AM — We have a date with the IMF (and new M&A rules, too)

Good morning, wonderful people. We hope you’re all looking forward to a beautiful day.

We start this morning by thanking the 300 of you who joined us yesterday morning for our first ever Enterprise Climate X Forum at the Grand Egyptian Museum. Together, we took a deep dive into the fundamentals of what we think is the world’s largest and most important industry. (And big thanks to everyone for having shown up on time — there’s a reason Enterprise is a breakfast brand…)

We’re exceptionally grateful to our friends at USAID, HSBC, Mashreq, Attijariwafa Bank, Etisalat by e&, Hassan Allam Utilities, and Infinity for having made yesterday possible.

We also owe enormous thanks to the team at the GEM and the GEM Authority for having trusted us to be the first business conference at the new museum. It is simply a spectacular facility and we look forward to doing more events there in the future.

More events? Yes. Yesterday was just the first of our planned series of Enterprise X Forums, at which we’ll take deep dives into the industries and ideas that are driving opportunities for our community. Stay tuned.

COVERAGE- Enterprise Climate has the rundown this morning on our climate finance panel and we have a recap below of what three industry leaders had to say about renewables, green hydrogen and EVs. Look for more in both EnterpriseAM and Enterprise Climate in the days ahead.

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The IMF’s board has finally put us on its schedule: The IMF’s executive board will discuss Egypt’s request for a new extended fund facility next Friday, 16 December, according to its calendar. It’s unclear whether the board will make a decision on whether to approve the USD 3 bn, 46-month facility during the meeting. Egypt and the Fund reached a staff-level agreement for a new loan program at the end of October.

REFRESHER- Finance Minister Mohamed Maait said earlier this week that we could receive the first USD 750 mn tranche of the bailout loan before the end of the year. The 46-month loan agreement, which was announced in tandem with October’s EGP devaluation, is part of a series of measures to help shore up our economy amid the fallout of the war in Ukraine.

DATA POINT- Egypt’s foreign reserves continued to edge up in November, rising to USD 33.5 bn from USD 33.4 bn a month earlier, according to central bank data released yesterday. Reserves have risen by almost USD 400 mn since August, a reversal after falling 20% earlier in the year on the back of the war in Ukraine and tightening financial conditions globally.

HAPPENING THIS WEEK-

We’ll find out tomorrow how the latest EGP devaluation impacted consumer prices in November when the central bank and CAPMAS publish the latest inflation data. A poll of analysts conducted by Reuters sees annual urban inflation rising to 18.75% from 16.20% in October, which would be the highest level in almost five years. The survey also sees core inflation reaching 21.60% in November — its highest since November 2017 — up from 19% the month prior. The EGP has tumbled 24.8% since 27 October, when the central bank said it was moving to a flexible exchange rate, opening the door to a new wave of imported inflation.

HAPPENING NEXT WEEK-

Unlicensed shops are going to have to start thinking seriously about going legit from next Sunday when a long-awaited law regulating shops goes into effect. The date was revealed yesterday by Local Development Minister Hesham Amna, who said that the government will begin implementing the law from 11 December. The bill, passed by the House in 2019, will require shops to acquire licenses, introduce a new inspection regime, and specify ins. requirements as part of efforts to formalize the largely informal retail sector. According to one estimate, some 80-90% of stores are currently unlicensed. Owners of unlicensed shops will have one year to apply for a commercial license.

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Gov’t could intervene to solve poultry market snarl: The government could intervene to protect the poultry industry from soaring feed prices, Prime Minister Moustafa Madbouly said during a meeting with industry figures yesterday. Madbouly did not provide details on what action could be taken to help bring prices of feed under control, yet stressed that the government “would not allow the persistence of such conditions. … We will not allow instability in poultry production,” he said.

REMEMBER- A feed shortage on the back of import restrictions has sent prices of poultry and eggs skyrocketing, with the government trying to address the shortage by releasing thousands of tons of poultry feed from ports since mid-October. Agriculture Minister El Sayed El Quseir said yesterday that 960k tons of feed have been released from ports since mid-October, though this appears to have done little to calm prices.

WORLD CUP-

It was all cheers from the Arab world (and us) yesterday, as Morocco sealed a historic win against Spain to become the first Arab team ever to qualify for the World Cup quarter-finals. After playing out a tense 0-0 draw with the Spaniards, the Atlas Lions triumphed in an easy shoot out that saw Spain miss all three of their penalties and Morocco’s star full-back Achraf Hakimi seal victory with a cheeky Panenka.

Morocco will have a tougher time getting past Portugal in the next round, who thrashed Switzerland 6-1. All the pre-game talk centered on Fernando Santos’ decision to drop Ronaldo, who saw his inexperienced replacement, the 21-year-old Goncalo Ramos, bag the first hat trick of the competition as the Portuguese swatted aside a lackluster Switzerland.

We now have two football-less days ahead of us before the quarter-finals get underway. Here’s how they line up (all times CLT):

• Croatia v Brazil (Friday, 5pm)
• Netherlands v Argentina (Friday, 9pm)
• Morocco v Portugal (Saturday, 5pm)
• England v France (Saturday, 9pm)

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THE BIG STORY ABROAD-

Just what Trump doesn’t want as he gears up for his 2024 presidential run: The Trump Organization was convicted yesterday of a 15-year scheme to defraud tax authorities, with the family real estate company facing fines of up to USD 1.6 mn following the guilty verdicts that followed two days of jury deliberations in New York. Trump wasn’t personally charged with any offenses.

The verdict is dominating the international press this morning: AP | Reuters | FT | CNBC | CNN| BBC.

CIRCLE YOUR CALENDAR-

Key news triggers to keep an eye on this week and beyond:

• Inflation: Inflation data for November will land on Thursday, 8 December.
• Interest rates: The Central Bank of Egypt’s Monetary Policy Committee meets on Thursday, 22 December to review interest rates.

President Abdel Fattah El Sisi is in Riyadh later this week to attend the China-Arab summit that will coincide with Chinese President Xi Jinping’s visit to the kingdom. Some 12-14 Arab leaders are expected to attend the summit on Friday.

The cabinet’s Information and Decision Support Center (IDSC) will kick off the first session of its new intellectual forum on Thursday, 8 December, according to a statement. The weekly forum will see experts including government officials, academics, representatives of multilateral institutions, MPs, and national dialogue members meet to discuss key policy questions and make recommendations on them to the prime minister.

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 talked to the head of the Finance Ministry’s PPP Unit, Atter Hannoura, about the government’s plans for public-private partnerships going forward.

We held our inaugural Climate X forum yesterday, which saw 300 CEOs, business owners, investors, bankers and development finance folks gather together under the roof of the brand new Grand Egyptian Museum to discuss the opportunities in the climate industry as our global green transition conditions. Discussions covered everything from how to build a (potentially bn USD) climate-centered business to how to access climate finance and what is needed at the policy and regulatory levels to move the green economy forward.

We had on stage yesterday three guys who are building large-scale climate businesses right here in Egypt to discuss everything from hydrogen and renewables to EVs. The panel brought together some of the biggest industry players in the region, including:

• Amr Allam, CEO, Hassan Allam Holding
• Mohamed Ismail Mansour, co-founder and CEO, Infinity
• Sherif El Kholy, partner and head of MENA, Actis.

Amr and Mohamed’s companies are working together — and separately — on some of Egypt’s most interesting climate opportunities. Together, they’re developing a total of 10 GW of wind and 4 GW of electrolyzer capacity for green hydrogen production. Hassan Allam is separately working on a 1.1 GW wind project in Egypt, which is one of the largest onshore wind farms in the world, and the largest in the Middle East, as well as almost 70 MW solar PV projects.

Infinity is gearing up to become the largest African renewable energy company by 1Q 2023 after having signed agreements to acquire Lekela Power’s portfolio of operational wind power projects, which have a combined installed capacity of over 1 GW (in South Africa, Egypt and Senegal). They’ve also developed more than 440 EV charging points across 11 governorates in Egypt.

Sherif El Kholy is a longtime partner and head of Middle East and Africa Infrastructure as well as MENA private equity at Actis, a leading investor in sustainable infrastructure in global growth markets. Actis has owned and developed 15 GW of renewable power by investing in successful platforms including Lekela Power, in pioneering commercial and industrial businesses such as Yellow Door Energy, and climate adaptation-focused businesses including Emicool.

KEY TAKEAWAYS-

There is plenty of appetite from the private sector for climate-focused projects, El Kholy said, to the extent that limited partner appetite is now seeing private equity firms set up specific vehicles and funds to focus on the green energy transition, El Kholy said. LPs including sovereign wealth and pension funds are convinced of the financial returns — and they want to invest in climate opportunities because their mandates now demand it, he said. They want to do good while doing well.

The private sector wants a piece of the adaptation pie: Private investors are already getting in on mitigation — dominated largely by investment in green energy projects with a view to reducing carbon emissions. But there’s plenty of reason for the private sector to be interested in adaptation: Investments that will help businesses, consumers and nations adapt to a warming world. “I think going forward, there are going to be increasing shifts to deploy capital more creatively in the sector, with investments becoming more diversified as more capital becomes available,” El Kholy said. He emphasized the need to focus on energy-efficient technologies, rather than just on power generation, name-checking industries like district cooling, which has taken off across the GCC but is still undeveloped in Egypt.

Few countries anywhere in the world are setting out build as much renewable power in the coming years as Egypt, which we estimate will need 40 GW of green energy to power just the hydrogen plants for which the Madbouly government inked framework agreements at COP27.

The way the electricity market works today: Folks operating solar and wind facilities generate electricity and sell it to the state under a long-term offtake agreement. The assumption is that the state will continue to do this with energy for the hydrogen plants: Buying from the renewables players and selling the the plant operators at a markup. (In this case, through a special “green corridor”: You can think of it as something resembling a point-to-point grid separate from the national network that links producers with the hydrogen plants. That ensures eventual buyers of the green hydrogen that only green energy was used to make it.)

The way the private sector wished it worked: Energy producers wish they could effectively “rent” the state’s grid: Use it, for a fee, to sell green electricity directly to their end clients. In industry speak, that’s called “wheeling.”

Mansour and Allam say producers — like all businesses — want visibility. They want a wheeling tariff that makes sense, and they want the tariff for each project they do to be set for the lifetime of the offtake agreement. The state’s role needs to be that of a regulator rather than a market participant, El Kholy added, suggesting that public funding can go towards expanding and developing the national power grid and on distribution, rather than generation, which should be the private sector’s purview.

One key to making this happen: Look at having the state divest some of its transmission infrastructure to the private sector, possibly through a program involving the Sovereign Fund of Egypt (SFE), which already “speaks the language of the private sector,” Allam said.

GREEN HYDROGEN-

The green hydrogen sector remains young, but it’s a risk many are willing to take as industry players look at the rapidly forming market for the green fuel in Europe. Hydrogen Europe CEO Jorgo Chatzimarkakis, who was on stage just before this panel, called the 2020s the “decade of hydrogen.” The private sector agrees, despite it being an embryonic sector in which European regulations and incentives are still no clear.

Is hydrogen a viable business today? No. Allam notes that while the green hydrogen sector right now is not economically attractive, neither was solar or wind 10-15 years ago. “We believe in the next 10 years, green hydrogen will be one of the key sources of energy in the world,” Allam said. “Being a first mover in this would pay off for us.”

When could we see companies breaking ground on planned green hydrogen plants? Masdar, Hassan Allam, and Infinity could begin commissioning the pilot phase of its 480k-ton green hydrogen facility within five years, Mansour said. Several of the hydrogen facilities for which framework agreements were signed during COP27 are slated to go online in 2025 or 2026.

EXPORTS, EXPORTS, EXPORTS-

All three of our panelists agreed that with Egypt undertaking a world-scale green energy program, we need to push hard to localize manufacturing of components from solar panels to wind turbines, blades and electrolyzers for hydrogen. Don’t just buy components from big Chinese, German and other players — we need to have them come and manufacturing plants here to serve our booming renewables industry, setting us up to become a key export hub to Europe, Africa, the Levant and the GCC not just of green electricity and hydrogen, but also of components for the industry.

OTHER TAKEAWAYS-

When it comes to Egypt’s EV industry, we still have a long way to go, Mansour says. Only some 2.5k electric cars are currently on our roads, he noted. We could see the transition to EVs take form within the next 5-8 years, he predicts, as more and more brands roll out EVs here.

The landmark loss and damage fund coming out of COP27 could be key to advancing these industries forward, especially given the turbulent global macroeconomic backdrop and higher interest rates, El Kholy said. Subsidized finance will be key, and the loss and damage fund could be a major source of funding, he added.

Our thanks to CairoScene and StartupScene for images from the event

MPs give their final approval to Competition Act amendments: The House of Representatives yesterday voted to pass amendments to the 2005 Competition Act following two days of debate. The amendments — which got initial signoff from the chamber on Monday — grant the Egyptian Competition Authority (ECA) the power to block M&As that it thinks could harm market competition and promote monopolistic practices.

REFRESHER- The amendments force businesses looking to do mergers or acquisitions to seek ECA approval and give the regulator a veto over transactions that it deems anti-competitive. The existing law confines the ECA to only raising red flags about a transaction, typically after a sale is concluded.

It was a long and winding road to get here: MPs had hoped to pass the legislation before the House broke for recess back in the summer, but the vote was delayed thanks to unresolved differences between the ECA on the one hand, and the EGX, Financial Regulatory Authority (FRA), and central bank on the other. Successive antitrust bosses have sought the power to approve or reject M&As for years.

What changed? The draft amendments passed by the House settle the deadlock between the ECA and other bodies over how much time the ECA should have to review an M&A transaction and the fees it would charge companies. They also lay out the penalties for firms who fail to follow the new rules, and settle how mandatory tender offers (MTOs) will be regulated between the FRA and the ECA.

KEY TAKEAWAYS, per a House Economic Committee report on the bill seen by Enterprise:

#1- The final bill gives the ECA power to investigate transactions of all sizes: The amendments give the ECA the authority to investigate M&A transactions of any size if it has evidence that it could hamper market competition. A review is mandatory for companies whose combined asset value or combined business transactions in the last year exceed EGP 900 mn in Egypt, or EGP 7.5 bn globally. Some MPs had been opposed to the EGP 900 mn threshold, saying that it is too low and that the authority should only adjudicate larger transactions.

#2- Mandatory tender offers will continue to go through the FRA — with ECA input: Businesses acquiring shares via mandatory tender offers (MTOs) are required to get approval from the FRA before the transactions can progress. Under the new rules, the FRA has to notify the ECA of MTOs, giving the ECA 30 working days to recommend the FRA approve or block the transaction.

#3- Fees: The ECA won’t charge as much as it had hoped. The regulator will charge companies up to EGP 100k per transaction to conduct a first review. Pushback from the business community saw the proposed fees brought down from a previous draft that would have seen the ECA charge 0.025% of the total transaction value (or of the total value of assets merged under the transaction, whichever is higher), with an EGP 1 mn cap. The ECA can currently charge a fee of EGP 10k to look into requests from companies that want to exempt anti-competitive agreements from being subject to the law.

#4- Timeline: The ECA got the longer review period it had been seeking. The final version of the amendments keeps a 30-working-day timeline on reviewing transactions with the possibility for a 15-day extension. The ECA can also make the case to enter a second, 60-working-day review with another 15-day extension option if it suspects that a transaction would harm or restrict competition. Then-EGX chief Mohamed Farid (who now leads the FRA) had previously voiced concern over the length of first reviews, saying they should be cut to 15 business days to minimize any “negative impact.” Regulatory delays are already a persistent challenge to businesses that need to make decisions on whether or not to go ahead with an investment.

#5- Appeals: Companies will have 30 days to appeal against a decision made by the ECA. We don’t yet know who would review appeals or how long that process could take.

#6- Penalties: Fines for breaking the new rules start at EGP 30 mn. A fine of 1-10% of the value of the annual operations of the businesses engaged in the M&A transaction, or EGP 30-500 mn, whichever is greater, will be imposed on parties that fail to notify the ECA of their M&A plans, ignore the regulator’s final decision, or knowingly submit false documentation.

Other unknowns: It’s still not clear at which stage of M&A transactions businesses should notify the ECA. Business community reps had proposed that the ECA be notified after businesses conduct due diligence and decide whether they want to go ahead with the process or not.

What’s next? The amendments will be signed into law by President Abdel Fattah El Sisi before being published in the Official Gazette.

ALSO FROM THE HOUSE:

• Labor Act hearings continue: The House Manpower Committee continued hearings on the draft Labor Act with industry representatives.The bill, which was approved by the Senate in February, extends both maternity leave and notice periods, caps working hours, and changes minimum raise increments, among other things.
• Unified Tax Procedures Act lands in the House: House Speaker Hanafi El Gebali referred new government-drafted amendments to the Unified Tax Act to a joint committee. The amendment allows an exchange of client information by in compliance with international tax agreements effective in the country without prejudice to the Banking Act.

We recently had breakfast with 20 top CEOs to talk about why exports and FDI are key to our economy going forward. After reading our five-step recipe for turning Egypt into a global export hub and FDI magnet, participating CEOs agreed to answer two questions on the record for our latest CEO Poll.

We’ve already heard from: GSK’s Mohamed El Dababy | McKinsey’s Jalil Bensouda | Somabay’s Ibrahim El Missiri | ALC Alieldean Weshahi & Partners’ Bahaa Alieldean | HSBC Egypt’s Todd Wilcox | Actis’ Sherif El Kholy | Amazon’s Omar El Sahy.

TODAY– Sherine Shohdy (LinkedIn) is Egypt head and North Africa coverage director at British International Investment (BII), the UK government’s development finance arm.

ENTERPRISE- Which industry would you put on a focused short list and why?

SS- BII has commitments of over USD 760 mn in Egypt and its direct and indirect investments in the country span critical sectors such as clean infrastructure and energy, healthcare, manufacturing, and financial services. We recognize the caliber and ambition of the business leaders here and the size of the economy, so we are actively pursuing chances to support the growth of the country’s most promising businesses.

We will work towards unlocking other climate innovation strategies, including in clean energy solutions such as solar and wind power, green hydrogen, and water, sanitation, and hygiene (WASH) systems. Over the next five years, at least 30% of our total new commitments will be in climate finance, making us one of the world’s largest climate investors in Africa.

We also aim to nurture the local venture capital ecosystem, having recently committed to investing USD 100 mn in Egyptian startups over the next five years, including in high-potential entrepreneurs with unique climate solutions. Local investors are ideal partners to identify the next generation of high-potential entrepreneurs whose unique solutions help solve development challenges, including climate solutions.

E- Why are exports and FDI the way forward?

SS- We invest in productive, sustainable, and inclusive development. Export and FDI-led growth sparks global competitiveness for home-grown products, services, and businesses. Long-term lending builds self-sufficiency, stability, and a financial backbone for growing companies, which supports economic growth. It addresses the stark imbalance in international trade and elevates Africa’s potential as a global trading hub. It will further boost Egypt’s participation in global value chains and the economic prospects of mns of people and provide alternative sources of foreign currency beyond tourism.

Saudi Arabia’s Morni is eyeing acquisitions in Egypt: Saudi roadside assistance and automotive service provider Morni is looking to debut in the Egyptian market by acquiring local firms, and has hired Exits as its buy-side advisor, according to a statement (pdf) out yesterday. The startup plans to invest USD 10 mn by the end of the decade on Egypt acquisitions as part of its regional expansion strategy, Exits co-founder Ahella El Saban told Enterprise.

About Morni: The Saudi startup already operates in a number of GCC countries including Bahrain, serving over 1.2 mn customers. Morni is looking to expand across the region and is also looking to enter the UAE in addition to Egypt, El Saban said.

Potential candidates? Some of the most prominent RAS players in the local market include Odiggo, a tech company that allows drivers to connect with suppliers and service providers, and automotive service provider 3atlana.

Exits’ role: “The buyer comes in and they have a specific expansion plan and we source and find the startups they can buy,” El Saban said. “The Egyptian market, the mere size of it, makes it attractive to any investor and the exchange rate makes it a very lucrative market for many investors,” she added. The advisory outfit was acquired by Mohamed Aboulnaga’s Pie Consulting earlier this year, and closed a USD 1 mn pre-seed funding round in September.

EBRD could help fund Afia’s imports: Savola Group’s edible oil company Afia Egypt could receive a USD 20 mn senior unsecured loan from the European Bank for Reconstruction and Development (EBRD) to help it pay for imports amid an FX crunch at home and growing food insecurity abroad, according to the lender’s website.

What they said: The financing would support Afia Egypt’s “working capital needs for the importation of its main production input, edible oil, from the international markets,” the EBRD said. “The project strengthens the company's resilience to the current and potential shocks from the external environment with growing food security threats in the SEMED region and foreign currency shortage in Egypt following the Russia-Ukraine war,” it said.

REMEMBER- Egyptian importers are facing tough times right now, with import restrictions making it more difficult to bring goods into the country and the falling value of the currency making what goods they are able to import more expensive. Hard currency has become scarce due to tightening global financial conditions and the fallout from the war in Ukraine has, forcing the central bank to intervene with the curbs to shore up the country’s FX reserves.

Ahmed Elzaher (LinkedIn) has been named acting CEO of the Information Technology Industry Development Agency (ITIDA), succeeding Amr Mahfouz who retired last month, the agency said in a statement (pdf) yesterday. Elzaher is also assistant minister for ecosystem development at the Communications Ministry, and has more than 27 years of experience in the IT industry in several countries, including Egypt, UAE, Kenya and Algeria. Elzaher spent most of his professional career at IBM, where he held several executive posts. He joins ITIDA from the Abu Dhabi-based Digital14, where he was the chief commercial officer.

It was a mixed bag on talk shows yesterday, with many of the talking heads cheering Morocco’s Lions historic World Cup win against Spain, and Kelma Akhira’s Lamees El Hadidi discussing the IMF loan, which will be discussed by the executive board next week.

Nothing is impossible: An ecstatic Lamees El Hadidi dedicated most of her show to celebrating Morocco’s World Cup victory against Spain yesterday, “Impossible is nothing with determination and perseverance…impossible is nothing in football,” she said (watch, runtime: 4:53). Morocco’s win is also getting cheers from Masaa DMC (watch, runtime: 13:54).

A reminder of our 3rd program with the IMF: Following yesterday’s news that the IMF executive board will discuss Egypt’s request for a new loan program, Kelma Akhira’s El Hadidi reminded viewers about the details of the staff-level agreement reached in October (watch, runtime: 4:35).

An IMF approval would count as a “green light” for investments by foreign and Arab investors, House Budget and Planning Committee Chairman Fakhri El Fiqi told El Hadidi (watch, runtime: 11:22). “Egypt is on the right track,” El Fiqi said, looking to send a message of reassurance on the importance of the loan for the economy.

REMEMBER- Our Gulf allies have pledged to provide more than USD 20 bn in investment and funding for Egypt as they move to help shore up the country’s FX reserves amid global fallout from Russia’s war in Ukraine.

El Fiqi dismissed speculation about a fresh devaluation, saying that “the [exchange rate] has already devalued in October” and blaming rumors for what he said were higher rates on the still-anemic parallel market. His statements come amid speculation from some analysts and MPs that the currency could lose value again, with 12-month non-deliverable forward now changing hands at EGP 30 to the USD. The EGP closed yesterday at 24.64 to the greenback. Enterprise readers told us in September that they expected the USD to be changing hands at EGP 23-24 next year.

The gold market is being hit by uncertainty over the currency right now, which led some merchants to this week stop pricing the precious metal. Local gold prices have surged to record highs this week, with 21 carat gold reaching EGP 1.8k. Demand for gold has surged in the wake of October’s EGP devaluation which has seen the currency fall almost 25% against the USD.

Expect EGP 1.8k “to be the norm” into next year, according to Amir Rizk, member of the Gold Division at the Chamber of Commerce. He told Yahduth Fi Masr’s Sherif Amer last night that he expects prices to decline towards the new year but will then pick back up again towards record highs (watch, runtime: 5:55).

MEANWHILE- The National Dialogue guest list: The National Dialogue’s board of trustees began to discuss yesterday who will participate, with the guest list set to include politicians, NGOs, experts and others, board member Talaat Abdel Qawy told Al Hayah Al Youm (watch, runtime: 9:40).

INVESTMENT-

A promotional campaign by SCZone in Japan? A Japanese investment delegation has invited Suez Canal Economic Zone (SCZone) head Walid Gamal El Din to prepare a promotional campaign for the zone in Japan early next year, according to a SCZone statement.