AM — Where will the EGP go next?

Good morning folks, and happy THURSDAY. It’s been a rollercoaster of a week — and it’s not over yet: We’ll be keeping a close eye on both today’s interbank foreign currency auction as well as how the EGX reacts.

THE BIG STORY here at home: No prizes for guessing that it’s still the EGP. The local currency fell more than 16% to 32.20 to the USD during morning trading yesterday before rebounding to close at 29.76 per the official central bank rate, down 7.5% from Tuesday’s close.

At least three big-name global investors moved cash into Egypt yesterday, we’re told, confirming remarks by a senior banker on last night’s talk shows. That’s something that happens when funds are about to take positions (think: equities or carry trade).

Yesterday’s move is the first glimmer of real hope we’ve had in weeks. Here are some of the questions (in no particular order) we need to be asking as today unfolds:

#1- How will the EGX react today? Yesterday’s move makes already bargain-priced Egyptian equities look even more attractive if you think we’re closing in on a fair price for the EGP. Keep an eye on bellwether CIB, which many investors buy into as a proxy for Egypt — it will be among the first movers if international institutions are taking positions. We’ll also want to see the split of foreigners vs. locals and institutions vs. individuals at the closing bell today.

#2- How big is the backlog in the banking system? Two senior bankers told us yesterday that their FX queues have rapidly dwindled in the past week. They’ve had FX liquidity to offer their clients with standing requests — and in a number of cases found that clients had filed requests for the same sums with multiple banks.

#3- Has nearly 90% of the import backlog _in ports_ now been cleared? The government cleared imports worth USD 1.5 bn from our ports in the first 10 days of January, putting the total value of goods cleared since 1 December at USD 8.5 bn, according to a cabinet statement yesterday. The statement didn’t disclose how much remains stuck in ports, though the government previously pegged the value at USD 9.5 bn as of 25 December. The imports released so far in January include USD 613 mn worth of manufacturing inputs including foodstuffs, raw materials, and spare parts, the statement reads.

#4- How long will the high-yield CDs last? Two bankers we spoke with yesterday figure they won’t be around for more than the next three weeks.

#5- Will the Central Bank of Egypt go for another big rate hike to pull even more liquidity out of the system and bring in more hot money? Goldman Sachs, Al Ahly Pharos and HSBC all think it likely — though there’s no consensus among analysts on timing.

#6- We need more USD. Where is it coming from? Yesterday wasn’t a panacea — it was a critical first step toward a functioning FX market and the restoration of import activity. But we’re not “done” by any means. If we don’t want to find ourselves back in this position again, we need to see an influx of foreign direct investment and a massive ramp-up in exports (of energy and value-added goods alike). Yes, quick gains with assets through the state privatization program would be wonderful. But FDI and exports will be key to making sure we never again find ourselves in the position we’ve been these past few years.

DATA POINT- QNB Al Ahli is the latest to come out with high-yield CDs: QNB followed in the footsteps of CIB and launched 18-month, 22.5%-yield certificates of deposit (CDs) yesterday, according to a statement. As at CIB, buyers can opt for a one-time payment of 22.5% when their CDs mature, or can go for monthly interest payouts at a reduced annualized rate of 20%. The minimum buy-in is EGP 1k, in contrast to the EGP 100k minimum at the CIB.The private banks’ CDs come on the heels of the one-year, 25% CDs released last week by state-owned Banque Misr and National Bank of Egypt to combat dollarization and inflation, which as of Monday had attracted at least EGP 155 bn.

HAPPENING TODAY-

Shoukry is in KSA: Foreign Minister Sameh Shoukry flew into Riyadh last night for a scheduled meeting with Saudi counterparts and senior officials, according to a ministry statement. The talks, which will kick off today, will focus on regional and international issues, the ministry said, without providing color.

PSA- It’s umbrella weather: There’s around a 30% chance of light, intermittent showers in parts of Greater Cairo today and a higher likelihood of heavier rain in other parts of the country including the North Coast and Suez, an Egyptian Meteorological Authority statement reads. Expect temperatures to hit 18°C during the day before falling to a low of 11°C at night, our favorite weather app tells us. The People’s Democratic Republic of Maadi saw two minutes of heavy rain just before dispatch time, so take the weather witches seriously, folks.

LOOKING AHEAD-

Chinese Foreign Minister Qin Gang is expected in Egypt as part of an African tour that started earlier this week. Qin was in Ethiopia for talks with PM Abiy Ahmed in the first leg of his trip on Tuesday.

Execs from Saudi-based mining company Ma’aden plans to visit Egypt within 10 days to explore potential investments here, Oil Minister Tarek El Molla told Bloomberg Asharq on the sidelines of Saudi Arabia’s Future Minerals Forum. Ma’aden yesterday launched a multi-bn USD fund with Saudi sovereign wealth fund PIF to invest in mining assets globally. Enterprise Climate has the full story on that and other news out of the Riyadh forum, which kicked off on Tuesday and runs through today.

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There’s no one ‘BIG STORY ABROAD in the international press this morning:

• More document storage drama in the US: US President Joe Biden reportedly left another batch of classified documents lying around, the NYT and WaPo report.
• Ground control to IT support: The Associated Press has more on the system meltdown that grounded more than 1.3k US flights yesterday.

In the business press, the stage is being set for a showdown at Disney: Disney named Mark Parker its next chair yesterday, in an apparent attempt to get ahead of the news that activist investor Nelson Peltz will launch a proxy fight to force his way onto the company’s board, going straight to investors for their endorsement. The WSJ and the FT have more.

*** FELLOW iSHEEP, REJOICE- Apple is reportedly considering putting touch screens in Macs.

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UPDATE- What happened to that Aswan solar tender we were expecting in 4Q 2022? The government is going to need more time on that. That’s according to a source at the New and Renewable Energy Authority, who told us yesterday that the Egyptian Electricity Transmission Company is still working on issuing the tenders. The source was unable to give us a new timeframe when we asked.

What tenders? A report in the local press last year indicated that the Electricity Ministry would invite local and international private sector firms to bid in a tender for six solar projects in Aswan Governorate during the final quarter of the year. The facilities will produce a combined 300 MW of electricity a year and are expected to cost upwards of EGP 5 bn.

MARKET WATCH-

Oil is back on the up: Both the WTI and Brent crude benchmarks closed at their highest since 30 December yesterday, as markets wagered on better global economic conditions and a squeeze on supply thanks to the EU’s looming ban on Russian petroleum product shipments. Brent closed up 3.2% at USD 82.67 a barrel, marking a third straight day of gains after trading lower in the first week of January.

CIRCLE YOUR CALENDAR-

MENA-focused business network Mindaslike will hold a networking event in Cairo on Monday, 16 January. The event will take place at U Bistro & Bar in Zamalek from 7pm. Register for the event here.

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

The EGP tumbled to a new all-time low against the greenback yesterday as authorities continued to transition to a fully flexible exchange rate as agreed with the IMF. The currency fell in the interbank auction by a little over 16% to 32.20 to the USD by 1pm before rebounding to close at 29.76 per the official central bank rate. It closed down 7.5% from Tuesday.

This was the largest single-day loss for the currency since October, when it fell more than 16% in tandem with the central bank announcing its decision to move to a “durably flexible” exchange rate. The EGP has now lost more than 50% of its value against the USD since October and is down almost 90% since the central bank first devalued the currency last March.

How much changed hands yesterday? The banking sector saw USD 650-750 mn change hands through the interbank market yesterday — as much as five times the recent daily average, state news agency MENA reports, citing an unnamed banking source. Blom Bank former Deputy Managing Director Tarek Metwally put the figure at some USD 650-700 mn in a phone call to Masaa DMC’s Ramy Radwan (watch, runtime: 9:48), saying that the increased liquidity was to thank for the cooling of the rate from its earlier peak during the day.

Where did the money come from? Some USD 250 mn came from foreign institutional investors, the MENA source is quoted as saying, with Metwally naming JPMorgan and Morgan Stanley as among them.

A GOOD SIGN- Yesterday’s fall appears to have dealt a blow to the (anemic) black market, with a number of traders saying they were suspending operations until the end of the day, according to Bloomberg. The greenback has been trading at more than 30.00 in the black market, which has reemerged in recent weeks in response to an ongoing shortage of foreign currency.

It was a volatile day on the EGX: The benchmark EGX30 index rose as much as 4.4% during the morning before erasing most of its gains to close just 0.4% higher. The EGX has been one of the world’s best-performing indexes (in local-currency terms) since the October devaluation, soaring more than 47% to its highest level since 2018.

WHERE DO WE GO FROM HERE?

The EGP could well continue to lose a bit of value in the days ahead, some pundits suggest. “[The latest EGP slide] by itself might not be enough to bring private capital back, until there are signs that the FX backlog is getting cleared, which would require new USD liquidity. There is currently no visibility where this liquidity will come from," Abu Dhabi Commercial Bank economist Monica Malik told Reuters. Speaking to Bloomberg, Standard Chartered economist Carla Slim said that “the EGP will remain under pressure until more USD inflows materialize.” Blom Bank’s Metwally says “prices are projected to decrease within a month as the availability of the greenback in the banking sector increases.”

The offshore market agrees: Non-deliverable forwards (NDFs) — contracts used to forecast the value of the currency over the next 3-12 months — rose to 32.64-35.40 in trading yesterday, according to Reuters.

Higher yields might be needed: The EGP is inching closer to levels attractive to foreign investors, but yields on local debt will need to rise further to bring them back into the market in large numbers, Kevin Daly, emerging markets fund manager at investment firm Abrdn, told the Financial Times. “I wouldn’t expect to see a big inflow of USDs into the market until you get an adjustment higher in rates,” Daly said. Yields on short-term government bonds will likely need to rise another 1000 bps to 30% before Egypt starts seeing sizable inflows into the local debt market, he said.

That could mean more rate hikes: HSBC expects the CBE to raise interest rates by 300 bps during the quarter to curb inflation and bring foreigners back into the market. Al Ahly Pharos expects a 200-bps hike, potentially at the next Monetary Policy Committee meeting in early February. Goldman Sachs said earlier this week we could see “increases in local rates in the coming days” even as the CBE allows the EGP to float.

Where’s the sweet spot? In a note earlier this week, HSBC pegged the market clearing rate at between 30.00 and 35.00, with 32.50 “as a tentative midpoint,” while Goldman Sachs thinks we’re looking at 33.00-35.00. Meanwhile, BNP Paribas yesterday reiterated its December forecast for the USD-EGP rate to fall to 37.00 this quarter.

Prepare for more inflation: The weakening currency has already caused inflation to accelerate at its fastest rate in five years.

EGYPT IN THE NEWS- As coverage from Bloomberg, Reuters and the Financial Times above suggests, yesterday’s USD-EGP movement is dominating the conversation on Egypt in the global business press.

Gov’t plans EGP 150 bn subsidized loan program for industry and agriculture: The Madbouly government is set to offer EGP 150 bn worth of loans at a subsidized 11% interest rate to industry and agriculture players, according to a cabinet statement. The program is set to launch next week, immediately after cabinet gives its final sign-off during its weekly meeting, Prime Minister Moustafa Madbouly is quoted as saying.

REFRESHER- The Central Bank of Egypt (CBE) in November scrapped its 8% subsidized loans for the industry, agriculture, and construction sectors. The CBE committed to end support for its subsidized loans and pass the responsibility on to government ministries as part of the IMF’s conditions for our USD 3 bn bailout package. While programs including subsidized mortgages and tourism industry loans found new homes at the relevant ministries, we hadn’t heard until now whether the industry and agriculture loans would be rebooted.

Higher rates but a bigger overall pot: The government is setting aside 50% more for the loans than the CBE made available in its previous EGP 100 bn program. Some EGP 140 bn will go to financing companies’ working capital, with EGP 10 bn set aside for capital goods purchases.

The news should make manufacturers happy: The Egyptian Businessmen’s Association (EBA) expressed its surprise and dismay when the 8% loans were scrapped, calling on the Finance Ministry to help keep the program going.

What about construction? The statement made no mention of construction companies, suggesting the sector is yet to see any replacement for the subsidized loans scrapped by the CBE.

Telecom Egypt is looking at future flow securities as a potential debt tool to help fund its expansions and investments, a source close to the matter confirmed to Enterprise. The company is considering future flows along with other types of securities, and has yet to decide on the value of bonds it wants to issue or the timeline of the potential issuances, they said. The company is also looking at ways to increase its USD-denominated revenues as a way to mitigate the impacts of the EGP’s devaluation, they added.

Future flows are: Securities backed by off-balance sheet assets (think phone and utility bill payments, sporting club membership fees, rent, and toll gate payments.) They give companies access to liquidity without needing a big portfolio of accounts receivables Tap or click here to check out our full explainer on the newly introduced securities.

REMEMBER- EGX-listed education provider CIRA Education became the first firm to kick off a future flow issuance with a EGP 800 mn issuance last year, as part of a larger EGP 2 bn future flow securitized bond program. The government has also reportedly been considering issuing future flows for utility firms in the water, electricity and gas sectors, while Contact Financial Holding is in talks with the FRA to securitize future flows on behalf of “one of the largest.

Al Ahly CIRA is bringing Canada’s Seneca College here: Al Ahly CIRA for Educational Services is partnering with Toronto-based Seneca College to bring two branches of the Canadian applied arts and technology college to Egypt — one in East Cairo and the other in West Cairo — under an MoU signed between the company and the college yesterday, according to a Higher Education Ministry statement.

This one’s for tech nerds: Seneca College in Egypt will offer courses in disciplines including AI, modern engineering, and business management in the tech sector, CIRA Education CEO Mohammed El Kalla is quoted as saying in the statement.

What we don’t know: When the new campuses will be built, how much they might cost, or what the breakdown of roles and assets will be between the parties involved.

REFRESHER- Al Ahly CIRA is the EGP 2 bn education investment JV launched a little over a year ago by CIRA Education and Al Ahly Capital Holding (the investment arm of state-owned National Bank of Egypt.) The company primarily targets investment in K-12 schools, universities and technical colleges. Al Ahly CIRA expects to launch the first phase of Saxony Egypt University, Egypt's first private technology university, in September.

ICYMI- CIRA rebranded to become CIRA Education in October last year. CEO Mohamed El Kalla walked us through the company’s rebranding and expansion plans and discussed his views on the education sector. You can read or listen to Part I here and read Part II here.

Khaled Koubaa (LinkedIn) was appointed Chief Strategy Officer of Moharram & Partners where he will be responsible for the company’s global expansion strategy, including the establishment of two new permanent hubs in Dubai and Washington D.C., according to a company statement. Koubaa has served in top leadership and public policy roles at Meta and Google, amongst other companies.

The pundits spent most of last night discussing / bemoaning the weakening EGP, with some saying that they gave up refreshing their screens for fear of a higher USD / EGP rate with every click. See the full story in our Economy section, above. Elsewhere, the talking heads were discussing the skyrocketing price tags of new cars — where they’re even available.

More currency talk, but make it about cars: Importing cars will eventually become less complicated after the central bank’s recent scrapping of the L/Cs requirement, but the problem of not being able to secure greenbacks to pay for the imports persists, car importers told MBC Masr’s Sherif Amer (watchtime, runtime: 2:28). Auto sales slumped to a fresh low in November as the industry continued to face import restrictions.

Dominating the conversation on Egypt in the foreign press this morning: Yesterday’s exchange-rate volatility, which saw the EGP fall to a fresh record low of EGP 32.2 against the greenback, before recovering in late trading. We have the full story in this morning’s news well, above.

The Red Sea makes for a perfect getaway — from the UK’s cost of living crisis: A retired British couple tell the Independent that they’re saving money by turning off the heating at home and coming on holiday to Egypt, after taking up an Easyjet all-inclusive GBP 650 offer to spend the month of January in a Hurghada resort.

The Egyptian Job: Three men were arrested in Luxor for their alleged attempt to steal a 10-ton statue of Ramses II from Aswan, the Public Prosecution said yesterday. The suspects had “manual tools and heavy equipment” including a crane in their possession, according to the statement. AFP and the National have the story.

Also making headlines:

• Egyptian comic artist Deena Mohamed’s debut graphic novel Shubeik Lubeik gets a glowing review from The New Yorker.
• What’s for dinner? As poultry prices rise on the back of import woes, Egyptians are reportedly eating less chicken or switching to cheaper cuts. (The National)
• More women DJs are breaking into Egypt’s male-dominated dance music scene. (AFP)
• A palimpsest of festive traditions: A photo essay shows how Christians and Muslims in the village of Al-Sherif have created a unique five-day Christmas festival. (VOA)

M&A-

 UK-based software firm Softline Group LTD has acquired a 51% stake in cloud computing company Digitech for EGP 262 mn, Al Borsa reports, citing Shawkat El Maraghy, managing director of Prime Securities Brokerage, which brokered the transaction. The newspaper did not specify when the transaction took place.

The parties: Softline offers software, hardware, and cloud solutions, among other services, according to its website. DigiTech is an Egyptian firm that offers a host of software solutions such as cloud storage and enterprise content management.

CORRECTION- 23 January, 2023

An earlier version of this story incorrectly reported that US-based software firm Softlight, not UK-based Softline Group Ltd, had acquired a stake in Digitech. 

BUILDING MATERIALS-

Steel manufacturers hike their prices as the EGP weakens: Ezz Steel, Suez Steel, Egyptian Steel and other major manufacturers joined Beshay Steel in hiking their steel prices this week, raising them by around EGP 2.5k per ton after the latest weakening of the EGP, Al Borsa reports. The increases left steel prices at between EGP 25.5k and EGP 27.4k per ton. Steel reached a record high of EGP 30k per ton last month, before dropping to around EGP 23.2k per ton.

CAPITAL MARKETS-

CIB issues fresh shares for ESOP program: CIB this week upped its issued and paid-up capital by around EGP 165 mn to nearly EGP 30 bn, distributed over 16.5 mn shares, which will be issued to employees and execs as part of its rewards program.

Banque du Caire increased its issued and paid-up capital to EGP 10 bn from EGP 5.25 bn, distributed over 2.4 bn shares, according to Ahram Gate. The state-owned bank also doubled its authorized capital to EGP 20 bn.

COMMODITIES-

More Russian wheat incoming: State grain buyer GASC reportedly booked at least 60k tons of Russian wheat on Tuesday in its latest tender, traders told Reuters. The purchase came courtesy of the World Bank, which handed Egypt a USD 500 mn loan last summer to boost food security. GASC could move forward with another 60k ton purchase but it is still awaiting bid bond arrangements — which ensure compensation if shipments fall through — from the supplier.

More details soon: GASC is expected to this week announce the full quantities purchased and prices, but traders believe that it is paying some USD 337 a ton on cost and freight basis.

DEBT-

Contact Financial Holding wants to tap the securitization market in 1Q 2023, CEO Saeed Zaatar reportedly told Al Borsa, without providing further details. The company also wants to enter the Saudi and Emirati markets and expand in the Horn of Africa this year, he reiterated. Contact Financial closed an EGP 1.1 bn securitized bond issuance for its consumer finance arms Contact Creditech and Contact Credit late last year.

LEGISLATION-

Senate housing committee greenlights building law amendments: The Senate’s Housing and Local Administration Committee gave its final approval to amendments to the 2008 Unified Building Law, which bans construction outside authorized areas in cities, villages and districts, Al Mal reports. The five-article bill will now go up for discussion and a vote in the Senate’s General Assembly before it is referred to the House.

FINTECH-

Fintech Egypt has announced the launch of its digital academy: The CBE-backed Fintech Egypt has launched its digital academy, which will train young people in financial technology, it said in a statement (pdf) yesterday. Its six-month Innovator program will launch in 1Q 2023 and provide training on fintech, AI, open banking and e-payments.

HEALTHCARE-

A breather for 57357: Financially-stricken children’s cancer hospital 57357 has received some EGP 250 mn in donations in the past three weeks — enough to keep its doors open for at least three months, the National reported. The renowned hospital warned last month that it might be forced due to the economic crisis.

REAL ESTATE-

London-based real estate consultant Chestertons International has entered the Egyptian market through a partnership with Egypt’s Gemini for Real Estate Brokerage, according to a press release. Chestertons has offices in the UK, Europe, Africa, Asia, and the Middle East.

TECH AND TELECOMS-

CIT Minister Amr Talaat is wrapping up his week-long India visit: Talaat has been working to drum up Indian investment in our CIT sector, meeting yesterday with representatives of communications company Tejas Networks, the National Payments Corporation of India (NPCI), and Tech Mahindra, according to a ministry statement. The meeting with Tech Mahindra discussed potentially doubling employee headcount at its planned first global delivery center in Egypt. The company was one of 29 multinational firms that agreed in December to up their investments in our outsourcing industry, signing up to establish the center.

Omar Khalifa, founder and CEO of Shaghalni: Each week, My Morning Routine looks at how a successful member of the community starts their day — and then throws in a couple of random business questions just for fun. Speaking to us this week is Omar Khalifa, the founder and CEO of Shaghalni (LinkedIn). Edited excerpts from our conversation:

My name is Omar Khalifa, and I’m the founder and CEO of Shaghalni, an online platform connecting blue- and gray-collar job seekers to the latest openings in the market. I'm an impact-driven entrepreneur, meaning I would like to have a social element in whatever I do in business.

I studied at AUC, and we used to have employment fairs every semester with all the biggest companies in Egypt, and we never had any trouble finding work, you know? I thought that the bigger opportunity was in the rest of the job seekers. There are thousands of other job opportunities for people who are not very tech-savvy and cannot use the internet, and yet they're very much needed in the market. So I thought, why not create a platform that serves these people and connects them with the latest jobs?

I wake up at five every morning, and spend time with my two daughters; Carla is five-and-a-half, and Diana is eight months old. I help my wife with getting Carla ready for school and then go to the club for an early-morning workout. If I don't work out from 7-8 am, I won't work out any other time. I always read the 6am edition of Enterprise, which I’m a big fan of.

I finish my workout, and I'm at the office by 8:20-8:30 every day. Usually people in Egypt start interacting with you around 10-10:30 so I use the first 1.5 hours peacefully, laying out what I want to achieve with the day. I start with the most important issues that need to be addressed, and I lay out the strategy with a clear mind, away from phone calls, people knocking on your door, and meetings. I try to avoid meetings as much as possible unless there's something very important.

I try to make the most of every hour of the day. I don't like to waste any time and try to use my time efficiently. I work from the office until 3pm, and then I head home where I continue working until 7pm. When work is done, I like to just sit on the couch, watch football, and drink tea. That's my peaceful time.

My responsibilities at work include laying out the company’s strategy for every quarter; what we need to do, how we need to serve our customers, up sales, and cut costs. I make the big decisions, with zero micromanagement. I think micromanagement is very hindering.

The constants in my day are my workout and the fact that I eat every day at the same time. For the past five or six years, I have had breakfast at 8 am, then lunch around 2-3 pm, and usually I don't have dinner. I can maybe have a snack around 6pm. Another constant in my day is sales. If the day passes and we didn't sell, I don’t feel that it was a productive day.

I'm not a multitasker at all. If I'm working on a pitch deck or on a document I just work on it until it's done and then I can jump to the next task. I don't keep jumping between tasks. I think it becomes very unproductive. On the Notes app on iPhone, I write everything I need to do today, and I check my progress. I think that's a good way of tracking things in general.

I love fishing. I curresntly hold eight fishing world records, but there's one specific record I've been after for three years now: catching a yellowfin tuna on a two- or a six-pound line. I was really close to it last year, but it's very challenging.

I enjoyed reading Raouf Ghabbour's book because, to be honest, when we read books by people from other countries and circumstances, you just feel that things are too good to be true. This book is different because he's someone from Egypt who has done it all and who's been through the same problems that we entrepreneurs are facing. Seeing how he overcame these problems and how smart he was has definitely inspired me.

I try to balance between work, my family and sports. I think that’s very important because I've seen a lot of great entrepreneurs who get burned out. Running a company is extremely tough. You have to take care of yourself, your health, and your mental health.

Being persistent is key. Anything good that happened to me came through persistence and never came easy. If I had gotten burned out and given up earlier, I would've regretted it big time. I think it's very important to be persistent, to take small steps, and don't get dragged into something big too quickly. It's important to take the small steps and fix smaller problems so you can move on to solve bigger issues. And always focus on your reputation in the market.