Rising natural gas production in Egypt will help bump GDP growth to 5.2% this year and 5.5% in 2019, the IMF said in its Regional Economic Outlook May 2018 report. “The outlook for Egypt has improved relative to the October 2017 forecast. In the context of its IMF-supported program, improving confidence is boosting private consumption and investment, adding to the increase in exports and tourism.” This forecast puts Egypt ahead of most other net oil importers in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region, which the report expects to record growth rates between 1.5% and 4.5% this year. Across MENAP, Pakistan alone outstrips Egypt with an estimated GDP growth rate of 5.6% this year.

Debt levels remain high in Egypt, the report notes, with significant debt-service burdens that “crowd out growth-enhancing expenditures.” Tightening monetary policies in high-deficit countries including Egypt are expected to drive up financing costs and further increase the debt burden, according to the report.

Growing economies aren’t creating jobs fast enough to make a dent in youth unemployment: Growth levels across the region “remain too low to effectively reduce unemployment, particularly for young people.” According to the report, oil-importing countries — including Egypt, Jordan, Lebanon, Morocco, and Syria — must reach growth levels of 6.2% just to keep unemployment at its current average of 10%.

For Egypt, this means creating 700k to 1 mn new jobs every year, which is only attainable with private sector involvement, the IMF’s Middle East & Central Asia Department Director Jihad Azour tells the Associated Press. “Allow the private sector to be in the leading role and for the state to move from being an operator to an enabler, and give more room for the private sector to invest,” he said.

Automotive sales rebound in 1Q2018: Total vehicle sales (including passenger cars and commercial vehicles) jumped 32.3% y-o-y in 1Q2018, with around 35,100 units sold, according to figures from the Automotive Information Council (AMIC). Passenger car sales grew 24% during the quarter. Sales of imported cars were up more than 21%, while, sales of locally assembled cars surged more than 40% y-o-y. Nissan continued to top passenger car sales with a 23% market share, followed by Hyundai (22%), Renault and Chevrolet (10% each), Toyota (7%), and Kia (6%). Truck sales soared 91% y-o-y during the quarter to 7,440 units, up from 3,900 during the same period last year.

Automotive sales are expected to rise as much as 10-15% over the course of 2018, deputy head of the car dealers association Ehab El Moslemy tells Al Mal. The expected rise will come as consumers absorb the shock of rising prices, he said. The year-long slump in the auto industry, which saw passenger car sales decline 30% in 2017 after the float of the EGP in late 2016, began slowing in November, which saw a 0.4% increase in sales. December saw a sharp jump of 21% in sales, but the recovery was short-lived — January recorded the lowest number of cars sold since May 2017 due to low sales of imported vehicles.

Sarwa Capital closes largest securitized bond issuance in the market to date: Our friends at Sarwa Capital closed yesterday the issuance of EGP 2.03 bn in securitized bonds backed by the portfolios of Contact Auto Credit and its affiliate companies. The three-tranche offering included one-, three- and five-year bonds with ratings of AA+, AA and A, respectively, from Middle East Ratings and Investors Service (Meris), the firm said in a statement on Wednesday (pdf). “We are proud to have completed this milestone issue, which is the largest ever in the market, amid strong demand and following the EGP 1.1 bn issue in December 2017,” said Ayman El Sawy, Managing Director of Sarwa Promoting & Underwriting, which acted as lead manager and financial advisor on the transaction. The issue was fully underwritten and arranged by CIB, Banque Misr, Arab African International Bank, and Ahli United.

M&A WATCH- Sky Realty to acquire Designopolis from Qalaa Holding subsidiary: Sky Realty Holding Ltd., a subsidiary of Compass Investment Holding Limited, entered into a sale and purchase agreement to acquire Designopolis from Qalaa Holding. In the transaction, Sky acquired 100% of Qalaa subsidiary MENA Home Furnishings Mall’s stake in Designopolis owner Bonyan for Development and Trade. Proceeds to Qalaa amounted to EGP 162 mn. You can read Compass’ statement (pdf) here and Qalaa’s disclosure here (pdf). Compass Capital was buy-side advisor.

INVESTMENT WATCH- The VC parade continues as Egypt’s Wuzzuf and Forasna raise USD 6 mn in Series B funding. Job recruitment platforms Wuzzuf and Forasna — both owned by BasharSoft — have raised USD 6 mn in Series B funding, Forbes Middle East reports. The round was led by the European Bank for Reconstruction and Development through its VC Investment Program, Vostok New Ventures (Sweden), Endure Capital (US) and Kingsway Capital (UK). Wuzzuf, which does white collar jobs, and blue-collar-focused Forasna had previously raised a USD 1.7 mn Series A round in 2015. The news is the latest in a wave of VC funding announcements over the past few weeks. Mass transit platform Swvl set a record for a Series A funding round in Egypt with USD 8 mn, while online gown rental platform La Reina raised USD 1 mn in Series A funding, in a round led by Egypt’s Algebra Ventures.

After the success of FiT for solar, is the gov’t abandoning FiT for wind? It appears that the government’s feed-in-tariff (FiT) program for wind power has not picked up in the same way as that of solar, allegedly leading the Electricity Ministry to consider scrapping the wind program entirely. Minister Mohamed Shaker is expected to present a proposal to have some of these wind projects taken out of the FiT program and have them tendered under a Build-Own-Operate framework, said ministry sources. While the Benban solar park has drawn in around USD 2 bn in funding from international finance institutions, lenders have shied away from funding FiT wind farm projects, leaving companies bidding on the program in the lurch. The companies, which have already begun spending money on the projects, are undeterred and wish to continue. Six of the nine companies that had bid on wind farms under the program reportedly support Shaker’s plan.

LEGISLATION WATCH- House subcommittee finalizes contentious clauses in proposed Ride-Hailing Act? A House of Representatives’ subcommittee charged with reviewing the Ride-Hailing Apps Act has reportedly finalized changes to the wording of the legislation’s contentious clauses, including one requiring companies such as Uber and Careem to protect data privacy and another compelling them to share their data with state agencies when requested, Al Mal reports. There’s no word on the exact nature of the amendments the committee has made.

Uber / Careem appeal this Saturday: The news comes just days before the Supreme Administrative Court is scheduled to hear on Saturday, 5 May an appeal by Uber and Careem of a lower court decision that ordered the two companies to suspend operations. The Administrative Court has scheduled a separate hearing for 15 May. The two companies continue to operate under a Court of Urgent Matters ruling that stayed the initial suspension.

Business leaders and analysts watching Egypt expect investment to “take off” as the government’s reform program begins to bear fruit, writes the Financial Times’ Heba Saleh as part of a special series of reports on investing in the Arab world. Investors, including US multinationals are “looking with interest” at the Egyptian market now that the government has adopted legislation such as the Bankruptcy Act and addressed power shortages. Many of them have been watching from the sidelines to ensure that the government will push ahead with the necessary reforms, says AmCham President Tarek Tawfik.

The lag between the implementation of reforms and the inflow of FDI is understandable, says EFG Hermes’ head of macroeconomic analysis Mohamed Abu Basha: “It takes time for demand to recover after macro adjustments like the one Egypt went through … starting next year, we will see a pick-up of FDI as demand rebounds.” Abu Basha expects demand to continue rising as interest rates drop, creating the “perfect storm” for investment. Business leaders are still complaining, however, about bureaucracy and competition from state institutions expanding their involvement in the economy, Saleh notes.

The series also looks at how fiscal strains and economic realities have been weighing down Saudi Arabia’s reforms. Saudi’s economy has been slowing since the oil price crash of 2014, slipping into a recession last year and compounding very weak growth in the non-oil sector in 2016. Foreign direct investment in Saudi Arabia fell to USD 7.5 bn in 2016 from USD 8.1 bn in 2015, writes the FT’s Simeon Kerr. “Lost in the optimistic noise are the considerable fiscal difficulties that remain across the Gulf, along with bureaucratic challenges, deteriorating credit standings and rising interest rates,” says Nomura Asset Management Middle East CEO Tarek Fadlallah. Optimism still pervades the Saudi story, with Kerr noting the importance of the FTSE emerging market classification and the upcoming MSCI upgrade.

Cyprus, Israel look to settle territorial dispute over Aphrodite gas field, possibly clearing last barrier to pipeline connecting Aphrodite to Egypt: Cyprus and Israel are looking to settle their ongoing dispute over their respective maritime borders and how much of the Aphrodite gas field in the eastern Mediterranean falls in Israeli territory, the Associated Press reports. Companies with a stake in the field are expected to sit down with Israeli energy firms to reach a solution, and an expert “will be called in to arbitrate” if all else fails, according to Cypriot Energy Minister Yiorgos Lakkotrypis. The dispute appears to be the final hurdle to overcome before Cairo and Nicosia can sign the agreement to establish a pipeline connecting the Aphrodite field to Egypt’s LNG facilities, which requires Israel’s approval.

Meanwhile, Egypt, Greece, and Cyprus are set to hold a trilateral summit in Athens this fall to discuss energy cooperation, Ittihadiya spokesperson Bassam Rady said yesterday. Egypt and the EU had signed an MoU on energy cooperation last week that will see the two sides work together to help Egypt realize its goal of becoming a regional hub for LNG exports. Egypt could also receive as much as EUR 3.8 bn in funding for energy funding, EU Energy Commissioner Miguel Arias Cañete said at the time.

This comes as direct flights between Cairo and Cyprus’ Larnaca are expected to resume in October after an eight-year hiatus, former Egypt Tourism Federation Chairman Elhamy El Zayat said, Al Shorouk reports. The four weekly flights will be operated by Cyprus Airways. Cyprus is also planning to operate four weekly flights between Alexandria and Paphos within nine months, Al Masry Al Youm reports.

LEGISLATION WATCH- The Ismail Cabinet approved a law establishing a new transportation regulator to monitor land and air transportation, Cabinet said in a statement on Wednesday. The new authority will be charged with managing transportation and road networks in Egypt, in addition to running public transportation. The authority will also be charged with monitoring and supervising safety for road and air transportation.

The law would also sets new procedures for how licenses are issued and by which government department, though details on this remain scant. The new law also sets new punishments for violators of rad safety regulations, but the statement does not delve into these either.

The Ismail Cabinet also approved a law that would set guidelines for foreign universities opening up shop in Egypt. The law also contains articles that govern Egyptian universities. The cabinet statement does not little to inform us on either aspect of the law. Other decisions taken by the cabinet in its weekly meeting include:

• Approving a EUR 4 mn cooperation agreement between the environment ministries of Egypt and Italy.
• Granting Misr Phosphate the rights to explore and develop the 220 km Abou Tartour phosphate concession in Wadi El Gedid.

LEGISLATION WATCH- The House Economic Committee is planning to discuss amendments to the law governing special economic zones such as the Suez Canal Economic Zone (SCZone) after it wraps up its talks on the FY2018-19 draft state budget, committee head Amr Ghallab tells Al Mal. The amendments would grant projects established in these zones several non-tax incentives currently granted to investments in high-priority sectors, according to Ghallab.

Seven companies chosen as part of phase one development of 200 PPP schools: Seven Egyptian and Saudi Arabian companies have been tapped to take part in phase one of the government’s program to develop 200 schools under a public-private partnership framework. El Gazeera and the Middle East Education Services Group were among the winning bidders selected by an inter-ministerial committee tasked with reviewing bids. Three of the seven winning companies had initially been rejected by the committee only to be selected following an appeal, sources from the committee said. These firms included CIRA — owned by the family of Hassan El Kalla and recently exited by Dubai-based PE firm Abraaj. The company is considering an IPO sometime in 4Q2018. The government plans to hold a tender for phase two of the program in mid-May, sources added.

EARNINGS WATCH- Heliopolis Housing & Development reported an 11.32% y-o-y decline in net profit after tax to EGP 120.5 mn in 9M2017-18, down from EGP 135.8 mn during the same period last year, according to a bourse filing (pdf). The company explained that the dip in net profit came as a result of a EGP 80 mn installment payment on a EGP 500 mn leasing contract.

At least least 14 people were killed yesterday in a terror attack on Libya’s election commission headquarters in Tripoli, Bloomberg reports. Egypt’s Foreign Ministry condemned the attack, which was carried out by suicide bombers allegedly linked to Daesh. The attack comes just days after President Abdel Fattah El Sisi and French Foreign Minister Jean-Yves Le Drian agreed in a Cairo meeting that Libya should hold elections by year’s end.

***

SMART PEOPLE WANTED. We’re hiring at both Enterprise and at our parent company, Inktank. We’re looking for critical thinkers who have outstanding English-language writing skills. Don’t apply if you are not (at an absolute minimum) unafraid of numbers. We offer a great, casual work environment, the opportunity to work with smart people who care about what they do, and plenty of intellectual challenge. You’ll do your best work here, whatever your profession is. Check out the open positions, from creative director to reporter, from Enterprise editor to senior investor relations advisor at Inktank.

***