AM — IMF sees contraction in over a third of global economies next year

Good morning, lovely people, and happy almost-Thursday.

All eyes remain fixed on Washington DC this morning as the IMF and World Bank annual meetings continue.

On the home front, it’s a good day on Planet Startup as two pharma companies snag funding rounds and the Nclude fintech fund gets a boost from Mastercard.

THE BIG STORY AT HOME AND ABROAD are one and the same today: Everybody’s gazing into the IMF’s crystal ball after the Fund released its latest global growth projections — and it ain’t looking too sunny. IMF economists are warning that countries will have to walk a very thin line between over- and under-tightening if they want to curb inflation without also causing growth to stagnate. The Fund is predicting contractions in a third of the world’s economies next year — and while we’re still set to register strong growth here in Egypt, the picture isn’t looking quite as bright as it did a few months ago. We have the full rundown in this morning’s Economy section, below.

The IMF executive board has still not released its public meeting schedule. The body would have to approve any new assistance program for Egypt. Senior Egyptian officials and members of the banking community are all in DC for the meetings.

MEANWHILE- The EGP continued its slow slide against the greenback, easing nearly 2 piasters yesterday to hit a new low of 19.7268 against the greenback. The EGP has lost around a quarter of its value against the greenback this year, including the snap 15.9% devaluation in March.

The question on everybody’s lips: How much further will the EGP slide before an IMF loan package is announced.

COUNTDOWN TO COP- 26 days to go until the Sharm El Sheikh climate summit, ladies and gentlemen.

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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.

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CIRCLE YOUR CALENDAR-

Bread reform committee should get House approval on Sunday: The House will approve Supply Minister Ali El Moselhy’s proposal to form an ad hoc committee to look into possible changes to the country’s massive bread subsidy program during its session on Sunday, 16 October, head of the House agriculture committee Hesham El Hossary told reporters yesterday.

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.

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 closer look at how cement and brick makers are set to respond to recent natural gas price hikes.

The IMF expects more than a third of the global economy to contract “this year or next,” it warns in its October World Economic Outlook (pdf) released yesterday. The Fund maintained its global GDP forecast of 3.2% for this year but is less optimistic about next year, when it expects growth to slow to 2.7% — 0.2 percentage points lower than in its last forecast in July. The report was released as IMF and World Bank officials are gathered in Washington DC for their annual meetings this week.

“In short, the worst is yet to come, and for many people 2023 will feel like a recession,” IMF Chief Economist Pierre-Olivier Gourinchas writes in the report. The world’s three largest economies — the US, China, and the EU — will “continue to stall” in 2022 and 2023, he said.

What’s behind the gloomy outlook? The report’s title, “Countering the Cost-of-Living Crisis,” more or less sums it up. The Fund sees inflation as the biggest risk to global growth. But monetary tightening by central banks to bring prices back in line also poses a threat, leaving many economies caught between a rock and a hard place.

The rock: major price pressures. The IMF sees global inflation peaking at 8.8% later this year (up from a previously forecasted 6.6%). That breaks down to 7.2% this year in advanced economies (up 0.6 percentage points from July figures), and 9.9% in EMs and developing economies (up 0.8 percentage points). Price pressures should cool to 6.5% in 2023 and 4.1% the following year, according to the report.

The hard place: risky policy “miscalibration.” The Fund says policymakers run the risk of “monetary, fiscal, or financial policy miscalibration” as they work to restore price stability. Central banks need to engineer a “soft landing,” raising rates enough to bring inflation under control, but not so much that they trigger a harsh recession. For governments, it’s key that fiscal policy works in line with monetary policy and doesn’t trigger panic in the financial markets or aggravate inflationary pressures, Gourinchas told Bloomberg TV, referencing the recent bond market chaos unleashed by UK PM Liz Truss’ mini-budget.

And there’s further downside risk: “We estimate that there is about a one in four probability that global growth next year could fall below the historically low level of 2%,” Gourinchas wrote yesterday. Downside risks include policy “miscalibrations” by major economies, more turmoil in financial markets on a strengthening USD, persistent inflationary pressures, and further escalation of the war in Ukraine.

EMs vulnerable on debt: The Fund notes that emerging markets are particularly vulnerable to debt distress as record debt carried over from the pandemic is compounded by repercussions of the war in Ukraine. EMs and developing economies with large external financing needs and USD-denominated debt may struggle to keep up with repayments amid energy and food price shocks, capital outflows, and a strengthening USD, the Fund said.

“Now is the time for emerging market policymakers to batten down the hatches,” the report says, suggesting those who haven’t already now reach out to the IMF for emergency financing support to boost liquidity. The Fund also reiterated its call to G20 nations to engage in serious talks on debt restructuring for their developing counterparts to head off a potential wave of EM defaults.

THE EGYPT / REGIONAL OUTLOOK-

The global turmoil is catching up with us: The IMF revised its FY 2022-2023 growth forecast for Egypt down a full 1.5 percentage points to 4.4%, having in July maintained its 5.9% forecast for the nation’s growth while downgrading the global outlook.

Middle East + Central Asia continue to defy the downturn: The IMF revised upwards slightly from July its growth outlook for the Middle East and Central Asia, to 5.0% in 2022 and 3.6% in 2023, as rising oil prices bring benefits to the region’s oil exporters.

We’re getting EUR 40 mn from the EBRD for freight + passenger rail line: Egyptian National Railways (ENR) has secured a EUR 40 mn loan from the European Bank for Reconstruction and Development (EBRD) to partially finance work on the Robeiky-10th of Ramadan-Belbeis freight and passenger railway line, according to a project document. The line will connect the 10th of Ramadan Dry Port to the main rail network and eastern and northern ports in Egypt.

The breakdown: The loan will be used to partially finance the supply and installation of railway tracks and signaling and telecommunication systems. The remaining cost of the c. EUR 220 mn project is expected to be financed through a loan from another financial institution, while the government will self-fund the project's civil works, according to the statement.

The line will allow freight transport to bypass the Cairo railway junction, and will also serve commuter traffic between Robeiky, 10th Ramadan, and Belbeis. The line will “contribute to a modal shift of cargo and passenger transport from road to rail,” the statement says, reducing greenhouse gas emissions.

There are other green freight railway solutions in the pipeline: The World Bank approved a USD 400 mn financing agreement earlier this month to help finance the construction of a low-carbon railway bypass between the Port of Alexandria and the newly-constructed Sixth of October dry port.

Fintech and fintech-enabled startups are up for a funding boost after Mastercard closed a “strategic” investment in fintech fund Nclude, according to a press release. The investment will see Mastercard and Nclude investing in “promising early-and-growth-stage fintech and fintech enabled companies” to support digitization and financial inclusion in Egypt. An Nclude representative declined to disclose the investment size when asked by Enterprise.

The investments will cover sectors beyond pure fintech: “Our investment thesis is not only focused on fintech but also on fintech-enabled companies. This means that the companies we invest in may be operating in other sectors like agriculture, healthcare, supply chain, education, and others,” Nclude General Partner Basil Moftah told Enterprise. The companies Nclude targets have “embedded finance solutions that drive their growth and help them deliver a holistic customer experience,” Moftah said, pointing to agri-fintech business Mozare3 — which embeds financing for farmers — as an example.

About Nclude: The fund, which was launched earlier this year and reached a USD 105 mn first close last month, invests in early- and growth-stage fintech and fintech-enabled startups. The companies must be based or operating in Egypt or elsewhere in the Middle East and Africa, provided they have plans to expand to Egypt. The fund’s ticket sizes range from USD 500k to USD 5 mn, Moftah said. The fund has already invested in local startups including payment platform Paymob, financial super app Khazna, home ownership platform Partment, and Mozare3.

Pharma startups big and small got a shot in the arm yesterday, as Egypt-born Vezeeta and local newcomer i’Supply both scored fresh funding rounds.

Vezeeta closes undisclosed round: Digital healthcare platform Vezeeta has raised an undisclosed amount from existing investors Abu Dhabi-based Gulf Capital and Swedish VNV Global, it said in a statement (pdf). This marks the company’s first funding round after it turned profitable this year, the statement read.

“Imminent M&A in MEA:” The money will help Vezeeta fund product expansion and start working towards potential acquisitions in the Middle East and Africa region, it said. The startup is in discussions over acquisitions here and in Saudi Arabia, an unnamed company official reportedly told The National.

About Vezeeta: Founded in 2012 by Amir Barsoum (LinkedIn) and Ahmed Badr (LinkedIn), Vezeeta connects patients with doctors, labs, and pharmacies, allowing them to book in-person or telehealth consultations and order lab tests and meds to their home. The Cairo-born company moved its HQ to Dubai a couple years back and now operates in Egypt, the KSA, Jordan, Lebanon, Kenya, and Nigeria. Gulf Capital led the company’s USD 40 mn series D round in February 2020, while VNV Global participated in its USD 12 mn series C round in 2018. Enterprise sat down with Barsoum and Chief Product Officer Mohamed El Mougi last year.

Pharma startup i’Supply has raised USD 1.5 mn in a pre-seed round led by Disruptech Ventures, according to a company press release (pdf).

Where the money is going: The funding will help i’Supply expand across Egypt and onboard 60k pharmacies to its digital marketplace within the next year. The company has onboarded some 5k pharmacies in Greater Cairo, which accounts for nearly half of the market, and is looking to tap the rest of the country, CEO Ibrahim Emam told us. It has plans to expand to the Delta region by the end of 1Q 2023, and Upper Egypt and Alexandria in 2Q 2023. The startup hopes to hit the black within two years and is exploring potential expansion to other countries in the Middle East and Africa, Emam says.

About i’Supply: Founded in late 2021, the company’s tech-enabled sales, distribution, and procurement marketplace connects small to midsize pharmacies with wholesalers and pharma companies .

Our talking heads put on their economist hats for the night, after the IMF released its revised World Economic Outlook report (see the full details in our Economy section, above). The pundits took us through what the outlook means for Egypt — and reassured us that it’s not time to panic.

Nothing is set in stone: “Egypt has exceeded the IMF’s growth forecasts more than once,” said Masaa DMC’s Ramy Radwan (watch, runtime: 4:10).

Gov’t is working overtime to ensure the wheels keep spinning: The state is working to develop various sectors to help push growth, Cairo University Economics Professor Hisham Ibrahim told Al Youm (watch, runtime: 5:30). National projects create jobs and boost productivity, while sectors like tourism are continuing to bounce back from the pandemic.

How big will the IMF lifeline be? Somewhere in the USD 5-7 bn range, House Budget and Planning Committee Chairman Fakhri El Fiqi speculated in a phone call with Ala Mas’ouleety (watch, runtime: 4:43). BNP Paribas sees the imminent emergency loan package from the IMF coming in at USD 3-5 bn.

Activists say no to BP sponsoring ancient Egypt exhibit: Novelist Ahdaf Souief is among signatories to a letter criticizing BP’s sponsorship of the British Museum’s new exhibit on ancient Egypt, which features the Rosetta Stone, ahead of COP27, the Guardian reports. The campaigners also called for the release of jailed activist Alaa Abdel Fattah. The exhibit has already come under fire by campaigners hoping to get the Stone returned to Egypt.

The tech arm of e& wants in on our market: e&’s tech solutions arm e& Enterprise will enter the Egyptian market before the end of the year, CEO Salvador Anglada said at Gitex Global in Dubai, according to Gulf News. The company offers cloud, cybersecurity, IoT, and AI services and currently operates in the UAE and Saudi.

Remember- The UAE’s largest telecoms operator earlier this year rebranded itself as e& and split into telecoms provider Etisalat, consumer services branch e& Life, M&A arm e& Capital, and e& Enterprise.

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

• The Senate yesterday gave final approval to the auto industry bill, which will set policies for the automotive sector in general, including EVs, and a fund to provide incentives to the industry.

• Egypt is arranging direct charter flights between Doha and Hurghada and Sharm El Sheikh during the upcoming World Cup. (Al Monitor)
• CI Asset Management plans to launch an investment fund in precious metals early next year. (Al Borsa)
• The government’s Decent Life initiative will work to raise awareness of environmental issues among beneficiaries in partnership with the Environment Ministry. (Statement)
• EGX-listed fintech operator e-Finance is sponsoring the Egyptian Handball Federation. (Statement)
• The EBRD has launched four tenders for contractors to work on the Kitchener Drain depollution project, with deadlines from 17-30 November. (Tender 1 | 2 | 3 | 4)

Foreign Ministry tells Egyptians still in Ukraine to come home as Russia ramps up strikes: The Foreign Ministry called on any Egyptians still residing in Ukraine to make plans to return and advised citizens against traveling to the country, according to a statement. Russia this week launched the most intensive strikes against Ukrainian cities since the war began in February.

Israel and Lebanon have agreed on a “historic” maritime border demarcation agreement, which will have implications for natural gas reserves, AP reports US President Joe Biden as saying yesterday. The US-brokered agreement is expected to pave the way for both countries to exploit natural gas resources in a previously disputed area of the Mediterranean, potentially helping alleviate Lebanon’s economic woes. The final form of the agreement needs official sign-off from both countries’ governments.

Turkey is planning oil and natural gas exploration in Libyan waters, President Recep Tayyip Erdogan said, after Ankara inked a controversial maritime borders agreement with the Libyan national unity government, Bloomberg reports. Egypt, Greece, the EU, and Libya’s rival administration last week rejected the pact, saying it violated existing international law and that the Tripoli government doesn’t have the authority to enter such agreements after Libya’s election process stalled in December.

Also worth knowing this morning:

• The UAE can help pave the way for a resolution in the Russia-Ukraine war, President Vladimir Putin said yesterday during his meeting with UAE President Sheikh Mohammed bin Zayed Al Nahyan in Moscow. (Bloomberg)
• The Biden administration said it plans to punish Saudi Arabia after OPEC+ made its biggest production cut since 2020 in efforts to support dropping oil prices. (Bloomberg)