AM — Have we just hit bottom? The EGP is at 24.13 to the greenback

Good morning, friends, and happy Halloween — don’t let your sweet tooth get you into too much trouble today.

THE BIG STORY HERE AT HOME remains the EGP. In parallel, you can practically feel the nation’s center of gravity shift to Sharm El Sheikh from Cairo as more and more email auto-replies declare that our readers are heading to Sinai for COP27, which kicks off in just six days.

EGP WATCH- The EGP notched a new record low yesterday as the currency dipped another 5% in the wake of the central bank’s decision to move to a “durably flexible” exchange rate on Thursday. The currency closed the day at 24.1353 to the greenback, according to central bank figures. The EGP has now tumbled 22.1% since Thursday and is down 53.0% since the start of the year, making it one of the worst-performing emerging-market currencies of 2022.

Have we hit bottom? That’s the question on everyone’s mind right now. JPMorgan expects it to close out 2022 at around 23.50 to the USD — suggesting we’ve overshot a little bit. “We expect USD/EGP to remain under pressure in the coming days as it finds a clearing level, but we view [Thursday's] adjustment as sufficient to close most of the external imbalances,” analysts wrote on Thursday in a note picked up by Reuters. Meanwhile, Deutsche Bank thinks the currency will fall closer to 25.00 by the end of December, according to Bloomberg Asharq.

What you think: Enterprise readers told us last month they were planning to use an average figure of EGP 22.12 to the greenback in their 2023 budgets, with some 22% of participants in our Fall 2022 Reader Survey saying they expect the USD to be changing hands at EGP 23-24 next year.

We’ll know a lot more in a couple of hours’ time, so make sure to check in with EnterprisePM this afternoon.

Fourth-quarter earnings could be rough for companies with big FX costs structures: Ezz Steel yesterday warned in a disclosure (pdf) yesterday that it could eat EGP 2.2 bn in currency losses as a result of the float. This would take the company’s full-year FX losses to more than EGP 3.3 bn. Few companies will be as dramatically hit as Ezz, but you can expect to hear a lot of guidance in the coming days about cost pressure everywhere from FMCG companies (who import everything from packaging to key raw materials) to real estate players (we’ll see the effect down the line when deliveries of new build stuff begins).

The float will be a boon for exporters, whether you’re RayaCX and its competitors selling business process outsourcing, making insulation for sale globally, making food products for regional markets. It’s almost as if a laser-like focus on exports (and FDI) could be key to getting us out of our current situation…

And some importers are going to do really well, even if they don’t price gauge: Retailers, automotive and electronics + white goods assemblers, spare parts sellers, car distributors — name an industry that doesn’t have tons of pent-up demand right now because of what was an effective ban on non-food imports since earlier this year…

Yesterday’s treasury auctions didn’t quite go to plan: The Finance Ministry raised less than a fifth of its target in a series of bond auctions yesterday after investors demanded yields of up to 25% following the central bank’s decision to hike rates by 200 bps on Thursday. The ministry had hoped to raise EGP 55 bn from auctions of three-month, six-month, nine-month and one-year t-bills on Thursday and Sunday but ended up selling just EGP 11.4 bn worth after rejecting most of the bids thanks to poor offer prices.

PSA- It’s Nafeza deadline day tomorrow: Importers, exporters and customs agents have just one day left to register to join the Finance Ministry’s digital customs system Nafeza before they can no longer clear goods out of customs at seaports.

WHAT’S HAPPENING TODAY-

The Senate is back in session today: Senators will discuss amendments to a 2017 law that paid out compensation to government contractors who suffered losses in the wake of the economic reforms carried out in 2016. The amendments will “regulate government compensation paid to these contractors,” Senator Ahmed Sabbour said, without getting into specifics.

The Senate Industrial Committee is discussing a new bill aimed at helping unlicensed manufacturers go legit. The draft legislation would hand the General Authority for Industrial Development (GAID) the power to grant unlicensed projects temporary one-year licenses, giving them time to “adjust their conditions in line with environmental and civil protection procedures,” committee chair Mohamed Halawa said.

We have the details on yesterday’s Senate session in this morning’s Legislation Watch, below.

Egypt Energy continues: The three-day energy conference brings together policymakers and business leaders from the regional energy sector to discuss topics including power generation, clean energy, and PPP and foreign investment. The event is taking place at the Egypt International Exhibition Center and runs through tomorrow.

Tomorrow marks the start of a new month. The key news triggers as we slide towards November:

• PMI: We’ll know how Egypt’s private sector fared in October on Wednesday when S&P Global releases the purchasing managers’ index. A 22-month contraction in private sector activity didn’t show signs of abating in September as high inflation continued to weigh on demand and output.
• Foreign reserves figures for October will be released next week.
• Inflation: Capmas and the central bank will release October’s inflation figures on Thursday, 10 November.

FURTHER AFIELD-

MbS heading to India next month? Saudi Crown Prince Mohammed bin Salman could make an official state visit to India while on the way to Indonesia for the G20 Summit next month, Indian newspaper the Economic Times reported yesterday, citing informed sources. The people said the visit would see the two countries deepen energy, investment and security ties.

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THE BIG STORIES ABROAD-

Brazil has a new president — Lula is back: Left-wing former president Luiz Inácio Lula da Silva defeated far-right incumbent Jair Bolsonaro in a close-run run-off vote yesterday. With 99% of ballots counted, Lula received 50.9% of the vote to Bolsonaro’s 49.1%, leading the country’ election body to call the race. Lula’s victory is the top story everywhere, from the Associated Press and Reuters to the New York Times and Bloomberg.

Russia’s exit from the UN-brokered grain pact with Ukraine is still big news across the world: The UN and Western powers are calling on Russia to re-enter the agreement, while analysts are warning that preventing Ukraine from exporting its grain will cause a spike in prices and put fresh pressure on global food supply chains. The UN, Turkey and Ukraine are reportedly continuing with the initiative without Russia, and agreed for 16 ships to leave Ukraine today. Everyone is covering the news: Associated Press | Reuters | Bloomberg | FT | NYT.

The Sisi administration is taking note of events: President Abdel Fattah El Sisi met with PM Moustafa Madbouly and Supply Minister Ali El Moselhy yesterday to follow up on the country’s current reserves of strategic commodities, Ittihadiya said yesterday. El Moselhy said that Egypt currently has enough wheat in reserve to last until April, when the 2023 harvest begins. The strategic reserves for sugar are sufficient to last until February, while those of vegetable oils are enough until May, he said.

Egypt is one of the most vulnerable countries in the world to food supply shocks: Egypt — the world’s biggest importer of wheat and heavily reliant on Russian and Ukrainian grain — scrambled to find new wheat suppliers earlier this year when the war removed Ukrainian wheat from the global market and sent food prices soaring.

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COUNTDOWN TO COP (6 days to go): COP27 starts next week in Sharm El Sheikh. Big days to look out for include:

• World leaders’ summit: November 7-8 (tons of details here, pdf)
• Finance day: November 9
• Decarbonization day: November 11
• Adaptation and agriculture day: November 12
• Water day: November 14
• Energy day: November 15

A fairly detailed schedule is available for download as a pdf here.

UK PM could u-turn on COP no-show: The UK’s new prime minister, Rishi Sunak, could backtrack on his decision to skip COP27 following backlash at home and abroad, the Financial Times reports. Downing Street said last week that Sunak would not travel to Sharm El Sheikh due to “pressing domestic commitments” but sources close to the PM yesterday refused to rule out a no-show, telling the salmon-colored paper that it will “depend on progress” dealing with the UK’s economic crisis and his government’s upcoming budget statement.

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Foreign investment in Egyptian startups is set to surpass USD 500 mn by the end of the year, Communications Minister Amr Talaat told Bloomberg Asharq yesterday (watch, runtime: 0:53).

The year so far: Egyptian startups have raised around USD 460 mn in investment during the first 10 months of the year, according to our in-house tracker.

That’s far short of expectations thanks to the Global Startup Fundraising Apocalypse: Industry players were telling us as recently as spring that Egyptian startups could raise as much USD 1 bn this year, though Talaat was slightly more cautious, saying in July he expected c. USD 850 mn.

MORNING MUST READ-

ICYMI- Missed this week’s Inside Industry? In our weekly vertical exploring all things industry and manufacturing, we looked at the Ebda initiative — a new program aimed at localizing industrial production and lowering the country’s reliance on imported goods.

CIRCLE YOUR CALENDAR-

The Sovereign Fund of Egypt (SFE) will begin the roadshow for its pre-IPO fund at the end of November, Planning Minister Hala El Said told Bloomberg Asharq yesterday (watch, runtime: 2:10). The fund plans to market several state companies — including the military-owned firms Safi and Wataniya — to strategic investors ahead of IPOing them on the EGX at a later date. Several Arab sovereign wealth funds have expressed interest in purchasing stakes in the companies, the minister said.

The Nebu Expo for Gold and Jewelry will be held on 10-12 December, bringing together 50 local companies and 35 international exhibitors from Italy, Turkey, India and the UAE, Supply Minister Ali El Moselhy said.

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

MoneyFellows closes bumper series B round: Egyptian fintech startup MoneyFellows has raised USD 31 mn in a series B funding round, it said in a statement (pdf) yesterday.

Who invested: The round was led by CommerzVentures, Middle East Venture Partners (MEVP), and Arzan Venture Capital. Invenfin, National Investment Company (NIC) and existing investors, including Sawari Ventures, Partech, 4DX Ventures and P1Ventures also participated in the round.

This is the fourth-biggest funding round in Egypt this year and third-largest fintech raise, according to our in house tracker.

What does MoneyFellows do, exactly? MoneyFellows creates digital “money circles” — known in the region as a gameya — using a scoring model, as a way to offer peer-to-peer, no-interest lending. The members of each circle commit to paying an installment into a pool every month, with a different member taking the whole pool as a payout each month. The company says it has hundreds of thousands of monthly users and has seen 8x y-o-y growth.

MoneyFellows has now raised a total of USD 36.6 mn from investors, having secured USD 5.6 mn in series A and seed funding prior to the latest round.

Where the funds are going: MoneyFellows will use the money to “accelerate its exponential growth by diversifying its portfolio of services and expanding their product offerings across the B2C and B2B segments, as well as its geographical expansion across Africa and Asia,” it said in the statement. Currently operating only in Egypt, MoneyFellows is looking to expand to Saudi Arabia and Pakistan, the company told us.

House committee approves public-sector, pensioner bonuses: The House Manpower Committee approved yesterday disbursing a EGP 300 bonus in November to public-sector employees and pensioners. The amendment is part of a broader package of measures announced by the government last week to mitigate the impact of the EGP float which is set to further raise the cost of living and pile more pressure on the public.

What they said: "This is the second bonus in less than six months and aims to help vulnerable classes to bear the high cost of living triggered by global economic crises," the committee’s chairman, Rep. Adel Abdel Fadil, said. Some 4.6 mn state employees and 10.5 mn pensioners will benefit from the bonus, which will cost the state in total approximately EGP 48.4 bn (about EGP 32 bn for state employees and EGP 32 bn for pensioners).

What’s next: The bill will land in the House’s plenary session tomorrow and is set to be passed the same day.

SENATE APPROVES TIGHTER CONTROLS ON TELECOM EQUIPMENT-

Senators yesterday signed off on legislative amendments that would tighten controls on telecom equipment considered a threat to national security. Changes to the 2003 Telecommunications Act approved by cabinet in July would ban the possession, import and manufacture of certain types of equipment without a license. Lawmakers have not publicly announced what types of equipment would be banned by the legislation.

Coffee With Mohamed El Kalla, CEO of CIRA Education: Egypt’s largest listed private-sector education company, CIRA (Cairo for Investment and Real Estate Development) has officially rebranded itself as CIRA Education (watch, runtime: 01:40). But this is more than just a facelift. Since its founding in 1992, the company had weathered many storms and challenges to the sector, including covid and foreign ownership limits for the private sector. Most recently, the sector was slammed by high inflation that has impacted enrollments. CIRA Education evolved into a multifaceted education platform, spanning pre-K to university, over 48k students enrolled (pdf), and graduating engineers to artists. This is what the new branding is here to symbolize, CEO Mohamed El Kalla tells us.

It’s also the culmination of a milestone year: There’s the expansion of Badr University, which is helping expand liberal arts education in Upper Egypt. It is also introducing tech universities to Egypt by breaking ground on Saxony Egypt University. Outside of academia, there’s the company’s three-year, EGP 2 bn future flow securitized bond program, which not only made the company an innovator in finance, but cemented education’s reputation as a defensive sector.

At the helm of this transformation is El Kalla, who’s affinity for social entrepreneurship has its roots in his student days. His advanced studies in refugee law saw him living with nuns, and his subsequent work with the UN saw him lead programs in Darfur. During this time, he saw how the UN began to recognize the importance of the private sector in enacting social change. He took on those lessons when he returned to the family business back in 2009.

El Kalla joined us in the podcast studio to discuss that journey, what it took to get the company there, and what’s next for him and CIRA Education.

LISTEN TO THIS INTERVIEW AS A PODCAST- Part 1 of our discussion is on our website (listen, runtime: 44:43) or on: Apple Podcasts | Spotify | Omny | Anghami | and Google Podcasts. Part 2 is coming soon. Or you can read edited excerpts of our conversation below:

More than just education: At the crux of it, the rebranding of CIRA is the culmination of a six-year evolution that has seen CIRA become more than just about education — it’s about the value chain of education, El Kalla says.

So, the company’s services were split into three, with CIRA Education at its core and two sub-brands below it, El Kalla tells us. These are CIRA Talent, which scouts and then provides training and development from arts, to sports, to STEM, he adds. And then there’s CIRA Services, which provides the infrastructure and logistics for these services.

That’s right, El Kalla isn’t just interested in graduating doctors and engineers: With CIRA Talent, he wants to also build viable career paths for artists, dancers, musicians and athletes across the nation. He wants to take advantage of the tech innovations in entertainment, such as streaming, social media, gaming and the metaverse to build up the next generation of talent in the hopes of reclaiming Egypt’s cultural dominance in the region and the world. CIRA Talent’s various camps and programs now serve around 4k students, he tells us.

Building the infrastructure of education: “We build our own schools, we train our own teachers, we supply our own technology, and we run our own transportation,” El Kalla said. “CIRA moves almost 15k people per day. That’s larger than many private sector transportation services in Egypt,” he notes.

This three-pronged approach has been the idea from day one, El Kalla tells us. “If you would like to serve the middle class, then you have a very interesting equation to work out: Quality versus cost. And unless you’re able to really harness your value chain while working all of these non-profit centers, you’ll not be able to provide quality education,” he says.

The first domino was getting the right governance set up: When El Kalla joined the family business in 2009, one of the first things he worked on was looking at corporatizing and setting solid governance structures and mitigating key-person risk. “After a certain size, schools need to be open books and transparent in their governance,” he tells us.

Especially if they want investors to buy in…and you need investors: “Gone are the days when private education providers can grow on their own. 10 years ago it would cost EGP 20-30 mn to build a school. Now it would cost EGP 150-200 mn. For a decent university you would need EGP 3 bn.”

With CIRA’s core education offering, the focus is on providing variety to an underserved market: The expansion of Badr University into Upper Egypt has been emblematic of the company’s strategy of building a successful model in Cairo and then introducing it to Upper Egypt — a very underserved market. When looking at where to expand, CIRA looks at various governorates, studies the needs of those communities, and begins building. In Fayum, for example, the company found a need for pre-K, so, now it is working on setting up its first pre-K facility outside of Cairo over there.

The strategy is proving successful: “We launched Badr University there with a state-of-the-art presence from day one, with seven faculties, including bio-engineering, and nursing,” El Kalla said. “Badr University will eventually support 18 faculties, over 85 acres of educational facilities, with some 40k seats.” The Upper Egypt campus already has over 1k students enrolled in its inaugural class — or 50% above initial targets, he tells us.

CIRA also caters to the needs of modern and future jobs: CIRA is breaking ground soon on its Saxony Egypt campus, with an eye to offering industry-specific diplomas and bachelor’s degrees, including in logistics, tourism, medical and industrial manufacturing. The school is working on offering degrees in the automotive sector, with plans to expand into future industries such as EV manufacturing in the next five years, he says.

Innovation isn’t just limited to education: CIRA’s EGP 2 bn future flow securitization program isn’t just the first in the education sector, but the country’s as well — lending credibility to the notion that education is defensive. “There’s a certainty in education that makes it ideal for future cash flows,” El Kalla notes.

And it’s worth the risk in this challenging environment: When asked if the current high-interest rate environment causes him concern, El Kalla notes: “I would be lying if I said no. But they’ve always been ready to take a leap of faith…And I have news for you, if you don’t do it today, you’re going to be paying 1.5x more in costs tomorrow.”

AMENDMENT-

This story was amended on 4 March, 2023 to reflect that CIRA was established in 1992, not 1993 as we previously wrote.

The economic impact of Thursday's float of the EGP continued to dominate the airwaves last night, with the nation’s talking heads doing their best to put a positive spin on events and officials trying to assure the public on rising prices and the availability of goods.

Nobody wanted to talk about the coming wave of inflation: Some analysts are expecting the headline inflation rate to reach 20% by the end of this year on the back of the EGP float, but you wouldn’t have known it from last night’s talk shows, which avoided discussing the coming squeeze on living standards.

Instead, everyone wanted to talk about how prices will fall: Ayman Hossam El Din, head of the Consumer Protection Agency, told Kelma Akhira that prices could begin falling in the next three to four months (watch, runtime: 3:05). The deputy chairman of the Egyptian Poultry Association, Tharwat El Zeiny, said that chicken prices won’t rise any further because … chicken prices are already high.

Price controls on sugar? Abdel Moneim Khalil, head of internal trade at the Supply Ministry, floated the idea of putting price controls on sugar in the event of price gouging (watch, runtime: 5:27).

A new Moody’s report provided another source of positivity: Kelma Akhira’s Lamees El Hadidi dedicated a segment to explaining a new Moody’s report out yesterday which said that the decision to devalue the currency will improve Egypt’s funding situation. Amr Hassanein, chairman of rating agency Meris, joined El Hadidi to discuss the report (watch, runtime: 7:16).

MEANWHILE- The Madbouly government struck an optimistic note on wheat supplies just days after a key global wheat pact went belly up: The state is moving to reassure the public that the country’s wheat supplies will not be threatened if exports of Ukrainian wheat are suspended long term. Ahmed El Attar, head of the Agriculture Ministry’s quarantine authority, said that the government has taken “pre-emptive steps” to secure wheat supplies and has built up reserves of strategic commodities (watch, runtime: 3:04). This came a day after Russia pulled out of the UN-brokered agreement that allowed Ukraine to resume grain exports, threatening to cause a shortage of wheat and reignite the global food crisis triggered by the war in Ukraine.

No, bread subsidies haven’t changed: The government refuted reports it plans to lift bread subsidies and replacing them with cash support for the neediest. The news got air time on state TV’s El Tasea (watch, runtime: 7:57) and Masaa DMC (watch, runtime: 1:33).

Yes, but: The government is looking at ways of reforming bread subsidies, with Supply Minister Ali El Moselhy earlier this month calling on MPs to examine ways of scaling back the program. It’s not clear whether reform to the program is a requirement of the recently-agreed USD 3 bn IMF loan, but we should find out more on the conditions when the executive board meets to discuss the agreement in December.

Human rights + COP27 continue to drive the narrative on Egypt in the international press: It’s the Times’ turn to publish a piece on political detainees in Egypt in the run-up to next week’s global climate summit, while the Guardian reports that Greenpeace is coming in for criticism by some activists who are accusing the conservation group of “greenwashing” the Egyptian government’s image by playing down its poor human rights record.

Also making headlines:

• The King Tut controversy: Egyptologists continue to disagree on what Tutankhamun’s burial room was initially designed for and whether his stepmother and predecessor Nefertiti could be buried behind its walls. (New York Times)
• Climate change is accelerating migration out of the countryside to Egyptian cities and abroad as water scarcity impacts the agriculture sector. (AFP)
• Falcon mummies: A foreign research team has unearthed a tomb containing over a dozen mummified falcons south of Marsa Alam. (Al Monitor)

A unit of renewable energy player Infinity is reportedly interested in assembling EV charging stations here, Al Mal reports, saying it is eyeing foreign tech for the project. Talks are at a very early exploratory stage, we’re told.

MEANWHILE- The military’s dual-fuel pickup truck JV with the Emirates’ M Glory is still on the runway. The Military Production Ministry said yesterday that it had had talks with M Glory execs about tech transfer and other “developments of joint cooperation.” The two sides had originally aimed to have the facility up and running by 1H 2022.

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

• The Sovereign Fund of Egypt will in the coming weeks contract a real estate company to develop Cosmic Village in Sixth of October. (Al Mal)
• GB Auto has appointed Alpha Capital to conduct an independent valuation of its stake in Netherlands-based subsidiary MNT Investments ahead of a partial sale to Chimera Investments. The valuation is a routine part of the sale process, a company official told us. (Disclosure, pdf)
• State buyer GASC has contracted to import 150k tons of sugar. (Supply Ministry statement)
• Amer Group’s board of directors approved a plan to spin off some of the company’s activities into a separate firm, dubbed A Capital Holding. (Disclosure, pdf)

The EU is helpling Egypt crack down on illegal migration: The EU and Egypt yesterday signed an agreement for the first phase of a new EUR 80 mn program designed to make it harder for migrants to cross illegally from Egypt to Europe, the EU delegation in Egypt said in a statement (pdf) yesterday. The program will provide Egypt’s coast and border guards with surveillance equipment, according to an EU Commision document seen by Reuters. The program has been split into two phases, with EUR 23 mn being paid out this year and the remaining EUR 57 mn being disbursed in 2023.

Egypt and the UAE’s three-day gathering to mark 50 years of bilateral ties wrapped on Friday. President Abdel Fattah El Sisi met with UAE Prime Minister His Highness Sheikh Mohammed bin Rashid to discuss ways to strengthen cooperation “in a wide range of spheres,” Emirati state news agency WAM reported. Sheikh Mohammed invited El Sisi to be the guest of honor at the World Government Summit in Dubai next February. Separately, Prime Minister Moustafa Madbouly sat down with Emirati Minister of Cabinet Affairs Mohammad Al Gergawi to discuss bilateral ties, WAM reported.

ALSO FROM THE DIPLO SPHERE-

• El Sisi spoke to Iraq’s new prime minister, Mohammed Shia Al Sudani, on the phone. (Ittihadiya)
• El Sisi and Prime Minister Moustafa Madbouly discussed investment in Egypt with Qatari businessmen last week. (Ittihadiya | Qatar News Agency)

Lebanon is president-less: Lebanese President Michel Aoun left office yesterday following the end of his six-year term, with the country’s parliament yet to agree on a successor. MPs have held four votes to choose a successor but no candidate has garnered a majority, leaving the country in limbo. The outgoing president told Reuters the day before his exit that the country was falling into “constitutional chaos.”

Ghana could be up next for an IMF bailout — and the nation’s president was out yesterday doing his best to reassure bondholders that debt relief is not on the negotiating table, according to Reuters. The West African nation has been negotiating a loan with the IMF since July after foreign investors exited the country and people took to the streets in protest at rising inflation and a plunging currency.