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WHAT WE’RE TRACKING TODAY

On an otherwise very light news morning, we’re betting headlines will be dominated today by the outcome of an emergency meeting of cabinet members last night to discuss the capital gains tax widely blamed by the media and retail investors alike for the EGX’s recent slump.

According to Al Borsa, Trade and Industry Minister Mounir Abdelnour said prior to the meeting that he was confident cabinet would repeal or at least amend the law. Speaking for investors and the business community, the head of the securities chamber also declared that the capital gains tax issue will be resolved today with terms favorable to all. Al Borsa also reports that the Presidential Advisory Council will be pushing for the implementation of the capital gains tax to be postponed for two years — and for the levy to be cut to 5% when it is implemented. The council is set to meet today with President Abdel Fattah El Sisi.

Al-Mal, meanwhile, notes that investors are holding their breath waiting for news of the meeting, which it says was a gathering not of the full Council of Ministers, but rather of the Cabinet economic group.

WHAT WE’RE TRACKING THIS WEEK

The Forum on Egyptian-German relations will take place on Wednesday at the SIS Headquarters, Nasr City. 19:00-22:00 local Cairo time.

Egypreneur Forum will take place Friday through Saturday at Nile University, Cairo. Register online here.

Cultural icon David Letterman’s final episode will air on Wednesday. His final guest will be Bill Murray, who was also his very first guest, (Watch, running time: 13:05), and who will mark his 44th appearance on the show. Both he and the show’s final musical guest, Bob Dylan, will appear on Tuesday night’s episode, with the finale on Wednesday shaping up to be a retrospective.

LAST NIGHT’S TALK SHOWS

Egyptian media on Sunday night continued its full-throated defense of the preliminary death sentences handed down to former president Mohamed Morsi and other defendants on Saturday. Youssef El Hosseiny and Ibrahim Eissa of ONTV each provided lengthy defenses of the verdicts at the top of their respective programs, stating that the Ikhwan’s leadership are traitors and spies and that the potential death sentences fit the alleged crimes. El Hosseiny hosted law professor Nour Farahat and socialist journalist and writer Salah Eissa to discuss media freedoms.

Ibrahim Eissa dismissed Western reactions to the verdict, saying that many of Egypt’s external critics have been against the country since 30 June, and that international relations are based on shared mutual interests rather than like or distaste for domestic policies. This reviewer was unfortunately able to sit through enough of Eissa’s program to find out who, if any, guests he would host, as he really does speak exactly this way the entire time: (Watch in Arabic, running time: 2:11).

While waiting for a real television program to start, this reviewer accidentally caught some of the usually unwatchable Mona El Shazly on CBC Egypt, who herself would seem to have accidentally stumbled upon the immensely talented and enjoyable Moroccan Sufi chanting of Ensemble Ibn Arabi. If readers are unfamiliar with their music, you owe it to yourself to have a listen here to one of the songs performed on El Shazly’s program: Je e´aime de deux amours. (Listen in Arabic, running time: 6:10).

Lamees El Hadidy on CBC Egypt paraded in her studio some of the families of police officers who were slain or are missing and presumed dead following the 2011 prison breaks. One widow specifically said that her concern is not whether or not Morsi will be executed, but if she will ever learn of the ultimate fate of her husband. The mother of an officer who is likewise missing and presumed dead also said that following the last change in government, details about her son’s case have not been forthcoming.

El Hadidy later had a call-in from Dr. Samir Ghattas of the Middle East Forum for Strategic Studies, who alleged that Qatar is funding negative press on Egypt’s judiciary. El Hadidy devoted the remainder of her program hosting a panel of experts to discuss Egypt’s mass transit problems.

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SPEED ROUND

Unemployment fell to 12.9% in 4Q2014 from 13.4% in the same quarter a year ago, according tofigures released yesterday by state-run statistics agency CAPMAS (in pdf). Female unemployment remains high at 24.8% and the labour force grew to 27.7 mn. Youth still account for roughly two-thirds of the unemployed.

The Finance Ministry is delivering its FY2015-16 budget proposal following a two month delay, Al Mal reports. The ministry delayed presenting its proposal as the deficit projected was higher than the targeted 10% of GDP. Spending is set to grow to EGP 850 bn, Al Mal says.

The Mahlab government has finalized a strategy to double the country’s exports to USD 42 bn by 2018-19, Al Masry Al Youm quotes Trade and industry Minister Mounir Fakhry Abdelnour as saying. This announcement comes despite of the fact that Egyptian exports fell by 20% in 1Q2015. Abdelnour attributed Egypt’s first quarter shortfall in exports to energy shortages, which impacted cement, ceramic, and fertilizer factories, as well as a continued lack of security in key export markets, namely Iraq and Libya.

SODIC reported a doubling of both net contracted sales and net earnings as it released 1Q15 results yesterday. Contracted sales closed the quarter at EGP 1.5 bn, with 89% of net sales accounted for by the company’s East Cairo projects, Sodic said in its earnings release (pdf), while “deliveries remained on schedule with 108 units delivered during the quarter.” Cash collections were up nearly 72% to EGP 547 mn, while cancellations were down nearly half from the same period last year. Sodic’s net profit margin doubled to 27% from 1Q14 as net profit nearly doubled to EGP 76 mn. Revenues closed the quarter down a bit more than 5% at EGP 284 mn, with the sales mix shifting toward higher margin units in Allegria; profitability was also boosted by higher interest income.

How useful is the EGX30 right now? Bellwether Commercial International Bank (CIB) now accounts for more than 39% of the EGX30, reports Al Mal, eclipsing previous record holder Orascom Construction Industries, which once accounted for 31.5% of the index. CIB’s weight in the index makes the EGX30 less representative of the movement of the wider market, the newspaper says.

Amendments to the laws combating illegal immigration from Egypt are complete, a government representative said. The amendments come along with a government initiative to increase awareness of the dangers of illegal immigration.
“Egypt is a priority market for the HSBC Group,” HSBC Egypt CEO Jacques Emmanuel Blanchet, toldDaily News Egypt in an interview. “We know that 90% of Egyptians don’t have a bank account,” Blanchet said noting that the “government salaries automation project is a good initiative, and one that will help increase financial inclusion across Egypt.”

Six men were executed yesterday following convictions in military court for having killed two army officers in a gunfight in March 2014 at an alleged bomb factory in Qaliyoubiya, according to media reports. AnAFP report adds more detail to claims that two of the men hanged had been in custody at the time of the shootout. All six had been found to be members of the Ansar Beit El-Maqdis terror group. Al-Ahram has morehere.

Women who become naturalized Egyptian citizens can pass citizenship to kids: An administrative court ruled yesterday that women who become naturalized Egyptian citizens — i.e. one-time foreigners who acquire citizenship after marrying an Egyptian national — can themselves pass Egyptian citizenship to their children. The one caveat, Ahram Online reported: Kids acquiring citizenship from a mom who is a naturalized citizen must live in Egypt with their mother. The nationality law had previously been amended in 2004 to allow Egyptian women married to foreign men to pass their Egyptian nationality to their children.

Egyptian women age 18 to 40 will need security clearance before being allowed to board flights to Turkey, according to media reports. As we reported back in December, the restrictions were first imposedon male citizens age 18-40; the measures are designed to make it more difficult for would-be extremists to travel to join Daesh.

The National out of the UAE has two pieces worth reading: Veteran business writer Patrick Werr’s weekly column claims ‘Printing more money only adds to Egypt inflation,’ while ‘IPO appetites returning in Egypt‘ by Adam Bouyamourn singles out Egypt as one of the few regional bright spots for public offerings so far this year — despite the horrid performance of the EGX of late.

US officials: ‘Saudis set to buy nuclear weapons from Pakistan: “Saudi Arabia is said to have taken the “strategic decision” to acquire “off-the-shelf” nuclear weapons from ally Pakistan, senior US officials told the Sunday Times … “For the Saudis the moment has come,” a former US defense official told the Sunday Times last week. “There has been a long-standing agreement in place with the Pakistanis and the House of Saud has now made the strategic decision to move forward.” ““We know this stuff is available to them off the shelf,” the intelligence official said, adding that it “has to be the assumption” that the Saudis have decided to become a nuclear power.” (Read)

The staff of Al-Shorouk newspaper will walk away from their word processors for two hours today after their union voted for a brief wildcat strike in protest of what they claim are the unjust dismissal of 18 of their colleagues, Al-Mal reports.

Bye-bye, Hizb El-Watany building: Ahram Online reports that the demolition of the Nileside headquarters of the former ruling National Democratic Party began yesterday. Cabinet approved the razing of the building at a meeting in March of this year.

Guess what? You really can stir-fry in olive oil. See more in ‘7 Myths (and Truths) About Olive Oil‘ in this morning’s WSJ.

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A MESSAGE FROM PHAROS HOLDING

Edita’s 1Q15 Earnings Hampered by Higher Expenses

Edita Food Industries reported a 17.3% increase in its top line to EGP 528.9 mn in 1Q15, on the back of greater gross margins in each of its product segments. This increase, however, was not carried down to the bottom line, as the company’s consolidated net profit inched up a mere 3.2% to EGP 59.5 mn this quarter, mainly due to higher marketing and distribution expenses, which are likely to continue hampering Edita’s bottom-line growth in 2015 before paying-off in the long run.

From a valuation standpoint, Pharos Research believes the company’s FV estimate is especially sensitive to new capacity additions, which are set to increase Edita’s production by 40% to nearly 140,000 tons this year as well as boost net profit further than what annualized 1Q15 results imply.

For more on Edita’s earnings this quarter click here.
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WORTH READING

A New Sinai Battle? Bedouin Tribes and Egypt’s ISIS Affiliate, by Mokhtar Awad and Mostafa Abdou: Following reports at the end of last month stating that the Sinai Tarabin Bedouin tribe were engaged in fighting Daesh’s Sinai affiliate Wilayat Sinai (formerly Ansar Beit al Maqdis), the always-excellent Mokhtar Awad of the Center for American Progress along with Egyptian journalist Mostafa Abdou examine in depth the growing disputes between the Sinai Bedouin and Daesh, along with new details of a meeting of Bedouin elders which produced a proposal to the Egyptian state to embed volunteer Bedouin with Egyptian troops to help in reconnaissance and intelligence gathering. In their piece, Awad directly advocates that the Egyptian military take the Bedouin up on their offer, warning that a failure to take advantage of the Bedouin’s unrivaled mastery of their terrain will be not only a wasted opportunity, but may also give Daesh an opening to attempt to make further inroads into Sinai territory. (Read)

WORTH WATCHING

The best workplace meltdown to appear on television in a long time: Amy from last week’s episode of Veep: “Have you been sent from the future to destroy me? ‘Cause it’s working.” (Watch, running time: 1:30)

EGYPT IN THE NEWS

Among all the international reactions thus far to the preliminary death sentence handed down to Morsi and other leaders of the Ikhwan, this op-ed in Al Arabiya is especially noteworthy. Translated from the original published in Arabic on Saturday in Asharq Al Awsat (Read in Arabic) and penned by its former editor-in-chief and former general manager of Al Arabiya Abdulrahman al-Rashed, the piece directly calls on President El Sisi to intervene and pardon the Ikhwan leaders sentenced to death. It has been alleged by several journalists and analysts that the new Saudi court is more lenient in its views on Islamists in light of their focus on containing and curtailing Iranian expansion in the region, which has led to alliances of convenience with Yemen’s Ikhwan, Al Islah. Al-Rashed also points out something very basic, but a point that is nonetheless receiving very short shrift and immediate dismissal by domestic and international observers: “The possibility of executing MB leaders and members cannot be ruled out.” Despite what some analysts and journalists may say, or how observers of Egypt assess the leadership’s decision-making, the eventual execution of Mohamed Morsi remains a very real possibility. (Read Will Mursi, Badie and Shater be executed?)

The seriousness of the possibility that Morsi will actually face execution is not overtly stated by LSE professor Fawaz Gerges, but the seriousness of the preliminary ruling is underscored in his treatment of the subject: “The new regime of President Abdel Fattah al-Sisi is using all elements of the state to break the political will of the Muslim Brotherhood,” Fawaz Gerges, professor of Middle East studies at the London School of Economics and Political Science, told AFP. “The judicial system is also waging an all-out war against the Muslim Brotherhood. This clearly reflects a total war waged by the Egyptian state against the Muslim Brotherhood.” (Read)

Also of note, the United States has yet to make an official statement on the preliminary verdict against Morsi, relying instead on “unnamed officials” giving statements to the press on the condition of anonymity that the United States is “deeply concerned” about the verdict. (Read in The Guardian). It should be noted that the U.S. State Department has not yet held a daily press briefing, but one should be expected today, and questions and answers on Egypt should be expected as well.

Tobias Ellwood, the U.K.’s minister for the Middle East and North Africa, has issued a statement condemning the sentences on general principle.

Turkish opposition parties slam death sentence for Egypt’s Morsi: Speaking from their country’s historical perspective, Turkish opposition leaders of various political stripes spoke out against Saturday’s verdicts. Republican People’s Party (CHP) leader Kemal Kılıçdaroğlu on Saturday said during a speech: “I want to say to the Egyptian government: Death sentences do not serve you, your history and your future. On the contrary, they will divide the society … If you want to listen to us, look at Turkey’s history. You will see that a deep feeling of regret came upon the society after the executions,” Kılıçdaroğlu said while speaking in the southern province of Adana. (Read in Zaman)

Following international condemnation, the State Information Service issued a release saying that such criticisms “reflect ignorance and lack of accuracy,” emphasizing that the verdicts are preliminary and that the verdicts will be issued on 2 June following the Mufti’s advisory opinion. The release went on to outline the cases against the defendants and insist on the independence of the judiciary. (Read)

OIL & GAS

Petrobras scandal looms large in Shell-BG deal, Egyptian operations a thorn in BG’s side
FT | 14 May 2015
The situation of Brazil’s Petrobras, which currently engulfed in scandal, is being watched closely by BG and Shell. “Brazil has the potential to become the location of the most troubled assets in BG’s portfolio…There is a risk that Petrobras will struggle to fulfill its mandate as sole operator for all new pre-salt oilfields because of the corruption scandal,” the FT says. Michael Kavanagh included additional reporting saying that “Egypt was supposed to be a key source of revenue growth for BG Group … but the Nile Delta region has become a thorn in the side of the UK company.” BG’s CFO expects Egypt to move towards a “domestic only business.” (Read)

IOCs’ debts to be repaid in 2016, Sherif Ismail expects
Al Dostour | 16 May 2015
The government will work on repaying the IOCs’ debts by 2016, oil minister Sherif Ismail said. By March’s end, the total amount owed to IOCs was USD 3.285 bn, he told Al Dostour. The minister hopes E&P operations are expanded as he tried to make Egypt more attractive to potential investors. Ismail added that the government is also currently working on increasing the country’s refinery capacities. (Read in Arabic)

EGPC finalizes EGP 10 bn loan deal
Al Mal | 17 May 2015
EGPC agreed to a deal to borrow EGP 10 bn from a consortium of eight local banks, according to Al Mal. The funds will be used repay the Egyptian Electricity Holding Company (EEHC) and reduce the two government agencies indebtedness to one another. The loan includes NBE’s provision of EGP 2.5 bn, Banque Misr EGP 1.75, and CIB and QNB each putting in EGP 1.5 bn. The loan will be paid out on one tranche and repaid by the EEHC cancelling out both entities debts to one another. (Read in Arabic)

ADNOC’s contract to import fuel expires in June
Al Borsa | 17 May 2015
Abu Dhabi National Oil Company’s (ADNOC) contract with the EGPC to import fuel and petroleum products is set to expire at the end of June. According to the Tarek El Malla, the head of EGPC, no negotiations have taken place to renew the USD 9 bn contract. While no reason has been given for why this is, the likely cause is the suspension of ADNOC’s imports in January five months in to its contract, with the company estimated to have imported only USD 2 bn of petroleum products and fuel to date. (Read in Arabic)

BASIC MATERIALS & COMMODITIES

Supplies ministry seeks Russian clarification over duty removal
Al Borsa | 16 May 2015
Ministry of Supply and Domestic Trade sent the Russian government a memo requesting a clarification ofnews that it had removed duties imposed on its wheat exports. Egypt wants to know whether the duty removal applies to shipments already contracted or just new agreements. The supplies ministry expects the duty to be re-imposed as wheat exports start increasing again. (Read in Arabic)

Ten new cement licenses to be issued in August
Al Shorouk | 17 May 2015
Ten new cement licenses are expected to be issued in August by the industry and trade ministry, Al Shorouk said. The new licenses will be spread across different governorates including Sohag, Al Wady Al Gadid, and Alexandria. Al Shorouk notes that Egypt needs to double its cement production capacity in order to respond to growing demand. (Read in Arabic)

MANUFACTURING

Industrial sector unhappy with the level of banks’ cooperation –Al Borsa survey
Al Borsa | 17 May 2015
The domestic industrial sector believes banks are not providing enough support, according to a survey by Al Borsa. High interest rates are the major complaint, with some manufacturers reporting having to pay up to 8% for their dollar-denominated borrowings. The problems are compounded with the long cumbersome process to get a loan, which could take up to six months. Other complaints centre around the limited availability of credit generally and challenges facing SME lending. (Read in Arabic)

Knauf to open a EUR 45 mn factory in Egypt
Amwal Al Ghad | 17 May 2015
Knauf are set to open a EUR 45 mn factory in Egypt, the German Arab Chamber of Industry and Commerce said. Industry minister Mounir Fakhry and the German Ambassador to Cairo will be in attendance for the factory’s inauguration. Knauf operates in 60 countries across the world employing around 26,000 people, Amwal Al Ghad notes. (Read in Arabic)

KWSTEEL puts in request to IDS to establish USD 1.5 bn steel plant
Al Borsa | 17 May 2015
United Steel Industrial Company (KWSTEEL) of Kuwait has officially sent a request to the Industrial Development Authority to establish a USD 1.5 bn steel plant in Egypt. The company seeks to obtain licenses to construct and operate the plant in addition to owning the land on which it will be established, according to Awed Al Khalidy, chairman of KWSTEEL. The company hopes the plant will produce 2 mn tons per annum of steel. (Read in Arabic)

REAL ESTATE & HOUSING

Wadi Degla to invest EGP 13.5 bn in Mostaqbal city residential projects
Al Borsa | 17 May 2015
Wadi Degla Real Estate Development is set to begin work on its Neopolis residential compound in Mostaqbal City, New Cairo shortly. Neopolis is one of the five housing compounds, comprising 14,000 homes, that the company plans to build on its 545 acres of land in Mostaqbal City. The company’s various projects in Mostaqbal city require a total investment of EGP 13.5 bn and will take six years to complete. (Read in Arabic)

BANKING & FINANCE

Banque Misr begins mobile banking service
Al Borsa | 16 May 2015
Banque Misr began allowing its clients to transfer funds through mobile phones across Egypt through an extensive mobile banking service. The service allows the users to create accounts and move funds to other parties using mobile phone numbers. Cash transfers can also be done through the bank’s current accounts. (Read in Arabic)

OTHER BUSINESS NEWS OF NOTE

Egypt, Kuwait investors mull holding company, confirm projects worth USD 4 bn at first cooperation council meeting
Al Borsa | 17 May 2015
A group of Kuwaiti and Egyptian investors are considering establishing a USD 1 bn holding company that will invest in the renewable energies, information technology, and real estate sectors, Al-Borsa reports from the inaugural meeting of the Egypt-Kuwait Economic Cooperation Council. Egyptian investors will provide 25% to 30% of the necessary financing, while the remainder will be sourced through their Kuwaiti counterparts. The investors plan to establish the company once the government passes the executive regulations of the Investment law, concluded the source. Members of the council have pledged to invest USD 4 bn in a number of large projects over the coming period, said council president Moataz Al Alfi, whose day job is chairman of EK Holdings. Al-Mal says that among the projects mentioned was a USD 1.5 bn steel plant, a USD 500 mn real estate company in Sharm El Sheikh, a USD 1 bn logistical services zone in the Suez Canal region, in addition to a USD 1 bn internet and ICT holding company.

EGX created EGP 100 bn in funding opportunities -Omran
Al Mal | 17 May 2015
Over the past ten years, the Egyptian bourse has created EGP 100 bn in funding opportunities, the EGX’s Chairman Mohamed Omran said. The EGX had a crucial role in promoting the economic growth throughout the period, he added noting that 34% of foreign inflows to Egypt came through the EGX. Omran stressed on the importance of the bourse to the functioning of the economy and said that over 300,000 people are invested in the stock market. (Read in Arabic)

EGYPT POLITICS + ECONOMICS

AfDB considers increasing Egypt funding to USD 650 mn
Amwal Al Ghad | 17 May 2015
The African Development Bank (AfDB) is considering increasing funding for Egypt to USD 650 mn from USD 500 mn, the bank’s representative in Egypt said. The bank is focusing on funding projects in renewable energy, transportation, and irrigation. According the AfDB’s representative, the bank is going to engage in a USD 100 mn renewable energy project and is currently assessing a USD 400 mn wind power project. (Read in Arabic)

South Sinai governorate to organize Ras Sedr Investors’ Conference in July
Al Mal | 17 May 2015
The governor of South Sinai, Khalid Foda, met with the leaders of local bedouin tribes and businessmen to discuss the development of Ras Sedr. During the meeting, tribesmen and investors underscored the importance of increasing tourism to Ras Sedr, as well as removing hurdles to investment. For his part, the governor highlighted the government’s plans to build an airport in Ras Sedr. Additionally, the governor announced his intention to organize an investors’ conference for Ras Sedr in July of this year. (Read in Arabic)

REGIONAL

Islamic State seizes control of Ramadi to claim major victory in Iraq
Vice News | 17 May 2015
The Islamic State has claimed a new victory in Iraq, occupying the major city of Ramadi, the largest city in Western Iraq, and the provincial capital of the Sunni-majority province of Anbar. Conceding defeat since a lightning attack by IS was launched on Friday, Anbar government’s spokesman announced that the “city has fallen.” A video was also published on Vice which appears to show government troops retreating from the city after IS repelled reinforcements sent by the government. This event highlights a renewed momentum by the IS despite numerous apparent setbacks suffered earlier in Tikrit and the death or injury of a number of its leaders.

ON YOUR WAY OUT

Transitional Justice Minister Ibrahim El Heneidy will reportedly serve as acting justice minister alongside his original role until a new one is appointed, Amwal Al Ghad reported.

BY THE NUMBERS

USD CBE auction (Sunday, 17 May): 7.5301 (unchanged since Monday, 02 Feb)
USD parallel market (Sunday, 17 May): 7.65 (-0.05 from Saturday, 09 May, Reuters)

EGX30 (Sunday): 8,260.92 (-0.51%)
Turnover: EGP 422.0 mn (25% below the 90-day average)

WTI: USD 59.86 (+0.28%)
Brent: USD 66.96 (+0.22%)

TASI: 9,814.7 (+0.9%)
ADX: 4,584.5 (-1.0%)
DFM: 4,067.0 (-0.1%)
KSE Weighted Index: 428.3 (-0.3%)
QE: 12,540.1 (+0.2%)
MSM: Market closed.