AM — Central bank eases FX rules for imports

Good morning, ladies and gents. Today’s issue brings a double helping of good news for importers, promising news for Egypt’s ambitions to become a regional hub for green energy, and some not-great news for the Tawasol-LimeVest consortium’s bid for Alex Medical.

WHAT’S HAPPENING TODAY-

Intellectual property strategy launch: Egypt will launch its intellectual property strategy today. World Intellectual Property Organization (WIPO) Director-General Daren Tang will make an appearance at a ceremony being put on to launch the program.

It’s the second day of the general debate at the UN General Assembly: Among today’s speakers are US President Joe Biden, Libyan President Mohamed Menfi, and Iranian President Ebrahim Raisi, according to the schedule. President Abdel Fattah El Sisi will deliver an address at the event though it remains unclear when.

The UN chief opened proceedings yesterday with a cheery speech: In his opening address, UN Secretary-General Antonio Guterres warned of “colossal global dysfunction” created by climate change, the conflict in Ukraine and rising economic crises in the developing world. “Our world is in peril — and paralyzed,” he said. French President Emmanuel Macron and Germany Chancellor Olaf Scholz both made the invasion of Ukraine the centers of their address yesterday, both decrying what they termed Russian “imperialism.”

The Federal Reserve begins the second and final day of its policy meeting today amid rising economic uncertainty and market volatility surrounding the pace at which it’s raising interest rates. The central bank is widely expected to announce a third successive 75-bps hike when the meeting wraps tomorrow on the back of last week’s disappointing inflation data. An increase of this magnitude would take the Fed Funds Rate to its highest level since March 2008.

Markets are nervous ahead of the decision: Asian markets are in the red across the board this morning and it’s looking to be a similar story in Europe and the US later today. US stocks fell back during yesterday’s trading session, US treasury yields hit 15-year highs, and the USD rose to near-record highs.

HAPPENING TOMORROW-

The Central Bank of Egypt will meet to discuss interest rates, and the signs are pointing towards a third hike of 2022. Six of seven analysts and economists surveyed in our regular poll expect the Monetary Policy Committee to raise rates during its meeting tomorrow as inflation rises and the EGP continues to weaken. HC Securities also added its voice to the chorus, saying earlier this week it sees the central bank raising rates by 100 bps at this meeting and another 100 bps in the November meeting due to Egypt’s deteriorating external position and expectations for inflation to accelerate in the coming months.

THE BIG STORY ABROAD-

Things are moving quickly in Ukraine amid fears that Russia could escalate the conflict: There is speculation that Moscow could be about to order a general mobilization after the country’s parliament toughened punishments for crimes committed during military mobilization and combat operations. Russian-occupied territories in Ukraine have also announced plans to hold referendums on whether to formally join Russia, a week after Russian forces were sent into retreat in Kharkiv province. Nato condemned the planned referendums, describing them as “a further escalation” of the war. (Reuters | New York Times | FT)

PSA- The last call for coastal governorates to join the e-invoicing system: Companies across Alexandria, Beheira and Marsa Matrouh can now sign up to the eighth and final phase of the rollout of the government’s electronic invoicing platform, the Tax Authority said yesterday.

Up next: The second part of the final phase will target companies in Sharkia, Gharbia, Kafr El Sheikh, Menoufia and Damietta and will kick off on October 15.

What e-invoicing system? The government is working to digitize all B2B and B2C invoices, a move designed to give the government greater oversight over tax and reduce the size of the informal economy. The Tax Authority launched a pilot in late 2020 and has been gradually extending the system since then. All B2B and B2C invoices across the country are expected to be fully automated by December.

Attention iSheep: Apps and in-app purchases will be pricier starting next month: Apple is raising prices of apps and in-app purchases through the App Store in the eurozone and nine other countries, including here in Egypt, as soon as 5 October, the company said in a blog post to developers. The tech giant did not specify the level of the increases.

Behind the move: Apple may be looking to protect its margins against currencies weakening against the USD, Bloomberg writes.

CIRCLE YOUR CALENDAR-

Our friends at HSBC are hosting an energy transition webinar series next Tuesday-Thursday, 27-29 September. The series will look at the “latest climate analysis in relation to the global energy market and transition to net zero” in six different sessions covering energy security, what is required to ensure the success of COP27, financing and investment needs for the energy transition, and the scaling up of renewables in the region, among other topics. You can register for the series here.

WANT MORE on the region’s energy transition? Catch this op-ed in EnterpriseAM by HSBC’s Group Head, Center of Sustainable Finance and Head of Climate Change Middle East, North Africa and Turkey, Zoe Knight on to the capital that’s needed to help drive that shift.

A Spanish business delegation will be in town next Tuesday and Wednesday (27-28 September) for the Egypt-Spain Multilateral Partnership Forum, organized by the Spanish Institute for Export and Investment, according to a press release (pdf). The two-day conference will include seminars and panel discussions on trade and investment in transport, energy, and water with Egyptian ministers and representatives from government bodies, alongside officials from international financing institutions and Spanish Secretary of State for Trade Xiana Méndez Bértolo. The agenda for the conference is available here (pdf).

GITEX Global is being held at the Dubai International Convention and Exhibition Center from 10-14 October. The event, which is running under the theme “enter the next digital universe,” will bring together players in Big Tech to discuss AI, cybersecurity, blockchain, the metaverse, and more.

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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WHO YOU ARE- Our Head of People is responsible for aligning HR practices with business objectives and works alongside some very smart people, including our C-level and leadership teams, to design and develop HR strategies and monitor their effectiveness. Candidates should have at least 10 years of experience in human resources, with extensive knowledge of key HR disciplines including performance and talent. We are looking for someone who isn’t afraid to challenge, innovate, experiment, and move at a fast pace — not to mention creating some very cool new things to drive people engagement and improve a high-performance culture.

INTERESTED IN APPLYING? To apply for the Head of People, drop us a line at jobs@enterprisemea.com and mention “Noha” in your subject line — she’s our outgoing Head of People and the first person who’s going to be reading your application. Please send a solid cover letter telling us a bit about who you are and why you’re a good fit for our team. We want to see your CV, but the most important thing is a cover letter that makes us want to pick up the phone and give you a call.

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*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, and urban development, as well as social infrastructure such as health and education.

In today’s issue: We look at how the biggest EGX-listed CIT infrastructure players performed during 2Q 2022 amid rising inflation, FX shortages and the EGP devaluation — and review the outlook for the sector in the second half of the year.

Central bank eases FX rules for imports: The Central Bank of Egypt (CBE) has relaxed restrictions on the use of foreign currencies for imports in a bid to ease the buildup of goods at ports, according to a document circulating among banks seen by Enterprise.

Among the key changes:

#1- You should now be able to open letters of credit to pay for goods stuck at port: Companies will now be able to cover imports using foreign currency that they held in their domestic bank accounts as of 19 September. This will allow companies to open letters of credit (L/Cs) (and, in some cases, to use documentary collection) to pay overseas suppliers and release goods that are stuck in customs.

#2- Parent companies with Egyptian subsidiaries can use FX balances: Parent companies can use foreign-currency deposits held as of 19 September to cover import costs for subsidiaries and vice versa.

#3- You’re lucky if you export to neighboring countries: From now on, companies can use foreign-currency revenues made from exporting to neighboring countries to pay for imports, provided they meet certain reporting requirements on both shipments and transactions. The document lists Libya, Syria, Sudan, Iraq, Yemen and Palestine.

#4- You can transfer in FX and use it to cover imports: From now on, Importers can use foreign-currency transfers from overseas partners to cover imports. FX including remittances, dividends or the proceeds of capital increases may be used. Subsidiaries can use loans from parent companies on the condition that the facilities are provided for no less than 12 months and that it is documented in both companies’ financial statements.

The rationale: The move is designed to undo some of the damage done by former central bank governor Tarek Amer’s decision earlier this year to require importers to use L/Cs to pay for goods. The move prevented businesses from accessing foreign-currency deposits, resulting in a pile-up at ports and causing shortages of industrial and consumer goods.

SOUND SMART- By setting clear channels through which businesses can get FX into their account to cover imports, the measures offer a bit of relief for everyone from manufacturers to distributors — but will still make it difficult for importers to source FX from outside the banking system. After spending years snuffing out the black market, policymakers are loath to see it return.

Reaction to the policy switch has been largely positive:

The measures “mend previous decisions [on imports] by the CBE, Ahmed El Zayat, a member of the Egyptian Businessmen Association, told CNBC Arabia (watch, runtime: 5:16). “Relying on L/Cs for imports saw us facing hurdles and challenges, leading to a slowdown in shipments’ release,” he said.

Manufacturers will now have access to raw materials and components and will be able to ramp up production, Alaa Ezz, Secretary-General of Federation of Egyptian Chambers of Commerce (FEDCOC), told Kelma Akhira’s Lamis El Hadidi (watch, runtime: 2:00). The inflationary pressures caused by shortages will begin to abate, helping prices to stabilize, he said.

But more clarity is needed: Matta Beshay, a member of FEDCOC’s importers division, told Masaa DMC last night (watch, runtime: 9:46) that the central bank needs to provide more information on how importers will source foreign currency. “As importers, we want to have more clarity and want to know more about how the system would work,” he said.

Importers get more time to learn how to use Nafeza: The government has postponed the rollout of the Advance Customs Information (ACI) customs system to air freight to until 1 January to give importers, customs brokers, shipping agents and overseas companies more time to get used to the system, the Finance Ministry said in a statement. Use of the ACI for air freight was due to become compulsory on 1 October but the ministry will now extend the trial period through the final quarter of the year “in appreciation of global and local conditions,” the ministry said.

There are signs that importers are reluctant to join: “We’re holding training sessions to onboard importers to the system, but no one is showing up,” Misr Technology Services’ (MTS) Khaled Nassef told us yesterday. Less than 10% of daily air freight shipments are currently being booked through Nafeza, and “we need at least 70-80% of daily shipments to go through Nafeza before the full rollout,” he said. MTS is a trade and logistics platform provider and has been responsible for the rollout of the Nafeza customs window and the design of the ACI system.

This wouldn’t be the first time: Maritime importers also took a while to adjust when the system was launched last year, with talk of technical glitches and complaints about ease of use making the rounds at the time. Last we heard, more than 80% of all importers have since onboarded to ACI. More than 31k maritime and air freight importers had joined the ACI system as of the end of May.

Refresher: The ACI is a pre-registration system that provides real-time information about incoming shipments and is a key part of the Finance Ministry’s Nafeza digital customs window, which was launched in maritime ports late last year.

** Want more on Nafeza and ACI? We explain everything here.

Alex Medical’s board takes issue with Tawasol-LimeVest’s offer: The Alexandria Medical Services board has shared its opinion on the Tawasol Holdings-LimeVest consortium’s bid to acquire up to 74% of the company — and it’s not too positive, with the board saying the offer doesn’t represent the value of the company and lacks concrete plans for the future, it said in a disclosure (pdf) to the EGX yesterday. This comes in the middle of the subscription period for the consortium’s mandatory tender offer (MTO), which offered to purchase shares at EGP 47.67 apiece, valuing the company at around EGP 742.3 mn.

Valuation is wide of the mark: The board said the offer doesn’t reflect the average share price of the company for the six months preceding the launch of the MTO.

Tawasol-LimeVest ups its price again, but still no dice: The board’s stance on the valuation came despite Tawasol-LimeVest upping its offer again yesterday ahead of the meeting. The consortium is now offering to pay EGP 49.00 per share, the Financial Regulatory Authority (FRA) said (pdf) yesterday, a move that came a day after Yas Holding’s improved EGP 48.62 offer.

Alex Medical isn’t convinced by Tawasol-LimeVest’s vision: The bid also contains no firm plans for what the consortium would do with the company post-acquisition and gives contradicting information regarding employees’ job security and labor rights, Alex Medical’s board said.

How will this impact their bid? A mandatory tender offer launched by Tawasol and LimeVest is ongoing until 27 September. It is unknown how many shareholders have agreed to sell their shares to the consortium. The big one is Abu Dhabi Commercial Bank which owns a 51.5% stake in the company, but given its board representation it might not be looking good for the consortium’s bid. ADCB had last year reportedly been looking to sell its majority stake, which it acquired from NMC Healthcare’s disgraced founder, BR Shetty.

What about the competing Yas bid? The Emirati firm’s offer is pending healthcare-sector specific approvals and a go ahead from the FRA.

For those of you just joining us: The Tawasol-LimeVest consortium has been in the running to acquire Alex Medical since last year. The outfit had originally offered EGP 47.67 a share to purchase up to 74% of the company, a bid it renewed last month. Tawasol already owns 26% of Alex Medical, meaning the acquisition could give the consortium 100% ownership.

Could we see others jump back into the fray? Yas and the Tawasol-LimeVest consortium had both put in offers for Alex Medical in June last year, amid a bidding war for the healthcare provider that at its peak saw eight companies and consortiums signal their interest before it fizzled out without a sale.

Advisors: Prime Holding are the brokers on the Tawasol-LimeVest offer and Zaki Hashem and Partners are acting as the consortium’s counsel. Al Ahly Pharos is reportedly Yas’ financial advisor on the transaction, according to sources quoted by Hapi Journal at the time the offer was launched.

Contact Financial Holding has closed an EGP 2 bn sukuk issuance, after getting the greenlight from the Financial Regulatory Authority (FRA) yesterday, Contact Financial Holding CEO Said Zater told Amwal El Ghad. The sharia-compliant mudaraba sukuk has a seven-year tenor and the proceeds will be used to finance car purchases for clients of its subsidiary, Contact Credit, the regulator said in a statement (pdf).

Who’s buying in: Baraka Bank, and Arab Investment Bank, Zater said.

Advisors: The issuance was co-underwritten by Misr Capital and Al Ahly Pharos. Sarwa Promotion and Underwriting, a subsidiary of Contact, was the lead arranger. Alieldean Weshahi & Partners acted as the legal advisor, and Financial Capital Services — formerly Baker Tilly Wahid Abdel Ghaffar & Co — was appointed as an independent financial advisor.

It’s been a quiet year so far for sukuk, which saw only one EGP 3.25 bn sukuk issuance from Palm Hills Developments (PHD) in March. This marks Contact Financial’s (formerly Sarwa Capital Holding) third sukuk issuance by our count, after closing the only issuance of the year in 2021 and another in 2020.

More coming? Contact Financial’s sukuk arm is preparing for three more issuances before the end of the year with a combined value of around EGP 4 bn, Zater told us when we spoke on the phone yesterday. The company also expects to issue EGP 1-1.5 bn worth of securitized bonds within a month for its consumer finance business.

Maersk will sign the final contracts for the USD 15 bn clean fuel project at COP27 in November, Chief Group Representative Hany El Nady said in a televised interview (watch, runtime: 14:03) last night. Earlier this week Maersk CEO Soren Skou held talks with President Abdel Fattah El Sisi on the project, which will see the company work with the Egyptian government to set up a national network to produce and distribute green energy and fuel for ships.

More details: Some 200k tons of fuel will be produced during the first phase, which will be completed by 2026. The second and third phases will raise production to 1 mn tons and 3 mn tons by 2028 and 2030, respectively, El Nady told Kelma Akhira’s Lamees El Hadidi last night. Maersk has already begun feasibility studies for the project, he added.

REMEMBER- The government is aiming to position Egypt as a regional hub for green energy, with the government making moves to capitalize on investment momentum ahead of COP27. Major global companies have signed USD 18 bn worth of preliminary agreements to establish green ammonia and hydrogen projects in Ain Sokhna this year, with final agreements expected to be signed at the global climate summit.

Incoming shipments of Russian fuel to Egypt have risen sharply in the past months as Moscow looks to alternative markets in the Middle East and Asia in light of Western sanctions, Bloomberg reports.

How sharply? Last month 51 shipments of oil were sent from Russia to Egypt, up from just one in August 2021.

El Hamra has been one destination: Bloomberg reported in August that Russia was shipping oil to the El Hamra oil terminal on the North Coast, which is able to store 1.5 mn barrels of crude. Around the same time Oil Ministry announced a large-scale expansion of the terminal that would more than triple storage capacity to 5.3 mn barrels.

It’s not just us: Shipments heading to the UAE rose more than 400% y-o-y in August, China-bound ships more than doubled. Saudi Arabia and Malaysia took 32 and 48 cargoes respectively during the month after receiving none in August 2021.

Flows could rise in the coming months, as pressure mounts for Moscow to find new buyers ahead of the EU’s ban on Russian crude, which will come into effect in December, Bloomberg says.

UPDATE- ECC reveals the price tag on its newly acquired stake in Source Beauty: Egyptian Company for Cosmetics (ECC) invested USD 5 mn to acquire a majority stake through capital increase in local online beauty store Source Beauty, according to a joint press release (pdf) yesterday. The two companies first announced the acquisition earlier this week but didn’t specify the size of the transaction. Source Beauty founder and CEO Lydia Schoonderbeek declined to mention how much of the company was sold to ECC when we asked yesterday.

Where will the funding go? “We’re going to grow our talent, build on our authenticity, increase our tech footprint, and grow our product offering to help us further engage with the younger generation,” Source Beauty founder and CEO Lydia Schoonderbeek told us yesterday.

The local market remains its primary focus: The startup has no geographical expansion plans in the short-term and is putting all its effort into growing in the Arab world’s most populous consumer market, Schoonderbeek said.

About the company: Launched in 2018, Source Beauty is an online beauty marketplace offering products from more than 85 local and international brands, and has 60k users. ECC — which counts Lorax Capital Partners among its minority shareholders — manufactures beauty and personal care products and owns haircare and skincare company Bobana and cosmeceuticals player Infinity Clinic Pharma. The acquisition will see Schoonderbeek serve as ECC’s chief creative officer, alongside her role as CEO of Source Beauty.

ADVISORS- Al Tamimi and HVK Stevens acted as local and international counsel to ECC while Van Campen Liem advised Source Beauty.

Grand Imam appoints first female adviser: Al Azhar Grand Imam Ahmed El Tayyeb has appointed Nahla Al Saeedy as his adviser on expatriate affairs, making her the first woman to hold such a role, Al Saeedy said in a statement. Al Saeedy will keep her role as the head of Al Azhar’s center for international students and the dean of the Islamic studies faculty for expats.

Surprising no one, the CBE’s leaked new rules for facilitating FX for imports dominated the airwaves yesterday, with the nation’s talking heads trying to gauge how far the new measures would clear an imports backlog crippling the country since spring. Kelma Akhira’s El Hadidi (watch, runtime: 8:44), Salet El Tahir (watch, runtime: 4:43), Yahduth Fi Masr (watch, runtime: 2:46), Al Hadath Al Youm (watch, runtime: 6:56) and Masaa DMC (watch, runtime: 9:46) all had coverage. We have the details in this morning’s news well, above.

The release of another 28 pre-trial detainees following a presidential pardon got a mention from Al Hayah Al Youm (watch, runtime: 5:56) and Al Hadath Al Youm (watch, runtime: 7:47).

It’s a mixed bag in the international press this morning, with no single story dominating the conversation. Here are some of the stories getting attention:

• Egypt’s economic problems are taking their toll: The impact on Egyptian citizens of the economic crisis caused by the war in Ukraine and the pandemic is getting attention. (New York Times)
• ‘Lion of Diplomacy:’ Sameh Shoukry gets a glowing profile detailing his role on the international stage. (The Africa Report)
• The Tourism and Antiquities Ministry has reopened the site of Christian relic the tree of the Virgin Mary in Cairo following months of renovation. (Reuters | The National)
• A Spanish charity has rescued 372 people at sea, most of them Egyptians, who were trying to cross the Mediterranean to Europe in unsafe smugglers’ boats. (AP)

The Transport Ministry yesterday sent out the tender document for the Tenth of Ramadan dry port to the four qualifying consortiums, it said in a statement. MSC, Elsewedy Electric-CGM CMA-CEVA Logistics, Orascom Construction-Abu Dhabi Ports, and Bollore Logistics-Meridiam are all competing for the contract to build the 250-feddan dry dock.

EGX-listed MB Engineering's EV charging subsidiary Sha7en has received a license to operate EV charging stations, it said in a disclosure, (pdf) to the EGX yesterday.

More Egypt-Qatar talks: Industry and Trade Minister Ahmed Samir held talks with the chairman of the Qatar Chamber of Commerce over increasing bilateral trade and investments, the ministry said yesterday.

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

• A consortium of Saudi Egyptian Developers and the UAE’s Al Shafar General Contracting (ASGC) is among the companies bidding to redevelop the former National Democratic Party headquarters. (Hapi Journal)
• Elsewedy Electric subsidiary Rowad Modern Engineering was awarded an EGP 418 mn contract to construct three biological products factories for EIPICO in Tenth of Ramadan City. (Statement, pdf)
• Bahraini telecom carrier Infonas has landed in Egypt and is reportedly looking to sign cooperation agreements with three local IT and communications companies. (Al Mal)
• Payments platform PayTabs has expanded its social commerce platform Paymes to Saudi Arabia and the UAE. The platform was launched here in May after Paymes merged with PayTabs (Statement)
• Egyptian Modern Education Systems could establish a private university in the new capital. The company recently moved from the small-cap Nilex index to the EGX. (Statement, pdf)

Foreign Minister Sameh Shoukry met with US Secretary of State Anthony Blinken on the sidelines of the UN General Assembly in New York yesterday. Shoukry and Blinken discussed US support for Egypt to weather the economic challenges triggered by the war in Ukraine, according to a US embassy readout. They also touched on the Grand Ethiopian Renaissance Dam (GERD) dispute and COP27 preparations, according to a cabinet statement. Shoukry has been making the rounds in New York, meeting with the Foreign Ministers of France, Norway, Malta, India, Cyprus and the Netherlands, and the US envoy to Yemen.

Egypt’s Ambassador to Russia Nazih El Nagary submitted his credentials to Russian President Vladimir Putin yesterday, RT Arabic reported.

Is Turkish President Recep Tayyip Erdogan planning to visit Israel? That’s what the president told leaders of US Jewish organizations at a meeting on the sidelines of the UN General Assembly in New York, according to Israeli media. A spokesperson for the Israeli president and the Israeli Foreign Ministry could not confirm the news to Bloomberg. Israel and Turkey last month agreed to bury the hatchet and restore full diplomatic relations for the first time since 2018.

Five people were allegedly killed in clashes with security forces in Tehran, amid demonstrations over the death in custody of a Kurdish woman who had been arrested by the country’s morality police, according to the Washington Post. The death of 22-year old Mahsa Amini has triggered a fresh wave of protest against the country’s highly conservative dress code laws.