Strained ties with the US following aid cuts? White House envoy Jared Kushner’s Middle East tour hit a speed bump when he landed in Cairo yesterday after the US State Department let slip it was cutting or withholding some USD 290 mn in aid to Egypt. The Foreign Affairs Ministry was initially reported to have canceled planned meetings with the delegation (which is touring the region to jump-start Palestinian-Israeli peace talks), but the meeting went ahead, as did a sit-down with President Abdel Fattah El Sisi. Also part of the delegation are international negotiations chief Jason Greenblatt and deputy national security adviser Dina Powell.

The move to deny USD 95.7 mn in aid and delay a further USD 195 mn “may have a negative impact on common interests,” the Foreign Ministry says. The Ministry’s statement added that “Egypt sees this measure as reflecting poor judgement of the strategic relationship that ties the two countries over long decades and as adopting a view that lacks an accurate understanding of the importance of supporting Egypt's stability,” according to Reuters. Bloomberg’s Tarek El Tablawy writes that “the funding penalty again thrusts Egypt’s human rights record under an unforgiving spotlight at a time when the country is working to revive its economy and attract foreign investment. Although Trump has praised Egypt for battling Islamists, rights groups say the crackdown has been extended to encompass all government opponents, leaving no room for political dissent. The NGOs Act — which has received criticisms from Republican senators — is being widely touted as one of the major reasons for freezing aid.

Is this really about human rights and democracy — or our ties to North Korea? Writing for the New York Times, Gardiner Harris and Cairo bureau chief Declan Walsh convincingly suggest that the Trump administration is using the aid as leverage to push Egypt to break its civilian and military ties with North Korea. “Secretary of State Rex W. Tillerson’s top priority has been to increase North Korea’s economic and diplomatic isolation, and he has asked foreign leaders in almost every meeting that they cut ties with Pyongyang.” Egypt and North Korea have cooperated on the military front since the 1970s, and the UN alleged in 2015 that North Korea has smuggled weapons through Egyptian ports. Naguib Sawiris and OTMT’s role in setting up the country’s cell phone network was cited example of civilian cooperation between both countries.

Trump actually raised his concerns about North Korea with El Sisi in a call last month. According to a readout of the 5 July call released by the White House: “The two presidents also discussed the threat from North Korea. President Trump stressed the need for all countries to fully implement U.N. Security Council resolutions on North Korea, stop hosting North Korean guest workers, and stop providing economic or military benefits to North Korea.”

The Foreign Ministry did reverse what the foreign press is calling “the snub.” Foreign Minister Sameh Shoukry later sat in on Kushner’s face-to-face with President Abdel Fattah El Sisi, which according to official statements from Ittihadiya was focused squarely on the Middle East peace talks. The delegation expressed “their appreciation of Egypt’s efforts in the fight against terrorism and extremism, as well as its historical role in supporting a comprehensive settlement of the Palestinian issue.” The Americans then sat down with Shoukry separately at the Foreign Ministry, where the he reportedly outlined Egypt’s views on the state of affairs on the ground in Israel, the West Bank, and Gaza, said foreign ministry spokesperson Ahmed Abou Zaid. Neither statements touched upon the aid issue.

The decision is unlikely to have great impact on Egypt’s economy or foreign investors’ renewed appetite for all things Egyptian, AmCham Executive Vice President Ahmed Abou Ali tells Daily News Egypt. AmCham plans to hold a board meeting next week to discuss ties between the two countries.

Valiant members of our House of Representatives are volunteering to make the oneroustrip to the mosquito-infested swamp that is Washington, DC, to help dispel misconceptions about Egypt’s human rights record, reports Al Mal. The announcement had caused an uproar within the halls of parliament, where MPs are viewing it as another attempt to put pressure on Egypt, just as the Obama administration had done. The sacrifices our elected representative are willing to make in defense of our democracy are simply breathtaking.

The reversal of the Trump administration’s stance on human rights in Egypt — which dominates the conversation on Egypt in the foreign press — has been confusing pundits across the globe, generating wide speculation on the behind-the-scenes purpose of the move. Foreign Policy’s Emily Tamkin believes that the administration had been paying attention to testimony by regional experts, including Michelle Dunne, before the a subcommittee of the Senate Appropriations Committee. Slate is even suggesting that this might be a genuine reversal on making human rights a lower priority. “It’s encouraging that the State Department is acknowledging the deteriorating state of human rights in Egypt and the grave implications for stability in the Middle East,” Amnesty International’s Advocacy Director Adotei Akwei said in a Wednesday statement. “To effectively make human rights a priority, these transfers [of military aid] must be suspended immediately.”

No mentions of the Qatar rift: Kushner’s visit follows meetings with leaders from UAE, Qatar, Saudi Arabia, and Jordan, and based on statements from the Saudi Press Agency andQatar News Agency, Palestine-Israeli peace talks was all that was discussed. Neither statements mentioned the diplomatic rift with Qatar. Kushner will be in Israel today.

This story will have legs in the international press for another cycle or two — we don’t think it is stretching things to say it’s the dominant foreign policy story globally this morning. Depending on your reading preferences, see coverage in the Wall Street Journal, Financial Times, Politico, the New York Times (here and here), Washington Post (plus a gloating editorial egging Trump on to give us another slap), Slate, CNN, the Guardian, the Los Angeles Times, Foreign Policy, Russia Today, and the BBC. We could go on, but you get the point. And note, please, that these are original pieces to which these outlets devoted staff time — not just wire pickups.

Credit Suisse sees scope for Egypt’s economic recovery to “steadily accelerate” and is “optimistic on the outlook for fiscal consolidation,” according to a recent report (pdf). The investment bank maintains its positive outlook on fixed income, particularly short-dated T-bills, and see scope for further steady appreciation in the EGP on improve macro fundamentals. The report does note that “the challenges facing Egypt remain significant and our recommendations therefore carry materially higher risk compared to our other Middle East recommendations.” Credit Suisse also sees scope for “credit rating upgrades as the macro environment improves, though it requires the government to keep making positive progress on the elevated fiscal deficit.”

…Separately, Egyptian eurobond yields declined to their lowest levels since issuance in January 2017, according to BNP Paribas’ Africa Weekly DCM Market update (pdf). The average yield declined by over 100 bps across the different maturities on favourable emerging markets backdrop and continued investor confidence in Egypt’s reforms. “One factor driving continued yield tightening for Egypt is increased liquidity. The bonds are trading better since inclusion of Eurobond tap in Emerging Markets Bond Diversified Index (EMBI Diversified) leading to increase of Egypt’s weight to 2.0% as of July higher than comparable EMs such as Morocco, Nigeria and Pakistan at 0.5-1.0% each and closer to South Africa and Peru at mid 2%. That is a key factor driving secondary market liquidity as the index is closely followed by all top EM investors,” the report states.

Beltone Financial is looking to quadruple the value of its index fund from EGP 55 mn and list it on the Nasdaq Dubai exchange, Director of Asset Management Kareem Naema told Reuters in an interview. “We've been working over the past three months on listing the index fund on the Nasdaq Dubai. It's going to be a good step for Egypt and it's going to attract a lot of investments to the Egyptian financial markets,” Naema says. He says Beltone will go on roadshows to promote the fund in the GCC, Europe, and the US in September and October. Naema also reiterated plans announced by CEO Bassem Azab to launch a USD 1 bn fund to invest in fixed-income instruments.

The Ismail government signed off yesterday on the amended Leasing and Factoring Act that the Egyptian Financial Supervisory Authority had drafted in April, according to a Cabinet statement. The bill, which will now be passed to the Council of State (Maglis Al Dawla) for review, adds clauses to regulate SME financing and mandates the country’s economic courts with resolving legal issues pertaining to the law. Other decisions out of yesterday’s weekly meeting:

• Approving an amended bill to regulate river traffic and commercial transportation on the Nile that mandates the River Transport Authority and the Local Development Ministry with issuing licenses for different types of commercial units. A previous version of the bill would have seen the establishment of a single agency to streamline the licensing process;
• Approving a request from the Damietta Port Authority to revise contracts with a liquid bulk trading company on a right-to-use basis;
• Ratifying amendments to the executive regulations of the law regulating universities, allowing Aswan University to establish a dental college.

REGIONAL- Small businesses in the UAE are likely to be most impacted by the 5% value-added tax (VAT) that will be imposed as of January next year, Muzaffar Rizvi writes in Khaleej Times. Larger enterprises have been preparing themselves for the impending tax, which represents “a significant shift in the UAE's fiscal policy and wider GCC region.” Although it will be the lowest rate in the region — compared to Egypt’s 14% and Turkey’s 18% — the UAE has “a broader base than you see in most jurisdictions” by virtue of it being the region’s “most diversified economy.”

Other regional stories worth a glance this morning:

• The Tel Aviv Stock Exchange could IPO itself on the TASE in 2019 after it finishes its transformation into a for-profit company, the bourse’s CEO told Bloomberg yesterday.
• Saudi’s potentially USD 1 tn SWF has reportedly hired Rashed Sharif from Riyad Bank to manage the Public Investment Fund’s Saudi-based assets worth some USD 111 bn.
• Bahrain intends on filing a complaint against Qatar at the UN Security Council and International Criminal Court, reports The National. Bahrain argues that Qatar has attacked Bahrain using “fourth-generation warfare” techniques — shorthand for terrorism, psyops, and media warfare.

A diplomatic victory for Egypt? Chad has become the latest government to poke a stick into Qatar’s spokes, shuttering its embassy in the statelet, according to Reuters. The move comes less than a week after President Abdel Fattah El Sisi visited Chad as part of his Africa tour, which also included Rwanda, Tanzania, and Gabon. Chad shares Egypt’s concerns about the conflict in Libya, sharing as it does a border with that country, and Qatar has supported Islamist-leaning factions there.

Russia’s ambassador to Sudan was found dead yesterday in his swimming pool, Reuters reports, becoming the fourth Russian envoy to die abroad since December. Mirgayas Shirinskiy, 62, appears to have had a heart attack, RT suggests. Shirinskiy, a fluent Arabic speaker, was previously posted to Egypt and Saudi Arabia.

US President Donald Trump said the North American Freetrade Agreement (NAFTA) is likely to be terminated, CNBC reports from a rally in Arizona. NAFTA, which US negotiators had previously referred to as “unfair” and in need of “major improvement,” had been a key rallying point of Trump’s presidential campaign. The Donald said at his rally on Tuesday night: “I personally don't think you can make [an agreement] without a termination but we're going to see what happens, OK?” In keeping with election traditions from last year, the Mexican Peso traded down after his comments.