AM — What Goldman is saying about an IMF deal

Good morning, everyone, and welcome to a super-busy Wednesday. Let’s jump straight in:

NOT HAPPENING TODAY- The Madbouly government’s economic conference, which was slated to take place before the end of the month but will now happen in October. That was according to President Abdel Fattah El Sisi yesterday, who was speaking at the inauguration of an investment zone in Mit Ghamr. We have more on this in this morning’s news well, below.

We’re also on the lookout for news that the state has formed a new council of economic advisors. Word on the street is that the council will see bold-name members of the business community provide meaningful advice to the Madbouly government as it and the central bank look to guide us through our current challenges.

ICYMI- Did you miss the results of our Enterprise Fall 2022 Reader Survey? Your expectations that 2022 would be a good year to do business in Egypt have been dampened by global and domestic conditions — but you’re still optimistic that next year will bring a change in fortunes. What’s your view on the M&A and IPO outlook? Do you think the government is in sync with the needs of business? Check out the full rundown of the survey results.

REALLY SMART POLICY- Around 3.5 mn homes in c. 5k Egyptian villages are set to get access to high-speed internet, courtesy of a project that comes as part of the Hayah Karima (Decent Life) initiative, Communications Minister Amr Talaat said yesterday. The multi-bn USD initiative aims to alleviate poverty in rural communities by upgrading infrastructure.

WATCH THIS SPACE- The Transport Ministry wants Mitsubishi to localize rail manufacturing: Transport Minister Kamel El Wazir met with representatives from Mitsubishi yesterday to discuss the possibility of manufacturing rolling stock and signaling systems in Egypt, the ministry said in a statement. The minister voiced ambitions to create an industrial base for manufacturing rolling stock for export as well as for the local market. Mitsubishi is currently gearing up to begin work on Cairo Metro Line 4. It will also provide 23 trains for the metro line, and renovate railcars for Cairo Metro Line 1 and 2.

Also in El Wazir’s sights: The minister wants Japan’s Nippon Signal — which is providing signaling systems for the first phase of Metro Line 4 — to produce its signaling equipment in Egypt, the statement read.

HAPPENING TODAY-

It’s the second day of HSBC’s webinar series on the energy transition: 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.

A Spanish business delegation is in town 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 includes 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).

On the first day of the event: Industry and Trade and Industry Minister Ahmed Samir invited Spanish new and renewable energy companies to get involved in Egypt’s green hydrogen plans during a meeting with Mendes, according to a ministry statement.

The Arab Pensions and Social Ins. Conference kicks off today in Sharm El Sheikh, bringing together industry figures to exchange expertise on reforming and developing pension systems in the Arab region, according to a cabinet statement. Finance Minister Mohamed Maait will be among the attendees at the two-day gathering.

The UN World Food Program and the International Cooperation Ministry are hosting a two-day conference on food security at the St. Regis Cairo Hotel today and tomorrow, according to a press release (pdf). The conference will mainly focus on the digitization of the agricultural sector, financial inclusion and social protection.

PSA- Nominations for the “Africa grows green awards” are now open through 10 October. The initiative, launched by Egyptian NGO Istidama, aims to celebrate stakeholders involved in climate change action among COMESA member states, according to a statement (pdf). The awards also seek to develop climate entrepreneurship by connecting companies with VCs. For more information and to apply, you can visit the initiative’s website.

THE BIG STORIES ABROAD-

The turmoil in the UK is getting a lot of attention by the global business press this morning after UK Chancellor Kwasi “Kami-Kwasi” Kwarteng yesterday tried to reassure City investors over his fiscal policy following a historic sell-off in bonds and the GBP triggered by his plans to deficit-fund huge tax cuts. Also: The IMF yesterday called on the government to “reevaluate” its plans while house sales are “collapsing.” (Bloomberg | Financial Times | Wall Street Journal | Reuters | BBC)

Speaking of sell-offs: Things aren’t looking pretty in Asia this morning with equities across the region deep in the red and the CNY falling to its weakest level against the greenback since 2008. The Nikkei, Hang Seng and Kospi were all down more than 2% at the time of dispatch, picking up where the US markets left off in yesterday’s session, which saw equities fall deeper into bear territory. European and US shares are set to follow them later today, continuing the downward trend for global stocks triggered by growing concerns about the impact of rising interest rates on global growth.

Also: Novorossiya is about to get bigger: Russia is getting ready to annex large parts of eastern Ukraine, claiming that people have voted to join the country in a series of referendums that Western countries have denounced as a “sham.” Russian officials yesterday said that residents of the Donetsk, Luhansk, Kherson and Zaporizhzhia regions voted overwhelmingly to leave Ukraine, paving the way for Moscow to formally declare them part of its territory. (AP | Reuters | Bloomberg | FT | Washington Post | WSJ)

COUNTDOWN TO COP-

Money from Europe for COP27- The UN, EU, Denmark, Switzerland and the African Climate Foundation are helping Egypt out with the hosting of COP27 via a USD 6.2 mn project, the UN Development Programme said yesterday. The initiative will “assist Egypt in delivering on its commitments as the host of this year’s conference” by providing technical assistance and knowledge, it said.

There are 40 days left until COP kicks off with the two-day world leaders’ summit opening on 7 November. Thematic days then run 9-17 November, starting with finance day.

CIRCLE YOUR CALENDAR-

Kuwaiti investors are visiting next week: A delegation of Kuwaiti investors headed by the President of the Kuwait Chamber of Commerce, Mohammed Jassim Al Saqer, is landing in Egypt on Saturday, Egypt's ambassador to Kuwait Osama Shaltout told reporters yesterday, Masrawy reported. The delegation will include 48 investors interested in investing in several sectors of the Egyptian economy including real estate and telecoms.

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

*** 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 take a look at the EGP 12 bn project signed with Orascom Construction, Hassan Allam and Samcrete yesterday that will see the constructions of four warehouses for grain and other basic commodity storage.

IMF program by the end of this month? EGP to 24? A mood of “cautious optimism”? These are some of the suggestions in a new report from Goldman Sachs, which recently sent a team to Egypt to talk to figures from the private- and public-sectors — including the Finance Ministry, the Central Bank of Egypt (CBE), the Sovereign Fund of Egypt and local banks — about our current economic challenges. Here’s a snapshot of the report based on extracts that have appeared in the Arabic-language press, including Bloomberg Asharq:

On the IMF: Government officials told Goldman that they hope to finish talks with the IMF for a new program before the end of September — and that the size of the package could be between USD 3-5 bn. Still, the bank said there remains “a lot of uncertainty” about both the timing and the size of the facility and noted that a program of this size would fall significantly short of plugging the country’s financing gap, which it says is more than USD 15 bn over the next three years. Calibrate your expectations: Finance Minister Mohamed Maait said last week that an agreement could still take another month or two to finalize.

The EGP: Most of the people Goldman spoke with expect the EGP to settle at 22-24 to the USD following a devaluation and linked this to an agreement with the IMF. But there was no consensus on whether this would occur gradually or suddenly. The currency has been on a gradual decline since Hassan Abdalla was appointed as CBE governor, weakening almost 2% to hover above record lows against the greenback.

Enterprise readers see the EGP settling at 22.12 to the greenback, with 22% of respondents to our reader poll saying they’re budgeting for 2023 with the EGP in the 22-23 band and the same number of participants say they figure it the greenback will be changing hands at EGP 23-24 next year.

That’s roughly in line with what analysts are saying: BNP Paribas forecast before last week’s CBE policy meeting that the currency would fall to 22-23 by the end of the year, while forward markets have priced in similar declines.

On Abdalla: Abdalla’s appointment to head the CBE was “widely welcomed” by people who spoke to Goldman. They expect the central bank to better coordinate policy with the government under his leadership.

We think there has been a sea change in relations between previous “antagonists” in public service. The past month has seen significant (but not untoward) policy coordination and regular meetings between Abdalla and his team, on the one hand, and senior cabinet officials including Prime Minister Moustafa Madbouly and Finance Minister Mohamed Maait — ending months of steadily rising tensions during the term of Tarek Amer. Meanwhile, after a decade in which FRA and EGX have been singing from very different pieces of sheet music, we saw earlier this month FRA chief Mohamed Farid and EGX boss Rami El Dokkany not just working together, but appearing at a joint presser.

The economy: Officials consider the challenges facing the Egyptian economy to be under control and controllable, according to Goldman, which summed up the general mood among public- and private-sector figures as one of “cautious optimism.”

El Sisi wants import woes fixed within two months: Import challenges facing manufacturers will be solved within two months, President Abdel Fattah El Sisi said yesterday (watch, runtime 8:37). “The state is serious about solving the problems of investors, including the issue related to production inputs and their shortage in the markets during the past two or three months,” he said, speaking during the inauguration of several projects. The president said that he’d spoken to Central Bank of Egypt (CBE) Governor Hassan Abdalla about resolving the crisis. “I imagine within a month or two, all the obstacles will be resolved.”

Importers are having a rough time right now: Many businesses are unable to source the foreign exchange they need to import production inputs — let alone to bring in finished goods. This has caused shortages of industrial and consumer goods, forcing manufacturers and assemblers in some sectors to slow or even suspend production and some to lose “tens of mns of USD” a day. The CBE last week eased restrictions to allow importers to use some of their FX balances to pay for imports, but they remain unable to use any FX that entered their accounts after 19 September. And the pace at which letters of credit are being issued? Still very slow.

The economic conference is coming next month: These issues will come up during the Madbouly government’s economic conference, which will take place next month, El Sisi said. The conference will give the business community a chance to voice their concerns to the government on the problems and obstacles they face, he said. The final draft of the state ownership document, trade policy, and industrialization will also be on the agenda for the conference, which was originally expected to happen at the end of this month.

All of this is geared towards increasing exports: The government is looking to increase exports to USD 100 bn a year by 2025, partially through a new focus on localizing manufacturing and increasing revenues from gas exports, which it hopes to double to USD 1 bn a month. Export revenues climbed 58% to USD 32.5 bn in 9M 2021-2022 from the same period the year prior.

On a related note: El Sisi wants private sector employers to set up more vocational schools to help train up the labor force, ensuring that employers have access to skilled laborers and that workers have the skills they need to land good jobs. The president also emphasized the important role of research and development facilities in identifying and developing solutions to pressing issues facing businessmen and industrials.

The Sovereign Fund of Egypt plans to take military-owned filling station Wataniya and bottled water company Safi public on the EGX before the end of 2022, according to a a cabinet statement. The two companies, which are owned by the military’s National Service Products Organization (NSPO), are currently being restructured ahead of their IPOs, the statement says. No details were provided on the size of the stakes the SFE plans to sell.

Let’s set some expectations, shall we? We don’t expect full-on IPOs this year for either company — it’s too late in the fall IPO window and market conditions are, at best, meh. Neither Safi nor Wataniya are in the market now, making it very difficult to see how we’d have an initial public offering of their shares. More likely, when you parse the cabinet statement, is that we’ll see the SFE push ahead with private stake sales — and that shares could be listed (but not offered to the public) as part of that sale.

Specifically: The SFE plans to drum up investor interest in the companies ahead of the IPOs, and is currently reviewing investor offers for strategic stake sales, according to the statement. The fund has pivoted to selling stakes to strategic investors and sovereign wealth funds this year in response to market turbulence and global economic volatility.

MUST-READ FOR CONTEXT- Stake sales on the private market are a great way to proceed if the Sisi administration’s goal is to maximize cash from the sale of assets, EFG Hermes investment banking boss Mostafa Gad told us last week. Having sold off a chunk of an asset in the private market, the state would then have the option of going ahead with an initial public offering down the road when market conditions are better and valuations are higher.

By order of the president: The ambition to float the companies this year was made clear in April when President Abdel Fattah El Sisi made the announcement as part of a speech laying out the government’s investment and privatization goals. Cabinet last mentioned the transactions back in July.

Background: The Madbouly government’s privatization plans had originally envisioned the selling of stakes in 10 state-owned companies and two military companies this year, but has since been scaled back in the face of market volatility. This is part of a wider plan to more than double the private sector’s role in the economy and raise USD 40 bn by 2026.

Russian flag carrier Aeroflot is resuming regular flights from Moscow to Sharm el Sheikh and Hurghada beginning from next week, with the first flight taking off on 1 October, according to the airline’s website. The resumption of flights comes after the carrier suspended air travel to and from Egypt in March “due to unfavorable conditions” in the wake of sanctions imposed on Russia because of its invasion of Ukraine. Flights from Sochi to Cairo have been operating as usual since April by Rossiya Airlines.

We’re welcoming Russian tourists back to our Red Sea resorts with open arms: The Central Bank of Egypt is working to link the MIR payments system — Russia’s answer to MasterCard and Visa — with Egypt’s homegrown Meeza card network. MIR has become essential for Russians traveling overseas since US payments companies severed ties with Russian banks, and Egypt’s acceptance of the card would mean visitors can pay in RUB, use their cards, and access ATMs. Russian and Ukrainian tourists made up some 30-40% of all visitors to Egypt before the war broke out late February.

But our tourist numbers have been picking up even with the slowdown in Russian + Ukrainian arrivals: Tourist arrivals increased more than 85% y-o-y in 1H 2022 to reach 4.9 mn visitors, according to CAPMAS figures (pdf) released yesterday. Egypt has been working overtime to attract visitors from other European markets to drive inbound traffic, with efforts also including luring tourists from little-tapped markets in Latin America and other markets, including the Gulf.

Emirati education provider Bloom Education is partnering with two local firms to establish a new international K-12 school in West Cairo’s New Giza, the company said in a statement Monday. Bloom Education, a subsidiary of the UAE’s Bloom Holding, said that more than EGP 1.5 bn will be invested in the project, which is expected to open for the 2024-2025 academic year.

Also working on the project: Bloom Education has signed a joint venture agreement with education management firm New Era Education and real estate developer New Giza, it said.

About Bloom Education: The education subsidiary operates nurseries and schools in the UAE, providing American, British and International Baccalaureate (IB) curricula to over 16k students across the country. This marks its first international expansion, according to its website. Bloom Holding, the parent company, operates in real estate, education and hospitality and is a unit of the very large scale Abu Dhabi-based investment outfit National Holding.

Tawasol-LimeVest consortium closes Alex Medical acquisition: Shareholders in Alexandria Medical Services agreed to sell more than 70% of the company to a consortium of Tawasol Holding and LimeVest, the EGX said yesterday. The subscription period for the consortium’s mandatory tender offer (MTO), in which it offered to buy 74% of the company for EGP 49.00 per share, ended yesterday with a total of 10.9 mn shares sold amounting to 70.2% of the total amount of shares.

The consortium now owns 96.2% of Alex Medical, with Tawasol already owning 26% of the company prior to the acquisition. Abu Dhabi Commercial Bank owned a 51.5% stake in the company and had reportedly been interested in making an exit since last year. The shareholders agreed to sell despite the company’s board saying last week that the offer undervalued the company.

Alex Medical’s new owners could take the company national: “We intend to focus on the hospital’s operational optimization and upgrade the level of service. We see huge potential for the hospital to serve not just Alexandria but the entire country. This is our focus right now and we plan to work with management on that,” Sharif El Akhdar, managing partner at LimeVest, told us yesterday.

Advisors: Prime Holding were the brokers on the Tawasol-LimeVest offer and Zaki Hashem and Partners acted as the consortium’s counsel.

B2B logistics marketplace Trella has inked an agreement with Contact Financial designed to give it and the carriers it works with the access to finance they need to grow, the companies announced (pdf) yesterday.

Driving business growth: Under the agreement, two Contact units will provide Trella’s carriers (both individuals and small businesses) with financing for new trucks. Contact Creditech, meanwhile, will finance carriers’ purchases on Trella Store, which sells carriers spares including tires, brakes and engine lubricants as well as maintenance services.

Trella itself will grow with Contact Factoring, which is offering the high-profile startup working capital finance. In tapping Contact, Trella has made a smart move, locking in its own working capital finance needs and while embedding finance in its platform to lock in the continued loyalty of carriers who are being squeezed by high inflation.

Trella closed one of Egypt’s largest-ever series A rounds last year, raising USD 42 mn in a round co-led by Maersk’s VC arm. The company said at the time that the money would be used to expand in the MENAP region and develop its platform.

Contact has pushed heavily into finance for the startup space, having recently inked agreements with Wasla, Carzami, Nawy, Sakneen and others.

AMAN PUSHES INTO ISLAMIC AND NANO FINANCE-

Raya Holding subsidiary Aman Microfinance has launched Islamic financing and nano financing services after receiving licenses from the Financial Regulatory Authority (FRA), it said in a statement (pdf) yesterday.

A EGP 70 mn starter loan book: Aman has allocated EGP 60 mn to Islamic finance and EGP 10 mn to nano finance in an initial phase, the company said. It wants to lend EGP 45 mn of Islamic finance and EGP 4 mn of nano finance over the coming 12 months.

What it’s offering: Aman is offering Shara-compliant loans of between EGP 6k and EGP 5 mn with a repayment period ranging between 6-36 months. Its nano finance offering will see it lend up to EGP 3k per transaction. Aman has been after a nano financing license since 2020.

The first entrant in the sector is Kashat, which has now written 100k loans and is available nationwide.

Proptech startup Partment secured USD 1.5 mn in a pre-seed round led by Nclude Fintech Innovation Fund and Plus Venture Capital and with the participation of a group of angel investors, the startup said in a statement (pdf).

Partment helps people co-own second homes: Launched earlier this year by Nadim Nagui (LinkedIn), Ahmed El Raggal (LinkedIn) and Chinmaya Das (LinkedIn), Partment is an online platform that allows people to purchase shares in a second home with up to seven other people. The company allocates each owner a quota of days to use the property and handles the management and maintenance.

Where the money’s going: Partment will use the funding to develop the platform ahead of launching in Egypt.

What they said: “Partment is a new concept in Egypt, and we believe it will change how people buy and use real estate in the local and international market. We are very proud to be backed by leading investors who understand and support our vision,” Nagui said.

About Nclude: The fintech-focused fund, which launched earlier this year, last week reached a USD 105 mn second close. Among the fund’s investments so far are Khazna, Paymob, Lucky, and Mozare3.

Flat6Labs has appointed Yehia Houry (LinkedIn) as its chief programs officer, according to a press release (pdf). Houry has worked at the early-stage venture company since 2017, most recently as managing director of Flat6Labs in Tunisia, where he headed the launch and operation of the company. Prior to working at Flat6Labs, he served as program manager at Silatech, a Qatar-based initiative that seeks to create jobs and economic opportunities for young people in the Arab world.

Swedish telecom company Ericsson has appointed Hakan Cervell (LinkedIn) as vice president and head of customer unit in Egypt and Saudi Arabia, it said (pdf) yesterday. Cervell is moving from South Korea, where he headed the customer unit. He has over 30 years of experience in ICT, across sales, product development and business development.

Heba Monir (LinkedIn) has joined HC Research as an economist and financial analyst, HC told Enterprise. Monir has primarily covered equities during her career, which included eight years at Prime Holding, two years at Ostoul Securities, and around five years at Arab African International Securities, the brokerage division of the Arab African International Bank.

El Sisi’s pledge to sort out the major problems plaguing investors in two months' time kept the talking heads busy for the night. “I predict that our import issues will be resolved within two months seeing as we are awaiting the IMF agreement, which will give us a clearer idea on the price of the EGP instead of its current instability,” said Kelma Akhira’s Lamees El Hadidi (watch, runtime: 3:39). “[The IMF agreement] will also inject some money [into Egypt] and help us attract hard currency into the country,” Lamees said. Al Hayah Al Youm (watch, runtime: 4:24) and Al Hadath Al Youm (watch, runtime 1:54) also had coverage. We have the full story in this morning’s news well, above.

History’s even better when it’s available at no charge: Kelma Akhira (watch, runtime: 1:50) and Masaa DMC (watch, runtime: 3:49) covered the long queues seen outside the Egyptian Museum yesterday thanks to the Tourism Ministry waiving entry fees to mark World Tourism Day.

Also on the airwaves last night:

• The Smart Green Governorates initiative which closed to applicants last week, earned more coverage, with project coordinator Hisham Badr phoning in to Masaa DMC (watch, runtime: 7:23).
• We have officially recorded our second monkeypox case: The patient is currently in quarantine and receiving medical treatment, Health Ministry spokesperson Hossam Abdel Ghaffar told Ala Mas’ouleety (watch, runtime: 4:00).
• The Nasser Medical Institute revamp got some more airtime. Abdel Ghaffar briefed Ala Mas’ouleety on the latest updates. (watch, runtime: 3:48)

Our economic challenges again lead the conversation on Egypt in the foreign press this morning: Reuters looks at how FX shortages and import bottlenecks are impacting businesses across the economy while Bloomberg is covering the continued weakening of the EGP against the greenback, which fell close to a record low on Monday.

Also getting attention: On the 200th anniversary of the Rosetta Stone being decoded, there are renewed calls to return the artifact to Egypt. (The National)

The Local Development Ministry launched a tender for the construction of four solid waste recycling and treatment facilities in Daqahliyah and Kafr El Sheikh governorates, it said in a statement. The facilities will be able to process up to 600 tons of waste a day. This comes as part of the EBRD-funded project to clean the Kitchener Drain of pollution. Companies have one month to bid for the project.

Banks really want that government paper: The central bank received a record EGP 642 bn in bids from banks at its weekly deposit auction yesterday. Economic analyst Hany Geneina tells Bloomberg Asharq that the huge volumes were triggered by the central bank’s decision to hike the reserve ratio last week, a move which will restrict banks’ abilities to lend and curtail interest income. Banks submitted bids worth about EGP 50 bn for deposits at auctions in the first quarter of this year and the figure has steadily climbed since then after the interest rate hike that accompanied the March 2022 devaluation.

Egypt has submitted its candidacy for one of the 13 African seats on the board of the International Telecommunication Union (ITU) for 2022-2026, the Communications Ministry said. Elections will take place during the ITU Plenipotentiary Conference taking place in Bucharest, Romania, between 26 September and 14 October. Egypt sat on the ITU board for the 2018-2022 period.

MbS is now the Saudi prime minister: King Salman has appointed his son, Crown Prince Mohamed bin Salman, to replace him as prime minister as part of a major shuffle of the Saudi government, state media reported yesterday.

Ministers of key portfolios remain in their positions: Prince Faisal bin Farhan Al Saud remains foreign minister, Prince Abdulaziz bin Salman will continue as energy minister, Mohammed Al Jadaan is staying on as finance minister, and Khalid Al Falih is still investment minister, according to the royal decree.

Replacing MBS at the Defense Ministry: Salman’s second son, Khalid.

FURTHER AFIELD- Edward Snowden is a Russki. President Vladimir Putin granted Russian citizenship to the US whistle-blower on Monday, nine years after he exposed the scale of secret surveillance operations by the National Security Agency. (Reuters)