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Thursday, 15 December 2022

THIS MORNING: The IMF is discussing our loan request tomorrow + Fed slows rate hikes but stays hawkish

Good morning, friends, and happy THURSDAY. We hope the week has been good for you — and those of you with spawn starting their winter break are able to pencil in some time to hang out with the kids as we head into the final weeks of the year. Extra special good wishes to folks whose progeny are returning to Egypt from university or life abroad.

DRIVING THE NARRATIVE ON EGYPT heading into the weekend: The IMF, whose executive board will meet tomorrow to review our request for a USD 3 bn facility on which we reached a staff-level agreement in late October after adopting what the Central Bank of Egypt said is a “durably flexible” exchange rate policy.

We’re optimistic that the IMF will come through with the facility — and hopeful that policymakers here at home have what it takes to keep pushing forward. It would be difficult for the IMF to turn its back on a nation that has become the poster child for IMF orthodoxy — particularly given that the Madbouly government and the good folks at the Central Bank of Egypt have made significant progress on the laundry list of conditions the IMF attaches to such facilities.

Thanks to strong tourism revenues, rising exports and foreign direct investment, we saw reserves inch up in November for the third month in a row to USD 33.5 bn — even as we made USD 1.5 bn worth of payments to external creditors, a senior banking source tells us. Inflows saw total reserves rise about USD 390 mn in the last three months.

“Egypt has been and remains committed to paying its external debt — we have never defaulted” and have no plan to start, the banker told us, adding that “our external debt-to-GDP ratio is still within safe limits at 34.1%, well below the 50% threshold.”

Egypt’s USD position is improving because of FDI and exports — two topics that readers by now know are near and dear to our hearts.

  • The nation’s exports were up just over 53% in the fiscal year ending June 2022 to USD 43.9 bn;
  • FDI came in at USD 9 bn in the same period;
  • While tourism revenues surged 121% to USD 10.7 bn.

WE NEED MORE WORK ON THAT FRONT and think policymakers need to consider our five-step recipe to bring in USD 50 bn worth of FDI per year while transforming us into an export powerhouse.

The folks at the Sovereign Wealth Fund are doing great work, but we need a dedicated investment promotion agency to work alongside them.

The SFE’s program to land Gulf investors has seen the state sell assets for proceeds north of USD 4 bn. Gulf sovereign funds have a mandate to invest here, and they’re choosing good names. Abu Dhabi has acquired shares worth more than USD 910 mn in CIB, as well as hundreds of mns worth of USD in shares of Misr Fertilizers, Abu Qir, Fawry, and Alex Containers. Abu Dhabi Ports invested in our friends at IACC, acquiring 70% of our nation’s largest private shipping company for USD 140 mn. Meanwhile, KSA’s Public Investment Fund has invested USD 1.3 bn in acquiring minority stakes in four state-owned companies, including Abu Qir, Misr Fertilizers, Alex Containers and e-Finance.

Next on the block: KSA’s PIF is looking to acquire United Bank for c. USD 600 mn through a new vehicle it has established to invest in the Egyptian economy.

And there’s more to come: The Sovereign Fund of Egypt is working on a plan to take to market more than 40 projects wroth north of EGP 140 bn — much of it will be of interest to UAE and Saudi investors, and we hope to see Western and other regional institutions hop on board.

What do investors have appetite for? According to the SFE, it’s everything from food, pharma, education, and healthcare to financial inclusion, tourism, and export-oriented manufacturing.

As we discussed at last week’s Enterprise Climate Forum, we also expect to see significant inflows of capital into climate-related industries. Egypt is uniquely well-positioned to benefit from the global rush to manufacture green hydrogen as a clean fuel for hard-to-decarbonize industries — the Madbouly cabinet has been ahead of the curve here. Attendees and our guests on stage were also optimistic about opportunities to invest in food, agriculture, desalination, logistics, and services.

And there’s a massive chance to become a global hub for the manufacture of green energy components. We need to build 40 GW of clean energy capacity to fuel all of the hydrogen plants the Madbouly government has lined up — it presents a unique opportunity to localize the manufacturing of everything from wind turbines and blades to solar panels and electrolyzers. And where you manufacture, you can export…

Getting the IMF’s seal of approval tomorrow is just the beginning. None of us — from government to the private sector — can take our foot off the gas. Presuming we bring home the USD 3 bn facility, it’s all about execution from here on out: We need to get serious about FDI and exports. And we need to make it easier for ALL companies to do business here (whether they’re foreign or Egyptian).

Our friends in government would do well to listen to the business community here. Yes, we’re capitalists. We’re also proud Egyptians who want to create meaningful, well-paying jobs that build a stronger and more prosperous nation. As The Colonel always told us: A rising tide floats all boats.


Fed slows rate hikes but stays hawkish: The Federal Reserve slowed the pace of its interest rate hikes yesterday but indicated that it will continue to stay hawkish into next year despite clear signs that inflation has reached its peak. The central bank raised rates by 50 bps at its final meeting of the year, a moderate increase by recent standards that brings to an end a run of four consecutive 75-bps hikes. This brings the target range of the federal funds rate to 4.25-4.5%, its highest level since late 2007.

Another 75-bps still to go? Fed officials expect rates to end 2023 at 5.1% before falling to 4.1% the year after, implying that rates will rise by another 75 bps next year. “We still have some ways to go,” Fed chair Jerome Powell told reporters at the post-meeting presser.

Stocks fell on the news: On a volatile day of trading, US stocks finished the session in the red as traders weighed Powell’s hawkish comments. The S&P 500 lost 0.6% while the tech-heavy Nasdaq ended 0.8% in the red. Shares in Asia are falling this morning, with the Hang Seng the biggest loser ahead of dispatch (-1.6%), and European and US markets are set to follow them later today.

The news is dominating the conversation internationally this morning: AP | Reuters | Bloomberg | FT | WSJ | NYT | Washington Post | CNBC.

MEANWHILE- The Central Bank of Egypt is due to meet next Thursday for its final policy meeting of the year, and a few analysts we’ve heard from this week are penciling in another 200-bps hike, possibly in an unscheduled meeting before 22 December. In parallel, Goldman Sachs’ MENA economist Farouk Soussa has joined BNP Paribas and Al Ahly Pharos in calling a snap rate hike and allowing the EGP to weaken further, writing that he expects “decisive action towards clearing the FX market” in the coming days.

EGP WATCH- The EGP fell 0.2% to 24.73 against the greenback yesterday. The currency has now fallen 25.2% since the central bank moved to what it called a “durably flexible” exchange rate at the end of October and is down by c. 57.5% since March’s devaluation.


It’s e-invoicing deadline day: Companies have until the close of play today to register with the Tax Authority’s e-invoicing system. Only 150k companies had signed up to the new system as of the end of November, well below a sought goal of 1 mn companies to register under the system.

REMEMBER- This deadline no longer applies to the self-employed: The Finance Ministry pushed the deadline for self-employed professionals — including doctors, pharmacists and lawyers — to 30 April 2023 after widespread opposition to the system.

The US-Africa Leaders’ Summit wraps in Washington, where President Abdel Fattah El Sisi is among the 49 African heads of state in attendance. We have coverage on El Sisi’s meeting with Secretary of State Anthony Blinken yesterday in this morning’s Diplomacy, below.

PSA- Retailers have two weeks to start clearly displaying the prices of all their goods under efforts aimed to tame food price inflation, PM Moustafa Madbouly announced in a statement by the Cabinet. People who don’t comply with the rules are at risk of having their shops shut down and their stock confiscated and sold to citizens. “We can’t allow in such extraordinary circumstances to leave a segment [of traders] to exploit circumstances to achieve additional profit over the fair and logical price [of goods],” he said.

Transport Minister Kamel El Wazir is in the UK to attend meetings of the International Maritime Organization (IMO).



It was the end of the line for the Moroccans at the World Cup last night after they lost 2-0 to France in the semi-final. A spirited performance saw the Lions go close to scoring on several occasions (including a spectacular bicycle kick by Jawad El Yamiq, which would have been the goal of the tournament had it gone in) but France’s quality in front of goal saw them through. After taking the lead early on, the French were content to cede possession to Morocco, and after weathering some intense pressure in the second-half, got that all-important second goal in the 79th minute to wrap up the tie.

This sets up an Argentina v France, Messi v Mbappe final showdown at the Lusail Stadium on Sunday. Morocco and Croatia will fight it out for third-place on Saturday.

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