Debt service reduction strategy and a fresh social safety package are part of Kouchouk’s plan as FinMin

Wednesday, 7 Aug 2024

Debt service reduction strategy and a fresh social safety package are part of Kouchouk’s plan as FinMin

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Today at a glance

ECONOMY

Kouchouk holds his first presser, giving us a glance at what’s to come.

ECONOMY

Foreign reserves hit a fresh high of USD 46.5 bn in July.

Commodities

GASC launches its largest ever wheat tender.

M&A WATCH

Sidpec-Ethydco merger to go through another financial evaluation.

ALSO ON OUR RADAR

Beltone secures SME finance license.

WHAT WE’RE TRACKING TODAY

Global markets continue to recover after days of losses.

Startup watch

Fintech player Lucky One raises USD 3 mn in funding.

PLANET FINANCE

Pressure builds on the Fed to cut rates following market meltdown.

HARDHAT

What can Egypt’s construction industry do to ensure a sector-wide rebound?

WHAT WE’RE TRACKING TODAY

Egypt will be facing Spain in the quarterfinal of the men’s handball tournament

Good morning, wonderful people. We have a packed issue for you this morning, led by Finance Minister Ahmed Kouchouk’s first press conference, where he gave us the rundown on what we can expect from the Finance Ministry over the coming period.

WATCH THIS SPACE-

Arabia Holding mulls EGX listing: Real estate player Arabia Holding is looking into listing the company on the EGX, Chairman Tarek Shoukry told Asharq Business. The company is looking to expand regionally, namely in the Saudi market.

Do you want to attend our 2024 Enterprise Finance Forum on 24 September? Seating is strictly limited at our flagship, invitation-only forum for C-suite executives and other senior leaders.

Why attend? We’re in the early days of a generational realignment of power in our industry — in our region and beyond — and on the cusp of the biggest intergenerational transfer of wealth that the world has ever seen. With that as the backdrop, we’re going to take stock of where we stand six months after the float of the EGP and ask what’s next for finance in our country and the wider region. Among the questions we’ll be asking:

What’s Egypt’s role in the regional industry?
What are foreign investors looking for right now?
Is real estate the only asset class in Egypt?
What does the next generation of leaders think as they take over established family businesses?

Do you want to request an invitation? Tap or click the image above.

HAPPENING TOMORROW-

Google I/O Extended MENA comes to Cairo: The highly anticipated Google I/O Extended MENA event is taking place tomorrow at Shorouk Academy in Shorouk City, Cairo. The event promises a packed day of tech insights and networking for both new and experienced developers. Attendees can expect over five keynote speeches, 30+ talks and panels, and over 90 workshops covering a wide range of topics including web development and AI. You can check out the full agenda and list of speakers here and book your seat here.

PSA-

WEATHER- It’s another hot day in Cairo, with a high of 36°C and a low of 27°C, according to our favorite weather app.

It’s a little nicer in Alexandria, with a high of 32°C and a low of 24°C.

** DID YOU KNOW that we now cover Saudi Arabia and the UAE?

** Were you forwarded this email? Tap or click here to get your own copy delivered every weekday before 7am Cairo time — without charge.

THE BIG STORY ABROAD-

Global markets are catching their breath after stocks staged somewhat of a comeback yesterday, recovering some of the losses from the past three days as investors eased recession concerns and Japanese equities bounced back during trading.

The rundown: The Dow gained 0.76%, while the S&P 500 rose 1.04%, and the Nasdaq Composite closed up 1.03%. Major tech stocks like Nvidia and Meta Platforms saw rebounds after being among some of the worst performers on Monday. Japanese stocks also boosted sentiment, with the Nikkei 225 experiencing its best day since October 2008, jumping 10.2% after a sharp decline the previous day. (CNBC | Financial Times | Wall Street Journal | Reuters)

AND- US Vice President and presidential nominee Kamala Harris tapped Minnesota Governor Tim Walz — who is known for being more broadly appealing in the voter base, despite not being the most well-known contender — as her running mate for the presidential campaign. (Bloomberg | AP | CNBC | Reuters | The New York Times | Wall Street Journal | Washington Post)

IN OUR NECK OF THE WOODS- Hamas tapped Yahya Sinwar as the new head of its political bureau, succeeding Ismail Haniyeh who was assassinated last week in Tehran. This makes Sinwar the main focal point for any diplomatic efforts aimed at halting the war in Gaza. (Reuters | Guardian | BBC | ABC News | Times of Israel)

OLYMPICS-

Here are the highlights from day 11 of the Paris Olympics:

Another day where history was made: Cuban wrestler Mijaín López, 41, wrote Olympic history, becoming the first athlete to ever win gold in the same event in five Olympic Games, following his victory in the Greco-Roman wrestling 130kg category, which he has dominated since the Beijing 2008 Olympics. Following his win, López left his shoes on the mat, signaling his retirement from the sport.

Canada dominates hammer throw events: Canadian Camryn Rogers won the women's hammer throw gold yesterday, while Poland's Anita Włodarczyk, who won gold in the last three Olympics, finished fourth. Rogers' win comes only days after Canada’s Ethan Katzberg secured the gold in the men’s event.

Algerian boxer Imane Khelif advanced to the final of the women’s boxing under 66kg, where she will face China's Yang Liu on Friday evening.

The medal standings now at the Paris Olympics:

USA (24 gold, 86 overall)
China (22 gold, 59 overall)
Australia (14 gold, 35 overall)
France (13 gold, 48 overall)
UK (12 gold, 46 overall)

TEAM EGYPT- The match of the day: We will be tuning in for the quarterfinal of the men’s handball tournament, where team Egypt will be taking on Spain at 10:30 am. The Pharaohs secured their spot in the quarterfinal after placing second in their group after defeating Argentina 34-27 earlier this week.

And stay on the lookout for: We also hope to clinch a medal in Greco-Roman wrestling through Mohamed Gaber, who will compete for the bronze in the 97 kg category in the competitions starting at 7:15 pm, after losing in the semi-final match yesterday with a score of 6-0 against Iran’s Mohammad Saravi.

It’s another busy day for team Egypt, here are matches you don’t want to miss::

Canoe sprint: Samaa Ahmed will be taking part in the women’s kayak single 500m heats at 10:30 am.
Wrestling: Mohamed Elsayed will be facing Azerbaijan’s Hasrat Jafarov in the men’s Greco-Roman 67kg at 12:00 pm and Mohamed Metwally will face Kazakhstan’s Nursultan Tursynov in the men’s Greco-Roman 87kg also at 12:00 pm.
Diving: Maha Amer will take part in the women’s 3m springboard preliminary at 4:00 pm.
Artistic swimming: The national team will be showing off their skills at the team acrobatic routine at 8:30 pm.

You can follow Team Egypt through this schedule or by heading over to our Paris 2024 Guide.

Want to see when your favorite sport is on? Check out the official schedule here.

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, and urban development, as well as social infrastructure such as health and education.

In today’s issue: We take a look at what Egypt's construction industry can do to ensure a sector-wide rebound.

Tags:

sports WHAT WE’RE TRACKING TODAY

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ECONOMY

Egypt’s Finance Minister Kouchouk holds his first presser, giving us a glance at what’s to come

Our first look at Kouchouk’s policies: Finance Minister Ahmed Kouchouk held his first presser since becoming FinMin to give us a glimpse of the results of the fiscal year 2023-2024 and let us in on his strategy moving forward.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

The main message: Kouchouk stressed that improved budget figures are “meaningless” unless they translate into better economic performance, increased business competitiveness, and improved living standards.

Among the most important metrics: The government rationalized public spending by 2.2% of GDP, brought down the budget deficit to 3.6%, and achieved a primary surplus of 6.1% during the last fiscal year.

TACKLING THE DEBT BURDEN-

Debt service reduction strategy in motion: The government wants to reduce debt servicing to 35% of total government spending over the medium term, Kouchouk said, adding that the government is working on a comprehensive program to achieve this goal. Continuing to lower debt costs, extend debt maturities, and diversify the investor base, currencies, and markets should help address the debt burden.

Remember: Debt service costs — as outlined in this fiscal year’s budget — are set to reach EGP 1.8 tn, taking up around 46% of state expenditures, by our calculations.

Debt as a proportion of GDP to fall: The Finance Ministry expects the country’s debt-to-GDP ratio falling to below 85% by the end of FY 2025-26, he said, adding that the government wants to maintain an annual primary surplus to achieve this goal. The country’s debt-to-GDP ratio is expected to fall to 88.2% in the current fiscal year.

External debt fell some 4% y-o-y by the end of the last fiscal year, falling USD 3.5 bn, Kouchouk said, without disclosing the final figure. Our external debt registered record decline in May, dropping 8.4% from December 2023 to USD 153.9 bn. The average length of our foreign debt is 12.7 years, he added.

Moving forward: The state plans to turn to the local debt market over the coming period, Kouchouk said, adding that the ministry will be looking to expand its debt instruments like treasury bonds, green bonds, and sukuk. He also mentioned taking out soft loans from our multilateral partners.

BOOSTING REVENUES THROUGH HIGHER TAX COLLECTION-

No new taxes: The government has no plans to introduce new taxes, Deputy Finance Minister for Taxes Sherif Al Kilani said, calling the idea “unrealistic” in light of the current inflationary pressures.

In order to boost tax revenues, the government wants to integrate the informal economy, he added.

Tax revenues on the rise: Tax revenues grew by 30% y-o-y in fiscal year 2023-24 to record EGP 1.49 tn, which helped push revenues up 60%, outpacing spending growth. Tax revenues went to health, education, and social support spending.

The taxman came for content creators: The Tax Authority collected EGP 4.3 bn in taxes from e-commerce businesses during the last fiscal year, EGP 2.1 bn of which were collected from content creators, according to Egyptian Tax Authority head Rasha Abdel Aal.

The blogger tax is fairly new, first introduced in 2021 — All YouTubers and content creators must pay income tax, while those who earn over EGP 500k a year via local platforms must also charge VAT.

Learn more: Head over to our explainer that breaks down everything you need to know about the so-called blogger tax.

Non-tax revenues saw a huge jump: Non-tax revenues surged by 190% y-o-y thanks to the state diversifying its revenue streams, the minister said, pointing to the fund received from the Ras El Hekma agreement.

Tax policy finally coming? The long-awaited tax policy should be out during the current quarter, Al Kilani said.

A lot earlier than expected: The tax policy has been in the works for some time now and last we heard, the tax policy was to be presented for public consultation this quarter to be ready in 1Q 2025.

MORE SPENDING ON SOCIAL WELFARE-

Significant increases in social spending: Government spending on subsidies and social protection more than doubled from FY 2020-21 to EGP 550 bn — the government had penciled in EGP 530 bn in social safety spending in its draft budget.

And more to come: The state is mulling a package of social protection measures aimed at mitigating the impact of inflationary pressures on Egypt’s most vulnerable, Kouchouk said, confirming an earlier Enterprise report. The move is still being studied, he added. Our sources told us earlier this week that the government is gearing up to announce a new package of social protection measures in September, with plans to implement it starting October.

More spending on subsidies: The government spent EGP 165 bn (a 31% y-o-y increase) on fuel subsidies and over EGP 133 bn (a 10% y-o-y increase) on food subsidies, according to Kouchouk.

ALSO WORTH NOTING-

Fresh privatization targets: The government is looking to raise around USD 2-2.5 bn through the privatization of state-owned companies this fiscal year, Kouchouk said.

Remember: In April, the former Madbouly government said that it aims to raise around USD 1 bn from its privatization program in 2024, revising down initial goals of raising some USD 6.5 bn during the calendar year.

Things have been pretty stagnant on the privatization front but we’re expecting them to pick up, especially after the IMF pointed to the need for the state to accelerate efforts needed to implement the State Ownership Policy.

AND- Oil hedging contracts still on the table: Kouchouk believes that the current period is a good chance for Egypt to take out oil hedging contracts against fluctuating oil prices saying that “we won’t waste it.”

Refresher: The former government used hedging contracts throughout the fiscal year 2023-24 to hedge against rising oil prices. And a government official previously told us that the measure could be extended to other strategic commodities.

DATA POINT- The government has cleared USD 34 bn worth of goods across the country’s ports since the beginning of the year, at an average of USD 6 bn per month, Customs Authority head Shahat Ghatwary said. The figure includes 85k cars that have been stuck at ports.

And more to come? The central bank started handing out letters of credit (LCs) to importers of non-essential goods at the start of June.

FOSTERING INVESTMENT-

Lots of export subsidies paid out: The government disbursed EGP 12.9 bn in export subsidies last fiscal year, with the total amount reaching EGP 65 bn since the launch of the initiative in 2019.

And lots of support for industry: The government has spent over EGP 80 bn providing over 2.5k investors with subsidized loans.

A contraction in public investment in favor of the private sector: Kouchouk highlighted that the government’s level of public investment decreased last fiscal year, as part of state efforts to boost private investments in the economy.

Tags:

Ahmed Kouchouk economy Finance Ministry

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ECONOMY

Egypt’s foreign reserves hit a fresh high of USD 46.5 bn in July

Foreign reserves continue their ascent: Net foreign reserves edged up by USD 105 mn in July to just under USD 46.5 bn, surpassing the previous record high USD 46.4 bn recorded in June, according to the Central Bank of Egypt

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

Here’s the breakdown, according to CBE data:

Foreign currency reserves edged down to USD 36.3 bn in July from USD 36.9 bn in June.
Gold reserves inched up to USD 9.9 bn in July from USD 9.5 bn the month before.
Special drawing rights grew almost 25x to USD 302 mn in July from USD 12 mn in June.

Sound smart: Special drawing rights (SDRs) are international reserve assets created by the IMF. While they are not a currency, they are a form of international money that can be used by countries to supplement their official reserves. They are primarily used for IMF transactions, such as repaying loans or increasing quotas.

On the up and up: Egypt's net foreign reserves have increased by about USD 11.2 bn in the five months since the government announced the USD 35 bn Ras El Hekma agreement, which gave the central bank the buffer it needed to float the EGP, helping attract FX liquidity back to the official banking system and paving the way for more international funds. Foreign reserves stood at nearly USD 35.3 bn in February.

No signs of slowing down: The third USD 820 mn tranche of our expanded USD 8 bn IMF loan program landed in state coffers last week after the IMF Executive Board greenlight the third loan review, which also allows us to apply for an additional USD 1.2 bn in long-term, low-cost climate financing from the IMF's Resilience and Sustainability Facility.

We have more incoming: The government has EUR 5 bn worth of concessional loans from the EU coming its way by 2027, with the first EUR 1 bn in macro-financial assistance set to land in state coffers during the second half of 2024. The World Bank has also earmarked USD 3 bn for the government over the next three years to support the government’s economic and structural reforms, social protection programs, and green transition, with the first USD 700 mn trance recently greenlit by the bank.

A look into Fitch’s crystal ball: Credit rating agency Fitch Ratings expects Egypt’s foreign currency reserves to reach USD 49.7 bn in the current fiscal year and USD 53.3 bn in the next.

Tags:

Central Bank of Egypt economy foreign reserves

Commodities

Egypt launches its biggest wheat tender ever

GASC launches its largest ever wheat tender: State grain buyer GASC yesterday launched a tender for up to 3.8 mn tons of wheat for import over a seven-month period, marking its largest tender to date, according to what traders told Reuters. This volume accounts for nearly a third of the authority’s yearly wheat requirement, Bloomberg writes. Bidders are required to offer quantities for at least three months of shipment and must submit their offers by next Monday.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

The details: GASC is looking to secure monthly shipments starting October and until April on a free-on-board basis. The authority will settle payment through 270-day letters of credit.

Traders are baffled: “This is a very strange tender,” one trader told Reuters, adding that traders it would be “very difficult to submit a freight offer six or seven months in advance.” Another added that it is unlikely that GASC ends up securing shipments for the entire 3.8 mn tons it is after.

Our way of capitalizing on falling commodity prices: “There is a decrease in the global market and global commodity prices … It is a chance to buy what we need of these goods due to the current situation in the global market,” Finance Minister Ahmed Kouchouk said yesterday.

Tags:

commodities GASC trade wheat

M&A WATCH

Sidpec-Ethydco merger to go through another financial evaluation

The Sidpec-Ethydco merger hits a speed bump: The long-planned all-share merger of state-owned Egyptian Ethylene and Derivatives Company (Ethydco) and Sidi Kerir Petrochemicals (Sidpec) is reportedly back in the financial evaluation stage, Al Mal reports, citing sources it says are familiar with the matter.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

Refresher: In July 2023, Sidpec’s board of directors signed off on the company’s all-share merger with Ethydco after approving Baker Tilly’s valuations, which pegged Ethydco’s value at EGP 33.5 bn (around EGP 2,420.09 per share) and Sidpec’s at c.EGP 23.1 bn (around EGP 30.60 per share).

But Sidpec’s bid to take over Ethydco was put on ice when Abu Dhabi’s sovereign wealth fund ADQ inked contracts with the Sovereign Fund of Egypt to acquire 30% of Ethydco, along with 35% of Egyptian Linear Alkyl Benzene (Elab) and 25% of the Egyptian Drilling Company (EDC), for USD 800 mn in October. Now that ADQ’s acquisition of Ethydco has gone through, the merger is “on the verge of execution,” according to unnamed sources cited by Al Mal. ADQ should soon name its representatives to sit on Ethydco’s board of directors.

EGX listing will also be subject to revaluation: The source told the news outlet that the plan to offer a stake in the merged entity will also be reevaluated.

Tags:

Ethydco M&A Watch petrochemicals Sidi Kerir Petrochemicals

Startup watch

Egyptian fintech player Lucky One raises USD 3 mn in convertible note funding

Lucky One raises USD 3 mn: Local consumer credit fintech player Lucky One has raised USD 3 mn in a convertible note from existing investors that include local fintech- and tech-focused VC DisrupTech Ventures, Egypt-focused private equity firm Lorax Capital Partners, and KEM, the company said in a press release (pdf) yesterday.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

SOUND SMART- A convertible note is a type of financing used by startups to raise early-stage capital. Think of it as a bridge loan that can transform into equity or ownership in the company at a later date — investors give money to the startup, which can either be repaid or converted into shares in the company later on.

What’s next: The new financing round will enable the startup to scale up its credit lending offering to users in Egypt. The startup also has plans to expand throughout the region over the coming 24 months, the release said, without mentioning what specific markets the company is looking to enter.

Lucky One? Founded in 2018 by Momtaz Moussa, Ayman Essawy, and Marwan Kenawy, Lucky One is an app that offers “financial flexibility and increased spending power” through its lending scheme, as well as offers and cashbacks for over 100 websites. The company in 2022 launched its Lucky One Card, which allows customers to access cashback rewards, pay mobile bills, and withdraw and deposit funds. It has since expanded its operations both in Egypt and in Morocco, and is now looking to scale its credit vertical as it looks to achieve profitability by the beginning of next year, the release said.

What they said: “On our path to sustainable profitability, Lucky is leveraging its solid collection processes and low default rates to ultra-scale our consumer credit vertical to ensure timely and effective offerings,” CEO Momtaz Moussa said

**We sat down with Lucky One Co-Founder Ayman Essawy for our Founder the Week column in 2022. Check out the interview here.

Tags:

Fintech Startup watch startups

LAST NIGHT’S TALK SHOWS

El Sisi, Biden discuss tension in the Middle East

Politics continued to dominate talk shows last night, with the nation’s talking heads focusing on President Abdel Fattah El Sisi’s phone call with US President Joe Biden yesterday evening.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

The pair discussed regional developments and tension in the Middle East, addressing concerns about a potential escalation in regional hostilities. The two agreed to “continue their intensive joint efforts to achieve a ceasefire [in Gaza] and to work towards implementing the two-state solution.” Egypt, the US, and Qatar have been trying to broker a ceasefire agreement between Hamas and Israel for months now but with no luck. Ala Mas’ouleety (watch, runtime 3:21) had the news.

ALSO IN THE DIPLOMACY SPHERE- Foreign Minister Badr Abdelatty also kept busy: The minister yesterday met with his Lebanese counterpart Abdallah Bou Habib to discuss the war in Gaza, its implications for Lebanon, and Egypt’s efforts to prevent things from escelating. Abdelatty also held phone calls with his Jordanian and Chinese counterparts to discuss regional developments.

Tags:

DIPLOMACY LAST NIGHT’S TALK SHOWS

ALSO ON OUR RADAR

Beltone secures SME finance license

NBFS-

Beltone secures SME finance license: Beltone Holding has received the greenlight from the Financial Regulatory Authority to launch its SME finance service, according to a statement (pdf). This milestone underscores Beltone’s commitment to addressing the growing needs of SMEs in Egypt and the region, the statement read.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

What they said: “We are dedicated to providing innovative and tailored financing solutions to meet the needs of SMEs,” said Beltone SMEs CEO Ashraf Abdel Fattah. “Our aim is to serve as a catalyst for SME growth and development by equipping them with financial tools and resources to achieve their business objectives.”

MINING-

Fresh details on the Aswan mining complex: The Oil Ministry’s industrial mining complex in Aswan is expected to see EGP 700 mn in investments over two phases, an unnamed government official tells Al Arabiya. State-owned Shalateen Mineral Resources — the project owner — will finance the complex, with investments to be pumped in two phases ending May 2026. Egypt Gas is currently implementing the first phase of the complex, with plans to have it ready in 2Q 2025.

The initial phase will house 56 factories, with the number expected to rise to over 112 by the end of the second phase. The project is designed to regulate informal mining activities and boost extraction rates by 70-80%, the official added.

COMMODITIES-

Dates on the EMX? The government is looking into either adding dates to the Egyptian Mercantile Exchange (EMX) or creating an exchange only for date trading, unnamed sources at the Agriculture Ministry told Enterprise, adding more color to a statement from the ministry. Agriculture Minister Alaa Farouk yesterday discussed all things date with Abdelrahman Al Habib, the executive director of the International Dates Council.

** We dive into all things date production industry in an Inside Industry published last year.

MANUFACTURING-

MO Group is expanding production: Food and beverage producer MO Group for Food Industries is investing some EGP 100 mn to add new production lines for chocolate and biscuits, Chairman Hamdy Al Abraq told Al Mal. The company expects production on its new lines to begin before the end of the year.

HOSPITALITY-

Safir wants to boost hotel room capacity in Egypt: Kuwait’s Safir Hotels & Resorts wants to increase its hotel room capacity in Egypt by 50% to 1.5k next year by adding more hotels to its portfolio, the company’s general manager in Egypt Hussein Shoukry tells Al Arabiya. The company is currently in talks to manage two new hotels — one near the Pyramids and the other in Downtown Cairo.

In line with state efforts: The government has been working to push hospitality players to increase their hotel room capacity in line with its goal to attract 25 mn tourists per year by 2028. The Madbouly cabinet approved a EGP 50 bn tourism initiative in December that will see the government offer financial incentives to encourage hospitality players to increase their hotel room capacity.

Tags:

ALSO ON OUR RADAR Beltone Financial commodities hospitality mining

PLANET FINANCE

Pressure builds on the Fed to cut rates following market meltdown

The last couple of days have been a rollercoaster ride for market-watchers: After a massive stock sell-off on Monday, markets somewhat recovered following reassuring comments from US Federal Reserve officials and positive US service-sector job growth data. Yet, the brief panic indicates that the market fundamentals undergirding this year's equities gains may not be entirely sound — spelling further turbulence as the Fed attempts to chart a soft landing for the US economy.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

The roots of the sell-off: Monday’s meltdown follows the buildup of a confluence of pressures over the last few weeks, including jitteriness around the big tech stocks that have driven Wall Street to new heights; the Bank of Japan’s late-July rate hikes after decades of ultra-loose monetary policy; lower-than-expected US job growth numbers for July that heightened fears of a US recession; and disappointing earnings reports from major companies like Microsoft. While Tuesday’s rebound suggests that the sell-off spiral may have been somewhat of an overreaction, some of these developments point to frailties in the assumptions undergirding financial market gains — including unfettered AI euphoria, confidence in continued loose Japanese monetary policy, and a surprisingly robust US economy.

As the immediate storm dies down, all eyes are fixed squarely on the Fed. Monday’s stock market plunge was accompanied by a surge in US government debt, with two-year treasury yields falling below those of the ten-year notes for the first time in two years. This phenomenon, known as yield curve desinversion, has preceded the last four US recessions, and has heightened fears that the Fed’s decision to put off rate cuts at its last meeting has tipped the US economy into recession. Markets, which last week began pricing in a hefty 50 bps rate cut in September, are now beginning to think that the Fed will move even quicker to cut rates — possibly before the central bank’s next meeting in mid-September.

A rate cut before mid-September would be a highly unusual move from the Fed, which largely refrains from making cuts between meetings unless the US economy is rapidly deteriorating. But even without an unscheduled meeting and an early cut, this recent episode is sure to have caught the Fed’s attention, chief US economist at GlobalData TS Lombard Steven Blitz tells the Wall Str eet Journal. “The markets are speaking to the Fed. They’re telling the Fed, ‘You’re too tight, and no, you can’t presume that everything is going to roll along merrily while you take the time to cut.’”

MARKETS THIS MORNING-

Asian markets are mostly in the green in early trading this morning, with the Nikkei and Kospi the biggest gainers, up 3.4% and 2.4%, respectively.

EGX30	28,210	+1.3% (YTD: +13.3%)
USD (CBE)	Buy 49.15	Sell 49.28
USD (CIB)	Buy 49.15	Sell 49.25
Interest rates (CBE)	27.25% deposit	28.25% lending
Tadawul	11,679	+1.5% (YTD: -2.4%)
ADX	9,084	+1.2% (YTD: -5.2%)
DFM	4,137	+2.3% (YTD: +1.9%)
S&P 500	5,240	+1.0% (YTD: +9.9%)
FTSE 100	8,027	+0.2% (YTD: +3.8%)
Euro Stoxx 50	4,575	+0.1% (YTD: +1.2%)
Brent crude	USD 76.48	+0.2%
Natural gas (Nymex)	USD 2.02	+0.3%
Gold	USD 2,429	-0.1%
BTC	USD 55,934	+3.7% (YTD: +32.6%)

THE CLOSING BELL-

The EGX30 rose 1.3% at yesterday’s close on turnover of EGP 2.6 bn (26.3% below the 90-day average). Local investors were net sellers. The index is up 13.3% YTD.

In the green: Juhayna (+8.2%), Amoc (+7.5%), and Madinet Masr (+3.5%).

In the red: Fawry (-1.0%) and Abu Qir Fertilizers (-0.2%).

Tags:

Financial Markets Planet Finance US Federal Reserves Wall Street

HARDHAT

What can Egypt’s construction industry do to ensure a sector-wide rebound?

Egypt’s construction industry expected to grow following last year’s dip: Egypt’s construction sector is set for a recovery and is estimated to grow consistently until the end of the decade, global real estate consultancy JLL said in its Construction Market Intelligence Report (pdf) for 1Q 2024. The report pointed to government spending, public-private partnerships, focus on infrastructure development, and rising foreign direct investment inflows collectively positioning the country to become an appealing destination for future investments.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

By the numbers: The construction industry in Egypt is expected to see a compounded annual growth rate of above 8% until 2029, JLL said, citing projections from market intelligence and advisory firm Mordor Intelligence.

This would be a big improvement of where the sector was in 2023: The total value of awarded construction projects last year was down 50.3% on the year before, coming in at USD 15.9 bn for the year, according to MEED Projects. The construction sector came in as the largest sector in this regard, contributing USD 7 bn to the total figure, while the remaining awards were distributed across sectors that include transport, oil, gas, and utilities.

There’s plenty of untapped potential and reasons to believe we could see an uptick in awards: Egypt’s share of the total pipeline value of unawarded projects in the MENA region is estimated at around USD 515 bn — 12% of the USD 3.9 tn projected for the region. Residential projects in the country make up USD 36 bn of this share, while mixed-use projects contribute around USD 115 bn of Egypt’s share.

But a newly introduced cap on public investments could complicate things: The state’s newly imposed EGP 1 tn cap on public investments for the current fiscal in response to the International Monetary Fund’s request to slow spending on infrastructure projects and rationalize fiscal policy, has left some contractors that work on infrastructure projects unsure as to how much work coming their way from the government they will continue to see. Many local contracting companies that have historically relied on the government for projects are now going to have to increasingly look elsewhere to find contracts to ink.

In terms of real estate, rising prices also present a challenge that needs to be addressed by the construction sector: The real estate sector is in the process of adapting to rising prices and a drop in financing to stop growth rates falling, industry players told Enterprise. Aside from a select number of projects that have attracted foreign clientele, the market as whole has undergone a general stagnation in sales, industry sources told us. Some companies have also resorted to promoting special offers wherein they reduce the prices of down payments and increase the size of installments as a means of hedging against rising prices, New Cairo Developers Association chair Mohamed El Bostany tells us.

Contractors have been quick to react: Industry players have taken several different paths towards ensuring the creation of 23k jobs for contracting firms across the country, Egyptian Federation for Construction and Building Contractors (EFCBC) head Mohamed Sami Saad told Enterprise. The sector could remain unaffected if firms are willing to shift from government contracting entities to an open market, Saad added.

There are a number of different ways for the industry to pivot away from relying on the government contracts, Saad added. One way according to the EFCBC official was partnerships with local and foreign real estate development firms to implement their investments, akin to the Ras El Hekma agreement and other large real estate projects. Saad also suggested working with international financing entities on funded projects in Egypt — such as drinking water and sewage projects.

The sector should also think about looking abroad for work: Saad recommended looking out for projects abroad, emphasizing that there are “significant” contracts to be inked in neighboring markets. Some contractors have already started doing this, with Arab Contractors set to build three road and infrastructure projects in Libya’s Derna and areas affected by Hurricane Daniel, the company announced in a press release last month.

This also applies to the real estate sector more broadly: With the Egyptian market becoming increasingly saturated with real estate investment, the way forward for the market is for firms to export real estate and hold real estate exhibitions abroad, El Bostany said. Holding exhibitions abroad, he added, will help companies sell a larger number of units and will attract FX inflows that would allow for even more growth in the sector.

Attracting new clientele could also play an important role: Companies also have to begin looking for new clients, El Bostany added, saying that firms are already looking to attract clients from neighboring countries, as well as international students and foreign residents — which he said has become easier due to residency and citizenship facilitation from the government. Developers will also be looking to attract liquidity in the coming period, especially from the Gulf — making luxury housing a key investment for developers, El Bostany continued.

Your top infrastructure stories for the week:

Gov’t looks to upgrade Egypt’s silo infrastructure: The ministers of supply investment are looking into pouring investments into the country's silo infrastructure and increasing the storage capacity of silos owned by the Egyptian Holding Company for Silos and Storage. (Statement)
Alameda, Dell are launching a data center: Local healthcare services provider Alameda Healthcare and Dell Technologies are launching a data center in Cairo aimed at transforming digital healthcare.
EV charging is coming to District 5: Leading fintech player Valu and solar energy company KarmSolar are setting up an EV charging network in New Cairo’s District 5.
Gov’t wants to allocate more land for new industrial zones: Cabinet’s National Center for Planning State Land Uses and the Federation of Egyptian Industries are looking into allocating 43 plots of land in 16 governorates for new industrial zones.
Updates on CSCEC’s planned medical city: The General Organization for Teaching Hospitals and Institutes inked an MoU with Chinese state-owned construction firm China State Construction Engineering Corporation (CSCEC) to design and construct its planned medical city off the Ain Sokhna Road.

Tags:

construction Hardhat JLL real estate

CALENDAR

2024

SEPTEMBER

3-5 September (Tuesday-Thursday): Egypt International Airshow, El Alamein International Airport.

5 September (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

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

24 September (Tuesday): Enterprise Finance Forum, Cairo, Egypt

25-26 September (Wednesday-Thursday): The Asian Infrastructure Investment Bank’s (AIIB) 2024 annual meeting, Samarkand, Uzbekistan.

25-28 September (Wednesday-Saturday): Cityscape Egypt, Egypt International Exhibition Center, Cairo.

OCTOBER

6 October (Sunday): Armed Forces Day.

17 October (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

13-17 October (Sunday-Thursday): Cairo Water Week, Water and Climate: Building Resilient Communities, Cairo, Egypt.

21-27 October (Monday-Sunday): The World Bank and IMF annual meetings.

30 September (Monday): Ban on sugar exports expiration.

NOVEMBER

4-8 November (Monday-Friday): World Urban Forum, Cairo, Egypt.

12-15 November (Tuesday-Friday): Arab African Investment and International Cooperation Summit, Aswan, Egypt.

21 November (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

26-28 November (Tuesday-Thursday): Egypt Energy Show, Cairo, Egypt.

DECEMBER

26 December (Thursday): Central Bank of Egypt’s Monetary Policy Committee meeting.

EVENTS WITH NO SET DATE

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

3Q 2024: Egyptian-Armenian Joint Committee.

September 2024: Turkish-Egyptian Business Council meeting in Turkey.

September 2024: US-Egypt Strategic Dialogue, Cairo.

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.

End of 2024: Shalateen Mining Company to launch a gold exploration tender in the Eastern Desert.

2025

July 2025: The first operational trail of Egypt-KSA electricity interconnection line.

EVENTS WITH NO SET DATE

2Q 2025: Safaga Terminal 2 to start operations.

2027

20 January-7 February: Egypt to host the African Games

EVENTS WITH NO SET DATE

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

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