AM — Is a changing of the guard coming to the FRA?

Good morning, folks, and welcome to a busy news day. We hope you had a relaxing weekend — and that those of you not on summer vacation (hello, 6.02×10^23 vacation auto-replies) are looking forward to a productive week.

THE BIG STORY HERE AT HOME- A changing of the guard at the FRA? Mohamed Omran looks to be stepping down as the head of the Financial Regulatory Authority after five years at the helm, Al Borsa reports. Omran was given a one-year extension on his term in office on 8 August 2021. No successor has yet been appointed.

It’s not clear what happens next: The newspaper reports some sources as saying that the board could keep Omran on for another term, while others are floating a list of names for his potential replacement, including EGX boss Mohamed Farid (now in the early days of his second four-year term in office), former EGX chairman Khaled Serry Seyam, former vice chairman of the FRA Reda Abdel Moati, and World Bank senior financial sector specialist Ahmed Rostom.

Omran himself has hinted that something is in the works, reportedly telling Al Borsa in a message that he has “ended his relationship” with non-banking financial activities.

Stay tuned: Look for the decision to potentially be announced today, the newspaper reports.

EGX WATCH- The EGX notched its best day in almost two-and-a-half years on Thursday as investor fears over inflation and food security eased. The benchmark EGX 30 index surged 5.3% during the session, its biggest single-day gain since March 2020.

The big gainers: e-Finance (+18.7%), Fawry (+18.6%) and EK Holding’s EGP-denominated shares (+11.5%).

So long, bear market (for now): Thursday’s session lifted the EGX 30 out of a bear market for the first time since mid-June. The benchmark is now down 16.7% from its recent peak in early January. The bourse has been rallying in past weeks and has gained 16% since 5 July.

Turnover was strong — up >60% on the trailing 90-day average, though the execution of Chimera’s acquisition of a 56% stake in Beltone accounts for some of that — the transaction was worth about EGP 385 mn. Turnover on Thursday came in at a hair over EGP 2 bn.

What’s driving the wave of buying? Investors are hoping that the worst is behind us on the inflation and food security front, Fadi Reyad, market analyst at CAPEX.com, told Reuters. The resumption of wheat exports from Ukraine’s Black Sea ports last week is expected to ease pressure on Egypt to find new wheat suppliers. Meanwhile, July’s PMI data released Wednesday contained hints of optimism that inflationary pressures are beginning to temper, with fewer companies reporting rising input costs during the months.

Merely a bear market rally? The bourse “remains exposed to selling pressures from local and international investors,” Reyad warned.

EGP WATCH- The EGP continued to lose ground against the USD in the first week of August, losing another 0.9% during the five-day period to close the week 19.18 on Thursday. The currency is now down 21.5% since the central bank devalued the currency in the third week of March and is edging closer to the record low of 19.56 set in December 2016.

HAPPENING TODAY-

Egypt is busy trying to broker another ceasefire agreement between Israel and fighters in Gaza after clashes broke out between the two sides on Friday. At least 24 Palestinians have been killed and more than 200 injured in Israeli airstrikes. Reports suggest at least six children are among the dead. We have more in this morning’s Diplomacy section, below. The story also received attention on Last Night’s Talk Shows.

REMEMBER- Cairo brokered a crucial ceasefire between Israel and Hamas last year, putting an end to violence that had lasted nearly two weeks and left hundreds dead.

MEANWHILE- There’s another round of public consultations on the government’s state ownership policy today: Today it’s the turn of pre-K and K12 education providers to voice their thoughts on the plans to transfer more of the economy into private hands. The government holds workshops every Sunday, Tuesday, and Thursday to see how its plans will affect specific industries. You can find more details on the schedule of the meetings here.

HAPPENING THIS WEEK-

The central bank will release foreign reserves figures for July this week, and inflation data for July should land on Wednesday, 10 August.

NEXT WEEK + BEYOND-

Ghazl El Mahalla IPO: The retail portion of Ghazl El Mahalla’s mini-IPO will wrap next Sunday, 14 August.

MNHD shareholders have the final word on SODIC takeover bid: Madinet Nasr Housing and Development will hold a general assembly meeting on Tuesday, 16 August, to decide whether to allow SODIC to conduct due diligence ahead of a potential takeover.

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

National Dialogue: The board of trustees overseeing the National Dialogue will hold its next meeting on 27 August. On the agenda: Choosing the rapporteurs for all of the committees and subcommittees of the social, political and economic tracks, and preparing the agenda and topics of discussion for the dialogue.

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

THE BIG STORY ABROAD- US President Joe Biden’s tax and climate legislative agenda moved a step closer to becoming reality last night after the Senate narrowly voted 51-50 to start debating the bill thanks to a tie-breaking vote by Vice President Kamala Harris. Senators are now spending up to 20 hours in the endurance test of a so-called “vote-a-rama”: Where lawmakers take votes on individual amendments of a bill. If it passes in a final Senate vote, the bill would unlock bns of USD in new spending for climate projects and close corporate tax loopholes, among other things. (AP | Reuters | NYT | Washington Post | Bloomberg | WSJ)

MEANWHILE- Berkshire Hathaway’s 2Q earnings was the big business story in the global financial press over the weekend. Strap in with us a moment, because it’s a bit complicated — kind of like claims the US has fallen into a recession.

The Warren Buffett-led conglomerate posted a USD 43.8 bn loss during the quarter as market turmoil delivered a sizable blow to its equity portfolio, overshadowing increased profitability at its underlying businesses. The group’s investments lost USD 53 bn during the April-June quarter, reducing its stock portfolio to USD 328 bn.

But it reported a substantial rise in operating income at its underlying businesses, which span everything from ins. to railways. Berkshire turned in USD 9.3 bn in operating income, up from USD 6.7 bn a year ago.

Why you should care: Berkshire is widely viewed as a key indicator for the performance of the broader economy, analysts say, and the key takeaway from its earnings for the quarter is that companies are (so far) showing signs of resilience amid a tough economic environment and fears of recession — even as the stock market takes a rocky ride.

Berkshire’s earnings are all over the financial press: Financial Times | Bloomberg | CNBC | Wall Street Journal.

SPEAKING OF MIXED SIGNALS, the US added jobs at an unexpectedly fast pace in July, suggesting the US may not be in a recession — even as growth figures suggest the world’s largest economy may be in recession after contracting in both the first and second quarters. Reuters and the New York Times have the story.

OF MORE LOCAL INTEREST- The first foreign ship has arrived in Ukraine to load up on grain since the war began in February, Ukraine’s Infrastructure Minister Oleksandr Kubrakov said yesterday. The arrival of the Barbados-flagged ship also marks a milestone for the Turkey- and UN-brokered wheat export pact between Ukraine and Russia, which went into effect last week. Three more vessels departed Ukraine’s Black Sea ports on Friday, bringing the amount of grain shipped from Ukraine since the pact was signed to 85k tons — which is less than 8% of what Ukraine usually ships at this time of year, Bloomberg reports.

SIGNS OF THE TIMES-

#1- Time to buy local: Recent import restrictions are starting to create shortages of high-end consumer goods in Egypt, Bloomberg reports. The range of clothes on offer at international fashion retailers is falling while it is becoming more challenging to find your favorite jar of pesto.

#2- When koshari becomes too expensive: The soaring local inflation triggered by the war in Ukraine has increased the price of our national treasure — and this is forcing Egyptians to reduce their intake of a once-cheap meal, according to Reuters.

#3- The global realignment: Russian President Vladimir Putin and his Turkish counterpart, Recep Tayyip Erdogan, are getting ever closer, agreeing to boost trade and energy ties during a sit-down at the Russian resort city of Sochi on Friday, the two leaders announced in a statement following the visit. The West is clearly not happy about a fellow-Nato member cosying up with Moscow and several officials have taken to the Financial Times to warn about the consequences of Ankara helping Russia to circumvent its economic sanctions, with one suggesting that Western governments could put pressure on companies to pull out of the country if Ankara pursues closer ties with Moscow.

*** 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: Startups in Egypt are being urged to cut spending, but are they listening? With global funding drying up in the wake of global macro shocks and a higher interest rate environment, VCs everywhere have been urging their startups to shed their spending budgets. VCs here were no exception, advising startups to cut spending and extend runways for no less than 18 months. This week, we look at how startups are implementing this advice in Egypt’s StartupLand.

Introducing the SEIC: Saudi Arabia’s sovereign wealth fund has set up a company to manage its investments in Egypt as it prepares to deploy bns of USD in the country in the coming months, it said in a statement on Thursday. The Saudi Egyptian Investment Company (SEIC) will act as the Public Investment Fund’s (PIF) investment arm in Egypt and will help the PIF, its portfolio companies, and the wider Saudi private sector to access the Egyptian market, it said.

The PIF has a lot to invest: The PIF said earlier this year it would invest USD 10 bn in Egypt as part of a Saudi package to support the economy that also saw the country deposit USD 5 bn at the Central Bank of Egypt.

Sectors PIF likes: SEIC is kicking the tires on potential investments in “promising” sectors such as infrastructure, real estate, health care, financial services, food and agriculture, manufacturing and pharma, according to the statement.

Few details on specific targets are known: Public Enterprises Minister Hisham Tawfik said in June that the fund could acquire 20% in the new hotels company made up of several merged state-owned hotels.

What they said: “In light of the economic growth in the region, SEIC will capitalize on lucrative investment opportunities within a number of promising Egyptian economic sectors, which will also support the expansion efforts of Saudi businesses and other PIF portfolio companies,” said Yazeed Alhumied, deputy governor and head of PIF MENA investments.

The PIF is only part of the Saudi investment splurge: In June, a number of Saudi companies signed agreements that will see them invest USD 7.7 bn in Egypt. Among the notable projects is a 1.1 GW wind farm that will be built by ACWA Power and Hassan Allam Holding and a USD 3.3 bn agreement for an oil storage facility signed by Ajlan & Bros.

This comes following a recent influx of Gulf investments: We’ve received some USD 7 bn of the more than USD 22 bn pledged by our Gulf neighbors to support our economy, with the remainder expected to come through in coming months.

The news got coverage internationally: Bloomberg.

IN OTHER INVESTMENT NEWS-

Haier to establish a USD 130 mn industrial complex: The government has inked an MoU with the Chinese appliance manufacturer Haier Electric to establish a USD 130 mn industrial complex to produce household appliances, according to a cabinet statement. The 200k sqm Tenth of Ramadan City facility will produce 900k units every year and create 2k jobs, the statement said.

This isn’t Haier’s first rodeo in Egypt: Haier joined forces with Raya Holding last year to establish an EGP 200 mn home appliances factory under the name Haier Raya Electric.

Egypt’s current account deficit widened more than 2% to USD 5.79 bn in 3Q 2021-2022, as capital outflows and surging commodity prices put pressure on the country’s external position, according to central bank figures (pdf) released Thursday showed. An exodus of foreign investors fuelled by the war in Ukraine and rising interest rates resulted in a net USD 14.75 bn exiting the country between January and March, reversing inflows of USD 5.82 bn a year earlier, the data showed. “This reflected investors’ concerns over the Russian-Ukraine conflict that could escalate into World War III, as well as the contractionary monetary policies adopted by the Federal Reserve, leading to outflows of hot money from emerging markets,” the central bank said.

The commodity price shock dealt a blow: Egypt’s non-oil trade deficit widened to USD 13.90 bn from USD 11.60 bn in 3Q 2020-2021 after a combination of surging food and energy prices triggered by the war and covid-fuelled inflation caused a 21% rise in its non-oil import bill, the central bank said. This led to the overall trade deficit widening to USD 11.83 bn from USD 11.37 bn a year earlier.

A lot can change in three months: The deficit jumped more than 52% from USD 3.80 bn in the previous quarter.

The bright spots: Rising exports + FDI limited the damage. Rising commodity prices benefited the country’s oil and gas sector in the third quarter, which saw exports more than double to USD 5.15 bn from a year earlier. Meanwhile, non-oil exports rose 25% to USD 6.63 bn, from USD 5.31 bn. Net foreign direct investment was significantly up in the three months ending March 2022, reaching USD 4.08 bn from USD 1.43 bn a year earlier, and from USD 1.6 bn in 2Q 2021-2022.

Also from the release:

• Tourism receipts were up 80% y-o-y to USD 2.38 bn but fell 21% on a quarter-on-quarter basis. The sector was negatively affected by the war due to the absence of Ukrainian and Russian tourists, the central bank said.
• Suez Canal revenues rose 18% y-o-y to USD 1.7 bn, and remained stable on a quarter-on-quarter basis.
• Remittances from Egyptian expats increased slightly to USD 8.05 bn from USD 7.85 bn a year earlier. Flows were up by around 9% from the previous quarter.

The figures got the attention of the foreign press: Reuters | Bloomberg.

Another EBRD loan to NBK Egypt? The European Bank of Reconstruction and Development (EBRD) is considering providing a USD 40 mn senior unsecured loan to the National Bank of Kuwait Egypt (NBK Egypt) for on-lending to micro, small and medium-sized businesses, according to the lender’s website.

A senior loan? A senior bank loan is money lent to a business by a financial institution which is then repackaged and sold to other investors.

It’s all for MSMEs: The financing would “support NBK Egypt's lending activities and expand access to finance for the underserved MSME segment,” the bank said.

What’s next: The lender is set to approve the loan on 7 September.

This isn’t the first time that NBK Egypt has sought EBRD help: The bank has agreed several rounds of financing with the European lender since 2015, mostly recently a USD 100 mn loan in 2020 to support private sector firms through the pandemic and USD 25 mn last year to fund green energy projects.

Nokia phones will soon be manufactured in Egypt: Nokia phone manufacturer HMD Global is partnering up with Etisal for Advanced Industries (EAI) to assemble 1 mn mobile phones in Egypt this year, with plans to double production later on, the Communications Ministry said Saturday. The company will use EAI’s factory in Sixth of October City to produce both smart phones and older “dumb” phones, the statement said, without disclosing whether the products will be exported or sold locally.

The details: HMD will provide the factory with raw materials, technical support, inspection and testing tools, and calibration equipment, the statement said. The company will also provide the team in Egypt with technical and technological training.

Nokia is not new to Egypt: Telecom Egypt partnered with Nokia in 2019 to provide Internet of Things (IoT) services to businesses in Egypt, but this is the first we’ve heard of the company venturing into manufacturing here.

About EAI: EAI’s factory has a production capacity of more than 2 mn units a year, with plans to boost annual capacity to 10 mn units in the coming years, the statement said.

President Abdel Fattah El Sisi has ratified amendments to the Consumer Finance Act, adding three new articles that are designed to offer consumer and SME borrowers and lenders better protection against fraud, according to a decision published in the Official Gazette on Wednesday. Under the amendments, borrowers who fraudulently obtain finance or fail to meet the terms of a financing agreement will be met with fines as much as double the amount borrowed, and / or jail time. The amendments also ban third parties from acting as mediators or paid sponsors between lenders, and SME and consumer borrowers without first registering with the Financial Regulatory Authority, with penalties of jail time and / or a fine of EGP 50-500k.

Suez Canal Authority head Osama Rabie made the rounds on the talk shows last night to commemorate the seventh anniversary of the launch of the New Suez Canal. Launched in 2015, the new canal — built in parallel to the old one in a bid to boost traffic and reduce waiting time for ships — has so far seen 130k ships pass, carrying about 8 bn in net tonnage and netting the Suez Canal Authority some 40 USD bn, Rabie told Masaa DMC (watch, runtime: 8:56). The new canal managed to increase the daily average number of ships passing through the canal by about 50%, with daily averages now reaching record highs (like the 89-ship all-time high reached yesterday), Rabie told Ala Mas’ouleety show host Ahmed Moussa (watch, runtime: 3:46).

Russia sanctions have been good for business: Western sanctions on Russian oil have increased the number of oil tankers passing through the canal from the Gulf to Europe up around 60%, Rabie told Moussa (watch, runtime: 10:07). LNG shipments have risen 31% over the same period. The Suez Canal Authority is currently discussing potential transit fee hikes for the beginning of next year, but plans to keep rates fixed for the coming two to three months at least, he said. Rabie also phoned into Al Hayah Al Youm (watch, runtime: watch, runtime: 23:17).

President Abdel Fattah El Sisi’s diplomatic stance on various global issues also got attention from the talking heads. El Sisi expressed his support to the “One-China” policy, which asserts that Taiwan is part of China, days after US House Speaker Nancy Pelosi’s visit escalated tensions between China and the US and provoked fears of a Chinese attack on Taiwan. Ala Mas’ouleety (watch, runtime: 2:44 | 3:54) and Masaa DMC (watch, runtime: 3:23) covered El Sisi’s speech, which also saw him comment on Egypt’s stance towards the violence that has escalated in Gaza over the past couple of days. We have more on Egypt’s role in the conflict in Gaza in this morning’s Diplomacy section, below.

Dominating coverage in the foreign press this morning: Egypt’s attempts to mediate an end to the weekend’s fighting between Israel and Palestinian Islamic Jihad in Gaza. More on this in this morning’s Diplomacy section, below. (Reuters | AFP | WSJ | Haaretz)

MEANWHILE- Chevron loves Egypt: “Chevron upstream chief Jay Johnson used his firm’s Q2 earnings call on 29 July to single out Egypt [and Suriname] as the firm’s most exciting exploration prospects globally,” MEED reports.

Egyptian ambassador to the United States Moataz Zahran is getting ink in The Washington Diplomat after appearing in the publication’s live interview series.

Suez Canal hits daily traffic record: Eighty-nine ships passed through the Suez Canal yesterday, marking the highest number of ships to pass through the canal in a single day in its history, the Suez Canal Authority said yesterday.

The Nile River could break a different kind of record soon: The Irrigation and Water Resources Ministry will launch a 16-governorate-wide campaign to clean the Nile River of waste on 17 September, it said Friday.

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

• The Chemical Industries Holding Company (CIHC) is in talks with Austrian outfit ​​Voestalpine to establish a new subsidiary specialized in the production of materials for infrastructure projects. (Al Mal)
• French software developer Valeo signed an MoU with the Information Technology Industry Development Agency (ITIDA) to expand its operations and investments in Egypt. (Statement)

Egypt is looking to broker a ceasefire between Israel and fighters in Gaza after the two sides exchanged fire over the weekend in what was the most serious-flare up of violence since an 11-day conflict last year between Israel and Hamas, the Associated Press reported

What started things? The fighting began on Friday after Israel assassinated Tayseer Jabari, a Palestinian Islamic Jihad boss, launching a series of airstrikes that Israel claimed were in response to an “immediate threat.” PIJ replied on Friday and Saturday, firing barrages of rickets into Israeli territory. Hamas is yet to join the fighting.

At least 24 Palestinians have been killed, including six children, while more than 200 have been injured in the Israeli airstrikes. No Israeli casualties have been reported.

The peace drive: An Egyptian intelligence delegation led by Maj. Gen. Ahmed Abdelkhaliq, the intelligence officer in charge of Cairo's Palestinian portfolio, headed to Israel yesterday, Reuters reports. The delegation was hoping to secure a ceasefire as soon as today. Hezbollah-affiliated media claims the Palestinian side has so far rejected calls for a ceasefire.

President Abdel Fattah El Sisi said Egypt is engaged in a “big” push to restore stability, adding Cairo is in touch with both sides “around the clock” (watch, runtime: 1:11). The Foreign Ministry also said Egypt is engaged in “intensive talks.”

REMEMBER- Cairo was a key mediator in the 2021 war, brokering a ceasefire between Israel and Hamas to end the devastating Israeli military offensive against the strip.

Is Egypt going to reenter GERD negotiations? Egypt is pursuing a diplomatic approach to resolve the dispute over the Grand Ethiopian Renaissance Dam (GERD) “with patience and a calm head,” President Abdel Fattah El Sisi said in a speech yesterday (watch, runtime: 2:57). The president’s statement came a few days after the UAE weighed in on the crisis and called for Egypt, Ethiopia and Sudan to return to the African Union-led negotiations that have been stalled since last year.

El Sisi didn’t explicitly commit to rejoin AU-led talks or provide details on who the government is negotiating with. For the past year Egypt has refused to rejoin the AU process and called for new mediators to be brought into the process, an idea that has been largely rejected by world powers.