SMART POLICY- Most commercial advertising will be subject to value-added tax under sweeping amendments to the VAT Act that the Finance Ministry finalized yesterday andposted to its website (pdf). In a move sure to be welcomed by advertisers and media organizations alike, the amendments would (if passed) also lift the 20% stamp tax on advertisements. Direct advertising and merchandising were previously exempt from VAT and subject to stamp duties on the overall size per transaction.

Departing tourists would be able to claim VAT rebates on select items worth more than EGP 1.5k or more in a move that retailers should cheer; the executive regulations of the current act had previously outlined a system that would have allowed VAT drawbacks to start at an EGP 5k threshold.

Baked snacks, soap, and cleaning products would become subject to VAT, instead of a 5% "table" or "schedule" tax.

Businesses will need to file their VAT returns online every month. VAT currently needs to be remitted to the state’s coffers within 60 days of an invoice being issued, payment being received or a good / service being delivered, whichever is earlier.

The proposed changes would also afford special economic zones the same VAT treatment freezones receive. Businesses in special economic zones, including those in the Suez Canal Economic Zone (SCZone), would not be required to remit VAT for any goods or services they purchase or export. The move is part of a drive to give incentives to businesses that want to set up shop in SEZs, the ministry said in a statement. This comes a day after we reported that officials from the SCZone are working with the government to introduce incentives through separate legislative amendments to the law governing such dedicated zones.

Health Ministry allowed to exempt pharma components from VAT where it sees fit: The changes would also allow the health minister to issue decrees exempting raw materials used in the manufacturing of pharma products from VAT. This comes after a decree last July exempting 58 active ingredients and components used for medications. Pharma manufacturers are already granted VAT exemptions on active ingredients used in their products under the original 2016 legislation.

No VAT on blood collection, vaccines, contraceptives: Another change would exempt sellers of antibodies, vaccines, blood plasma and blood collection bags, and birth control devices and contraceptives from charging and remitting VAT in a change that has “covid-19” written all over it.

Other tweaks to VAT exemptions: Construction and maintenance works for places of worship, blended edible oils, and accessible vehicles would also be exempt from VAT. Those goods and services could still be subject to excise or “table” duties that can be either lower or higher than the VAT rate.

Other elements of the proposed changes:

• Paper makers would be exempt from VAT on their raw materials in a bid to boost the industry. We noted this earlier this year;
• Violators would incur higher fees and under more broadly stated circumstances;
• Water bills would no longer incur an extra charge from VAT levied on sewage treatment;
• International ferry operators would be exempt from VAT.

Where do we stand on the bill? The ministry published the proposals yesterday to invite public feedback. Once those wrap up, a bill should make its way to the House of Representatives for a discussion and vote. As was previously anticipated, the changes would leave the current 14% VAT rate unchanged.

Plan to widen the VAT tax base: Finance Minister Mohamed Maait told us in January that his ministry is aiming to increase the number of taxpayers to 550k from 70k through the proposed changes. This is planned to be done by “tighter” practices that will look to prevent businesses from understating the value of their transactions in VAT returns. Besides removing a ceiling on VAT law violation fees that would allow authorities to impose higher penalties, it’s still unclear how the draft changes are more stringent.

Bottom line: On first glance, this is a very smart, pro-business set of amendments.

EU decides to go after Jushi, Hengshi Egypt in China trade probe: The European Commission has imposed anti-dumping duties on glass fibre fabrics as it continues to countervail alleged “market-distorting aid” by the Chinese and Egyptian governments to subsidiaries of Chinese state-owned companies that sell fibreglass fabrics to Europe out of Egypt, Bloombergsays. The decision applies to product originating from China or Egypt. The probe is the first time the EU has penalizes a government (China) that gives aid to subsidiaries of national companies located offshore.

The duties target companies affiliated with China National Building Material Group, including Jushi Egypt and Hengshi Egypt Fiberglass Fabrics. The decision follows other import duties the EU imposed on Egypt- and China-made fibreglass as part of a separate probe by the commission into the same class of products and also concerning Jushi and Hengshi.

EU officials said the companies receive subsidies and direct aid from China and Egypt. This undercuts European producers, namely Finnish company Ahlstrom-Munksjö. European glass-fiber manufacturers have claimed to have suffered “material injury” due to what they described as trade-distorting incentives, including an exemption from value-added tax and import tariffs. Egypt’s share of the European market for glass fiber reinforcements almost tripled to 14% between 2016 and 2018 while China’s share fell to 5% from 8%.

LEGISLATION WATCH- We’re officially getting a Senate again: The House of Representatives’ general assembly signed off yesterday on a bill constituting the Senate as an upper house of parliament, according to Youm7, which has the full text of the bill. The law, which now requires presidential ratification to legally come into effect, will set up a 300-member chamber. One third of the members will be elected through a list system, one third will be elected on an individual basis, and the remaining 100 members will be appointed by the presidency. The bill sets a 10% quota for women in the Senate. Members will be reappointed or elected once every five years.

So, what’s the Senate going to be responsible for? Under the law, the Senate will “give its opinion” on proposed amendments to the constitution and all laws that are supplementary to the constitution, as well as all pacts or agreements related to sovereign rights. The upper house of parliament will also weigh in on the government’s plans for economic and social development, and any other matters the president refers to the Senate that are related to the state’s general policies or its policies on external issues.

Also approved yesterday: A USD 50 mn loan EBRD loan to support the Suez Oil Processing Company’s (SOPC) transition to greater energy efficiency, according to Al Mal. The financing agreement will see SOPC repay the loan in semi annual installments over the course of 13.5 years, following a three-year grace period.

M&A WATCH- EFG Hermes, GB Capital to close Tokio Marine majority stake acquisition before the month is out: A consortium of EFG Hermes and GB Auto’s non-banking financial services arms will complete the purchase of 75% Tokio Marine Egypt Family Takaful in 2Q2020, which ends on 30 June, EFG Finance CEO Walid Hassouna said, according to Masrawy. The EGP 84.75 mn transaction will give each of EFG Finance and GB Capital a 37.5% stake in the life insurance company.

The acquisition plays into EFG’s goal of consolidating its gains as the country’s leading non-banking financial services outfit, Hassouna said at a roundtable for media. EFG currently offers a number of consumer finance products (ValU), e-payments (PayTabs), and microfinance (Tanmeyah), as well as other services including leasing and factoring. The region’s leading investment bank plans to see non-banking financial services accounting for 50% of its profits by the end of 2021. Non-bank services accounted for 25% of revenues in 2019.

A mortgage finance arm in partnership with GB Capital will be up and running in 3Q2020, Hassouna said, according to Hapi Journal. The company, Bedaya, is a partership between GB Capital, EFG and Talaat Moustafa Group and will be led by Tarek Abou Gendia. Hassouna said in December that the company has hired a management team and set up two headquarters in east Cairo and Sheikh Zayed.

EBRD to provide NBE with USD 100 mn for on-lending to SMEs impacted by covid-19: The European Bank for Reconstruction and Development (EBRD) has agreed to provide the National Bank of Egypt (NBE) USD 100 mn for on-lending to SMEs hurt by covid-19, NBE Deputy Chairman Yehia Aboul Fotouh tells Masrawy. The EBRD had approved last week a separate USD 100 mn funding agreement for the National Bank of Kuwait Egypt to onlend to the private sector.

MIH signs agreement with int’l automaker to assemble 30k cars per annum at El Nasr Automotive: The state-owned Metallurgical Industries Holding Company (MIH) has signed a preliminary agreement with an undisclosed international company to locally assemble 30k cars annually at El Nasr Automotive, with manufacturing set to begin within three years, MIH board chairman Medhat Nafeh told Youm7.

Agreement on EV manufacturing coming: Nadeh said that there are plans to sign another agreement with an unnamed Chinese company to locally assemble electric vehicles. Our money is on this being Dongfeng, which has been in negotiations with El Nasr to produce EVs since last year. El Nasr began preparing a feasibility study to manufacture 25k electric cars in partnership with the Wuhan-based company ahead of an agreement that was expected to be signed in 2Q2020. The covid-19 pandemic delayed talks, which restarted in March.

EARNINGS WATCH- Sodic reported a net profit of EGP 28 mn in 1Q2020, down from EGP 161 mn in 1Q2019. Revenues came in at EGP 429 mn from EGP 941 mn in the first quarter of 2019. Low interest income following 750 basis points worth of rate cuts by the central bank since January 2019, along with lower revenues due to a lower number of deliveries, weighed on the company’s bottom line, it said in its earnings release (pdf). “Lockdowns and mobility restrictions decrease the urgency for customers to come in for handovers,” Managing Director Magued Sherif said. The upmarket real estate developer disbursed EGP 5 mn so far for donations and initiatives to support efforts against covid-19 and has redirected its marketing resources to support the cause, Sherif noted.

Looking forward: “We are lucky to operate in a sector with very strong local demand fundamentals and we continue to believe in the long-term drivers of growth in our market,” Sherif added in a note to the earnings that’s worth reading in full. “We are looking [at] … a challenging but rewarding year ahead as we continue to invest in our brand and ensure we distinguish ourselves in this market.”

Egypt Kuwait Holding (EKH) posted a net profit of USD 40.7 mn in 1Q2020, up 15% from USD 37.5 mn a year earlier, according to the company’s earnings release (pdf). Revenues increased by nearly USD 20 mn y-o-y to reach USD 160.9 mn. Growth came primarily from the company’s energy and energy-related segment, which saw revenues rise an “impressive” 46% y-o-y to USD 51.8 mn.

Looking forward: EKH is “optimistic” in the long run about its long-term growth prospects, and expects to see “an overall positive performance” in 2Q2020 despite the second quarter of the year typically being a low season for its businesses, Chairman Moataz Al Alfi says. The company also expects to maintain its growth momentum despite pressure from the covid-19 pandemic, particularly after managing to “buck the prevailing downtrend across all businesses” due to the crisis.

B Investment’s consolidated net profits after tax were up 6.2% y-o-y in 1Q2020 to EGP 37.7 mn, from EGP 35.5 mn in 1Q2019, the company said in a regulatory filing (pdf). The company’s revenues for the quarter increased 8% y-o-y to EGP 54.2 mn, from EGP 50.2 mn in the first quarter of last year.

Orascom Investment Holding reported a net loss of EGP 425.2 mn in 2019 after making a EGP 865 mn profit the previous year, according to the company’s financial statements (pdf). Revenues fell 12% to EGP 1.17 bn during the year from EGP 1.33 bn in 2018. “Going forward the covid-19 outbreak may negatively impact amongst others our supply chain, workforce, operations, demand of our end markets and liquidity,” the statement said. “Based on our current knowledge and available information, we do not expect covid-19 to have an impact on our ability to continue as a going concern in the foreseeable future.”

Raya Holding for Financial Investments reported losses of EGP 69 mn during 1Q2020, after making a EGP 26 mn loss during the same period last year, according to the company’s quarterly financials (pdf). Revenues during the period rose slightly to EGP 2.4 bn, compared to EGP 2 bn last year.

MOVES- Current COO Ahmed El Hoshy will become CEO of Netherlands-based nitrogen and methanol giant OCI NV while Hassan Badrawi will take responsibility for the company’s M&A activities in addition to his role as CFO. The moves come as founder Nassef Sawiris becomes executive chairman of the board, letting go of the CEO post, the company said in a statement (pdf). Michael Bennett will become the new non-executive co-chairman and senior independent director, while Sipko Schat has been named vice chairman of the board. All changes are effective starting 1 August 2020. A further change will be made later in the year with the arrival of Bart Voet as VP of manufacturing in 3Q2020.

MOVES- Ahmed Mohamed Galal appointed for second term as Export Development Bank deputy chairman: Prime Minister Moustafa Madbouly has renewed Ahmed Mohamed Galal’s position as the deputy chairman of the Export Development Bank of Egypt for a second three-year term, according to an EGX disclosure (ppf). Galal was previously the director of corporate and SMEs banking at Piraeus Bank Egypt.