AM — Abdalla, cabinet coordinating fiscal and monetary policy as IMF talks continue

Good morning, nice people. The last weekend of summer is now behind us (almost-officially in the US and Canada, where today is the labor day holiday — and just-about-officially in Egypt, if the atmosphere in Sahel is any barometer) and it shows in a very light news day today.

THE BIG STORY HERE AT HOME- Hassan Abdalla and his team at the central bank continue to chart a way forward out of our current FX, inflation and other challenges.

Abdalla and Prime Minister Moustafa Madbouly were talking monetary and fiscal policy again yesterday at a meeting involving senior cabinet ministers and central bank officials, according to a cabinet statement. The sit-down covered the latest on talks with the International Monetary Fund (IMF) for an assistance package, the impact of rising inflation on businesses and consumers, and steps that Finance Minister Mohamed Maait’s team have recently taken to accelerate the release of goods piled up at Egyptian ports.

The Abdalla bounce in short-term EGP bonds continued yesterday: Yields on three-month treasuries fell for the second auction in a row yesterday, declining 20 bps to 15.85%, according to central bank data. Yields had inched down to 16.07% last week which some traders attributed to Hassan Abdalla’s appointment as CBE governor.

But yields on one-year bills continued to rise: Indications that policymakers could soon make a move on the EGP and hopes that an agreement with the IMF could be close haven’t had an impact on one-year yields, which have risen almost 60 bps since the beginning of August. The rate inched up to 16.91% from 16.88% in an auction yesterday.

SMART POLICY #1- Bank boards won’t be required to meet quite as often, according to a Central Bank of Egypt circular (pdf) out yesterday that said boards will now have to meet at least six times a year. Bank boards were previously required to hold at least eight meetings every year under a 2019 decree. This is smart: The nation’s banks are exceptionally well-regulated by the CBE (and have been for the better part of two decades). Eight meetings a year was just needless overhead for C-suite folks and non-exec directors alike.

SMART POLICY #2- The Saudi central bank has brought in a crypto chief to manage its digital assets program in an indicator that Riyadh is looking to compete with the UAE, which has positioned itself as a global hub for the crypto industry, Bloomberg reports.

Hassan Abdalla has a hell of a lot on his plate right now — and we’re hardly crypto fanboys here at Enterprise. But when he and the good people at the CBE come up for air, we’re going to be hoping they (cautiously) re-think the regulator’s approach to crypto, which in the Amer days was effectively this.

*** You have just a few more days to tell us how you’re feeling about your business and the wider economy. We’ll have the results for mid-month — just in time to give you a sense of what everyone else is thinking heading into budget season. Make your voice heard in our Fall Reader Survey. It won’t take more than a few minutes to complete.

HAPPENING TODAY-

It’s PMI day: S&P Global will publish August’s data measuring activity in Egypt’s non-oil private sector. The private sector contracted for the 20th consecutive month in July as high inflation continued to weigh on output and demand. Look for the PMI here at about 6:15am CLT.

Palestinian President Mahmoud Abbas will be in Cairo ahead of an Egyptian-Palestinian summit on Tuesday. The two sides will discuss the situation in Palestine and the possibility of releasing Palestinian prisoners in Israeli custody. Egypt played a key role in brokering last month’s ceasefire following clashes between Israel and Gaza militants.

OPEC+ meets to set output policy amid a wave of uncertainty in the markets that has resulted in the longest streak of monthly drops in crude prices since the pandemic, Bloomberg reports. Most analysts and traders surveyed by the business newswire expect the oil cartel to keep output steady. Brent crude futures are currently trading at around USD 93 a barrel — down nearly a quarter on their June peak.

The board overseeing the National Dialogue will hold its next meeting, choosing rapporteurs for all of the committees and subcommittees of the social, political and economic tracks. It will also work on topics of discussion for the dialogue.

HAPPENING THIS WEEK-

We’re expecting some sort of announcement from the government on how it plans to proceed with its privatization program, according to comments given to the media by Finance Minister Mohamed Maait last week. This came on the same day as the Prime Minister Moustafa Madbouy met with the heads of the EGX and the Financial Regulatory Authority to discuss plans to sell stakes in state-owned enterprises on the bourse.

THE BIG STORY ABROAD-

Europe’s energy shock is getting most of the attention in the global front pages this morning as energy traders predict a volatile start to the week following Gazprom’s shuttering of the Nordstream 1 gas pipeline last week. Reuters, Bloomberg, the New York Times, and the Financial Times are looking at how European leaders could respond to the deepening crisis as the effects of the sanctions war with Russia threaten to shutter heavy industry across the continent. The Wall Street Journal, meanwhile, is cheering the growth slowdown in China, suggesting that it will help to calm soaring inflation elsewhere in the world.

iSheep, rejoice: Expect the IPhone 14 Pro line to be the star of Apple’s annual event on Wednesday, with the upscale products poised to have significant upgrades, including a faster A16 chip, an always-on display screen, a whooping 48-megapixel rear wide-angle camera system, and a larger battery, according to Bloomberg. The iPhone 14 Pro will also see some modest design changes, including to its sensor notch. The event is set to see the unveiling of two standard iPhone 14 models, a high-end Apple Watch Pro and upgraded new Airpods Pro.

Wait, no Macs or iPads? Nope. Conventional wisdom is that we’ll have to wait until October, but that new machines with M2 chips will be on offer.

THE LONG VIEW-

The 2020s could be even more terrible than the 1970s: Comments made by historian Niall Ferguson over the weekend are getting attention in the global business press. Speaking to CNBC at the Ambrosetti Forum in Italy, Ferguson warned that the current political and economic turbulence could be worse than the 1970s — a decade characterized by energy shocks, stagflation and political and civil unrest.

“The ingredients of the 1970s are already in place,” Ferguson said, drawing parallels between events over the past two years, the loose fiscal and monetary policies of the late 1960s, and the 1973 war. The difference, he said, is that the current war in Ukraine is lasting longer than the Arab-Israeli war, making the energy shock more severe. “Why shouldn’t it be as bad as the 1970s?” he said. “I’m going to go out on a limb: Let’s consider the possibility that the 2020s could actually be worse than the 1970s,” he said. The story got ink in CNBC and MarketWatch.

ICYMI-

Missed this week’s Inside Industry? In our weekly vertical exploring all things industry and manufacturing, we sat down with Arab Alloys CEO Medhat Nafei to discuss his company’s plans to set up a EGP 1 bn ferroalloys industrial complex in the Suez Canal Economic Zone.

CIRCLE YOUR CALENDAR-

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

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*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed. Blackboard appears every Monday in Enterprise in the place of our traditional industry news roundups.

In today’s issue: We look at the growing investor interest in Egypt’s preschool sector.

It only took 3+ years, but El Nasr Auto might finally be ready to finalize contracts for EV assembly: El Nasr Automotive expects to sign final contracts to produce electric vehicles with an unnamed Chinese company in mid-October, Al Borsa reported yesterday, citing an anonymous source at the company. The report came hours after Public Enterprise Minister Mahmoud Esmat held a meeting to review the status of the negotiations between El Nasr and a Chinese auto firm. The ministry was tight-lipped on the identity of the Chinese firm and when the contracts would be signed in its statement (pdf).

So who’s the Chinese company? It’s likely BAIC Group, which we were told in June had signed an MoU with El Nasr for the production of EVs. At the time production was expected to begin in the middle of 2023 with the aim of putting out the first EVs on the market by 4Q 2023.

FEV is reportedly bringing the blueprints: State-owned El Nasr is reviewing designs for electric sedans from German vehicle designer FEV ahead of signing the contracts, Al Borsa’s source said.

Finally, the endgame? El Nasr has been in talks with foreign companies to partner on an EV project for years. The company had entered negotiations with Chinese auto giant Dongfeng back in 2019 only to pull out more than two years later apparently because the two sides were unable to agree on prices for imported components. We had more in our weekly Going Green vertical on the renewables industry.

The Finance Ministry has laid out the criteria for industry players looking to benefit from amended customs tariffs approved by the House of Representatives in June, according to a cabinet statement. Manufacturers will need to keep records on the volume and purpose of their imports so they can qualify for customs breaks on some production inputs, with the Customs Authority, the Industrial Development Authority (IDA), the Trade and Industry Ministry, and the Finance Ministry all playing a role in approving companies’ imports and tariffs depending on the sector in which they operate.

Refresher: The amendments impact 150 raw material imports used by automotive and industrial manufacturers, hotels, renewables players, and farmers, among other industries. They were put in place in a bid to lower imports of finished goods, boost local industry, and up exports.

^^ We broke down the customs breaks and how they’re being implemented in an Inside Industry vertical earlier this summer.

Supermarket chain Bim Egypt plans to invest USD 25 mn to open hundreds of new branches, Al Mal reports, citing people familiar with the matter. The Turkish retailer reportedly wants to open as many as 200 branches during the first half of 2023. Bim first entered Egypt in 2013 and currently has 300 branches in the country.

IN OTHER RETAIL NEWS- Burgeoning supermarket chain Mahmoud El Far has opened a new store in Madinaty at a cost of EGP 200 mn, Masrawy reports. This is the company’s second branch in Egypt after opening its inaugural store in New Cairo last year.

Abdelhalim Allam has been elected president of the Lawyers’ Syndicate after a landslide victory, Al Shorouk reported. Allam, who heads the syndicate’s branch in Alexandria, won the race with more than half of the 45.2k votes cast, results showed. Eighteen candidates have been vying for the position since March after President Ragai Attia passed away.

There was no specific topic dominating airwaves yesterday, with talking heads discussing the commodities front, a much-needed relief for importers and others.

Supply Minister Ali El Moselhy was on Al Kahera W El Nas’s Hadith El Qahera delivering a mix or reassurance and alarmism: “This is the worst global crisis since [I believe] the Second World War,” the minister said while moving to calm fears about food insecurity caused by the conflict. The country has enough wheat to last more than six months, partly due to the government securing more than 4 mn tons from local farmers, he said (watch, runtime: 8:12 | 5:43).

Amended custom tariffs will apply to both production inputs stuck at ports and others set to be imported, Customs Authority spokesperson Mohamed Ibrahim said on Salet El Tahrir (watch, runtime: 8:08). Businesses can also send equipment for maintenance abroad and have it shipped back without incurring any custom charges, on the condition that they declare that the goods are being exported temporarily for maintenance, he said. The decisions received praise from Mohamed El Masry, vice chairman of Federation of Egyptian Chambers of Commerce (FEDCOC), who told Salet El Tahrir (watch, runtime: 9:58) that it would help resolve the crisis at ports.

Another way the government could get more foreign currency into the country: Convincing expats to send more remittances in exchange for customs breaks on vehicles, suggested Alaa Selim, the secretary-general of the General Union for Egyptians Abroad in Kuwait. In an interview with late night queen Lamees El Hadidy on Kelma Akhira, Selim said that Egyptians abroad could transfer USD 50-100k in remittances in return for a customs break on imported cars (watch, runtime: 3:01). Purchasing vehicles abroad and shipping them to Egypt has become a well-known practice by expats (especially in the Gulf) because of the high prices in the local market.

Also on the airwaves last night:

• More tourists: El Hekaya’s Amr Adib called for revamping airports and providing better services to attract more tourists. (El Hekaya | watch, runtime: 32:27)
• More wheat: Egypt plans to plant 4 mn feddans of wheat next season, Agriculture Minister El Sayed El Quseir said. (Salet El Tahrir | watch, runtime: 3:57)
• A man accused of shooting dead a female student in Menofiya over rejecting his marriage proposal has committed suicide, the Interior Ministry said yesterday. (Salet El Tahrir | watch, runtime: 6:17 and Hadith El Qahera | watch, runtime: 3:03)
• El Sisi meets Saudi FM: A meeting between President Abdel Fattah El Sisi and Saudi Foreign Minister Faisal bin Farhan Al Saud in Cairo got a mention from Al Hayah Al Youm (watch, runtime: 3:50) and Kelma Akhira (watch, runtime: 1:20).

No single story is dominating the conversation on Egypt internationally this morning. Here’s a selection of stories getting ink in one form or another:

• Retailers and manufacturers have been struggling to stay afloat amid import restrictions and a USD shortage. (The National)
• Solar power is a rich man’s game: Hefty upfront costs and bureaucracy are scaring citizens away from installing their own solar panels despite government encouragement. (Economist)
• Slim pickings: The Qarun Lake’s deteriorating fish stock is putting fishermen’s livelihoods at risk and pollution may be to blame. (Reuters)
• Sahel in the spotlight: The upscale summer spot is garnering media attention and spawned a wealth of memes highlighting the nation’s class divide. (The National)
• No plans to demolish Taha Hussein’s grave: Authorities have denied planning to demolish the grave of famed Egyptian writer Taha Hussein to make way for a new road. (The National)
• Third woman murdered in less than three months: A man has shot and killed a woman in Menoufia Governorate who turned down his marriage proposal. (Sky News Arabia)
• Influencer Hadia Ghaleb’s burkini line is said to be changing attitudes on modest swimwear. (The National)

A bidding round for Borg El Arab dry port? A consortium led by Alpha Capital is reportedly among companies planning to submit an offer in October to establish, operate and manage the dry port at Borg El Arab at an investment cost of USD 180 mn, Amr Ismail, head of the General Authority for Land and Dry Ports, is cited as saying by Al Borsa. Korea’s CGN was reportedly being considered to manage the dry port back in 2020, though we’ve heard nothing on the project’s progress since.

EFG Hermes’ valU and PayTabs Egypt are working with chatbot startup Notchnco to build out WhatsApp shopping services on valU, according to a statement (pdf).

Our friends at Infinity and Hassan Allam Utilities as well as Intro Energy will inaugurate three solar plants with a combined generation capacity of 15 MW by the end of October in Sharm El Sheikh, according to Al Borsa.

President Abdel Fattah El Sisi has asked the government to reconsider indicative supply prices ahead of the harvest season and look into adding financial incentives to the procurement prices, a statement by Ittihadiya read. The directives come under the state’s plan to support local farmers, it said.

REMEMBER- The government said last week it will pay farmers an indicative price of EGP 1k per ardeb of wheat next season, a hike of nearly 15% from the EGP 865-885 per ardeb it paid this year. Farmers had urged the government earlier this year to raise prices to EGP 1k to help the industry cope with inflation and meet production targets.

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

• It’s official: Eastern’s cigarettes just got pricier. Eastern Company has raised price points for the second time since March by EGP 1.5-2.5 per pack. (Regulatory filing, pdf).
• Real estate developer GV Developments signed a MoU with French consulting and engineering firm EGIS for the development of Tarboul Industrial City. (Statement)
• EgyptAir began operating direct daily flights on Saturday between Moscow and popular tourist destinations Sharm El Sheikh and Hurghada. (Masrawy)
• A delegation of Danish companies discussed investment opportunities with officials at the Suez Canal Economic Zone. (Statement)

The US just stepped up tech sanctions on China: The Biden administration has slapped a ban on US chip companies selling AI semiconductors to China as it steps up its tech war against Beijing. Nvidia and AMD both said last week that Washington is preventing them from exporting certain chips to companies in China in the latest in a series of recent moves by the Biden administration to stunt Chinese tech development. Bloomberg, Reuters and the Financial Times have more.

FROM THE DEPT OF “WTF?” Foreign passport holders in the West Bank are now legally required to tell Israeli authorities if they’re romantically involved with a Palestinian as a condition of entry. The new rule came into effect today. (Washington Post)

Also worth knowing this morning:

• Turkish President Recep Tayyip Erdogan cautions Greece not to “go too far” as territorial tensions escalate between the two NATO members. (Bloomberg)
• A Turkish warship has docked in Israel for the first time in over a decade as bilateral relations continue to improve. (Reuters)
• The UN has accused China of committing “serious human rights violations” against Uyghur Muslims and called alleged acts of torture constituted “crimes against humanity.” (OHCHR, pdf)