Back to the complete issue
Wednesday, 12 June 2019

What we’re tracking on 12 June 2019

Inflation is driving the conversation on the economy today after news that annual headline inflation rose to 14.1% in May from 13% in April, dampening hopes for an interest rate cut. With fuel and electricity subsidy cuts expected by the end of the month, most research houses are calling an inflationary spike in 3Q2019 followed by a cooldown in 4Q2019.

How much of a spike can we expect?

  • Beltone’s Alia Mamdouh expects a 2.5-3.5 ppt increase in annual headline inflation throughout 3Q2019 driven by subsidy cuts. Beltone’s research note is here (pdf) if you’d like to dig deeper.
  • Shuaa’s Esraa Ahmed expects inflation to peak at 16% early in the third quarter, which starts in July. A gentler rate of increase on electricity prices than last year and current oil prices will help mitigate the inflationary bite, Ahmed suggests. Shuaa’s note is here (pdf).
  • Pharos’s Sandy Eskaros, meanwhile, is a bit more optimistic, suggesting inflation will hover around 14% in the period running June through August. Pharos is revising its inflation forecast for 2019 upward, noting that it expects average inflation in 2019 of 12.8%, up from an initial expectation of 12.4%.
  • EFG Hermes’s Mohamed Abu Basha and Mostafa El Bakly wrote yesterday that the “outturn [in May] came below our forecast of 15%” and noted that while it was up, inflation “recorded one of its lowest increases in the past few years, considering the Ramadan seasonality.” They see inflation at just 10-11% by end-2019 and predict coming subsidy cuts will have a muted impact: The cuts will “likely be half or less than the 40% average increase of last year” thanks to the appreciation of the EGP and a decline in oil prices.

Lest you had a doubt, don’t expect the central bank to cut interest rates before fall. Such is the clear consensus among analysts, who differ only on the finer details.Pharos’s Eskaros is calling 100-200bps of rate cuts in the fourth quarter, while over at EFG, Abu Basha and El Bakly write that, “policy rates are set for a 100-200bps of rate cuts in 2H19, starting with September at the earliest. We foresee another 200-300bps of rate cuts in 2020 as inflation normalises further.”


Expect lots and lots of news on the legislative front from now until the end of this month and maybe into July. Why?

The House is getting angsty about summer recess: Like procrastinating college students trying to get their papers in before summer vacation, our elected representatives are rushing to push through new bills and amendments to existing legislation before they hit the beach in Sahel.

Lots of business-relevant legislation came up for discussion yesterday, among them the stamp tax, the Investment Act, the Capital Markets Act, as well as pensions increases. We have chapter and verse in this morning’s Speed Round, below.

The next hot item for the House will be the FY2019-2020 budget. Look for plenty of news from House committees next week before the general assembly reconvenes on 22 June.

The earliest the House can recess is 1 July (each session lasts a minimum of nine months) and MPs are constitutionally required to be back in their seats by the first Thursday in October for the fall session.


Among the events you may want to mark on your calendars before you head off for summer break:

  • Our friends at Pharos are holding their annual investor conference (pdf) in Hurghada this month from 19-20 June;
  • President Abdel Fattah El Sisi is expected to attend US-Africa Business summit in Mozambique, which runs from 18-21 June;
  • Middle East and Africa Rail Show will take place at the Egypt International Exhibition Center, Nasr City on 16-18 June;
  • Seamless North Africa will be held at the Nile Ritz-Carlton on 17-18 June;
  • Cairo Technology Week will run next week at the Hilton Heliopolis on 17-19 June.

Egypt is definitely attending the Trump-Kushner Palestine economic summit in Bahrainlater this month. OK, so we pretty much knew this already, but now we have official confirmation courtesy of US officials. Reuters has more on the gathering, slated to run 25-26 June.

The G20 summit will take place in Japan on 28-29 June. Not Egypt-specific, but worth breaking out the popcorn to observe from afar — and fear how markets will react.


Are we seeing an economic recovery in the UAE and Saudi? The May purchasing managers’ index for both Saudi Arabia and the UAE showed each of the major Gulf players moving toward economic recovery. The UAE posted its highest reading (pdf) since October 2014 at 59.4, and Saudi its highest (pdf) since December 2017 at 57.3. Increases in oil prices and regional demand appear to be benefiting the private sector in both countries, but haven’t yet translated into more jobs or higher wages.

We’re getting pwned by the GCC on the PMI: As we noted yesterday, Egypt’s non-oil business activity contracted in May after having expanded the previous month for the first time since August 2018. The latest purchasing managers’ index fell to 48.2, down from 50.8 in April.

*** PSA- Speaking of which: The sadly indispensable website Have I Been Pwned is now for sale, its creator wrote yesterday. Have you never used Have I Been Pwned? Go run your email address through it now.

Passive funds are suckers for the Tadawul: Fresh off its inclusion in the MSCI and FTSE Russell EM equity indices, Saudi Arabia could soon overtake India as the biggest receiver of inflows into exchange-traded funds, Bloomberg says. The largest Tadawul ETF saw almost USD 910 mn of net inflows in May alone, pushing total ETF inflows into Saudi equities to USD 2.2 bn as of yesterday (compared to India’s USD 2.5 bn).

Investor relations directors (in the US) will have one less ESG survey to fill out after Paul Tudor Jones’ Just Capital agreed to use “metrics developed by the Coalition for Inclusive Capitalism in its rankings, which gauge US companies by the issues that Americans tell pollsters they care about more than shareholder returns,” the Financial Times reports. Our call for the next big business in ESG: The scramble to become The One Provider of Meaningful Certification to the investing community.

** Sign of the times: Extreme weather sends energy demand growth to a nine-year high, setting the stage for more climate change and … more energy demand. Go read the story in the Financial Times and then dig much deeper in BP’s Statistical Review of World Energy for 2019 (pdf), out now.


International headlines worth knowing about this morning:

  • Ebola has crossed from Congo into Uganda, marking what the FT calls a “significant escalation” of the epidemic. The story isn’t on the front pages yet, but it’s all over the global press, so watch this space. (Reuters | NYT | BBC)
  • Next up on the conveyor belt of tech IPOs: Revenues at Slack will grow by up to 50% this year, the company projected on Monday as it prepares to debut on the NYSE later this month. (WSJ)
  • Which UK Conservative minister will be next to sacrifice themselves on the altar of Brexit? The final 10 candidates competing to become the next Tory leader (and UK prime minister) have been announced. The BBC has all you need to know about the final 10 candidates.

Some miscellany to help your morning commute pass just a little bit faster today:

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; Etisalat Misr (tax ID: 235-071-579), the leading telecoms provider in Egypt; and Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt.