Wednesday, 30 December 2015

Did El Sisi just endorse the “automotive directive” for domestic car assemblers?


Deposit caps on USD could rise 5x in January, but there’s no deal to receive export proceeds in EGP (Speed Round)

Did El Sisi just endorse the “automotive directive” for domestic car assemblers? (Speed Round)

Free speech fears rise as El Behery is handed a blasphemy sentence, cultural institutions are raided (Speed Round)

Year in Review, part 4: Flip-flops and other things that spooked business in 2015

By the Numbers + Mixed responses to December’s interest rate hike signal a risk of further hikes in the first half of 2016


Enterprise is on something of a break this week, as we mentioned yesterday. It’s a chance for us to get caught up on sleep, spend time with family, and lay the ground for a new product we’re aiming to launch early in the new year.

This publication is proudly sponsored by

Pharos Holding -


As we do so, we’re looking back this week on the year that was — in business, economics and politics. Throughout this week, we’ll have brief issues of Enterprise at the usual time including both our first “year in review” (in five installments) and a brief recap of what happened yesterday. We hope you find them useful as you prepare your 2015 reports and / or your 2016 strategy.

If you’ve missed an installment — including our popular (and pretty exhaustive) 2015 M&A roundup — hit our online archive.


Speed Round is presented in association with


Industry has not agreed with the central bank to receive export proceeds in EGP in return for eliminating the cap on USD-denominated deposits, the Federation of Egyptian Industries (FEI) told Al Masry Al Youm. The issue was not even discussed in the FEI’s meeting with the CBE, FEI chairman Mohamed El Sewedy said, denying news to the contrary. Such a move would be against the free market, he added. El Sewedy noted, however, that the FEI had asked to review and amend its policy that caps USD deposits. Meanwhile, Al-Borsa cites unnamed sources as saying that the cap on USD deposits could be raised 5x to USD 50,000 daily to a maximum of USD 250,000 per month as early as January to coincide with import controls recently agreed between the central bank and the Ismail government.

Blasphemy sentence for talk show host, raids on art gallery and publishing house spark concerns about freedom of speech: Islamic scholar and one-time television host Islam El Behery was sentenced to one year in prison and has already been taken into custody, Al Shorouk reported yesterday. El Behery’s appeal of his initial five-year prison sentence, handed down after he was found guilty of “contempt of religion,” was reduced to one year on appeal. Meanwhile, Ahram Online reports that Merit Publishing House was raided by officials from the Censorship Authority, but note that the one staff member detained was released “a few hours later” and that the publisher’s owner was neither detained nor questions when he later presented himself at a nearby police station. The news comes immediately after the contemporary Townhouse Gallery, one of the hubs of the Downtown arts scene, and its related Rawabet Theater were closed after what Mada Masr reports was an “interagency raid” on Monday night. The site says a “20-member interagency team from the Censorship Authority, Tax Authority, National Security Agency and local office of the Ministry of Manpower.”

The cases are in the international spotlight: The New York Times’ Kareem Fahim and Amina Ismail are out with “Egypt Shuts Arts Venues Amid Signs of Clampdown,” Merrit Kennedy has filed “Egypt Raids 2 Major Independent Cultural Institutions In 2 Days“ for NPR and the Associated Press is running “Egypt court upholds jail for man convicted of defaming Islam.”

Did El Sisi just back an “automotive directive” that would give domestic assemblers protection against imports? From Al Borsa’s take on a meeting between President Abdel Fattah El Sisi and Trade and Industry Minister Tarek Kabil: “President El Sisi stressed the need to focus on the automotive industry through the formulation of a new strategy and system of incentives for car assemblers and feeder industries to increase local content, enhance production, and improve exports as well as attract new investment to feeder industries for the automotive sector in Egypt.” Assemblers have for more than a year now urged the government to impose new taxes on fully built-up imports while giving a break to domestic assemblers who go further into manufacturing. They say they’re being priced out of the market by an unfair customs advantage enjoyed by European Union, Turkish and Moroccan imports.

International Cooperation Minister Sahar Nasr suggested the UAE has appetite to finance development projects and possibly increase aid “in the coming period.” Her statement is carried in a readout on a meeting she had yesterday with President Abdel Fattah El Sisi. The president also met yesterday with Trade Minister Tarek Kabil (above) and central bank governor Tarek Amer. All three meetings focused primarily on a review of recent news previously covered in the domestic press. Amer, meanwhile, is due to get an earful today about all the usual complaints when he’s forced to meet with members of the Egyptian Investors’ Union, Al-Mal reports.

The Egyptian Financial Supervisory Authority is investigating trades made the morning that OTMT’s bid to acquire CI Capital was announced, Al Mal reports.

The Tax Authority will not tax capital gains made on 2015 stock trades, Egyptian Financial Supervisory Authority Sherif Samy said the agency had assured him yesterday. As we note below in today’s 2015 Year in Review segment, the imposition of a capital gains tax on stock market transactions was “postponed” for two years this summer, but a tax on dividends for business owners was left in place. Not that we’re bitter.

Egypt, Sudan, and Ethiopia signed the “Khartoum Declaration” to address disagreements concerning the Grand Ethiopian Renaissance Dam in Khartoum, according to Al Masry Al Youm. The declaration reiterates commitment to the declaration of principles signed in March and sets an 8-12 month timeline to conduct technical assessments on the dam. It also appointed Artelia Group to participate in the assessment, in collaboration with BRL Group. Al Arabiya said the parties agreed to not fill the dam until the assessments are complete — this despite reports this weekend that an Ethiopian cabinet minister had said the country had already begun diverting the Nile. The tripartite committee is scheduled to meet again in the first week of February. Al-Ahram has a reasonably comprehensive readout from Khartoum, and Reuters has a solid piece here.

Hep C cure made cheaper: Egyptian generics of hepatitis C cure Daklinza will be sold at EGP 75 per pack from January, Health Minister Ahmed Emad announced, according to Al Shorouk. A combined dosage of the Daklinza and Sovaldi generics, a 12-week course, will now cost EGP 2,325, a 62% price reduction, the Minister said. Not all pharmaceuticals companies are on board; Marcyrl told Al Borsa it will have to shut Sovaldi-generics’ production down if the government reduces price further still and if it is unable to obtain the necessary raw materials cheaply. The news comes as Prime Minister Sherif Ismail pledged yesterday to continue to widen access to hepatitis-C treatments and open new hospitals and medical facilities in 2016, according to an emailed statement from Ittihadiya. Ismail made his remarks during a tour of a specialist hospital with the minister of health and population. Ismail also toured new low-income housing units in Badr City yesterday, a cabinet spokeswoman said. Al Ahram has more on the Badr City visit here, including other updates from the PM on social housing.

Egypt could be providing subsidized commodities to as many as 30 mn fewer citizens in the new year, the Supply Ministry said yesterday, picking up a theme we’ve not heard about since summertime. That’s when officials there said they were looking into the rolls of welfare beneficiaries with a view to crossing off the list what they said were mns of citizens who were benefiting from subsidies without qualifying. Having spent the time since, collecting complete data forms from individual beneficiaries of food subsidies, the ministry now says it expects to find 10-15 mn duplicated names and as many as 15 mn more who are former dependents of beneficiaries “whose income level as increased, but who are still enrolled [in the system] on their parents’ cards.”

Former interim president Adly Mansour has declined appointment to the House of Representatives, with Ahram Online reporting he told the president he prefers to serve out his term as chief justice of the Supreme Constitutional Court. Mansour was, in the eyes of many MPs-elect and the political class, the preferred candidate to become the first speaker of the house. The newspaper’s Gamal Essam El Din reports that the House will convene for its first session on 10 January.

EGP / USD rate unchanged: The CBE kept the exchange rate unchanged at EGP 7.7301 per USD 1 yesterday, Reuters reported. The last FX auction of the year will be held on Thursday.

The Civil Aviation Ministry is looking to build a USD 457 mn passenger terminal in the Sharm El Sheikh Airport, according to Amwal Al Ghad. The proposed terminal is expected to accommodate 10 mn passengers annually. sold its online payment arm, CashU, for an undisclosed sum in a management buyout to CashU’s general manager Thaer Suleiman, and the Dubai-based investment firm Genero Capital, Wamda reported. CashU was founded in 2003 by ecommerce site Maktoob.

EGX’s Omran says 2015 was a great year for listings and M&A activity. EGX chief Mohamed Omran said yesterday that 15 companies raised more than EGP 6 bn in listings on the Egyptian Exchange this year — and said that with 37 transactions worth a combined EGP 16 bn, it’s been the best year for mergers and acquisitions since 2009. (Our first annual M&A roundup, which included private deals, found more than EGP 19 bn in combined M&A activity this year.)

Tawfik Okasha says he was “impersonating the enemy” to “test the state” with comments critical of the security service. The, uh, force of nature that is Tawfik Okasha was back on television last night despite a temporary ban on his appearance on the small screen, saying remarks critical of the security apparatus he recently made were “just a test.” Reports Ahram Online: “Okasha said he impersonated the ‘enemy to test the state’ so that the 2011 uprising that toppled long-time president Hosni Mubarak would not be repeated.” Okasha, an MP-elect and one-time ally of the security apparatus, had earlier slammed state security agencies and promised to resign his seat in the house once he is granted political asylum in Germany.

Other stories making national headlines this morning include:

  • Police are searching for a staff investigator at the Central Auditing Organization, the state’s top anti-corruption watchdog. The Cairo prosecution service has opened a file on the disappearance of Ali Lawad, who has not been since 10 December 2015 when Ahram Online says he was on his way to work on a report on the Ministry of Religious Endowments (Awqaf). The assistant auditor’s family claims Lawad was not involved in political causes.
  • Oil Minister Tarek El Molla told Al-Borsa yesterday that the USD 400 mn the ministry was allocated last week was to cover fuel imports and not repay E&P players. Egypt owed international oil companies about USD 2.7 bn as of the end of October, the newspaper quotes El Molla as saying.
  • Economic growth will be “less than 5% of GDP” in 1H2015-16, below the state’s previously communicated target, Planning Minister Ashraf Al Araby said yesterday, according to Al Masry Al Youm.

International business headlines of note this morning include:

  • Warren Buffett is looking at his worst year on the stock market since 2009, the Financial Times reports, noting shares in Berkshire Hathaway are down 11% with two trading days to go. The paper notes that “the underperformance comes in Mr Buffett’s Golden Anniversary year at the helm, when he told investors for the first time that they should judge his record based on Berkshire’s share price, rather than just the book value of the company, which had been his preferred yardstick for decades.”
  • Elsewhere in the salmon-colored paper, a UK-based fan of President Abdel Fattah El Sisi is cheering the president in a letter to the editor, referring El Sisi’s “remarkable vision.”
  • The World’s Richest People Got Poorer This Year,” Bloomberg tells us, saying, “the world’s 400 wealthiest individuals shed $19 billion in 2015, according to the Bloomberg Billionaires Index.”

CORRECTION: Kellogg acquired Mass Foods, the owner of Temmy’s brand cereals, for EGP 50 mn, not USD 50 mn as we reported in our 2015 M&A roundup on Monday. Apologies, and h/t Dina S.


Enterprise is available without charge — just visit our English or Arabic subscription page, depending on which edition you would like to receive. We give you just about everything you need to know about Egypt, in your inbox Sunday through Thursday before 7am CLT (8am for Arabic), and all we ask for is your name, email address and where you hang your hat during business hours.



The FX and energy crunches we discussed yesterday were not the only things to spook business in 2015. The Mahlab government left a legacy of flip-flops on key legislation and regulatory decisions as well as inaction on promises made at the EEDC. And heading into the final months of the year, a third high-profile legal case against prominent business owners sent a chill through the community.

Long before President Abdel Fattah El Sisi asked cabinet for its resignation, the Mahlab government earned a reputation for flip-flopping and foot-dragging on key regulatory decisions and pieces of legislation, creating a climate with low policy visibility that impacted sentiment among both domestic and foreign investors. It’s a legacy the cabinet of Prime Minister Sherif Ismail has worked hard to counter, largely by under-promising and over-delivering. In no particular order, we saw this year:

  • A pull-back from subsidy reform in the first half that saw the administration postpone the implementation of smart-card systems for motor vehicles and, in the second half, word that it was scaling back its target for the reform of energy subsidies.
  • Cabinet back-tracked in May on plans to implement a capital gains tax, deferring for two years the tax on stock market gains after retail investors protested. Business owners, however, were thrown under the bus: The tax on dividend was left in place .
  • The introduction of a value-added tax, said to be “imminent” all year long, was eventually pushed back into 2016 at the earliest — and made an issue that will apparently require a vote of parliament.
  • Cabinet reversed within days in August a ban on cotton imports, instead deciding to look for way of using existing measures to improve the competitiveness of Egyptian cotton and look for outlets to market stocked cotton.
  • The issuance of 12-14 new cement production licenses has been an on-again, off-again story since last winter.
  • Just days after then-Trade and Industry Minister Mounir Abdelnour suggested that export subsidies could double, the government walked back to the story — only to change its mind this fall as Tarek Kabil topped the budget up by 27% to EGP 3.7 bn.

Heading into year’s end, business confidence was also shaken by the arrest at gunpoint of PICO Group founder Salah Diab and his son Tawfik. While both men were released in less than a week, the still-unexplained arrest prompted President Abdel Fattah El Sisi to remark in Sharm El Sheikh that “the law governs all relations between the state and businessmen and that he will not tolerate abuses to anyone.” The Diab case was preceded by a high-profile competition suit brought against Mohamed Farid Khamis’ Oriental Weavers, while Juhayna founder and CEO Safwan Thabet saw his assets frozen by the committee tasked with accounting for Ikhwan-related assets.

Perhaps most striking, though, was the Mahlab cabinet’s loss of momentum after the Egypt Economic Development Conference in March. We joined most everyone in the business community in having exceptionally low expectations of the EEDC, the run-up to which was marred by poor government communications on multiple fronts.


By organizing the EEDC, the government gave itself a clear target: Egypt was looking to cash in on USD 10-15 bn worth of investments after the EEDC, according to Investment Minister Ashraf Salman. Besides the financial target, cabinet was aiming to improve the image of Egypt and its state institutions. Richard Attias & Associates managed the event meticulously, ensuring that the best possible image for Egypt was on display. Credit to the speakers as well as nearly all of them — whether political leaders, members of the business community, or heads of financial institutions — were remarkably on message, with almost all clearly confirming that Egypt’s stability and prosperity are intrinsically tied to those of the region and the world.

At the opening of the conference, then-Prime Minister Ibrahim Mahlab presented his government’s plan to attract investment. According to Mahlab, Egypt’s would strengthen the private sector as the primary driver of sustainable development, with the government stepping back to play a more regulatory role in ensuring returns on investment trickled down to the rest of the society. “We seek to create the conditions for a free economy that relies on innovation, maximizes returns for our partners and grows sustainably to the benefit of all,” Mahlab said at the time.

Regional support was evident from the first day. Saudi Arabia, Kuwait, and the UAE each pledged USD 4 bn in financial assistance to Egypt divided between grants, investments, and CBE deposits. Oman brought the total value of GCC assistance to USD 12.5 bn by pledging to invest USD 500 mn in Egypt.

The vision to attract investment

For that to happen, Mahlab had set three targets to improve the attractiveness of Egypt as an investment destination. Two committees were tasked with administrative and legislative reform, aiming to improve transparency and tackle corruption and nepotism. The economic regime was to be improved with the private sector’s input sought in establishing a unified investment law, stable taxation policy, establishing clear guidelines for private land ownership, laws protecting companies against unwarranted litigation, and ending monopolies. To facilitate investor access the government said it will create a unified code and database for the development of economic assets, projects and facilities throughout Egypt.

Besides laying the groundwork for private-sector investment, the state planned to invest heavily in preparing for economic growth. National mega projects came to the fore with grand plans including expanding the Suez Canal, setting up 22 new industrial cities, and building a new capital. In tandem, programs to develop Egypt’s human capital through education to acclimate youth to the global job market’s standards were announced. This would come with efforts to create a social safety net to include increasing access to welfare, raising benefits and entitlements for low-income families and individuals, and increasing access to health insurance.

Rallying around national mega projects at EEDC

National megaprojects have been at the heart of the Sisi administration’s agenda. Not only were those projects meant to generate immense economic returns while drawing in direct foreign investment, the projects were meant to foster political unity by rallying the nation around these great works, meant to breathe new life into the economy.

The New Suez Canal—by far the most prominent of the megaprojects—was inaugurated on 6 August. Dredging of the 35 km waterway was completed in one year at a cost EGP 20 bn, EGP 8 bn less than initial estimates. The project was financed by bonds sold to the public, which gave them a financial stake in the national project. The Canal was hoped would double traffic and triple revenue to over the next eight years generating annual tolls of USD 13.2 bn, up from its current USD 5 bn. Accompanying the waterway was an extensive development program along its access, which was hoped to attract significant domestic and foreign investments in building logistics, manufacturing, and energy hubs. Since its launch, the Canal met its naysayers predictions, as revenues dropped 7.7% year-on-year to USD 408 mn in November on slower global trade. Developments to the Suez Canal Development area are ongoing, with phase one expected to be completed in 2017. Talks are ongoing with foreign delegations to open economic zones in the development axis, and we are expecting new agreements on this front in 2016.

The 1.5 mn feddan land reclamation project was officially launched in late December.  The government hopes that the expansive agriculture and urban development program would expand Egypt’s prospective agricultural land 20% to 9.5 mn feddans from 8 mn, bolster food security, and establish new urban communities around the project.  The European Union estimates that the project will cost EUR 4.5 bn. The cabinet approved the formation of a EGP 8 bn (previously 15 bn) company to run the project, which has the authority to designate investment zones and issue tenders. The Housing Ministry has already begun issuing utility and housing tenders for the project, and the Irrigation Ministry completing 55% of the wells for Phase 1. We should see more tenders and a number of new urban communities completed.

The new administrative capital project was arguably the most controversial of the EEDC’s mega projects. Standing at a total projected cost of USD 45 bn—making it the most expensive of the megaprojects—many questioned whether the project would actually relieve congestion and overcrowding in Cairo. Egypt had already spent USD 8 bn on 21 new city projects in the last 30 years with mixed results. An MoU signed at the EEDC with Mohamed Alabbar’s Capital City Partners was scrapped in September. China State Construction Engineering Corporation (CSCEC) signed an MoU with the Housing Ministry to build and finance the project. The Housing Ministry began issuing development tenders for the project in October for Phase 1 (infrastructure and utilities). A more solid agreement with CSCEC is expected next year, in addition to more tenders.

What about the private sector?

The Capital Cairo Project aside, the largest real estate project announced at the conference was Palm Hills Developments’ announcement that it is partnering with Aabar Investments to develop 10,000 feddans in Sixth of October. The two companies were going to build a new residential, commercial, retail, and hospitality city called Al Wala at an estimated value of EGP 150 bn. There were also talks over building a 200-metre tower, what would be Egypt’s tallest building, which was to be named the Zayed Crystal Spark.

Arguably the most significant agreement reached at the EEDC was with Siemens to expand Egypt’s electricity generation capacity by adding extra 14.4 GW. Progress on that front is already evident, as Siemens partnered with firms including Orascom Construction and El Sewedy. There were also a number of contracts signed to build coal-fired power plants and smaller scale renewable energy facilities.

On top of that, the oil and gas sector was reinvigorated with three major investments in the field. BP made a long term commitment to Egypt by signing an agreement to invest USD 12 bn in a bid to expand the development of its West Nile Delta assets culminated by producing 3 bn bbl of oil equivalent. Similarly, BG Group signed an agreement to inject USD 4 bn to explore gas in the Delta, increase production from the West Delta Deep Marine concession, and study future projects to support sustainable stability of natural gas resources in Egypt. Jackpot was hit with Italy’s Eni, which, a few months after having had its CEO Claudio Descalzi sign a USD 5 bn agreement to increase production, discovered Zohr, potentially the largest gas field in the East Mediterranean.

EEDC scorecard

By the government’s initial target of attracting USD 10-15 bn in investments, the conference was an unequivocal success. The investment tally exceeded the target and, from an event planning perspective, it was arguably the best-organized event in Egypt’s modern history. Of the USD 12.5 bn promised in funds from the GCC, USD 6 bn through deposits at the CBE, and in December, Saudi Arabia pledged to meet its EEDC promises and increase investments in Egypt by and additional USD 8 bn.

However, Egypt’s government moved the goalposts for itself by signing on to a large number of MoUs and, yet again, falling in the trap of over-promising and raising the level of expectations. By that token, the government failed to deliver on the grand promises made during the conference.

Ultimately, only 60% of the total MoUs signed at the EEDC were contracted, Investment Minister Ashraf Salman said. The biggest disappointment from the EEDC was the government’s limited ability to follow through with the MoUs signed with the private sector. While the government managed to implement smaller-scale policy programs, such as the World Bank-supported takaful and karama initiatives, to strengthen the social safety net, improving the investment climate proved to be a more challenging task.


The administration is targeting an economic growth rate of 6% in FY 2017-18, along with a reduction of the budget deficit to 8.5% of GDP, reducing public debt to 80-85% of GDP by 2020, cutting fuel subsidies by 2020, keeping inflation under control (specifically food), and raising investments to EGP 1.1 tn in four years. The government’s plan focused on cutting subsidies, in addition to reforming investment mechanisms and its fiscal policy. The government promised plenty. One year and two cabinets later, the record is mixed. A strong case can be made that the government was unable to enact tough but necessary measures to reform the economy in 2015. And as per the political road map, the new House of Representatives must ratify all laws passed within 15 working days.

Legislative Reform

The economic legislative reform process was primarily focused on attracting new investments, with the most important law being the Investment Law. Reforms to the Investment Law were centered on streamlining the licensing process (one-stop-shop policy), offering more incentives to investors, and establishing a non-judicial mechanism for resolving disputes. The amendments were signed into law on 12 March, but required new executive regulations for these to take effect. The Mahlab government had passed the law on 7 July.

The law has so far alienated both the business community and other government ministries as well. The one-stop shop policy has been a particular disappointment, with GAFI largely failing this year to set a streamlined process for licenses and permits. Centralizing the process of issuing land tenders with GAFI created a backlog of applications for land in a variety of sectors. This led to ongoing disputes with other ministries, particularly the Housing Ministry, which led the charge for further amendments to decentralize the process. The Trade & Industry Ministry’s Industrial Development Authority (IDA) pushed for legislation that would see it issue land tenders. With the intense backlash from both the business community and government bodies over the land distribution system, we can expect to see the issue linger well into 2016. Changes under consideration by the Ismail cabinet include forming committees made up of local government officials and other relevant government bodies to issue land tenders. The government is also considering outsourcing the one-stop shop to the private sector, in a not so vague acknowledgement of its failure to implement the system.

Other key economic legislation planned include the introduction of Shariah-compliant Sukuk, covered bonds, and charitable investment funds will be enshrined into law as part of pending amendments to the Capital Markets Act in a bid to grow capital markets, according to Egyptian Financial Supervisory Authority (EFSA) chief Sherif Samy. Other amendments to the Capital Markets Act will change how buy offers are made, Samy said, having noted in June that he would “introduce covered bonds and non-rated bonds to expand financing options for real estate developers and SMEs.” These changes will presumably take place in early 2016.

Tax Reform

Out of all the fiscal reforms the government had promised this year, this The value-added tax (VAT) law was set to be the biggest revenue generator for the state budget and the government’s strongest move towards shrinking the budget deficit. The government had stated mid-year that it expected to secure EGP 32 bn from the VAT this fiscal year and is projecting that the tax will largely contribute EGP 98.5 bn to the budget next year. However, Finance Minister Hany Dimian estimated that VAT would increase inflation by 1.5-2% (having earlier estimated a 2-3.5% on top of a July rate of 11%); reduction in investments due to projected declining returns; rise in unemployment as managers move to cut costs; a negative projection on the stock market, especially in the service sector.

The government failed to pass the VAT this year, despite finishing the draft in October andpromising its passage before the year was out. With curbing inflation set as a leading priority and the FX crunch hindering access to production inputs, the government hesitated in enacting the law. Political considerations over a public outcry played into this, with the Tax Authority head Abdel Moneim Mattar stating that passing the law would be a “political matter”. The government is now promising that the law will come to effect in 2016, and appears to have passed that responsibility on to the new parliament. Recent changes to VAT legislation would apply a 3% surtax on top of the VAT on value chain sales to manufacturers and traders not registered for the VAT in a bid to integrate elements of the informal economy into the tax system. Future legislation may see a tax system developed for SMEs making under 500K in earnings annually.

As the deadline for implementing the 10% tax on capital gains approached, the EGX went haywire, falling to a five-month low in May. Initial response by the government was that the Finance Ministry would amend the way the payment structure of the tax. This did little to calm the bourse and on 18 May the cabinet economic group suspended the tax for two years, while leaving in place a 10% tax on dividends. This was enshrined into law in August.

The reaction from retail investors was jubilant, with the EGX30 jumping 6.2%. The move means the government might forego EGP 4 bn in revenues, according to economists from the Egyptian Center for Economic Studies. The IMF criticized Egypt’s decision to delay the tax, noting that the delay would place the burden of  public finances on “people who are less able to afford it.”

The government also established a ten year taxation policy in 2015 aimed at stabilizing and fixing the tax system. With the Mahlab cabinet initially envisaging that this policy would include the VAT, the unified tax code was centered on cuts. The cabinet’s economic group promised to cut the income tax ceiling to 22.5 percent for individuals and corporations and scrapped a 5% wealth tax on anyone earning more than EGP 1 mn in March ahead of the EEDC in a bid to attract investment. Enacting this new code in August was the only tax policy on which the state followed through in 2015.

Subsidy Reform

On the energy subsidy front, the government targeted eliminating fuel subsidies completely by 2020 by adopting a plan of gradual spending cuts and implementing fuel smart cards for the public. This policy was meant to be buoyed by relief fuel supplies from the GCC and was helped along by falling global energy prices during 2015.

On the planning side, the Electricity Ministry released its plan to spend EGP 20 bn on energy subsidies in FY 2015/2016, down from the EGP 27 bn in FY 2014/15, with and an eye towards spending EGP 9 bn on energy subsidies in 2019.  Oil Minister Tarek El Molla upped the ante by setting a five-year timeline to cut energy subsidies (paywall) in November. However, with energy subsidies costs hitting EGP 46 bn in Q1 of the 2015/2016 fiscal year, Prime Minister Sherif Ismail backed off the state’s pledge to eliminate fuel subsidies by 2020. Instead, the government plans to cut subsidies to 30% of their mid-2014 level by that year.

The fuel smart cards system was meant to help reduce energy spending by limiting access to subsidized fuel and curbing the sale of this fuel on the black market. Issuing smart cards began in late May, with an eye towards implementing the system on 15 June. President El-Sisi then postponed the system suddenly a day before its scheduled implementation “until all the sectors that don’t have these cards are covered”. There has been no word since on when that will be. New smart cards continue to be issued as of December. Heading into 2016, we can expect a prolonged wait where it is hoped a significant portion of drivers will have registered and received the cards before the system is implemented. Constant delays, however, does not make for very good motivation.

The smart card system for bread was meant to tackle the food subsidies by making the system more efficient. Since launching in May, implementing the system has largely been successful. This led to the expansion of the program, both in terms of dependents and in goods. It allowed the government to accurately measure how much food is being distributed, and eliminate inefficiencies. The main problem with the system is that it targeted the end-user, but largely did not address the wider problem of subsidizing bread throughout the entire production chain. Egypt is the largest importer of wheat, and poor management of imports, such as failing to time imports so as to keep it separate from domestic supplies, left the government vulnerable to price manipulation, and costing the state around EGP 6 bn, according to some experts. However, according to the government, eliminating inefficiencies in the bread system led to wheat imports dropping 28% in August 2015 to 4.6 mn tons from 6.4 mn tons last year. The government said it will continue to expand the program immensely moving forward, in part to mitigate the inflationary effects of the VAT when it comes.

Powered by
Pharos Holding -

USD CBE auction (Sunday, 27 December): 7.7301 (unchanged since Wednesday, 11 November)
USD parallel market (Sunday, 27 December): 8.57 (strengthening 0.01 from Thursday, 24 December, Reuters)

EGX30 (Tuesday): 6,794.75 (+0.75%)
Turnover: EGP 499.0 mn (15% above the 90-day average)
EGX 30 year-to-date: -23.9%

THE MARKET ON TUESDAY: With two trading sessions left before the New Year, the benchmark EGX30 went on a rollercoaster ride on Tuesday before finally ending in the green, led by Heliopolis Housing, Orascom Construction, and MNHD. CIB, TMG and EFG Hermes also posted gains, while GB Auto was the day’s worst performer as it plunged 3.6%. At a market turnover of EGP 499.0 mn, regional investors were the sole net sellers of the day. Meanwhile, investors reacted negatively to spending cuts in the 2016 Saudi budget unveiled Monday, sending the Tadawul down 0.9%. Regional and European equities closed yesterday in the green, as did the Dow, Nasdaq and S&P in the U.S.

Foreigners: Net long | EGP +26.2 mn
Regional: Net short | EGP -34.2 mn
Domestic: Net long | EGP +8.0 mn

Retail: 76.5% of total trades | 73.9% of buyers | 79.2% of sellers
Institutions: 23.5% of total trades | 26.1% of buyers | 20.8% of sellers

Foreign: 8.6% of total | 11.2% of buyers | 6.0% of sellers
Regional: 11.3% of total | 7.9% of buyers | 14.7% of sellers
Domestic: 80.1% of total | 80.9% of buyers | 79.3% of sellers

WTI: USD 37.20 (-1.77%)
Brent: USD 37.31 (-1.27%)
Gold: USD 1,070.20 / troy ounce (+0.21%)


Mixed responses to December rate rise signals a risk of further hikes in the first half of 2016

Based on market intelligence, we understood that the largest listed commercial banks in Egypt did not respond to the CBE’s 50 bps rise and so far have left their deposit and lending rates unchanged. All rates communicated to us by the banks’ representatives are well below the 12.5% / annum offered by large state-owned banks on three-year CDs at the beginning of November 2015.

Moreover, during the first two days of treasury auctions post the CBE Monetary Policy Committee meeting, yields on 91-day and 273-day bills and 3-year, 5-year, and 7-year bonds had all risen by no more than 20 bps — well below the 50 bps policy rate hike. Interestingly, Reuters reported that state-banks had ex-ante informed other primary dealers (on Monday) that submitted yields were not to rise more than 20 bps. What does all this mean and why do we think it risks further rate hikes in the new year? Tap here to read the full note.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.