Headline PMI reaches eight-month high in July at 50.3: Business conditions in Egypt’s non-oil private sector improved last month, with the headline Emirates NBD PMI compiled by Markit (pdf) rising above the 50.0 mark that separates contraction from growth. The gauge rose to an eight-month high of 50.3 in July from 49.4 in June, thanks to a “greater volume of new business amid stronger demand from both domestic and foreign sources,” according to the report, which adds that “improvements in inbound tourism supported the upturn in new domestic orders, while a new global economic environment underpinned the expansion in new exports.”

Signs point to private sector recovery: Despite existing challenges, the outlook for the the current fiscal year remains positive, with expectations seeing GDP growth rising, said the report. In July, raw material shortages and higher costs — following the increase in fuel and power prices — weighed down business activity. However, indicators such as liquidity, output, staffing levels, and purchasing activity fell at a much “softer pace than in the previous month,” pointing to the start of private sector recovery, “supported by gradual monetary policy normalization, improved political stability, and a rebound in the tourism sector.”

EXCLUSIVE- Carry traders are back on. So is the Turkey crisis proving to be positive for Egypt? Egypt’s government is taking a very positive outlook on the Turkish economic fiasco which is currently wreaking havoc on emerging markets. Foreign investments in Egypt’s debt rose last week thanks largely to the Turkish crisis, Finance Minister Mohamed Maait told Enterprise in an exclusive. This comes after foreign holdings in Egypt’s debt dropped by around USD 3-4 bn during the emerging markets selloff, and yields at government bond sales rose to new highs to lure investors in. Maait did not tell us the extent of the growth in portfolio investments, but said that the turbulence in Turkey has driven these investors to us.

They were lured by our high yields, said Maait, who added that these remained attractive despite Argentinian bond yields rising significantly. This line of thinking will undoubtedly play into the CBE’s Monetary Policy Committee meeting this month, especially as the Finance Ministry increases its coordination with the central bank.

Even on the foreign trade front, the government is looking to capitalize on the Turkey mess, according to statements by Trade and Industry Minister Amr Nassar. The government is currently looking at maximizing exports to Turkey, which is going through a liquidity crisis, he tells Amwal Al Ghad without elaborating on any specific policy.

The wider EM impact: So far the most visible collateral damage from the crisis has been other EM currencies, with the TRY dragging the ruble, the Argentine peso, and the South African rand. Egypt and GCC stocks fell across the board again on Sunday. Despite Sunday’s sell off, “MENA (Middle East and North Africa) equities remain under-represented in global portfolios (and are thus less exposed to global EM (emerging market) outflows),” Sanat Sachar, equity research analyst at Al Mal Capital tells Reuters.

Analysts opinions on the extent of emerging contagion from the crisis differs widely. "We are going to see earnings drop in the back of this for those banks that are exposed to the Turkish story and we are also seeing the contagion and spillover effects of these huge moves in Turkey which are getting worse," according to Jordan Rochester, a currency strategist at Nomura International. Paul McNamara, a London-based money manager at GAM UK, disagrees, telling Bloomberg that "this can be contained to just Turkey because there aren’t really any other emerging markets which have the exact toxic blend that Turkey has."

Egypt’s first futures exchange could be launched before the end of the year, Financial Regulatory Authority (FRA) Vice Chairman Khaled El Nashar tells Al Mal. Trading at first will be limited to listed securities, El Nashar said, without elaborating. The FRA is also considering introducing regulations for licensing brokerage firms as market makers, which would allow them to both buy and sell securities from their own inventory at prices which they have a measure of control over. The introduction of new financial instruments, which was made possible by the new Capital Markets Act and its executive regulations, means to boost the EGX’s trading volumes, according to El Nashar.

Background: The Capital Markets Act includes provisions on the establishment of futures and commodities exchanges, as well as the introduction of sukuk, green bonds, and margin trading. We had heard earlier this month that the EGX and Oil Ministries were meeting to decide on the framework for a natural gas exchange. We had also heard in May that Financial Regulatory Authority boss Mohamed Omran had tasked a committee with drafting the rules and regulations that would govern futures exchanges, which are part of a four-year strategyto develop Egypt’s non-banking financial sector. New regulations to govern short-selling are also in the works and expected to be complete by 3Q2018.

Gov’t selects firm to sign fuel hedging contract: The ministries of finance and oil have settled on the firm which will sign fuel hedging contracts with the government, a government source told Enterprise. The source refused to reveal the winner of a tender issued by the Oil Ministry to select an institution to provide Egypt with fuel hedging solutions to prevent higher oil prices from further straining the state budget, which assumes an average price of USD 67/bbl. The winning firm had offered to help Egypt hedge against oil futures rising above USD 73/bbl, the source added, saying that oil prices are expected to stand at USD 70/bbl by the end of 2018. The contracts are currently being reviewed by a legal adviser appointed by the government and will be signed following the next OPEC meeting, the source added. We had heard that seven offers were already on the table and under review from international banks bidding on the tender.

Changes to import/export regulations and industry coming? The Trade and Industry Ministry will look to amending Egypt’s import/export strategy “to serve the development of domestic manufacturing,” Minister Amr Nassar said at a presser on Monday, Amwal Al Ghad reports. The ministry is currently developing a new foreign trade strategy that seeks to maximize the value of our industry, he added without revealing what these changes might be. Nassar had said last month that the government is currently looking to ban exports of raw materials in order to maximize their use in the value chains here at home. Raw materials which have not undergone any type of processing will not be exported

Is crowding out the private sector the go-to gov’t strategy for developing industry? The ministry will increase its reliance on Armed Forces factories to manufacture products needed here without having to import them, Nassar said, according to a ministry statement. His statements suggest a policy of restricting imports on those goods which can be produced by the Armed Forces.

LEGISLATION WATCH- We’ve heard this one before — gov’t to have automotive directive ready by the fall: The Trade and Industry Ministry is planning to have the automotive directive drafted and ready before the House of Representatives reconvenes for the fall legislative session in October, Nassar said at a presser on Monday, according to Amwal Al Ghad. The legislation had been “almost ready” since 2016.

Clues that major changes to the act are coming: The legislation is currently under review, said Nassar in a ministry statement. While he did not delve into specifics, there were some clues that confirm that major changes to the policy are taking place. First, Nassar assured that the legislation that will come out of the review process would adhere to past agreements signed with foreign partners. The EU, and Germany in particular, have not been fans of the original automotive directive, as it would have developed a local manufacturing base nationwide which would compete with EU imports. Customs on EU imports are set to fall to zero at the end of the year. Nassar also confirmed for the first time that the review of the act is currently being conducted by a committee made up of the ministries of trade, finance and investment.

Other clues coming out of the press seem to indicate that the ministry has fired the consultancy hired by former Trade and Industry Minister Tarek Kabil to review the act. In its stead, the ministry appears to be conducting a survey of the entire auto industry in Egypt, Amwal Al Ghad reports.

Background: A senior government source revealed to us last month that a committee made up of the three ministries was planning to scrap the automotive directive, which sets a nationwide system of incentives and tariffs for manufacturing and exports for the auto industry, in favor of a Moroccan-style incentives system and special economic zones. This was corroborated by two other well-placed sources. While Nassar denied that the automotive directive was scrapped, he did confirm that the entire policy was under review.

IPO WATCH- Nabq Sinai plans to list and sell shares only to Egyptians: Nabq Sinai for Hotels is planning to float 30% of the company on the Egyptian Exchange before the end of the year,Chairman Hossam Attia tells Al Mal. The company, which expects to submit its fair value study to the Financial Regulatory Authority and hire a manager for the transaction within the week, will be selling shares exclusively to Egyptians, according to Attia, who explains that as a Sinai-based company, Nabq’s request for an IPO was rejected repeatedly since 2008 due to legal restrictions on foreign ownership of Sinai assets. The company, however, won a court case in 2015 and received a verdict that allows Sinai-based companies to list on the EGX under the condition that they sell shares only to Egyptians. The government had issued a decision back in 2002 barring the sale of shares in listed companies based in Sinai to foreigners. Proceeds from the IPO will be used to finance a EGP 300 mn touristic project in Ain Sokhna, Attia adds.

EARNINGS WATCH- Arabia Investments & Development Holding (AIND) reported a net profit after tax of EGP 41.1 mn in 1H2018, compared to a net loss of EGP 21 mn in the same period last year, marking the largest half-year results in five years, according to the company’s earnings release (pdf).

Egypt seeks USD 2 bn in funding for education reform: The government is apparently holding talks with international development partners for USD 2 bn in new facilities to fund its drive to reform K-12 education in Egypt, according to World Bank documents seen by El Masdar. The documents appear to say that the EU, the German international development agency (GIZ), and the German development bank (KfW) have all expressed interest in participating in funding the education reforms. The World Bank had signed a USD 500 mn loan agreement with the government to fund the education reforms.

MIGA gearing up to issue USD 300-400 mn-worth of assurances for Egypt projects: Meanwhile, The World Bank Group’s (WBG) Multilateral Investment Guarantee Agency (MIGA) is preparing to issue new financial guarentees worth USD 300-400 mn for various projects in Egypt, WBG’s Alternate Executive Director Ragui El-Etreby tells Al Mal. MIGA, which had provided USD 102.6 mn in assurances for six solar power plants in Egypt back in January, had said last week that the agency intends to expand its financing for private sector projects in Egypt over the next three years.

MOVES- El Sisi taps former Air Defense commander to head AOI: President Abdel Fattah El Sisi tapped yesterday Abdel Moniem El Toras as the new chairman of the Arab Organization for Industrialization (AOI), according to an Ittihadiya statement. El Toras, who succeeds Abdel Aziz Seifeldin, was previously commander of the Egyptian Air Defense Forces.

Court drops final lawsuit against Ahmed Ezz on money laundering charges: The Cairo Criminal Court issued yesterday a decision dismissing the final corruption lawsuit raised against steel tycoon Ahmed Ezz for corruption, as per his reconciliation agreement with the government, Al Mal reports. Ezz and three other defendants in the lawsuit had reached a EGP 1.7 bn settlement with the government over the case in March.