Moody’s has stable outlook for North Africa and Levant economies, sees Egypt growing 4-4.5%: Moody’s says a lower energy price environment as well as reform momentum in the region are the main drivers for its stable outlook for the Levant and North Africa economies. In a report on 2017 outlook for the region released yesterday, the ratings agency says “Egypt retains the region's highest economic strength assessment, which reflects not only its scale but also its growth outlook compared to peers.” It forecasts the Egyptian economy will “grow by 4.0% and 4.5% in 2017-18, supported largely by private consumption, as well as increasing public and private investment. Conditional on a continued stabilization in the security environment, investment will be driven by infrastructure projects and the renewed development of natural resources: the Zohr offshore natural gas field has the potential to restore power supply and meet Egypt’s natural gas demands.”

In addition, “investment incentives from the recent devaluation of the EGP and shift to a flexible exchange rate system to outweigh the short-term challenges stemming from higher inflation and reduced purchasing power for domestic consumers. While tourism arrivals remain near post-crisis lows, they appear to have bottomed out in recent months.” The threats remain present in the potential for socio-economic discontent “fueled by high inflation and reduced purchasing power” and “security risks persist, as evidenced by scattered terrorist attacks targeting security forces and government officials, as well as civilians.”

Sound smart: This is the same Moody’s that agreed a couple of days ago to pay USD 864 mn or so to end a US investigation into its role in helping create the subprime mortgage crisis in the US that set off the Great Recession.

The Higher Administrative Court has handed down a final verdict rejecting the transfer of Tiran and Sanafir to Saudi Arabia,citing what it called government lawyers’ failure to provide evidence that the islands belonged to Saudi Arabia in the first place, Reuters reported. The court had earlier annulled the agreement in June, but an appeal by the government sent the issue to the HAC, the top court in the administrative judicial system.

No comment: Neither KSA nor the Ismail government have had official comment on the ruling as of this morning.

Does the House still have a say in the matter? Constitutional expert Shawky El Sayed thinks not and says the court’s ruling is “final and can’t be appealed” or discussed any further by the House of Representatives, according to Al Shorouk. He added that the decision to resort to international arbitration belongs to the two governments. An unnamed government official tells AMAY, however, that MPs can choose to uphold or reject the court’s decision.

Reactions from MPs were varied, according to Ahram Gate, with MP Mostafa Bakry’s objection appearing to be the most resounding (since he did write a book arguing in favor of the swap and had promised to resign if the court rules the islands Egyptian). Many others hailed it “as a confirmation of the truth.” MP Mohamed El Sadat suggested the House suspend all its talks on the treaty to avoid a squabble with the judiciary and urged the government to stop contesting the decision. The House’s 25/30 coalition also issued a statement supporting the ruling and calling for the release of citizens arrested for protesting against the treaty, Al Mal reported.

The verdict is going over well with Egyptian civil society types. AMAY has a nice roundup of reactions from Egyptian writers, artists and politicians.

Not so much in KSA, the newspaper reports, where some are calling for international arbitration and others are demanding the expulsion of Egyptians from the kingdom. A former Saudi legislator said KSA has presented proof the islands are Saudi and said Riyadh could take the case to the UN or seek arbitration. The politician, Anwar Eshki, also told BBC Arabic that the rift with Cairo is over other regional issues unrelated to the islands.

A really bad day for KSA: The Tiran and Sanafir ruling was one of three blows the kingdom took on the economy front yesterday. The International Monetary Fund has revised its forecast for KSA growth down to 0.4% in 2017 from a previous estimate of 2.0%, and KSA is getting flack after its oil minister suggested there is no need to extend an agreement on an OPEC production cut beyond six months. The IMF and OPEC news overshadowed an announcement that Saudi is launching a 10 GW, USD 30-50 bn renewable energy program and could consider building 2.8 GW in nuclear generation capacity.

Day two of El Sisi’s interview with state newspapers: Beyond dropping the bomb on the cabinet shuffle, President Abdel Fattah El Sisi’s sit-down with the editors of state-owned newspapers saw the president announce he is forming a political advisory council on both domestic and foreign affairs.

Egypt has made tremendous strides in combating the ideology of terrorism and the public is more aware on the dangers of fundamentalism, the president said. Egypt’s resolve to combat extremist ideology and the nation’s rejection of religious tolerance were evident in how quickly the public bounced back after the terrorist attacks at the church of St. Peter and St. Paul last month. He also played up successful operations against terror networks by pointing to how little the war on terror has impacted the economy even though this form of warfare is “more arduous” than conventional conflict. “We have adopted a flexible and adaptive strategy which has contributed to reducing the capacity of these networks,” said El Sisi.

As Egypt approaches the sixth anniversary of the 25 January, the president said the days of Egyptians need to understand that there were positives and negatives to the overthrow of the Mubarak regime in 2011. Don’t take political demands from 2011 to the extreme, the president warned. El Sisi took opportunity to criticize the media once again, but said that he had no intention of muzzling it.

On foreign relations, El Sisi downplayed delays in the return of Russian tourists, putting the industry second to Cairo’s strategic relationship with Moscow. Egypt must accept in good faith Russia’s decision to delay the return of tourists, he added. El Sisi said he is optimistic about relations with the US given the incoming Trump administration, suggesting that expanded military aid and cooperation on terrorism would be in the cards.

Our notes on the first part of the president’s interview, which focused primarily on the economy, are here. Finally, we note that the president’s interview studiously avoided mention of Tiran and Sanafir as the questions came before the Higher Administrative Court’s ruling of yesterday.

Naguib Sawiris behind GBP 3 bn merger of gold miners: “Bn’aire Sawiris behind planned Endeavour-Acacia merger,” blares the headline in the Financial Times, suggesting that Naguib is the force moving a merger to create a GBP 3 bn London-listed gold producer. Sawiris and other family members have “large stake” in Toronto-listed Endeavour Mining, which has operations in Mali, Ghana and the Ivory Coast. It is proposing to merge with Tanzania-focused Acacia Mining, majority owned by Canada’s Barrick Gold. Together, they would have a combined annual output of about 1.5 mn ounces, putting the merged entity ahead of Randgold Resources, the largest London-listed gold producer. The FT notes that “Analysts said a merger of the companies was likely to garner support from institutional shareholders on both sides of the Atlantic providing the terms of the deal were sensible and did not favour one set of investors over another.”

The float of the EGP has negatively impacted most sectors of the real estate market in the short term, JLL said in its year-end report on Egypt (pdf). Developers chose in November to pass the rising cost of building materials on to homebuyers, with further price hikes of 25-30% expected in early 2017. Some developers sought to introduce flexible payment plans to offset the impact. Office and retail rentals quoted in USD have doubled in cost in local-currency terms, prompting a growing number of landlords and developers to agree to cap FX rates at lower-than-market rates. Only the tourism sector has benefitted from the float, with demand expected to pick up as Egypt has become 52% cheaper for foreign visitors. Most hotel owners are looking to renovate existing, older and inefficient properties in Cairo to increase profits from operational efficiencies, rather than investing in the construction of new hotels.

Why are some companies continuing to rely heavily on the parallel? CEOs polled by Al Mal admitted that they still source anywhere between 15-100% of their FX through the parallel market. The most commonly cited reason is the inability of the banking sector to meet the requirements of importers in a timely manner. Mohamed Shokry, CEO of Misr Food Additives (which claims to source 30% of its FX from the parallel market), tells the newspaper that while banks have been dishing out USD, it is not enough to meet their import schedules. “Banks take 70 days to make the FX available,” said Hassan Mabrouk, GM at Universal Group. The issue doesn’t appear to be universal as companies such as DBK Pharma and Eva Pharma have acknowledged there was some inconvenience, but that these have largely been resolved with the latter stating that they completely rely on the banking system for FX. “it’s a case by case issue,” said a banking official. While demand is high, USD inflows from investment and the eurobond issue will help stabilize reserves moving forward, the official added.

Meanwhile: Picking up where we left off yesterday, the Finance Ministry has fixed a customs exchange rate of EGP 18.5 per greenback from today and until the end of February, Al Borsa reported. Minister Amr El Garhy had announced at a Sunday press conference that the government would be setting a fixed exchange rate each month using a reference rate set the previous months as a guide.

The Central Bank has issued criteria to guide banks wanting to allocate loans from international funding institutions to strengthen their tier-2 capital base. In a circular issued yesterday, Monday, the CBE said the loans must be unconditional and not lent against any specific asset if they’re to factor into the institution’s capital adequacy ratio. Banks should also process the loan in the same way they would handle facilities from the CBE. A number of local banks have entered into loan agreements with international institutions recently, according to Al Mal, including Banque Misr (which it says has signed agreements for USD 500 mn from the Industrial and Commercial Bank of China and USD 350 mn from Credit Suisse) and the NBE (a total of USD 1 bn in facilities from China).

Eight policemen were killed and three others were injured in an attack on a checkpoint in the New Valley province of Egypt’s Western Desert, AMAY reported. Two terrorists were killed during the gun battle, Reuters added. Meanwhile, an Egyptian offshoot of Daesh has reportedly claimed responsibility for a suicide bomb outside a police station in North Sinai that claimed the lives of at least 10 last week, according to Asharq Al-Awsat.

CORRECTION- Finance Minister Amr El Garhy said he expects foreigners to buy USD 10-11 bn of Egypt’s local debt. We mentioned incorrectly yesterday that Egypt was expecting foreigners to double their purchases of eurobonds. We regret the error. The piece was amended and updated on our website.