continued to rise.

It’s official: Chimera is Beltone’s new majority shareholder: Chimera Investments acquired a 56% stake in Beltone Financial through its mandatory tender offer for up to 90% of the company, which expired yesterday, the EGX said (pdf). The Abu Dhabi-based investment company will acquire the stake from Orascom Financial Holding (OFH), which last week agreed to sell all of its 259.1 mn shares in the company.

No more takers: Other shareholders failed to respond to the offer by the deadline yesterday, with Chimera adding less than 150 shares to the stake acquired from OFH. Only three individual minority shareholders — each with stakes of less than 1k shares each — responded to the offer, Al Mal reports, citing unnamed sources. The remaining shares not held by OFH are publicly traded on the EGX.

Not tempting enough? Chimera offered to pay EGP 1.485 per Beltone share, valuing the firm at some EGP 690 mn. Beltone shares closed up 3% at EGP 1.76 yesterday

Advisors: Matouk Bassiouny & Hennawy were counsel to Chimera.

The SCA still wants to take some of its companies public: The Suez Canal Authority (SCA) is considering listing three of its companies on the EGX by the end of 2022, Chairman Osama Rabie told Al Arabiya yesterday.

The authority has scaled back the potential offerings: The SCA chief said that the authority is considering selling 10-15% of the companies to investors on the EGX. Earlier this year, Rabie said the authority was looking to float 20% of the companies on the exchange.

Which companies could sell shares? That’s still TBD, with Rabie saying only that the most profitable firms will be chosen. The authority and the Finance Ministry are currently studying the potential sales, he said.

The SCA seemingly isn’t being deterred by the state of the markets: The EGX has had a tough year as soaring inflation, rising interest rates and the fallout from the war in Ukraine roil financial markets at home and abroad. The benchmark EGX 30 index has rallied in recent weeks, though remains in a bear market and is trading at levels not seen since late 2016.

Two IPOs have been pulled in the past month: Banque du Caire and Aman have both postponed plans to sell shares on the EGX until conditions stabilize.

Private sector partners can still get in on the new state EV charging company: Qualifying bidders looking to manage and operate the soon-to-be-established state company that will manage a network of electric vehicle charging stations now have until Wednesday, 31 August, to submit their offers, according to a Public Enterprise Ministry statement (pdf). Last we heard, bidding had closed in March.

Hassan Allam is on board: Hassan Allam Utilities, the investment and development arm of Hassan Allam Holding, is set to own 20% of the newly established firm, a source with first-hand knowledge of the situation told us, without disclosing what the company’s role will be.

The winning bidder won’t hold as much of the company as previously planned: The firm selected to manage and operate the company will contribute 20% of its capital, rather than the 25% the ministry announced earlier this year, a ministry source confirmed to Enterprise.

And the private sector will no longer control the company: The ministry originally said that 30% of the company would be sold to a private investor, in addition to the 25% given to the winning bidder. But under the plans announced by the ministry yesterday, the Sovereign Fund of Egypt (SFE) and state-owned Misr Ins. Holding will each own a 30% stake in the firm. This would give the private sector ⁠— HA Utilities + the winning company ⁠— just 40% of the company between them.

Who’s bidding? Fourteen firms were reported to be vying for the contract back in March, including our friends at renewables giant Infinity.

About the company: The EV charging station company will be tasked with setting up 3k charging stations within 18 months across the country, including in Greater Cairo, Alexandria, and Sharm El Sheikh.

EFG Hermes’ NBFI business gets a new boss: Our old friend Aladdin ElAfifi (LinkedIn) has been appointed CEO of EFG Hermes’ non-bank financial institutions (NBFI) platform, succeeding Walid Hassouna (who is now running the group’s high-profile valU unit full time), according to a press release (pdf). ElAfifi will assume responsibility for the bank’s NBFI portfolio (with the exception of BNPL unit valU, where he will be a non-executive board member). ElAfifi has more than 23 years of experience at blue-chip companies including Goldman Sachs and Qalaa Holdings and most recently served as Pharos Holding’s managing director and co-CEO. Kashat — Egypt’s first nano-tech lending startup — launched in 2020 during ElAfifi’s tenure at Pharos. He was also a co-founder of real estate management and advisory business, 46 Group in Cairo.

What they said: “With a strong leadership team, ElAfifi is set to implement the firm’s strategy while further institutionalizing the business and readying it for potential monetization when the conditions are right,” EFG said in the release.

Seven non-banking financial institutions have been recognized for their sustainable business practices by the Financial Regulatory Authority, the regulator said in a statement (pdf). EFG Hermes, EFG Hermes Corp-Solutions, Tamweely, AXA Life Ins, Gig Egypt, and the ins. funds for employees of the New and Renewable Energy Authority (NREA) and the Central Agency for Public Mobilization and Statistics (Capmas) all were announced winners of a competition hosted by the FRA’s sustainability arm, the Regional Center for Sustainable Finance (RCSF).

The latest from President El Sisi led the conversation on the airwaves last night: The president has instructed the government to make available another EGP 1 bn to the National Alliance for Civil Development Work (NACDW) — an alliance of civil society organizations and associations launched this year to help address the needs of different communities. This would raise total government funding for the NACDW to EGP 10 bn. This came from Talaat Abdel Kawy, head of the general federation of NGOs and associations, who joined Masaa DMC’s Ramy Radwan last night (watch, runtime: 7:20). Meanwhile, El Sisi also called for the Transport Ministry to increase its usage of local components by partnering up with the private sector. This got plenty of attention from the talking heads last night, including from Sada El Balad (watch, runtime: 1:57) and Al Hayah Al Youm (watch, runtime: 3:10).

Are food price pressures easing? An increase in the supply of chickens and eggs has helped cool prices from recent highs that reached EGP 70-80 in July. A carton of eggs now sells at EGP 65 and 1kg of chicken costs around EGP 35, a senior official at the Egyptian Poultry Association told Sada El Balad (watch, runtime: 4:48).

Also on the airwaves last night:

• The Suez Canal Authority wants to boost its annual revenues to USD 8 bn amid plans to raise the number of ships crossing the canal. This comes after the authority announced that revenues jumped 32% in July to a record high of USD 704 mn. (Mehwar TV | watch, runtime: 6:06)
• Dozens of injured Libyans arrived in Egypt for medical treatment yesterday after planes were sent to rescue them following a fuel tanker explosion. (Extra News | watch, runtime: 3:08)

This morning in the foreign press: The MoU we recently inked with Israel to boost gas exports to the EU could consolidate our position as the region’s energy hub, Lynx Senior Advisor Karim Haggag and Economic Policy Analyst Nadine Elnashar write for business platform Brink. The region could potentially supply 20% of Europe’s gas needs, and Egypt “presents the most reliable route for exporting Eastern Mediterranean gas,” the piece reads.

Also getting attention:

• Khazenly CEO Mohamed Younes talks to TechCabal about the challenges and opportunities in Egypt’s logistics and e-commerce industries.
• Al Qaeda leader Ayman Al Zawahiri, who was killed earlier this week in a US strike, had a “totally normal” upbringing in Maadi, his one-time neighbors tell Reuters.
• Journalist and novelist Yasmine El Rashidi traces the history of Cairo in a piece for the New York Times which features some of her favorite books by Egyptian authors.
• Iconic Egyptian actor Rushdy Abaza gets an in memoriam feature in the National on what would have been his 96th birthday.

Russia appears to be using Egypt as a transit route to sell its crude, ahead of the introduction of western sanctions on its energy exports later this year, Bloomberg reports. Tracking data seen by the business newswire showed a vessel depositing 700k barrels of oil at the El Hamra oil terminal on Egypt’s north coast, some or all of which was picked up a few hours later by a second ship. The move, described by Bloomberg as “unusual,” makes oil flows more difficult to monitor and provide opportunities for Moscow to blend its crude with other grades.

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The 19-member board of trustees of the National Dialogue process wrapped its fourth meeting yesterday with a decision to form seven committees to coordinate the dialogue’s economic agenda. The board will form committees for inflation and high prices; public debt, budget deficit and fiscal reform; general investment priorities and policy of state ownership; local and foreign private investment; industry; agriculture and food security; and social justice.

The board decided to form five committees for the social agenda earlier this week, and three committees for the political agenda a few weeks earlier. It has now finished forming the dialogue’s committees and has set the priorities for the political, economic and social tracks.

The board will hold its next meeting on 27 August, where it will choose the rapporteurs for all of the committees and subcommittees of the social, political and economic tracks, and prepare the agenda and topics of discussion for the dialogue.

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President Abdel Fattal El Sisi has set up a fund designed to support people with disabilities, according to a decision published in the Official Gazette yesterday. A board of trustees will be formed to set up a detailed plan for the “Differently-Abled Fund”, which El Sisi had called to be set up last year as part of efforts to improve inclusion of individuals with disabilities in society and the economy.

In detail: The fund will help better integrate individuals with disabilities into the economy by financing various training programs to help them enter the job market, partnering up with different groups to help provide them with jobs, and providing financial support to SMEs led by people with disabilities. It will also establish specialized institutes that can set up programs aimed at boosting social inclusivity, and will help finance the construction and operation of hospitals, health units and care centers catered to people with disabilities.

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

• Emirati buy-now-pay-later fintech Tabby plans to enter Egypt, after raising USD 150 mn in debt financing in what it says is the largest credit facility raised by a fintech in the Gulf region. (Bloomberg)
• The Financial Regulatory Authority has directed life ins. companies to begin using the first locally-produced life tables, which are used for calculating the probability of death over a person’s life. (Statement)
• Palm Hills Developments and an education provider will partner with Maastricht University to provide Badya University graduates with a supplementary certificate from the Dutch university. Our friends at Palm Hills hold 40% of Badya University. (Statement, pdf)
• German manufacturer Knorr-Bremse will equip 15 high-speed Siemens trains in Egypt with braking and entrance systems. (Statement)
• Seventeen people were killed and 4 others injured after a microbus collided with a truck on a highway in Sohag province. (Associated Press)

UAE is the latest to urge a negotiated solution for the GERD crisis: The UAE’s Mission to the UN said in a statement yesterday that it believes that a settlement to the dispute over the Grand Ethiopian Renaissance Dam (GERD) is “within reach” and called on Egypt, Ethiopia and Sudan to return to talks mediated by the African Union (AU), which it said must play an “essential role.”

The UAE coming out in support for the AU-led process is big: Egypt has been resolutely opposed to continuing negotiations mediated by the AU since Ethiopia unilaterally embarked on the second filling of the dam last year. Together with Sudan, Cairo has called for new mediators to be brought in to help find an agreement, an idea dismissed by Ethiopia, which wants to continue with the AU-led process. Other global powers, including the US, EU and the UN Security Council, have also insisted that the three countries should continue with the AU.

Has Egypt changed its tune? “The UAE … welcomes the commitment of the three countries to the AU-led negotiations, and encourages them to continue negotiating in good faith,” the statement read. Egypt hasn’t publicly come out in favor of returning to AU-led negotiations, and a new round of talks has not been announced.

The UAE’s intervention comes amid a flare-up in tensions between Egypt and Ethiopia, provoked by Addis Ababa’s recent decision to continue filling the reservoir for the third year running. Egypt last week protested the move at the UN Security Council and accused Ethiopia of breaking international law.

Germany accuses Russia of stalling the return of normal gas flows to the country: The malfunctioning turbine that Russia has blamed for its reduced flows to Germany through its key Nord Stream 1 pipeline has been serviced in Canada and is now stranded in Germany, with German Chancellor Olaf Scholz saying yesterday there was no reason for Moscow to hold up its return. Gazprom has blamed sanctions for the disruption and yesterday said that delivery was “impossible,” raising fears that the company will not increase flows as winter approaches. Reuters and the Financial Times have more.

Gazprom cut gas flows through the Nord Stream 1 pipeline to just 20% of capacity last month, sparking fears of recession for the German economy and an intensifying energy crisis across Europe. Gazprom has blamed technical issues for the cuts but EU officials have claimed that the cuts are politically motivated.