AM — CBE holds rates steady as El Sisi appoints Hassan Abdalla as caretaker governor

Good morning, friends, and welcome to the last full week of August — a month that has emphatically not lived up to its reputation for being light on news. Last week’s surprise changing of the guard at the Central Bank of Egypt, an unexpected cabinet shuffle, and Mohamed Farid’s shifting over to run the Financial Regulatory Authority have shaken up the regulatory and policy landscapes at the same time as the government continues to line up investment from the GCC and pursue talks for an IMF assistance package. Throw in some M&A news (not least the acquisition of Beltone by the UAE’s Chimera) and … wow. What a month.

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We’re kicking off the week with a bit of news of our own: We’re absolutely delighted to welcome HSBC Egypt as our new lead pillar advertiser here at EnterpriseAM. HSBC is the largest international bank in the nation — and has the largest presence in our region of any international bank.

HSBC Egypt shares our values, whether that’s its focus on business leaders just like you, its belief that business is an international affair, or its longstanding commitment to net zero and the wider conversation about environmental, social and governance (ESG) issues.

As an institution, HSBC is deeply rooted in Egypt and the Middle East. Its origins in Egypt date to the late twentieth century. Today, it links businesses here to the Gulf, Europe, Asia, and North America. That’s exactly what we aim to do every morning here at Enterprise: To go deep on business, finance, economics and policy in a country in which we all do business and invest — and to connect you to the international trends and news you need to know about. Whether you’re working on business strategy in Zayed, pitching a US venture capitalist in Zamalek, boarding a plane for meetings in London, or want to know how an interest rate decision in the US will impact us here in Omm El Donia — that’s where EnterpriseAM comes in.

HSBC Egypt will be penning a column in EnterpriseAM every second Monday. The first, by the bank’s Egypt vice-chair and CEO Todd Wilcox, will appear tomorrow. (We had the chance to sit down with Todd back in June — our “Coffee with…” conversation is here and definitely worth reading.)

HSBC Egypt is also joining us for an exciting new product we’re launching very soon. We’ll have more for you on that in the days ahead — stay tuned.

Our more than 200k readers enjoy Enterprise without charge every day thanks to the generosity of major corporations including HSBC Egypt, EFG Hermes, SODIC, Infinity, Somabay, Etisalat by e&, PHD, Orascom Construction, CIRA, IDG, and Moharram & Partners. Thank you, all of you, for making this possible.
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PSA- Your morning commute is going to stay reasonable(ish) for an extra week after the Education Ministry announced that the new school year for public schools will start on 1 October instead of 24 September as previously announced. The ministry’s international schools will begin the school year on 18 September, the statement said. Ministry-regulated private schools including MES, CES, Alsson, AIS are scheduled to open in early September. Embassy-affiliated and association-owned schools including NCBIS, BISC and the Lycée Françaid du Caire are all opening in the coming weeks.

WHAT’S HAPPENING TODAY-

The Madbouly government will hold another three rounds of consultations on its privatization strategy this week: Representatives from the power sector will meet with government officials today to discuss its privatization plans. A consultation with construction players will take place on Tuesday and water players are up on Thursday. The government is holding workshops and consultations with stakeholders from different industries every Sunday, Tuesday, and Thursday on its privatization plans. You can find more details on the schedule of the meetings here.

PSA- Students can apply to all government non-profit universities through the online public university enrollment (tansik) website starting Tuesday, 23 August, the Higher Education Ministry said in a statement Friday. The deadline for applications is the following Tuesday, 30 August.

SO MUCH COP-

Get climate finance for your business from the UK government: As the clock ticks down to COP27, the Climate Finance Accelerator (CFA) is hosting a webinar tomorrow to introduce its plans to support low-carbon projects in Egypt. The CFA, backed by the UK government’s International Climate Finance (ICF), is a four-year technical assistance program designed to “develop a sustainable pipeline of bankable and investment-ready, low-carbon projects and identify suitable financing options.” The webinar is aimed at investors and developers involved in low-carbon projects in Egypt and will discuss climate finance, the CFA’s plans for Egypt, and the benefits of taking part in the program. The webinar takes place tomorrow (Monday, 22 August) starting at 11:30am CLT. Register here.

ALSO HAPPENING TOMORROW- The launch event for the global ClimaTech Run competition for tech entrepreneurs, hosted by USAID-backed Business Egypt, takes place at Le Lac Du Caire at 5pm CLT.

A delegation from the European Investment Bank delegation is visiting Egypt from 17-21 August to discuss the NWFE program with the International Cooperation Ministry, according to a ministry statement. Announced by International Cooperation Minister Rania Al Mashat last month, NWFE is the mechanism by which the ministry will promote its pipeline of low-carbon projects to investors. The EIB delegation is meeting with officials from the international cooperation, agriculture, irrigation and housing ministries during its visit to discuss the details of the program.

The second Egypt- and UN-led regional climate roundtable takes place in Bangkok this Thursday: The one-day event will see climate negotiators from the Asia-Pacific region discuss climate finance with private- and public-sector stakeholders ahead of the COP27 summit in November. This is the second of five regional roundtables being organized by Egypt and the UN. The first took place in Ethiopia last month.

Egypt’s climate czar Dr. Mahmoud Mohieldin was back on the airwaves last night to talk about COP27: In an interview with Al Hayah Al Youm, the UN climate change high level champion for Egypt and IMF executive director talked about Egypt’s ambitions for the summit and how the government is preparing (watch, runtime: 24:35).

LATER THIS WEEK-

Market watchers will be looking for clues on future Fed policy this Thursday when the big annual meet of central bankers at Jackson Hole, Wyoming, starts.

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-

More than 20 people have been killed in an ongoing siege of a popular hotel in Somalia’s capital Mogadishu. Islamic militants reportedly linked to Al Qaeda stormed the Hayat hotel on Friday and security forces were still trying to retake the building on Saturday evening. Two officers said that 25 bodies were recovered from the hotel, and more than 50 have been injured. (Reuters | Bloomberg | Wall Street Journal | Associated Press | BBC | The Guardian)

COVID WATCH- We’ve (almost) all had a first dose of a covid jab, and most of us have had a second jab. Some 50 mn people — 99.8% of those eligible for vaccination against covid-19 — have received a first jab, Health Minister Khaled Abdel Ghaffar said at a cabinet meeting last week. Around 78% of those eligible have received a second dose, he said. Booster rates are significantly less, with fewer than a third of those eligible (some 8 mn people) having taken the third shot.

*** 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: What’s next for F&B in Egypt? The Egyptian F&B sector has been expanding rapidly in recent years, with market consolidation and the rate of new players entering the country gathering pace. But what’s next?

Meet the CBE’s new acting chief: President Abdel Fattah El Sisi appointed Hassan Abdalla (bio), the former vice-chairman and managing director of Arab African International Bank (AAIB) and current chairman of state-owned media giant United Media Services, as acting governor of the Central Bank of Egypt (CBE) on Thursday, one day after Tarek Amer unexpectedly stepped down. During a meeting on Thursday, El Sisi stressed to Abdalla that monetary policy should be responsive to global economic challenges, improve the country’s investment climate, and help diversify its sources of foreign currency, according to state-owned breaking news website Ahram Gate.

Abdalla’s appointment came on the heels of Tarek Amer’s surprise resignation on Wednesday, one day before the central bank’s interest rate meeting. No explanation was given for Amer’s exit, but analysts have speculated that the move could signal a shift in exchange-rate policy. Amer’s second and final term was due to expire in November 2023; the former governor was widely seen as managing the exchange rate within a narrow corridor.

It is unclear how long Abdalla will hold the position: Egypt’s constitution allows the president to appoint a temporary caretaker to fill the position until the House of Representatives begins its next legislative session in the fall, at which time it would need to approve a nominee for a full four-year term.

WHO IS HASSAN ABDALLA?

Abdalla is a veteran of the private-sector banking industry: He joined AAIB in 1982 and rose to become the multinational bank’s vice chairman and managing director in 2002 — a position he held until he left the bank in 2018, having positioned it as one of the nation’s top private-sector banks. He’s the founder and chairman of advisory and private equity firm Panther Associates and has previously been a board member at the Central Bank of Egypt and EGX, the Institute of International Finance, the Communications Ministry’s ITIDA, and several private and public sector companies in Egypt.

Abdalla aggressively positioned AAIB as among the private-sector “institutions of choice” for corporate Egypt with a strategy of pursuing syndicated loans, working capital facilities, and long-term finance to support capital expenditures. Abdalla grew the bank’s international presence (including through its long-time UAE arm, which accounted for 20% of AAIB’s net income in 2017, his last full year at the bank); moved into microfinance, leasing and mortgage finance; spun up an investment banking, corporate finance, securities brokerage and asset management units; and helped lead the early conversation here on sustainable finance.

He was a key figure in the 2005 merger of Misr America International Bank and AAIB in a transaction worth around EGP 240 mn, according to local media reports. In 2015, Abdallah led the bank to buy the portfolio of Canada’s Scotiabank in Egypt.

He is also a member of the academic world: Abdalla was a part-time professor of finance at AUC, from which he graduated with a BA and an MA. He is actively involved in the academic community, serving on the boards of both the ESLSCA Business School in Egypt and the strategic advisory board of AUC School of Business.

IN AT THE DEEP END-

Abdalla chaired Thursday’s Monetary Policy Committee meeting just hours after his appointment. The committee left interest rates on hold (we have more details on the meeting below).

And attended a series of high-level meetings: Abdalla also held meetings with Prime Minister Moustafa Madbouly and IMF Executive Director Mahmoud Mohieldin on Thursday to discuss economic policy and the current state of play with the IMF negotiations. Abdalla said the relationship between the central bank and government would be “characterized by harmony” to achieve the country’s development goals, stressing “full cooperation and coordination” between the two sides.

A tough road ahead: Abdalla leads the bank as policymakers face growing pressure on the currency and the economy. Heightened commodity prices have added bns of USD to the country’s import bill and rising global interest rates as well as volatility in international financial markets have seen USD 20 bn in portfolio flows exit the country this year, putting pressure on the EGP, which has slipped almost 22% since March.

Abdalla’s most pressing challenge: the EGP. Calls among global financial analysts for further devaluation have grown louder in recent days to dodge a balance of payments crisis, and markets are increasingly pricing in a further depreciation. Forward markets expect the currency to slide 10% over the next three months and 22% over the next year, according to Tellimer Research.

Freeing the currency is also looking like a prerequisite for an agreement with the IMF: Adopting a flexible exchange rate policy is likely one of the IMF’s key demands before it agrees to extend another multi-bn USD loan to Egypt, for which the two sides have been in talks since March. The Fund called on the government to make “decisive” fiscal and structural reforms to reduce its exposure to external shocks last month.

An agreement with the IMF is key: The series of policy tools deployed so far ⁠— allowing a limited fall in the currency, restricting imports, and attracting up to USD 22 bn in Gulf investment ⁠— have done little to ease the external pressures. A fresh program could provide bns of USD in additional funding and give extra assurances to investors by way of a structural reform program endorsed by the IMF. The question is how the Madbouly government would cope with the additional boost to inflation that would accompany a float.

The foreign press took note of Abdalla’s appointment: Bloomberg | Reuters | Associated Press | The National.

MEANWHILE- Gamal Negm isn’t going anywhere: The CBE has denied reports of the resignation of the bank’s Deputy Governor Gamal Negm, according to a statement sent to journalists. “Negm continues to perform his duties as normal,” it said. Negm, who has been a key figure at the bank for almost two decades, had been speculated to be in the running for the top job after Amer stepped down.

The Central Bank of Egypt (CBE) left interest rates on hold on Thursday, hours after Hassan Abdalla was appointed governor following Tarek Amer’s surprise resignation on Wednesday. The CBE left the overnight deposit rate at 11.25%, the overnight lending rate at 12.25%, and the main operation and disc. rates at 11.75%, it said in a statement (pdf).

Analysts had expected the central bank to raise rates: Analysts surveyed by Enterprise and Reuters expected the central bank to hike rates in response to rising inflation, which hit a fresh three-year high of 13.6% in July. Some market watchers changed their forecast following Amer’s resignation while others expected the central bank to press ahead.

The CBE didn’t stray from its recent messaging on inflation: “The [Monetary Policy Committee] decided that keeping policy rates unchanged remains consistent with achieving price stability over the medium term,” the CBE said in the statement. It reiterated that inflation above its target of 7% (± 2%) by the end of the year “will be temporarily tolerated.”

A good thing for our public finances: “The rush to raise interest rates increases the cost to the economy, especially to public finances, which are already facing huge pressure,” said Esraa Ahmed, economist at Al Ahly Pharos. What’s more, raising interest rates is unlikely to bring foreign investors back to Egypt due to the rising returns on USD-denominated assets abroad and the current risks surrounding the EGP, she added.

Even as global pressures refuse to abate: The MPC reiterated its view that inflation is being imported into the local market as a result of global macroeconomic pressures resulting from the war in Ukraine and a tighter monetary environment. It also for the first time cited “increased geopolitical risk in South-East Asia” as one reason for the global slowdown, in an apparent reference to the recent flare-up in US-China tensions.

One good sign: Global commodities prices are on the decline after peaking in the wake of Russia’s invasion of Ukraine, the CBE said. Global food prices have fallen for four consecutive months and were helped last month with the breakthrough agreement between Ukraine and Russia to resume Ukrainian grain exports via the Black Sea. Oil prices have also fallen significantly and are now at pre-Ukraine war lows and edging towards USD 90 a barrel.

As focus shifts to the EGP, inflation may be allowed to go higher still: Abdalla’s appointment has added fuel to speculation that the EGP will need to slide more against the greenback to manage growing external imbalances and attract foreign capital back to the country — which would lead to a further rise in inflation. Prime Securities’ head of Research Amr El Alfy is among those calling for the new governor to give up tight control of the EGP and instead allow the currency to float against the greenback, suggesting that imported inflation is transitory and will likely fall back into single digits next year. A further hike in fuel prices could also put further upwards pressure on prices.

This is the second consecutive meeting during which the bank decided to leave rates unchanged. The MPC has hiked rates by 300 bps since March, but chose to leave them unchanged during its latest meeting in June, after inflation in May came in below expectations. The MPC said it will continue to assess the effects of its earlier hikes as it decides whether to resume its tightening cycle at its next meeting.

The EGX responded positively to the MPC’s decision and Abdalla’s appointment: The benchmark EGX 30 closed Thursday up 0.35%, after rising 2.2% the day before following the announcement of Amer’s departure.

The CBE will next meet to discuss rates on 22 September.

The news got attention internationally: Reuters | Bloomberg.

A new logistics zone in Sokhna: The Suez Canal Economic Zone’s (SCZone) Main Development Company (MDC) and DP World Sokhna have signed an agreement to build a USD 80 mn logistics zone at Sokhna Port, a statement by the SCZone read.

The details: Construction on the first phase of the zone will kick off in the coming months, which will cost USD 50 mn to build and is set to be operational by the end of 2023, the statement read. The zone will create 600 jobs.

BACKGROUND: DP World said last year it would invest USD 25-35 mn in improving logistics services and upping capacity at the Ain Sokhna seaport over a 2-3 year period, days after it completed a multi-mn USD expansion of the Red Sea port. The Emirati port giant has been investing in our ports alongside the UK government’s development finance arm, as part of the pair’s USD 1.7 bn platform to invest in African ports and logistics infrastructure.

IN OTHER INVESTMENT NEWS-

• Elaraby Group will start operations at a new plant in Nigeria by the end of 2023, a company representative confirmed to Enterprise, without disclosing the cost of the project or what the factory will produce. The company also plans to build an industrial complex in Quesna, Menoufia.
• Iraqi edtech platform Eduba plans to invest USD 500k in Egypt in 2023, marking the first direct investment by Baghdad in Egypt’s IT sector. (Al Mal)
• Saudi software company Arab Sea Information Systems will open a new office in Egypt after its board greenlit the move. (Disclosure)

Investment firm Zilla Capital plans to launch an EGP 2 bn activist equity investment fund during the fourth quarter of this year, executive chairman and founding partner Wael Ziada told Al Mal on Thursday.

SOUND SMART– What’s an activist investor? Activist investors typically purchase minority stakes in public companies and attempt to change the way they’re run, usually to maximize shareholder value. A recent example of this is Disney, which is facing pressure to restructure its board and spin off assets by hedge fund Third Point, which recently acquired a stake in the company.

What we know so far: The Zilla Activism Fund will purchase stakes of between 10% and 33% in six EGX-listed companies. Zilla is still deciding which sectors to invest in and plans to submit the relevant documents to the Financial Regulatory Authority for approval after the summer.

Zilla is buying the dip: The current market slowdown makes this a good time to scoop up shares at good prices, Ziada said. The EGX has staged a rally in recent weeks that pulled it out of a bear market for the first time since mid-June, but remains down some 16.3% on its recent peak in early January.

UN Secretary-General Antonio Guterres has appointed Egypt’s former permanent representative to the UN in New York, Mohamed Idris, as a member of the advisory group to the Peacebuilding Fund, according to a Foreign Ministry statement. The role will see him provide advice on the fund’s allocations, programming and policies.

Hassan Abdalla’s appointment as caretaker governor of the Central Bank of Egypt got a lot of attention on the airwaves last night, with El Hekaya (watch, runtime: 2:42; 5:31) and Sada El Balad (watch, runtime: 2:43) both covering the news.

The key question: What happens to the EGP? “Abdalla’s priority will be to shift Egypt’s economic policy from one pegged to a fixed EGP to a more flexible currency that is adaptable to supply and demand and market movements,” economist Hany Genena told El Hekaya’s Amr Adib, joining a growing chorus of economists calling for increased EGP flexibility. “A stable FX rate requires severe austerity measures that do not complement Egypt’s current economic agenda or plans for expansions and development,” he said.

Also on Abdalla’s agenda: The new governor will need to decide whether the CBE will continue offering loans at preferential rates to SMEs and tourism companies, a policy that the IMF is telling the government to end, Genena said. We have more on Abdalla’s appointment in this morning’s Moves section, above.

The new trade + industry minister is getting to work: The Trade and Industry Ministry is launching a tender for three industrial complexes comprising 1k units in Upper Egypt next week for micro, small and medium enterprises (MSMEs), head of the Industrial Development Authority (IDA) Mohamed El Zalat, told Ala Mas’ouleety (watch, runtime: 5:07). The ministry has slashed prices for the conditions booklet for companies bidding for the units by more than half to EGP 300-500, from EGP 2k previously, he said.

Hundreds of companies have obtained licenses for industrial land from the ministry within 20 days or less since May, El Zalat said (watch, runtime: 6:19). The ministry had taken over responsibility for issuing licenses in May to expedite procedures that normally forced companies to obtain at least 14 approvals before obtaining a license. Some 3-4k companies obtained building permits for their factories in 2021 and have already started operations, he said.

Remember: Ahmed Saleh recently took over as the country’s trade and industry minister, replacing Nevine Gamea, who was criticized by MPs and investors during her time in office for the slow pace of industrial licensing and bureaucratic reform.

Also on the airwaves last night:

• Electricity Ministry denies tough measures for those who don’t ration electricity: The government will not cut the power on those who do not abide by the government’s new measures to reduce electricity consumption, Electricity Spokesperson Ayman Hamza said. (Ala Mas’ouleety | watch, runtime: 15:16)
• President Abdel Fattah El Sisi followed up on the status of land reclamation projects, including those in New Delta, Toshka and Upper Egypt. (Al Hayah Al Youm | watch, runtime: 4:14)

There’s a mishmash of news getting attention in the foreign press this morning: Human rights is back in the headlines after a family member of Alaa Abde Fattah told Reuters that the imprisoned activist has stepped up his hunger strike against his detention. Meanwhile, Foreign Policy is out with a piece on a growing number of US lawmakers and human rights groups are stepping up pressure on the Biden administration to cut Egypt’s USD 1.3 bn military subsidy for human rights reasons.

Elsewhere: Al Monitor reports that the government will launch a nationwide review of safety conditions of churches following the deadly fire at Abu Sefein church in Imbaba last week; Human Rights Watch wants an IMF program to focus on governance reforms rather than eliminating subsidies; and Dr Zahi Hawass is launching a petition to bring the Rosetta Stone back to Egypt from the British Museum, according to The National.

SCZone, Toyota sign MoU on low-carbon projects: The Suez Canal Economic Zone (SCZone) and Japan’s Toyota Tsusho signed an agreement to conduct feasibility studies for joint projects in low-carbon infrastructure, renewable energy, water, green and blue hydrogen, and blue and green ammonia, the SCZone said Wednesday. Toyota last week presented to the Oil Ministry the results of an initial six-month study into producing blue ammonia in Egypt.

The government is making a fresh round of overdue subsidies payments to exporters: Cabinet has given its approval to pay a total EGP 10 bn out to exporters in a fifth phase of its program to repay overdue subsidies, according to a statement. Exporters can now request to be included in the scheme, with payments to be made on 1 October and 1 December, Maait said in a separate statement.

Gov’t defends Warraq redevelopment amid tensions: Housing Minister Assem Al Gazzar has denied that the government is forcibly evicting residents of Warraq Island after security forces and civilians clashed last week. In a statement Thursday, the minister defended the government’s plans to redevelop the island, claiming that land has only been purchased “consensually” and that it has paid out EGP 6 bn in compensation to those evicted.

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

• Cabinet approved a EUR 250 mn loan from the European Bank for Reconstruction and Development (EBRD) to finance Cairo Metro Line 2 upgrades. (Statement)
• Heliopolis Housing parent company Holding Company for Construction & Development has acquired 8.3% of Zahraa El Maadi Investment for EGP 199.1 mn. (Disclosure, pdf)
• A fire broke out yesterday on the roof of City Centre Alexandria, and was later brought under control. No serious injuries were reported. (Twitter | statement, pdf)
• Local Development Minister Hisham Amna was discharged from hospital on Wednesday after receiving treatment for minor injuries sustained in a road accident on the Wadi Natrun-Alamein the day before. (Youm7)

Turkey wants warmer ties with Egypt: Turkey wants to take its ties with Egypt to “the highest level,” Turkish President Recep Tayyip Erdogan said on Thursday, according to Turkish state news agency Andalou Agency.