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What We're Tracking Today

Egyptian officials discuss capital gains tax + Egypt’s debt swap agreement with China is coming

Good morning, everyone. It’s looking like another slow news day here in Egypt as more and more people sign off for the year.Speaking of, you’re reading the penultimate Enterprise AM issue of 2023.

PSA- We’ll be taking a publication break this coming Thursday through Monday to recharge and gear up to launch new things in 2024. All of our publications will be back in your inboxes at their usual times on Tuesday, 2 January 2024.

HAPPENING TODAY-

Capital gains tax discussion reopened? Officials from the Finance Ministry and the Misr Clearing and Depository Company (MCDR) will meet later today to discuss the long-awaited capital gains tax, Al Borsa reports, citing sources it says has knowledge of the matter. The Finance Ministry wants to publish the tax’s executive regulations next month for the tax to be collected on gains made during 2023, seeing as another delay in implementations could lead to tax collection being pushed back another year.

Remember: A 10% capital gains tax on EGX transactions was supposed to be introduced in January 2022 for resident investors but was later delayed by the Finance Ministry pending the passage of the Income Tax Act amendments. Investors will pay the tax on net portfolio earnings calculated at the end of the tax year, minus brokerage fees.

WATCH THIS SPACE-

#1- Debt-for-nature swap agreement with China in 2024? Egypt is currently in advanced talks with China over a debt swap agreement — dubbed a debt-for-nature — that will see China cancel USD 100-120 mn in Egyptian debt and instead allocate those funds to green projects early next year, Al Arabiya reported, citing what it said was an Egyptian government official. The two sides inked a debt swap MoU in October.

Remember-About 5% of our total external debt was owed to the Chinese as of the end ofJune (pdf), amounting to USD 8.3 bn. This includes a USD 2.5 bn in currency swap with the Chinese central bank.

#2- Ethiopia defaulted on a USD 33 mn coupon payment on Monday as the grace period for the Eurobond coupon payment due 11 December ended. The Ethiopian government has been seeking to renegotiate its debt obligations. Last month, the nation reached an in-principle agreement with bilateral creditors on a suspension of debt service due from 1 January 2023 to 31 December 2024. (Bloomberg)

WAR WATCH-

Palestinian factions are reportedly cool to Cairo’s plan to end war: Hamas and the Palestinian Islamic Jihad (PIJ) have reportedly turned down Egypt’s proposed three-stage plan to end the ongoing war on Gaza, Reuters reports. Though both Palestinian resistance movements denied rejecting the plan, Hamas is reluctant to cede power or engage in negotiations “without a complete stop to the aggression,” a Hamas official said. “The Hamas leadership is aiming with all its might for a complete, not temporary, end to the aggression and massacres of our people.”

We should know what Israel thinks soon: The Israeli War Cabinet met last night to discuss Egypt’s plan, the Wall Street Journal wrote. Israel has shown openness to the plan, with authorities open to negotiations, according to previous reports from Israeli media.

Remembers: Officials from both Hamas and the PIJ were on separate trips to Cairo over the past few days to meet with Egyptian officials to discuss implementing a ceasefire and steps to end the Israeli assault on Gaza.

Israel’s peace prerequisites: Israeli Prime Minister Benjamin Netanyahu wrote an op-ed for the Wall Street Journal outlining the three prerequisites for peace in the region — destruction of Hamas, “demilitarization of Gaza”, and “deradicalize” Palestinian society.

Death toll crosses 20k:At least 20,674 Palestinians have been killed since 7 October. Over 100 Palestinians were killed by Israeli airstrikes on Sunday night, according to Reuters.

More Egyptian-Irani talks: Iran’s Foreign Minister Hossein Amir Abdollahian phoned Foreign Minister Sameh Shoukry for a Gaza-centered conversation, according to an Egyptian Foreign Ministry readout. This comes shortly after a similar conversation between Iranian President Ibrahim Raisi and President Abdel Fattah El Sisi.

MORNING MUST-READ-

Devaluation, austerity, and an uncertain future for Argentina: Virtually as soon as Argentina’s eccentric far-right president Javier Milei took office two weeks ago, he devalued the local currency by over 50% — the USD now goes for 800 ARS — and cut government spending. While he told his people that things would have to get worse before they get better, a New York Times deep dive into his policies shows that many in his country, especially those with low income or working in the country’s large informal economy, are struggling.

Don’t worry. Argentina, unlike Egypt, has so far defaulted on its sovereign debt nine times, with warnings that a tenth default is only a matter of time.

Argentina’s new president wants to dollarize: One of Milei’s promises on the campaign trail was to dollarize the country, a move which would make the ARS obsolete as the country adopts the USD as its currency of choice. This would “tie Argentina to the mast,” making it less flexible on monetary policy, according to the folks at our favorite econ podcast Planet Money. “People [of Argentina] kind of have lost faith in their own currency,” they said. Could it work? That depends on several conditions. You can listen here on the web or here on Apple Podcasts (runtime: 24:13).

THE BIG STORY ABROAD-

It is another very quiet morning in the western press as the holiday news slowdown drags on.

Israeli airstrike kills Iranian commander: An Israel airstrike outside Syria’s Damascus killed Sayyed Razi Mousavi, a senior advisor in Iran’s Revolutionary Guards who was responsible for coordinating the military alliance between Syria and Iran. Israel will “pay the price” for Mousavi’s assassination, the Guards said in a statement. (Reuters | New York Times | The Guardian | BBC)

MARKET WATCH-

It’s business as usual at gold shops, member of the gold division at the Federation of Egyptian Chambers of Commerce (FEDCOC) Nadi Naguib told Enterprise, denying claims that gold shops shut their doors after soaring demand pushed prices to record highs. The price of 24 karat gold rose to an unprecedented EGP 3,571 per gram yesterday.

That wasn’t the case for some digital marketplaces: Gold trading platform iSagha suspended gold pricing yesterday due to “instability” and “market manipulation,” it said in a statement.

CORRECTION- In our FX Watch in yesterday’s edition of EnterpriseAM, we mistakenly wrote that the Tax Authority has been charging a 15% value-added tax on services sold in Egypt, instead of 14%. We have since amended the story on our website.

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Here is what Egypt plans to offer green hydrogen investors

One step closer to the long-awaited green hydrogen incentives: The House Energy and Environment Committee approved a cabinet-drafted decision putting forward a package of incentives for Egypt’s green hydrogen industry. The decision would extend a series of tax breaks and non-tax incentives to companies implementing green hydrogen projects within five years and deriving a certain percentage of their financing from foreign lenders. The incentives were greenlit by the cabinet in May, and many players in the market had expected to see them in full early in 2023, when excitement about the technology was at its peak after COP27.

The tax breaks on the table: Under the decision, companies operating in the sector could be eligible to receive tax breaks of between 33-50% on income earned from the plants. They will also be exempted from VAT on raw materials and machinery purchased for the projects and customs on materials imported for the project and exempt from paying real estate taxes, stamp taxes, and a number of other administrative fees.

Non-tax incentives: If passed, the decision will see green hydrogen projects receiving a number of licensing facilities, extended grace periods on payments, and will be able to import and export without being on either of the registers. Eligible companies will also receive a 25% markdown on usufruct fees collected on plots housing green hydrogen factories and a 20% markdown on fees on plots housing green hydrogen storage units, as well as a 30% reduction on port charges.

To be eligible: Companies will need to have their projects up and running within five years and obtain at least 70% of their financing from foreign lenders. They will also be expected to source at least 20% of their inputs from local suppliers as part of the government’s push to increase localization and reduce reliance on imports. Companies will also have to provide a plan to train Egyptians who are working on the project, and provide a program for local community development.

Egypt is big on green hydrogen: Egypt aims to provide 5-8% of the world’s hydrogen and reduce annual carbon emissions by 40 mn tons by 2040, creating some 100k jobs and adding USD 10-18 bn to GDP in the process. The government has also signed MoUs with 23 developers and framework agreements with nine international power companies to develop green hydrogen projects.

It’s a global competition:Egypt is racing countries around the world to provide green hydrogen incentives as a means of attracting investors.The US is among the biggest players in this global competition, with the Biden administration’s Inflation Reduction Act offering US green hydrogen producers a USD 3 tax credit per kilo of hydrogen for their first 10 years of operation, pushing green hydrogen production costs in the US into sub-zero territory in the short term.

What’s next? The decision will be up for a final discussion and vote when the House reconvenes on 2 January. We are also waiting for the government to unveil its green hydrogen strategy — currently in its final stages — after it received approval from the National Green Hydrogen Council.

AML regulations are getting an overhaul from the CBE:The Central Bank of Egypt (CBE) issued a circular (pdf) on Sunday upgrading its anti-money laundering (AML) controls and scrapping the 2008 regulations in a bid to tighten monitoring of cash flow. Banks will have a six-month window to implement the new measures.

What for? The new rules focus on keeping taps on clients' activities and transfers — particularly transactions made in USD and credit card deposits — to ensure compliance with international laws, a government source told Enterprise. Recent practices spotted in greenback certificates and a lax approach when it comes to questioning the source of USD deposits — a quick fix for Letters of Credit crisis — have prompted the CBE to raise the bar for monitoring recent cash flows, the source added.

What’s under the spotlight?

Large or frequent cash deposits or withdrawals that are inconsistent with the client’s profile.
Deposits by different parties into a client’s account without a clear purpose.
Large or frequent FX transactions without a need-to basis.
Large or frequent transfers to / from parties near border crossings or in high-risk countries.
Deposits that are immediately withdrawn after being deposited.
Large or frequent transfers from foreign e-payment companies or companies known for working with crypto.

Tightening the reins on USD from unknown sources: The new rules partially reverse a no-questions-asked approach implemented by banks back in July, where they offered to take in USD for FCY deposit certificates without inquiring about the source of the funds. The policy was among many emergency measures taken to attract foreign currency amid the ongoing FX crisis.

The plan: T-Vencubator wants to deploy funds in five startups next year, with plans to kick off its incubator program in July, a company representative told Enterprise. The firm will mainly target early-stage startups offering tech solutions, but Series A funding and buying stakes from existing investors are also in the cards.

What they said:“T-Vencubator will focus on promising companies that have promising ideas and use tech solutions and artificial intelligence to tackle challenges. The companies [we will invest in] and size of investments will be announced in 2024,” CEO Reem Safy (LinkedIn) said.

** We spoke to Safy last year for our My Morning Routine column.

The Grand Egyptian Museum gets a mention from the Financial Times

The Financial Times gives us a vivid warm-up tour of the Grand Egyptian Museumthat’s set to open by or before May 2024, rhapsodizing about its architecture, the collections it houses, the intricate process it took to transport King Khufu’s boat, and the museum’s implications for our tourism sector — with insights from Tourism Minister Ahmed Issa.

Egypt’s Tameer secures EGP 956 mn loan. PLUS: News from JAF Investment and Madinet Masr

A little bit of debt, a little bit of M&A, and a little bit of real estate news.

DEBT-

Tameer secures 956 mn for New Cairo project: Real estate developer Tameer has landed an EGP 956 mn loan from Banque du Caire for its business park project Urban Business Lane in New Cairo, according to a statement (pdf). The project, which will include 10 commercial and administrative buildings, is estimated to cost EGP 8.6 bn.

M&A-

JAF Investment acquires stakes in two AIH subsidiaries:JAF Investment, which is headed up by Arabia Investments Holding (AIH) chairman Gamal Abdelfatah Othman, has acquired minority stakes in two AIH subsidiaries, Al Borsa reported. JAF purchased a 30% stake in SME finance firm UE Finance for EGP 147 mn and a 30% stake in Rawaj Consumer Finance for EGP 30 mn. JAF first submitted its offer for the stakes in May, with the company head pleading to “observe all the principles of conflict of interest.”

REAL ESTATE-

Madinet Masr closed EGP 7 bn worth of contracts in 2023:Homegrown real estate developer Madinet Masr has inked EGP 7 bn worth of contracts with 73 companies over 2023, it said in a press release (pdf ). The contracts include a EGP 1.7 bn MoU with local construction company El Hazek to construct the final stage of Madinet Masr’s Taj City project and the company’s new HQ.

There is no news this morning on Planet Finance

There’s nothing happening this morning on Planet Finance, ladies and gentlemen. Western markets were closed yesterday, as was the Korea Exchange. While traders will crawl out of bed and to their desks this morning, don’t expect much in the way of energy.

Asian markets are mixed this morning in what CNBC is calling “subdued” trading. Australia, New Zealand, and Hong Kong remain closed for Boxing Day. Shares in Korea and Shanghai are flat at dispatch time.

One thing to read: Meet “ The man preparing for a Berkshire Hathaway without Warren Buffett,” wherein the WSJ profiles Greg Abel, the Canadian former energy exec who is set to become Buffett’s successor when the now-93-year-old steps down.

That’s it, folks. That’s the best we can do for you today, and we don’t expect tomorrow to be much different. Enjoy the slowdown — you know it won’t last…

EGX30	24,227	+1.7% (YTD: +66.0%)
USD (CBE)	Buy 30.83	Sell 30.96
USD at CIB	Buy 30.85	Sell 30.95
Interest rates CBE	19.25% deposit	20.25% lending
Tadawul	11,813	+1.1% (YTD: +12.7%)
ADX	9,484	-0.1% (YTD: -7.1%)
DFM	4,018	-0.1% (YTD: +20.5%)
S&P 500	4,755	+0.2% (YTD: +23.8%)
FTSE 100	7,698	0.0% (YTD: +3.3%)
Euro Stoxx 50	4,521	-0.1% (YTD: +19.2%)
Brent crude	USD 79.07	-0.4%
Natural gas (Nymex)	USD 2.54	-2.8%
Gold	USD 2,066	-0.2%
BTC	USD 43,656	0.0% (YTD: +162.5%)

THE CLOSING BELL-

The EGX30 rose 1.7% at yesterday’s close on turnover of EGP 2.6 bn (20.4% below the 90-day average). Local investors were net sellers. The index is up 66.0% YTD.

In the green: TMG Holding (+6.5%), Ezz Steel (+4.7%) and Orascom Construction (+4.7%).

In the red: Edita (-2.7%), B Investments Holding (-2.7%) and Orascom Development (-2.2%).

CORPORATE ACTIONS-

Mopco’s paid-up capital to increase ninefold following merger with subsidiary: Misr Fertilizers Production Company (Mopco) has filed a request with the EGX to increase its authorized capital to EGP 50 bn from EGP 2.3 bn and its paid-up capital to 20.8 bn from EGP 2.3 bn, according to an EGX news bulletin. The request follows its merger with subsidiary Egyptian Nitrogen Products Company (ENPC) earlier this week.

CIRA Education is paying out dividends worth EGP 140 mn at EGP 0.24 per share on its FY 2021-2022 earnings, it said in an EGX disclosure (pdf) yesterday. The dividend distribution was approved by the general assembly back in October.

Arabian Cement is paying out a dividend of EGP 0.26 per share on its 2022 earnings, according to an EGX disclosure (pdf). The dividend will be distributed to eligible shareholders starting 11 January.

CALENDAR

2024

JANUARY

1 January (Monday): Egypt to join the Brics.

1 January (Monday): Private-sector minimum wage to rise to EGP 3.5k and minimum pension rate to rise to EGP 1.3k.

7 January (Sunday): Coptic Christmas (national holiday).

9 January (Tuesday): B Investments’ general assembly (pdf) to look into capital increase ahead of Orascom Financial Holding (OFH) acquisition.

17 January (Wednesday): A delegation of Egyptian companies to visit Istanbul.

25 January (Thursday): Revolution Day / Police Day (national holiday).

FEBRUARY

11 February (Sunday): Deadline to apply for the Chicago Booth Executive Programin El Gouna.

25 February 2024 (Sunday): Deadline to bid for 23 blocks in an international oil and gas tender.

MARCH

20 March (Wednesday): End of sugar export ban.

APRIL

9 April (Tuesday): Eid El Fitr (TBC) (national holiday).

25 April (Thursday): National holiday in observance of Sinai Liberation Day (TBC) (national holiday).

MAY

1 May (Wednesday): National holiday in observance of Labor Day (TBC) (national holiday).

5 May (Sunday): Coptic Easter.

6 May (Monday): Sham El Nessim (national holiday).

29 May (Wednesday): Virtual launch of Chicago Booth Executive Program.

JUNE

15-19 June (Saturday-Wednesday): Eid El Adha (TBC) (national holiday).

30 June (Sunday): June 30 Revolution Day (national holiday).

JULY

7 July (Sunday): National holiday in observance of Islamic New Year (TBC).

23 July (Tuesday): Revolution Day (national holiday).

SEPTEMBER

2-5 September (Monday-Thursday): Egypt International Airshow, El Alamein International Airport.

15 September (Sunday): National holiday in observance of Prophet Muhammad’s birthday (TBC).

OCTOBER

6 October (Sunday): Armed Forces Day.

EVENTS WITH NO SET DATE

Q1 2024: Opening of the newly developed Pyramids Plateau in Giza.

February-May: The Grand Egyptian Museum could officially open to visitors.

June 2024: Gov’t expects to finalize sale of Beni Suef combined-cycle power plant.

1H 2024: Gov’t expects to finalize sale of four water desalination plants.

2H 2024: Gov’t to launch the Cairo Ring Road BRT buses.

November 2024: Egypt to host the World Urban Forum (WUF12).

End of 2024: The launch of the high-speed train line linking Ain Sokhna with Al Alamein City.

2024: Standard Chartered Bank to open a branch in Egypt.

2025

EVENTS WITH NO SET DATE

2Q 2025: Safaga Terminal 2 to start operations.

2027

EVENTS WITH NO SET DATE

End of 2027: Trial operations at the Dabaa nuclear power plant expected to take place.

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