GDP growth for 3Q2017-18 accelerated to 5.4% President Abdel Fattah El Sisi said at his fifth national youth conference yesterday. Economic conditions are improving, but challenges including a bloated public sector persist, El Sisi said. Nonetheless, the state does not plan on laying off civil servants. He urged businesses to continue investing at home, saying that delaying on investments will only slow the recovery and make the burden heavier for everyone. The president said he expects living conditions to improve within two years as the state’s projects begin to bear fruit, according to Al Shorouk.

All businesses that legalize their status and enter the formal economy will be exempt from paying taxes for five years, El Sisi also vowed yesterday, Al Mal reports. Businesses choosing to go legit will enjoy other incentives including simplified access to social insurance. El Sisi did not offer further details on these plans. The Finance Ministry had been planning to offer SMEs of a certain size full or partial tax exemptions to enter the formal economy as part of the SME Act, but has reportedly been moving towards a different proposal that would set a flat tax for SMEs based on the size of their top line, Tax Authority sources had told us earlier this month.

In the meantime, there’s no stopping reforms. Among the top priorities for the government right now is supporting domestic industry to create jobs and cut down on Egypt’s import bill, El Sisi said. The overhaul of the educational system will also move ahead and is necessary to prepare the next generation Egyptians entering the labor force, he said.

The president admitted that the government has failed to curb population growth, according to Al Shorouk. El Sisi stressed that high population growth will have an adverse effect on economic growth and make it harder to raise the standard of living for everyone. His economic reform program, he said, will not be as effective if population growth is not contained. With that in mind, Egypt needs to grow its economy 7.5% per annum to lift living standards, the president said, according to Bloomberg.

The president touched on other economic and social issues during the conference, including the recent decision to hike prices on the Cairo Metro, which he said was a difficult but necessary move to keep the trains running, Al Masry Al Youm reports. The price hikes are part of a “four-year plan across all sectors, water, electricity, and sewage,” El Sisi said, according to Reuters.

On the political front, El Sisi said that more time is needed for Egypt, Ethiopia, and Sudan to reach an understanding over the Grand Ethiopian Renaissance Dam, Reuters reports. He has invited Ethiopian Prime MInister Abiy Ahmed to visit Egypt for further talks. The president also discussed the inauguration of the US embassy in Jerusalem, which he said will have negative repercussions on the region, the newswire says. El Sisi stopped short of publicly criticizing the US for its embassy move, and instead urged Israel to be more understanding of Palestinians’ outrage over the issue.

El Sisi also ordered the release of over 330 youth prisoners yesterday ahead of Ramadan, Ahram Gate reports.

The House is worried about how rising oil prices will hit the 2018-19 budget: Meanwhile, the House of Representatives Budget Committee is debating whether to set aside more funds in case the government overshoots its 2018-19 budget deficit target, committee’s deputy chair Yasser Omar says. The committee is mulling whether to raise the effective overdraft limit to 6% of expenditures from 3-5% in the current draft of the budget, he suggested. This comes as global oil prices inch further toward USD 80. Next fiscal year’s budget assumes an oil price of USD 67/bbl and identifies rising prices as among the top risk to the government not meeting its budget targets. Pharos Research head Radwa El Swaify said that every USD 1 increase in global oil prices could see the government’s subsidy bill rise by an average of EGP 4 bn annually.

The committee plans to conclude its budget review by the start of June, committee chair Hussein Eissa said yesterday. The committee will hand its report over to the general assembly after having held 14 meetings with different ministers to discuss its details. The House of Representatives’ general assembly is now in recess until 3 June, Ahram Gate reports. House committees look set to meet during the recess to discuss pressing legislation, including the FY2018-19 state budget.

On oil prices, Morgan Stanley sees them at around USD 90 for the foreseeable future regardless of short-term political tensions. The investment bank sees this as the oil price by 2020 on the back of new shipping regulations taking effect, which should dramatically change the industry, according to Bloomberg. “We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it,” wrote Morgan Stanley analysts. New International Maritime Organization rules call for ships to reduce the maximum sulfur content of their fuels to 0.5%, from 3.5% in most regions, which is expected to cause an oversupply in high-sulfur fuel. Bank of America predicts oil will get as high as USD 100 as early as next year.

El Sisi’s remarks on the GERD talks yesterday came as Egypt, Sudan and Ethiopia may have taken a step toward breaking a deadlock that had mired negotiations for several years now. The foreign ministers of Egypt and Ethiopia and Sudan’s water resources minister signed a declaration in Addis Ababa on Wednesday that charts the next path for the negotiations. The three countries agreed to set up a joint scientific committee to consult on the filling of the dam. The committee will discuss and develop “various scenarios related to the filling and operation rules in accordance with the principle of equitable and reasonable utilization of shared water resources while taking all appropriate measures to prevent the causing of significant harm,” according to a copy of the declarations posted by the Foreign Ministry. Egypt also agreed to Sudan and Ethiopia posing questions on the findings of the French consultancy, whose report over the impact of the dam on Egypt was rejected earlier this year by Sudan and Ethiopia. The leaders of the three countries commit to meeting every six months, with the next meeting taking place on 3 July.

At a time when every investment banker and his semi-numerate half-cousin wants to launch an NBFI play, the Financial Regulatory Authority issued new regulations last week on the licensing new entrants to the industry. The regulations are designed to ensure transparency in the industry — and to make sure that any NBFI has an anchor shareholder that knows NIM ≠ Nimh. (The first being one’s net interest margin, and the second being bedtime reading for the elementary school set).

What do the new NBFI regulations do? They set out stipulations on ownership structure, require regulatory approval for additional stake sales, and force minority shareholders holding stakes of up to 5% to declare their ownership status within two weeks of completing the transaction.

Who’s covered? Companies already working in (or looking to set up shop in) sectors including securities and investment banking, refinancing and valuation, financial leasing, factoring, microfinance and insurance, according a primer on the regs from our friends at Shalakany Law Office (pdf)

The basics: At least 50% of an NBFI’s equity must be owned by legal persons and at least 25% of the share capital must be held by a financial institution. New entrants will be required to submit technical and feasibility studies with their filing, as the FRA will hand out licenses for services based on the market’s need for them. Companies will have to seek regulatory approval before offering or adding any services to their portfolio.

Other highlights from the decision include:

• Shareholders owning 10% or more of capital must receive regulatory approval before acquiring an additional 5% or more of the company;
• Shareholders must also acquire approval before acquiring a third or more of a company;
• Any group or entity holding a stake of 25% or more must submit to the FRA their future investment plans, as well as their management strategy and policies;
• Companies must begin operating within six months of receiving FRA approval. The rules grant a three-month extension window, after which the permit will be considered void. Final licenses should be obtained within three months of starting operations.

Idku, Damietta gas export plans to run a full capacity by end of 2019? “The start of the third production unit at Egypt’s giant Zohr offshore gas field earlier this week, the country’s need for LNG imports is rapidly drawing to a close,” LNG World Shipping writes. It’s a good dive into recent developments in the field. The bottom line: LNG imports are on track to phase out by year’s end, and we’ll likely see LNG the liquefaction plants at Idku and Damietta running at nameplate capacity by the end of next year. Having been cheerleaders for Egypt’s emergence as a regional energy hub since we started writing back in 2014, we couldn’t be happier about this one.

LEGISLATION WATCH- House signs off on Social Housing and Mortgage Finance Support Act: The House of Representatives signed off on the Social Housing and Mortgage Finance Support Act during its plenary session yesterday, Housing Minister Mostafa Madbouly reportedly said. Under the new law, the Social Housing Fund and the Mortgage Finance Fund will be merged into a single entity to streamline mortgage financing procedures, according to the minister. The law also sets a framework for the pricing of land and state-subsidized housing, as well as the services that residents in those projects have access to. The law enshrines citizens’ rights to access safe and affordable housing and supports a government-led, countrywide urban development plan, according to Mortgage Finance Fund Chairman Mai Abdel Hamid.

Elsewedy Electric replaced Global Telecom Holding (GTH) on the MSCI Global Standard Index (pdf), while GTH and Misr Fertilizers Production Company (MOPCO) joined the MSCI Global Small Cap Index (pdf). The changes are part of the MSCI’s semi-annual index review.

EARNINGS WATCH- B Investments reported a net profit after tax of EGP 33.5 mn in 1Q2018, down from EGP 54.9 mn during the same period last year, according to an EGX filing (pdf). Net revenues for the quarter also dropped to EGP 42.6 mn, from EGP 59.8 mn in 1Q2017. The drop in net profits came as a result delayed dividends payments from key investments. The firm’s inaugural earnings release since going public was just out earlier this month, showing net profit growth of 152% y-o-y to EGP 133.2 mn in FY2017.

Careem is looking to roll out service in 250 cities across the MENA region, Turkey, and Pakistan as it works towards becoming profitable by 2020, CEO Mudassir Sheikha tells The National. “Our estimate is there’s at least 250 cities in our region that should have a service like Careem, these may not be the tier-one Cairos of the world, but they’re still important,” Sheikha says. These include as many as 10 cities in Egypt, including Assiut, as well as 25 cities in Pakistan. Expansion in Africa “is on the horizon” but remains under study, Sheikha says, adding that the company does not see the need for additional funding to support its ambitious expansion plans over the coming years. An IPO is also not in the company’s immediate plans, despite it being a “natural milestone,” the CEO said.

MOVES- Vodafone CEO Vittorio Colao is stepping down in October and handing the position over to protege Nick Read, Reuters reports. The move is being heralded in a press as a passing of the torch from a CEO who is universally acclaimed as having turned an asset laiden Vodafone ready to implode to a slender heavyweight competitor to the big Euro players and a generator of enormous shareholder wealth. The Financial Times does an excellent job summarizing Colao’s transformational impact and the large shoes left for Read to fill.

USD 5 bn merger to create Saudi Arabia’s third-largest lender: HSBC-owned Saudi British Bank (SABB) is acquiring Alawwal Bank in a USD 5 bn transaction that will create the kingdom’s third-largest lender. It’s the first bank merger in KSA since 1999; Alawwal is 40%-owned by a consortium led by the Royal Bank of Scotland, while SABB is 40%-owned by HSBC. Reuters and the Financial Times have coverage.