Egypt is making further progress with its external rebalancing, Fitch Ratings says, as indicated by “rising foreign exchange reserves, a return of private capital inflows and currency appreciation.” Fitch adds that “further fiscal consolidation alongside external rebalancing would lay the groundwork for a broader-based improvement in sovereign credit metrics in 2018… However, challenges, including the risk of social unrest, are substantial. Even if the envisaged reforms progress smoothly, it would take several years to reduce gross general government debt to more sustainable levels.” It adds that the rebound in CBE reserves has been stronger than expected partly due to the larger-than-expected eurobond issuance. Fitch also believes that Egypt will broadly be able to meet its budget targets. Fitch worries about the prospect of high inflation rates that could “be politically sensitive, adding to the risk that social unrest will prompt the government to row back from some reforms.” The ratings agency projects GDP growth to increase to 4.5% in FY2017-18 from 3.3% a year earlier.

A stamp tax on EGX trades could start at 0.175% on each of the buyer and seller and gradually rise from there, Finance Minister Amr El Garhy told Bloomberg. El Garhy gave no details on the increase, but said the proposal, while yet to be finalised, could be submitted to the cabinet for discussion as early as next week. Al Borsa says, however, that El Garhy has actually proposed an initial tax of 0.125% that would gradually increase to 0.175% over three years.

The House Industry Committee is set to complete its review of the automotive directive and send the bill back to a plenary session of the House of Representatives by mid-March, Al Borsa reports. The committee held discussions with auto industry players this week, with importers continuing to object to the structure of the minimum export quotas necessary to benefit from tax incentives. Under the bill, a car company’s exports must at least equal 25% of the value of their imports to benefit from the incentives. Importers are looking to see that quota reduced to 5-10%. (Under the proposed legislation, car importers — as distinct from assemblers — would have the right to import a quota of fully assembled vehicles under the same preferential tax structure that domestic manufacturers would enjoy only if their exports of automotive components meet a minimum threshold.) The bill, which would provide manufacturing and export incentives along the value chain to promote the development of a domestic auto industry, but has been delayed by a lobbying war pitting auto assemblers and auto importers against each other. We’ll have more on the automotive directive next week.

Meanwhile, Finance Minister Amr El Garhy and CBE Governor Tarek Amer will appear before the House Economics Committee on Monday and Tuesday of next week to discuss clauses in the new Investment Act about investment incentives, private free trade zones, and profit repatriation for foreign companies, Al Borsa reports. The committee hopes to understand more about the guidelines regulating the special incentives given to foreign investors and lobby for the return of FZs. The bill is expected to come to a vote by the end of March.

Several members of the Economics Committee are boycotting discussion of the Investment Act in continued protest of the selection of Support Egypt coalition head Amr Ghallab as the new chair of the committee, Al Mal reports. Ghallab replaced Ali El Moselhy, who was tapped to become supply minister. The MPs are claiming that pro-government Support Egypt stacked the deck against them in the committee election. House speaker Ali Abdel Aal has intervened to no avail.

Is the Universal Healthcare Act coming in 2H2017? The House of Representatives will not be seeing the Universal Healthcare Act that Health Minister Ahmed Rady had promised to deliver early in 2017 before June, sources close to the matter tell Al Borsa. Policymakers are delaying the bill because they worry about the cost of implementing the program after the wave of inflation that has gripped the country since the act was first mooted. Government officials are estimating that implementing the act would cost state coffers some EGP 130-140 bn, up from an earlier estimate of EGP 90 bn. The cost would be paid in part through a new tax: Employers would be required to pay the equivalent of 3% of each employee’s salary into a healthcare funds and deduct a further 1% of each staff member’s pay cheque. Instead of raising those rates, the government is reportedly looking at raising taxes on cigarettes, alcohol and automobiles.

Price controls are a thing of the past -El Moselhy. Commodity prices will be set by supply and demand — and price controls are not coming, Supply Minister Ali El Moselhy told reporters yesterday, Al Shorouk reports. The minister stressed that abandoning price controls does not mean that chaos will reign in the market, saying that the ministry will guard against market manipulation. El Moselhy had said on Tuesday that the ministry and the Consumer Protection Agency were looking into building a database of products and market prices to ward against price gouging. The ministry and the CPA have also been working on amendments to the Consumer Protection Act that would force manufacturers to print tags on their products to prevent traders from jacking up prices, which sounds rather like a restraint on commerce to us (however much we loathe the nice folks at various upscale supermarkets who refuse to post the prices of their wares).

The IMF may not be here in March, but World Bank will be: A delegation from the World Bank Group is reportedly coming to town in the first half of March to discuss progress on Egypt’s economic reform agenda, said Investment and International Cooperation Minister Sahar Nasr. The World Bank has yet to send over the second USD 1 bn tranche of its USD 3 bn development loan to Egypt, which CBE Governor Tarek Amer said last weekend would arrive this month. Nasr had also engaged in talks back in January with the World Bank for USD 400 mn in funding for labor-intensive projects and SME development. Nasr’s statements follow a ministerial coordination meeting on raising Egypt’s ranking in the Doing Business report, Ahram Online reports.

This comes as the Trade and Industry Ministry is currently negotiating a new USD 150 mn funding facility with the World Bank for infrastructure development, social services, and training and employment opportunities in the poorest areas, Minister Tarek Kabil said, according to Al Masry Al Youm.

A consortium led by Canada’s Bombardier and Orascom Construction will begin implementing the monorail project connecting Sixth of October to Giza in the second half of this year, Canadian Chamber of Commerce in Egypt Chairman Fayez Ezeldin told Al Mal. The project, which costs USD 1.1 bn, will take two years to complete. Ezeldin said it will include 12 stations in its first phase and another five in the second. The government has not yet made an official announcement of the award, which was expected to have been made public back in November. The consortium, previously said to have included Arab Contractors, was reported to have won the contract back in 2015, but later found it faced competition from a Chinese group.

Eni’s offshore exploration “gamble” looks “set to pay off,” Andrew Ward writes in the Financial Times. Ward covered Eni CEO Claudio Descalzi’s trip to Port Said to oversee the development of a gas processing plant to serve Zohr, which he says “would be the fastest a project of its size has started production in industry history.” Descalzi says his company took a different direction: “the industry has forgotten how to do exploration … Everybody else went looking for tar sands or tight oil or acquisitions. We thought there was still potential in conventional exploration.” An analyst at Goldman Sachs says “among the European majors, only Eni has been able to successfully translate exploration activities into valuable giant oil and gas discoveries.” Next up for Eni is seeing whether Descalzi would be staying at the company’s helm or not as his mandate is up for renewal. Ward’s piece also includes a video report, in which he says, “Egypt remains one of the brightest spots on the horizon for oil and gas companies looking to breathe new life into their traditional fossil fuel businesses” (runtime 04:21).

…The piece came in time for Eni’s announcement of expectations-beating 4Q2016 results as the company recorded its first quarterly profit in 18 months. Eni reported an adjusted net profit of EUR 459 mn for the quarter, according to Reuters.

Saddiq Afifi and Mamdouh Abbass back out of CI Capital sale: Tiba Group’s Saddiq Afifi and former Zamalek football club chairman Mamdouh Abbass have reportedly backed out of a consortium that is looking to acquire investment bank CI Capital, citing “loss of interest” and “personal reasons” as the cause, Al Borsa reports. The two businessmen had joined a roster of prominent names seeking 80% of CI Capital in December. Other bidders include Arafa Group’s Alaa Arafa, construction magnate Mahmoud El Gammal, and Compass Capital’s Shamel Aboulfadl.

Welcome, Comrades: Russian delegation outlines USD 22 bn in investment in new industrial zone. A framework agreement that will set a timeline for the Russian Industrial Zone (RIZ) in East Port Said is set to be signed in June and will include 17 projects with total investment of USD 22 bn, First Deputy Minister of Industry and Trade Gleb Nikitin said at a press conference we attended yesterday. Nikitin is heading a Russian business delegation on a two-day visit. On the agenda is a visit today to China’s TEDA Industrial Zone in Ain Sokhna. Key takeaways:

• A land plot has yet to be allocated — contrary to previous reports. “There are still unresolved issues,” Nikitin said, but stressed he is sure both sides will come to an agreement. Project developer Technopolis Moscow is looking for something on the order of 2,000 hectares, company CEO Igor Ischenko said.

• Priority industries for the Russian Industrial Zone include car manufacturing, shipbuilding, metalworks, agricultural equipment manufacturing, and medical technology.
• The project will be executed in three phases and is set to be completed over 30 years, Ischenko said.
• The RIZ will eventually have its own management company.
• Two-thirds of the zone will be industrial, with the rest consisting of residential areas and amenities, Daniel Dendra from anOtherArchitect told us.
• Egyptian banks and other financial institutions are welcome to participate in the financing package for the zone, which has yet to reach financial close, said Russian Export Center CEO Petr Fradkov.

Shahid Law Firm is advising the Russian delegation.

Egyptian artichokes still outperforming in Italy: Italian wholesale fresh food distributor Cambo Frutta said this year is the first it has imported artichokes from Egypt. “The company decided to import Egyptian products, in this case Violetto artichokes, because in early 2017 the artichoke crops in the region of Apulia suffered heavy damage as a result of weather conditions. This led to a lack of stock that Italian companies have replaced by turning to other markets,” according to Fresh Plaza. A company representative says, “the Egyptian Violetto artichoke is very similar to the Italian artichoke, with the advantage of having more volume and a much more intense color … [the only difference from the Italian product] is that they don't follow our custom of harvesting it with a leaf, as they only come with a stem of around 10cm." There were reports last month that Egyptian purple artichokes were already performing well in Italian markets.

** EARNINGS WATCH- Edita announced net profit of EGP 47.4 mn in 2016, down 86.4% y-o-y even though revenues increased by 12.5% y-o-y to EGP 2.5 bn. Edita posted a very strong top line performance in the fourth quarter despite widespread expectation of a pullback in consumer spending on the back of spiraling inflation. Edita chief Hani Berzi noted that “Our strong performance is most directly attributable to the accelerated rollout of the pricing strategy that we began implementing in late 2015,” which was “initially indirect in nature, including the selective upsizing or downsizing of products as well as the launch of new products at higher price points” but that later included direct price increases after the float of the Egyptian pound. Edita notes it recorded FX losses of EGP 298.5 mn in 2016, of which EGP 241.0 mn came as a consequence of the EGP float and “the consequent revaluation of its foreign currency-denominated liabilities.” M&A signal? Speaking to strategy in 2017, Berzi is quoted in part as saying the company may look at “direct expansion both in Egypt and in new markets.”

Egypt Kuwait Holding Company reported a 72% y-o-y increase in 2016 net profit to USD 62.5 mn in 2016 despite the translation into USD from EGP of the underlying financials of the companies in which it invests. EKH reported USD 351.2 mn in revenues, a 24% increase y-o-y. Calling 2016 “a year characterized by extreme volatility and unprecedented macroeconomic challenges,” EKH Chairman Moataz Al-Alfi noted that EKH has “positioned itself as a hedge against market challenges and a vehicle for capitalizing on high-growth industries. As the Egyptian economy undergoes a fundamental restructuring, one that will favour energy plays and manufacturers who use domestic resources to export and produce import substitutes, EKH is poised to capture the upside.”

WEEKLY CABINET ROUNDUP: The Ismail cabinet’s focus at its weekly meeting held yesterday was on a basket of agreements and legislative amendments. Among them: Amendments to the supply law that will impose prison time and fines on anyone involved in buying, selling, or smuggling subsidized food or oil with the intention of reselling at a profit. Amendments to the competition law to introduce harsher penalties for manipulators of basic commodities were also given the greenlight. The cabinet also apparently just got around to approving a 1959 cultural agreement with Germany, the day before Chancellor Angela Merkel arrives in Cairo. Subtle. Other decisions taken during yesterday’s meeting include:

• Granting preliminary approval to the executive regulations of the Civil Service Law;
• Approving joining the Trade Facilitation Agreement — which simplifies export and import processes between signatory countries — signed between World Trade Organization members in 2013;
• Approving an agreement to build a 200-250 MW wind farm in the Gulf of Suez, financed by the French Development Agency;
• Sanctioning a USD 332.2 mn compensatory financing arrangement with the Arab Monetary Fund from December 2015;
• Extending the deadline for hotels to pay overdue electricity, gas, property tax, and water bills until 31 December 2017.
• Tourism Minister Yehia Rashed also said the cabinet decided to postpone and review hiking tourist visa fees, according to Al Shorouk.

President Abdel Fattah El Sisi addressed the targeting of Coptic Christians inNorth Sinai by Islamist terrorists and the growing perception both in and (mostly) out of Egypt that his administration wasn’t doing enough to protect them. He said that this was playing into the hands of the terrorists. Speaking at an event on Tuesday (footage of which aired yesterday on state television), El Sisi stressed the sacrifices of security personnel and the army defending the people of North Sinai in a war which his administration has largely contained. The majority of Egyptians, he said, do not feel the impact of the war. The state’s strategy is to target terrorists without harming the lives and property of civilians in Sinai, the president added, saying he would not evacuate all of Al Arish and transform it into a security zone. He promised that the displacement of Christians was only temporary (watch, runtime: 5:01). This comes as Amnesty International said the government had failed to protect Christians in North Sinai and failed to bring the attackers to justice. The group urged that the government protect them and end discriminatory attacks on Christians nationwide.

How long before we get blamed? Ethiopia claims to have foiled a planned attack on the Grand Ethiopian Renaissance Dam by armed members of an Eritrea-backed group, deputy government spokesman Zadig Abraha told a state-affiliated radio station, the Associated Press reports. According to Abraha, “actions were taken” against 13 of the group’s members, and the AP notes that “similar statements have meant people were killed.”