AM — Inflation hit a near four-year high in September

Good morning, wonderful people, and happy hump day. Fresh inflation figures and new developments in the Capiter saga unfolding in Startup Land are dominating the newsflow this morning.

THE BIG STORY here at home is another y-o-y acceleration in inflation in September. Inflation hit 15.0% y-o-y last month as the EGP continues to tick down against the greenback, leading to higher prices for everything from transport to fuel.

There’s still no word on an IMF facility for Egypt. As of dispatch time this morning, we still don’t appear on the public agenda for the body’s executive board, which would need to approve a fresh program. Egyptian officials from both cabinet and the central bank are in Washington, DC, with senior officials from the nation’s banks for the IMF and World Bank’s weeklong annual meetings.

ON THE GLOBAL ECONOMY FRONT- The recession-o-meter is running hot. The first day of those meetings yesterday saw the heads of both multilateral lenders issue stark warnings of a coming economic downturn, Reuters reports. “There's a risk and real danger of a world recession next year,” World Bank President David Malpass told IMF head Kristalina Georgieva in a dialogue to open the meetings. Both called for more support to emerging markets to help weather the storm.

Dimon chimes in on the doom talk: JPMorgan’s Jamie Dimon told CNBC that he expects the US economy to fall into a recession in 6-9 months.

ALSO- The World Bank is under pressure in DC to do more to finance climate action, Enterprise Climate reports this morning. Germany and the United States are calling on the bank to offer better borrowing terms to create incentives for countries to take action on climate issues — and to de-risk clean energy investments in developing countries. The WB has been under pressure recently after its president expressed doubt that climate change is being driven by human activity.

PSA- We have 27 days left until COP27, boys and girls.

HAPPENING TODAY-

The auto industry bill is up for a final vote in the Senate today. The Senate yesterday gave preliminary approval to the bill,which will set policies for the automotive sector in general, including EVs, and a fund to provide incentives to the industry. Enterprise Climate had the details of the legislation here last week.

The folks at the SFE’s pre-IPO fund are getting busy: The Sovereign Fund of Egypt’s (SFE) pre-IPO fund has started marketing investments to financial institutions, who have shown interest and are “seriously studying” potential investments in the state-owned companies it will sell stakes in to strategic investors, according to a cabinet statement. The SFE has also finalized the procedures to set up the pre-IPO fund and drafting the legal contracts for the upcoming stake sales. This came during a sit-down with Prime Minister Moustafa Madbouly, Finance Minister Mohamed Maait and SFE officials to follow up on the progress of the state IPO program.

REMEMBER- The pre-IPO fund was set up to prepare state-owned enterprises for listing on the EGX and provide an alternative to public share sales while market conditions remain volatile. Shares held by the National Investment Bank worth up to USD 3 bn will be sold to strategic investors in the first phase, with a second similar sized phase coming later. The first phase could also see one of the Siemens-built power plants offered up to investors. The government has been planning to market companies to Gulf sovereign funds and investors in Europe and Asia during a roadshow this month.

Maait reminds us what the IPO program is up against: The risk-off rippling across equity markets in emerging economies and developed countries thanks to rising interest rates, heightened inflation, and the continued repercussions of the Ukrainian crisis.

MEANWHILE- The three-day Nigeria-Egypt Trade Conference and Exhibition enters its second day today. Nigerian and Egyptian companies as well as officials and ambassadors from Africa’s two largest economies are discussing joint investment and other forms of cooperation at the conference.

Nigerian Ambassador to Egypt Nura Abba Rimi called on Egyptians to invest in the Nigerian economy: “Any investor looking for a place to invest, build, thrive, innovate and succeed, there is no better place on Earth than Nigeria,” he said.

You don’t need to tell us twice: Enterprise took a trip to Lagos over the summer to get to grips with Nigeria’s flourishing startup scene. Here and here are tasters of what we found.

ALSO- MBZ is heading to Moscow: UAE President Sheikh Mohammed bin Zayed Al Nahyan will meet President Vladimir Putin in Moscow today to discuss issues of common interest, state news agency WAM said yesterday. This comes after OPEC+ cut oil production by 2 mn barrels per day in its biggest production cut since 2020 in efforts to support dropping oil prices — leading the US to say cartel leader Saudi Arabia is aligning itself with Moscow.

Take our EV survey: Are you an ex-petrolhead shopping around for your first electric vehicle? EV-curious and wondering what all the fuss is about? Or are you not ready to say goodbye to that sweet smell of benzene as you wait at the gas station?

We want to hear from you: We’re taking the pulse on how the nation feels about Egypt’s nascent EV transition. Take a few minutes to fill out our short survey. We’ll be back with the results in a couple of weeks.

THE BIG STORY ABROAD– Russia has launched its biggest aerial offensive against Ukrainian cities since the war began, in what Russian President Vladimir Putin said was retaliation for Saturday's explosion on a key bridge linking Russia to the Crimean Peninsula. At least ten civilians died in Kyiv in the first strikes on the Ukrainian capital in months. The foreign press is calling the escalation a “turning point’ in the war that began in February.

Everyone has coverage: FT | NYT | Bloomberg | Reuters | WSJ | Washington Post | AP.

CIRCLE YOUR CALENDAR-

The EGX is looking to drum up interest in listed companies on a roadshow to Dubai and Abu Dhabi later this month, an EGX source told Enterprise. The bourse has tapped Al Ahly Pharos to help manage the roadshow, with EGX boss Rami El Dokany set to meet with as many as 100 regional and international financial institutions, the source said.

We’re celebrating 50 years of ties with the UAE in a three-day event in Cairo from 26-28 October, under the slogan “UAE and Egypt … One Heart,” according to a statement. The event will highlight the economic and investment ties the two countries have built over the decades, as well as cultural links.

Fuel prices to rise this month? We’re expecting the government to hike fuel prices for the seventh consecutive quarter when the fuel pricing committee meets this month. Fuel prices have risen by as much as 28% over the past 18 months in response to heightened international oil prices, which surged earlier this year on the back of Russia’s invasion of Ukraine.

Smart Green Governorates shortlist coming next month: Egypt’s Smart Green Governorates initiative will announce the full shortlist of 60 projects for the initiative at a conference early next month, according to a cabinet statement. The initiative’s technical committee is currently in the process of whittling down the shortlist from 162 projects to 60 (10 projects from each of the six categories), which will be presented to a national jury to select the final 18 projects. These will be showcased to investors at COP27.

** Read more about the Smart Green Governorates initiative in our recent interview with Hisham Badr, co-ordinator of the initiative.

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

*** It’s Going Green day — your weekly briefing of all things green in Egypt: Enterprise’s green economy vertical focuses each Tuesday on the business of renewable energy and sustainable practices in Egypt, everything from solar and wind energy through to water, waste management, sustainable building practices and how you can make your business greener, whatever the sector.

In today’s issue: We’re hosting the most important global climate event of the year come November. But how much does the average citizen know about climate change? We take a look at what can be done to improve so-called climate literacy here ahead of the COP27 summit.

Inflation accelerated again in September as price shocks continue to linger, according to CAPMAS figures (pdf). Urban consumer price inflation rose to 15.0% y-o-y in September, up from 14.6 % last month, amid an ongoing surge in living costs fuelled by the war in Ukraine and a weaker EGP. This is the highest figure since November 2018, when inflation hit 15.7%. On a m-o-m basies, prices rose 1.6% m-o-m in September, accelerating from 0.9% in August.

We can no longer pin the blame on food and beverage inflation: Food and beverage costs rose 21.7% y-o-y in September — its weakest pace since March — and 2.3% m-o-m, according to the statistics agency. “The rise in the headline was driven entirely by non-food inflation,” Capital Economics MENA economist James Swanston wrote in a note yesterday. Rising food and beverage costs — the biggest component of the basket of goods and services used to measure inflation — have been the main contributing to price hikes for months.

The price of everything else was up: Transport was a pain point, with costs up 17.9% y-o-y. Housing, electricity, water, and fuel costs jumped 6.2% y-o-y. “Inflation increased across most major non-food price categories,” Swanston wrote, saying this was the result of the weakening EGP.

A weaker EGP = higher prices: The currency has lost around a quarter of its value against the greenback this year, thanks to a toxic mix of domestic economic pressure, the global economic fallout from Russia’s war in Ukraine, and the strengthening of the USD against just about every major global currency. The central bank went for a snap 15.9% devaluation in March, with the rest of the slide happening in gentle (but steady) increments since then. Enterprise readers see the EGP dropping to 22.12 — the figure they’re using (on average) for their 2023 budgets, according to our fall reader survey.

Core inflation is at its highest since 2017: Annual core inflation, which strips out volatile items such as food and fuel, rose to 18.0% in September from 16.7% a month earlier, according to the Central Bank of Egypt (pdf). That’s the highest core inflation has been since December 2017.

It could have been worse: Arqaam Capital Associate Director Noaman Khalid expected price hikes to reach 16% y-o-y in September in anticipation of fiscal measures that will likely accompany the imminent loan agreement with the IMF and a possible shock devaluation of the EGP.

Most analysts think inflation still hasn’t peaked: Most analysts we’ve spoken to lately see inflation peaking at 18-20% by the end of the year, particularly in the event of a shock deval. Higher global commodity prices could also spur price hikes, Khalid told us. We’re expecting the government to hike fuel prices for the seventh consecutive quarter when the fuel pricing committee meets this month, as oil markets rise amid supply cuts by OPEC+.

What this means for interest rates: Rising inflation, the weakening local currency and the global monetary tightening wave all add up to pressure on the Central Bank of Egypt (CBE) to resume rate hikes, Swanston said. “We expect the CBE will raise interest rates by 150 bps to a peak of 12.75% by early next year. This is more tightening than the consensus expects and we think the risks are skewed firmly to the upside,” he said. The CBE could also pull the trigger on a shock devaluation and immediately follow up with an unscheduled monetary policy committee meeting to raise rates, Arqaam’s Khalid said. “We expect the CBE to hike rates by 2-3% in upcoming meetings,” he said. The central bank has repeatedly said it will temporarily allow inflation to overshoot its target of 7% (±2%) on average in 4Q 2022, and local media has reported that it could announce new inflation targets soon.

REMEMBER- The CBE left interest rates unchanged last month for the third consecutive month, surprising analysts who expected up to a 100-bps increase in a bid to curb rising inflation and the weakening EGP. The bank instead raised the reserve requirement for all banks to 18% from 14%, which it said would “complement the tightening stance that the CBE is maintaining.”

The foreign press took note of the news: Bloomberg.

Capiter meltdown could end up in court: The two co-founders of B2B e-commerce startup Capiter have filed a lawsuit with the public prosecutor’s office against the company’s board of directors over their recent firing, co-founder Mahmoud Nouh told Bloomberg Asharq (watch, runtime: 8:19). The pair were dismissed by the board in September amid accusations of financial impropriety at the crisis-stricken firm.

A recap for nonresidents of Planet Startup: The Nouh brothers were dismissed last month by the company’s board, which in a statement said they had failed to attend board meetings or to fulfill their fiduciary duties. The firing came amid a storm of allegations on social media accusing the two brothers of financial impropriety at the high-profile company, which last year raised USD 33 mn from regional and global investors.

The Nouhs’ case: In their complaint to prosecutors, the Nouhs argue that their dismissal was illegal as they never received formal notification of it from the board, which they allege deliberately and unlawfully sought to isolate them from the business, Mahmoud told the broadcaster. They refute the board’s claim that they stopped showing up to board meetings, saying they attended three separate meetings in the week leading up to their dismissal. The pair are seeking compensation for damages, Nouh said.

The brothers wanted to liquidate Capiter when it became clear that the startup would no longer be able to fulfill its obligations, including those to employees — but the board refused, Mahmoud claims, blaming global economic trouble spurred by the war in Ukraine for the company’s downfall. He declined to say how much Capiter owes, but said it was the board that had failed to fulfill its financial obligations after dismissing him and his brother, noting that employees still haven’t received their August salaries.

The Nouhs want to know who fired up the rumor mill: The lawsuit also demands an investigation into the source of social media allegations that the brothers had embezzled funds from the company. “Tens and thousands of companies fold, but it doesn’t need to be due to a problem or a scandal … the complaint will investigate who is behind this fake news” on social media, Nouh said.

The brothers want board members to go on the record about what happened: “The investigation will reach the heads of the funds [who invested in Capiter] in efforts to get to the bottom of what happened and find out who is responsible for the company going to ruin,” he said. Quona Capital and MSA Capital led the USD 33 mn series ‘A’, with participation from Savola, Shorooq Partners, Foundation Ventures, Accion Venture Lab, and Derayah Ventures.

Mahmoud sought to dispel the idea that the co-founders “fled” the country: Capiter has a branch in the UAE and there are no restrictions on which country company execs can work from, Mahmoud said, adding that he often worked from abroad before the scandal broke and has a visa to stay in the Emirates. The brothers had received threats in Egypt thanks to the social media storm, he claimed.

Nouh also claimed that Capiter’s HQ has been looted since their dismissal, alleging that assets including money and company documents have been stolen.

What’s next? The Nouhs say they’re still calling for liquidation so the company can pay some of the money it owes, especially to employees. Meanwhile, Capiter’s board is discussing its response to the allegations, Al Sharq quotes interim CEO (and former CFO) Majid El Ghazouli as saying. The board said last month that internal and external investigations had been launched into the scandal, but Mahmoud told Asharq he and his brother have received no official notification of any ongoing investigations.

There have been reports that Capiter could get hoovered up: Saudi fintech platform Sanad Cash reportedly wants to acquire 60% of the startup, offering to clear out Capiter’s debt in return for the shares. Key investor Quona Capital could also be in the frame to buy 70-80% of Capiter’s shares.

About Capiter: Capiter caters to micro and small businesses in the food and beverage, FMCG and consumer electronics segments. It has a multi-headed business model: You can think of it as a marketplace in which businesses can order inventory, arrange delivery, and access buy-now-pay-later (BNPL) financing facilities through one app.

Want more? We dive deeper into what all this means for the local startup scene in our What’s Next vertical, here and here.

CI Capital Asset Management has launched an equity fund tracking the EGX30 Capped index, which it says is the first of its kind in the local market, the company announced in a press release (pdf). The door for subscription to the open-ended fund — dubbed “Misr Equity” — opened yesterday.

SOUND SMART- A tracker fund allows investors to purchase shares in companies listed in a specific index, bringing them long-term, cumulative returns based on the performance of the index over a specific period of time. We outline how this works — and the different kinds of tracker funds — in our explainer on passive investing here.

What they said: “The fund targets investors looking for long-term returns,” CI Capital Chief Investment Officer Tarek Shahin said in the statement. “Despite the current pressures on the global economy and the effect on the performance of equities in emerging markets, this has meant that companies are currently trading at very attractive valuations that do not reflect their growth trajectories, meaning they could outperform these prices in the long term.”

Shahin told us he wants the fund to be among the ten largest in Egypt by the end of 2023.

REMEMBER- The EGX30 is down some 16.7% YTD, as inflationary pressures and higher rates batter global equities markets and recessionary risks see foreign investors exit riskier emerging market stocks.

What’s the EGX30 Capped? Launched in 2019, the index puts a 15% limit on the weight accorded to any one security. Capped indices are calculated in much the same way as regular ones, but prevent stocks with a high freefloat percentage from causing disproportionate swings in the index — which is why CI Capital chose the capped index for this tracker fund. “The capped index has the essence of the main index, but offers more diversification and better sector representation,” Shahin tells Enterprise. (Read: The index is less likely to be swung one way or another by the performance of a single share, such as CIB, which dominates the EGX30.)

Who can subscribe? The fund is open to CI Capital and CI Capital Asset Management’s clients, as well as clients of Misr Capital Brokerage and Mubasher. The minimum investment is EGP 100, or 10 mutual fund units at EGP 10 each. “We really want to democratize the investment industry,” Shahin says of the low minimum buy-in, adding that the fund targets both retail investors and institutions.

Cement producers are going to be paying more than double what they used to for natural gas after the government issued a decree earlier this week enforcing a price hike of c.108%. Natural gas will now be sold to cement manufacturers at USD 12.00 per mmBtu, from USD 5.75 / mmBtu previously, according to the Official Gazette.

The decree also raises natgas prices for some other industries:

• Brick kilns will be charged EGP 110.00 per mmBtu, up from EGP 73.00 / mmBtu;
• Petrochemical companies producing ethane-propane blends will be charged according to a price formula that will be updated monthly by the state’s Egyptian General Petroleum Corporation (EGPC), with a set floor of USD 4.50 / mmBtu;
• Other petrochems producers will see no change to their natural gas prices, which were set last October at USD 5.75 / mmBtu.

The exceptions: The decree does not apply to companies whose natural gas purchases have been priced into their supply contracts.

Hesham Radwan (LinkedIn) was appointed general manager and managing director of Danone Egypt and Northeast Africa, according to a statement (pdf). Radwan has worked at Dnone Egypt in various roles for the past 14 years. He succeeds Haitham Sadek (My Morning Routine), who has moved on to become the company’s senior vice president of Europe operations.

The National Dialogue was everywhere on the airwaves after its board of trustees concluded a meeting last night.

The National Dialogue will discuss what’s said at the government’s upcoming economic conference, which is scheduled for 23-25 October, MP and assistant rapporteur for the political track’s local committee Alaa Essam told Masaa DMC (watch, runtime: 28:12). We were told earlier this week that the dialogue itself won’t begin until after the economic conference and the COP 27 climate summit wrap.

On the agenda for the dialogue’s economic track: Inflation, public debt levels, the budget deficit, fiscal reform, investment priorities, state ownership and private sector participation, industry, agriculture, food security, social justice, and tourism, the dialogue’s organizers said.

The political, economic and social tracks of the dialogue will each meet on a different day of the week. Essam said. Some 30 contributors will take part in each session, including members of political parties, experts in the field, and government officials, Essam said. The news also got coverage from Al Hayah Al Youm (watch, runtime: 2:46).

ALSO GETTING AIRTIME- Cement prices will rise only slightly on the back of the government’s decision to double natgas prices for cement producers, head of the cement division of the Federation of Egyptian Industries Ahmed Sherine told El Hekaya (watch, runtime: 9:24). Natural gas covers just 10-15% of the energy needs of the few cement producers that even use it, with most relying on coal, he said. We have the details on the price hikes in today’s Energy section, above.

It’s more of the same for Egypt in the international press as scribes rehash some of their favorite topics:

• The Financial Times is the latest to take a look at climate activists’ access — or lack of it — to COP27.
• The new withdrawal limits on using debit and credit cards abroad as banks work to conserve their limited USDs get ink from Reuters.
• The Guardian is jumping on the Rosetta Stone story amid the opening of the British Museum’s exhibit celebrating its discovery.
• The Africa Report returns to the eviction of residents of Warraq island, whose houses the government is demolishing so that it can redevelop the area.

Real estate players should tune in to the government’s economic conference: Prime Minister Mdbouly said there would be a dedicated session for the sector at the conference scheduled for 23-25 October, according to a statement. Madbouly made the comments at meeting with real estate developers and Housing Minister Assem Al Gazzar on ways to boost the sector. El Gazzar said the government was particularly interested in proposals to attract foreign and Egyptian expat property buyers. Developers at the meeting called on the government to help diversify financing options for would-be homebuyers, and asked for permission to sell to foreign buyers in USD.

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

• The Madbouly government is looking to launch a national tourism strategy in 1Q2023 to help the country attract 30 mn tourists a year. Some 13 mn tourists visited Egypt in 2019. (Statement)
• Egypt-based T&D Design plans to begin operating a EGP 150 mn office furniture factory in 1Q 2023. (Al Mal)
• Saudi SME fintech player Geidea is partnering with Visa on e-payments (Statement)
• UAE proptech startup Stella Stays is setting up furnished apartments and coworking spaces in New Cairo through a partnership with real estate developer Tameer. (Statement)
• El Badr Plastic is now qualified to move from the small-cap Nilex to the EGX after the company’s board approved raising its authorized capital to EGP 250 mn from EGP 17 mn. EGX listing requirements include a minimum issued capital of EGP 100 mn or its equivalent in foreign currency. (EGX statement)
• UAE-based G42 and Benya Technologies will develop AI and other digital infrastructure including data centers, telecom towers, and cloud technology here as part of an equity-based partnership. (Zawya)
• President Abdel Fattah El Sisi approved a KWD 750k (USD 2.4 mn) loan from Kuwait to fund the feasibility study of a planned railway linking Egypt with Sudan. (Al Mal)

Russia-Ukraine war hits our squash courts: Ukraine’s squash federation has said the country will not participate in the Women’s World Team Squash Championship Egypt is hosting in December, citing an unconfirmed allegation that an Egyptian observer somehow helped oversee the recent Russian referendums in Ukrainian territories. The referendums were widely denounced by Ukraine and its western allies as a pretext by Moscow to annex occupied land.

The Foreign Ministry categorically denied reports that any Egyptian observers were present for the referendums, according to a statement.