** #1 The fall equity raising season is officially over. The state privatization program was not the only victim of the emerging markets selloff, according to Reuters’ Patrick Werr. At least three IPOs tentatively for the fourth quarter of this year have been postponed, according to an investment banker involved in one of the offerings. These include Rameda Pharma, Giza Spinning and Weaving and Hassan Allam Holdings, the source noted. “No IPOs this year. [They have been] all pushed to next year until we see how the market will recover,” he said. “I think everyone reached that decision.”

Will delaying the state privatization program adversely impact the budget deficit? The Madbouly government might have to adjust its budget deficit forecast for the FY 2018-19 now that it has delayed phase one of the state privatization program, says Werr. Egypt’s budget had projected that phase one of the program would see some EGP 10 bn flow into the treasury. The government was forced to postpone the programover the weekend amidst an emerging markets selloff and after Sarwa Capital’s shares fell 11% in their EGX debut last week. The state had been planning to sell 4.5% of its Eastern company this week as the first of as many as five companies that could have offered shares for sale this year.

Not necessarily. “The government still has time to resume share sales before the end of the fiscal year in June,” said Allen Sandeep, head of research at Naeem Brokerage. It could meet its revenue target from offerings in just two of the five originally planned for 2018, he added, pointing to Eastern Company and Abu Qir.

The delay was still right move: “If it were not postponed, and the Eastern offering had failed to be covered at proper valuation, this could have triggered a political backlash and possibly have jeopardized the whole program,” Hany Farahat, senior economist at CI Capital, told Reuters.

** #2 EXCLUSIVE- Egypt has formally asked the EU for permission to delay 0% customs duties on car imports. The Trade and Industry Ministry has formally requested that Brussels allow Cairo to wait another 1-2 years before cutting to 0% the duties on European Union-assembled cars brought into Egypt. We confirmed the news with three senior government officials with first-hand knowledge of the matter. The three noted that the EU has yet to respond to the request. Custom duties on EU-made car are expected to fall to zero on 1 January 2019 under Egypt’s trade liberalization agreement with the union. If the request is accepted, this would be the second time the EU had agreed to push back the agreement.

Chances are good that Egypt will get the delay: There is a strong possibility that the EU will accept the request, one of the sources suggested, especially as Egypt had recently brought its customs duties in line with the World Trade Organization’s Harmonized System Code, a global standardized system of classifying traded goods to determine their customs duties.

How long can we keep relying on the kindness of strangers? The Madbouly government and the domestic car assembly industry industry have been kicking back and forth the so-called Automotive Directive — a proposal that would give incentives to local assemblers to move up the value chain to manufacturing in return for tax breaks that would give them an ongoing price edge against EU, Turkish and Moroccan-made imports. The status of the proposed bill, which has largely stalled due to a combination of haggling in the House of Representatives and lobbying by car importers, remains a mystery. A senior government source had revealed to us back in August that the Trade and Industry Ministry, along with the ministries of investment and finance, are reworking the incentives system in the law from a general, nationwide system to a program of auto freezones. Trade and Industry Minister Amr Nassar had said that the law would be ready for the House of Representatives in October.

New investment is at stake: A number of foreign car companies have expressed an interest in growing some combination of assembly and manufacturing operations in Egypt — provided the government is clear on the status of the automotive directive. Most recently, a group of French auto companies, including Peugeot, said as much to Egyptian trade officials on the sidelines of the SIAL Paris exhibition, the head of Egypt’s commercial office in Paris Gamal Faisal told reporters. He noted that Peugeot is in advanced negotiations with Egypt over potential future investments, though he did not provide details. Renault apparently said it was conducting a study of the Egyptian auto market ahead of making any investment decisions.

We did score some agreements at the exhibition: Egypt reportedly came out of the SIAL exhibit with a number of agreements. French maintenance company Midas has entered into a preliminary agreement to open a franchise in Egypt, while an unnamed French auto company is looking to contract 15 Egyptian auto parts factories to supply it with parts, said Faisal without providing details.

We’re not alone in courting global car companies, as the Wall Street Journal recently pointed out with a look at how the rest of North Africa (alongside Kenya, Rwanda, Nigeria and Ghana) is becoming a “global hub for the automotive industry, exporting parts and manufacturing cars that are sold across the region, in Africa and into Europe.”

** #3 Egypt considers issuing EGP-denominated bonds on int’l market: The Madbouly government is considering an EGP-denominated bond issuance on the international market to encourage overseas inflows and curb the cost of borrowing, four unnamed sources told Bloomberg. “While investors would purchase the bonds in USD, the principal and interest would be payable in EGP, which means the buyer bears the risk of any fluctuation in the exchange rate,” they noted. While the sources did not delve into the mechanisms of the offering, they noted that the transactions would be cleared through Belgium-based settlement company Euroclear instead of local banks. These plans comes as the Finance Ministry is looking to diversity its funding with an eye to capping borrowing over the next four years at USD 20 bn. These include issuing eurobonds in USD, RMB, and JPY in 1Q2019.

Is the government expecting the EGP to fall in the coming period? Passing the FX risks to investors could indicate that the government is some pressure on the EGP. There’s a growing consensus among sell-side research analysts that the CBE is subtly defending the EGP, which has fallen substantially less against the USD this year than has an MSCI basket of emerging markets currencies. Capital Economics has said it expects the EGP could lose up to 10% of its value against the USD by 2020. The government line has always been that Egypt’s fundamentals have shielded the EGP from the EM selloff.

** #4 INVESTMENT WATCH- Pepsi to invest USD 515 mn in Egypt through 2021: PepsiCo Egypt is planning to invest USD 515 mn in the local market over the next four years, including USD 16 mn in CAPEX to develop its beverage production lines, CEO Mohamed Shelbaya told us yesterday after a press conference. Other CAPEX plans include investing an unspecified amount next year in PepsiCo’s snack products, which include Chipsy, Doritos, and Cheetos. The company has no immediate plans to roll out new products, he said. PepsiCo also plans to upgrade its fleet and distribution centers and will expanding the domestic cultivation of its agricultural raw materials.

PepsiCo has “invested in Egypt every year regardless of the difficulties” since the US-based company first brought its business to Egypt 70 years ago, Shelbaya said. The company has invested USD 606 mn in Egypt in the past four years. “We want to be ready to jump on opportunities once conditions improve, rather than wait to invest and struggle to catch these windows,” Shelbaya told Enterprise. The food and beverage sector is expected to grow at a 16% clip this year, he noted.

Once local operations fully recover, PepsiCo plans to begin exporting — and Africa will likely be where it begins tapping new markets, Shelbaya told us. “Africa has many countries that are very promising export markets. We’ve visited a few countries and found there is a large gap to fill in the snack and beverage sector,” he said. Shelbaya declined to disclose a projected timeline for the company to begin exports.

PepsiCo’s profit margins in Egypt have begun to recover as it has been working to streamline its operating model after costs ballooned following the devaluation of the EGP in late 2016. At the heart of this is the company’s agricultural program, which has seen it provide local farmers with potato seeds to cultivate the crop and sell it back to the company at market prices. The company now locally sources 70% of its potatoes for its Chipsy brand locally and has plans to bring that number up to 100%, in addition to launching exports of potato seeds “in the near future,” according to Shelbaya.

What about Egypt is most surprising to PepsiCo’s HQ? The resilience of the domestic market despite challenging conditions, Shelbaya says. “They never expected that we would rebound this much, this fast. Most countries that face the hardships we have take years and years to recover,” he said. To an outsider, this resilience probably raises more eyebrows than our sky-high sugar consumption, he suggested.

Shelbaya also spoke to Masaa DMC last night (watch, runtime: 5:56).

** #5 INVESTMENT WATCH- EAEF will commit some USD 30 mn to Egypt this year: The Egyptian American Enterprise Fund (EAEF) plans to invest an additional USD 30 mn this year in Egyptian SMEs, bringing its total investments in Egypt to date to USD 200 mn, US Chargé d’Affaires Thomas Goldberger said yesterday, according to Amwal Al Ghad. Goldberger did not provide further details.

US trade, investment delegation meets El Sisi: The announcement comes as a delegation of 44 US companies is in town to kick the tires on potential investments in Egypt. The delegation met yesterday with President Abdel Fattah El Sisi, Prime Minister Moustafa Madbouly and the ministers of investment and international cooperation, oil, health, agriculture, and ICT, according to an Ittihadiya statement. The delegation’s visit got airtime on Yahdoth fi Masr last night (watch here, runtime: 4:27 and here, runtime: 8:07).

CBE sets a mandatory 10% active e-wallet quota for the banking sector: The central bank bank has set a September 2019 deadline for banks to ensure that 10% of their e-wallet customers are active users. A directive to banks in August (pdf) also mandates that banks grow their active e-wallet users by at least 30% annually. Banks that do not meet this quota must explain to the CBE their strategy to boost active user numbers. CBE Sub-Governor for Payment Systems and Business Technology Ayman Hussein tells Al Mal that the central bank knows the quota will be tough to meet.

Other policies to boost a non-cash transactions: The CBE is currently working on setting up a mechanism to allow mobile money transfers from abroad without requiring users to open a bank account in Egypt, as regulations stipulate today, Hussein said. The CBE is working with regional central banks to reduce restrictions on mobile transfers between countries. Hussein also said that the CBE is working on guidelines for banks to begin using interactive teller machines (ITMs) — new types of terminals that allow customers to interact with bank staff via video chat to perform a wide variety of transactions and services (this blog post here breaks it down nicely).

** #6 Is the central bank changing its mind on crypto? The CBE is also studying the possibility of having Egypt issue its own cryptocurrency, Hussein said at a banking conference on Tuesday, according to the newspaper. The newspaper included no further details. The CBE has issued repeated warnings against the use of cryptocurrencies and cautioned that using them in Egypt is illegal.

Egypt spends over USD 1.5 bn a month on petroleum products it supplies to the local market, Reuters quotes Oil Minister Tarek El Molla as having said yesterday. The amount covers imports, as well as foreign oil companies shares’ of locally-refined products from JVs with the government, which add up to c. USD 700-800 mn a month, El Molla added. Earlier this year, former finance minister Amr El Garhy had said that tightening consumption of petroleum products in Egypt will help mitigate the impact of rising oil prices that have recently been straining the state budget. The government has reportedly spent an additional EGP 10 bn on fuel subsidies in 1QFY2018-19 as oil prices surged beyond a projected USD 67/bbl in the budget to cross the USD 80/bbl mark. Sources had told us that the fuel subsidy bill for the fiscal year could jump to EGP 100 bn, from EGP 89 bn, if Brent crude remains north of USD 75 / bbl.

** #7 LEGISLATION WATCH- Is the House looking to amend the Investment Act amid falling FDI? Worried about declining foreign direct investment, the House Economic Committee reportedly wants to call the ministers of investment and trade in for a chat in the coming month to discuss whether we need to tinker with the shiny new Investment Act. Egypt’s net FDI inflow dipped to USD 7.7 bn in the FY 2017-18, down from USD 7.9 bn the previous year.

House orders redrafting of bill that seeks to license advertising professionals: The House Culture and Media Committee rejected a private member’s bill yesterday that would have required individuals working in advertising or marketing to obtain a license to practice, Al Mal reports. The committee has asked that the bill, which was presented by Industry Committee chair Farag Amer, be entirely rewritten and restructured, saying that it lacks clarity. Media Committee member Jalila Othman also said Amer’s bill could have set the stage for the creation of monopolies in the ad industry. Amer had earlier this week proposed that non-licensed individuals working in the field face jail time and fines as high as EGP 100k. A working group will supervise the redrafting of the bill. Committee members include reps from the House media and industry committees, as well as the National Media Authority and Egyptian Advertising Association, and advisers to the ministers of justice and industry.

In other legislative news, the Housing Ministry is drafting legislation that would create a federation for Egyptian real estate developers, Assistant Minister Khaled Abbas said, according to Al Mal. Under the law — the main aim of which will be to regulate the market and shield consumers against unfair practices — the federation would be responsible for setting and enforcing industry guidelines. The bill should will be ready in six months from now, Abbas added. No further details were disclosed.

Could Russian flights to Red Sea resume before year’s end? Egypt’s Ambassador to Moscow Ihab Nasr said that is hoping to see Russian airliners resume flights to Hurghada and Sharm El Sheikh before the end of 2018. He told TASS that while there is no official timeline or schedule, authorities on both sides are “working hard” to bring flights back soon under orders from President Abdel Fattah El Sisi and his Russian counterpart. The two leaders had agreed earlier this month that flights should resume “in the nearest time.” A Russian aviation security delegation will reportedly be in town this week to inspect safety measures at the Sharm El Sheikh and Hurghada international airports. Flights have been grounded since the 2015 Metrojet crash.

House Economics Committee approves RIZ contracts: The House of Representatives Economics Committee signed off yesterday on Egypt’s contracts with Russia for the establishment of the Russian Industrial Zone (RIZ) in the Suez Canal area, Al Shorouk reports. The two countries had signed the contracts for the zone back in May, which give Russian companies rights to develop a 5.25 mn sqm stretch of land in the Suez Canal Economic Zone. The first phase of construction is expected to cost c. USD 190 mn.

Gov’t again fails again to attract investors for EGP 2 bn Ras Sudr airport project: A government tender to develop an EGP 2 bn airport and adjacent tourism resort in Ras Sudr has failed for the second time after an Egyptian-Saudi consortium and a separate Egyptian-Emirati group fell short of conditions in the tender, a source close to the matter told Al Mal. After an unsuccessful attempt to attract investors last year, the government had amended the tender’s terms and conditions, allowing companies to own the land on which the resort would be built, under a build-operate-transfer (BOT) framework, rather than have the land allocated under a usufruct license.

If at first you don’t try and try again. Tourism Development Authority (TDA) boss Serag El Din Saad told local news earlier this week that the Airport Holding Company (AHC) may relaunch the tender for the project. The TDA and AHC are expected to meet to discuss the next step after this latest development, the newspaper says.

MOVES- Bassel El Hiny (LinkedIn) is the frontrunner to become the chairman of state-owned Misr Insurance Holding Company (MIHC), sources said yesterday. The Public Enterprises Minister is expected to make the final announcement “within days,” according to the sources. Former minister Khaled Badawy had ordered a shakeup of the company’s board of directors in May, which saw the appointment of Tamer El Batesh as acting chairman. El Hiny had previously served as vice chairman of the company and has 26 years of experience in banking and finance.

Saudi lands USD 50 bn worth of new projects at investment conference despite boycott: Saudi Crown Prince Mohammed bin Salman secured USD 50 bn worth of new investment yesterday on the opening day of his ‘Davos in the Desert’ conference, according to Reuters. Those include 25 new oil and gas agreements with players such as Total, Halliburton, Schlumberger, Baker Hughes, and Total, where Saudi Aramco signed 15 MoUs worth USD 34 bn. This came despite the fact that top global executives and officials boycotting the three-day conference in light of Saudi journalist Jamal Khashoggi’s murder at the kingdom’s consulate in Istanbul earlier this month.

Are US sanctions in the offing for Saudi? The US gas revoked visas for the 21 suspects and promised this would “not be the last word on this matter.” President Donald Trump said that he would have Congress decide “how best to punish the kingdom for the killing inside its Istanbul consulate,” referring to the incident as the “worst [coverup] in the history of coverups.’”