Monthly inflation fell in December for the first time in two years, coming in at -0.2%, CAPMAS announced. The rate is the lowest since November 2015. Annual Inflation also dropped to 21.9% from 26% a month before. Annual core inflation reached 19.86% during December, down from 25.54% in November. On a monthly basis, core inflation declined by 0.37% last month, compared to an increase of 1.31% the month before, according to central bank data.

The monthly decline was driven by a decrease in the prices of various food staples, including red meat, poultry, vegetables, and lentils, EFG Hermes says. Radwa El-Swaify, head of research at Pharos Holding, thinks holiday promotions and discounts might have helped push food prices down, Bloomberg reports. “The stability of prices on a monthly basis makes sense: any further increases would affect demand,” El-Swaify says.

Finance Minister Amr El Garhy expects the annual inflation rate to drop below 20% next month and to hit 10-12% during the year, according to Reuters. In 2019, he sees inflation falling to single digits and believes the reading for last month is “a better than good indication and puts us on a good path.” In the nearer term, EFG Hermes’ Mohamed Abu Basha expects inflation rates to slow down to 17-18% in January and 15-16% in February and to stabilize around 13-14% by mid-year.

Can we now have lower interest rates, please? With the drop in inflation, speculation over when and by how much interest rates should drop has begun. Easing may begin in the first quarter, according to CI Capital Holding economist Hany Farahat. Even so, an exodus of foreign investors is unlikely because longer-term securities will remain attractive, he told Bloomberg in its roundup on what to expect from MENA central banks. The benchmark interest rate may drop to 13.25% from 18.75% by year-end, according to London-based Capital Economics. The CBE Monetary Policy Committee will hold its next meeting on 15 February.

Separately, sources from the CBE say that Egypt has repaid USD 30 bn in 2017 to foreign lenders including the Paris Club and international oil companies, according to Al Borsa. Egypt borrowed USD 18.8 bn last year, the source added.

Budget deficit continued to narrow in 1H2017-18: Egypt’s budget deficit declined to 4.4% of GDP in 1H2017-18, down from 5% during the same period last year, Finance Minister Amr El Garhy said at a meeting with President Abdel Fattah El Sisi. The primary budget deficit also fell to 0.3% of GDP for the first six months of FY2017-18, down from 1.1% last year and the lowest primary budget deficit recorded in the past 10 years, El Garhy added, according to a statement from Ittihadiya. This largely came on the back of 38% y-o-y growth in state revenues in 1H2017-18 from a sharp 61% uptick in tax revenues. On the flipside, expenditure on food subsidies had risen as well to EGP 23.3 bn during the first half, a 65% y-o-y jump over 1H2016-17. Spending on the Takaful and Karama social welfare program had risen 141% y-o-y in 1H2017-18 to EGP 9 bn, according to the statement.

Our friends at EFG Hermes closed 2017 atop Thomson Reuters’ Middle Eastern investment banking league table with a number-one place in terms of both fees generated from Middle Eastern equity capital market (ECM) transactions and as the region’s top ECM bookrunner. In the tables released yesterday, TR gave EFG Hermes a total 19.1% market share of all fees from ECM transactions in 2017, putting it ahead of other finishers including Emirates NBD, Citi, First Abu Dhabi Bank, Bank of America Merrill Lynch, and Goldman Sachs. EFG’s number-one placing compares against a fourth-place finish last year.

EFG Hermes was recognized as having raised USD 455.3 mn as bookrunner on six ECM transactions, more transactions than any other investment bank operating in the region. That puts it ahead of Merrill Lynch, First Abu Dhabi, Goldman and Emirates NBD. (If you have the table, to which we cannot link for copyright reasons, you’ll see EFG is ranked #6 and #9 in a tight competition via listings as both EFG Hermes and EFG Hermes UAE, the latter being the group’s arm in the Emirates. We’re combining the two rankings for the sake of clarity, which gives it the number-one finish as ECM bookrunner ahead of a three-way tie for the number-two slot.)

Overall, what was dealmaking activity like last year?

• Total investment banking fees generated in the region stood at USD 912.4 mn, or about 0.1% below 2016. Syndicated lending fees accounted for 42% of the Middle East fee wallet last year, while DCM fees accounted for 28%, its highest full-year share since 2001, Thomson Reuters notes.
• The total value of ECM transactions fell 36% from 2016 to USD 3.5 bn last year, the second-lowest year for equity raisings since 2009
• M&A with any Middle East involvement came in at USD 43.8 bn in 2017, 14% below the previous year’s level.
• Domestic M&A and transactions between Mideast counterparties rang in at USD 8.7 bn, a decline of 63% y-o-y, and outbound activity fell 35% to USD 10.8 bn.
• Middle East debt issuance spiked to USD 103.7 bn, 33% more than in 2016.

Fund managers are now looking at Egypt and coming back to the market, our friend Ahmed Badr, MENA CEO at Renaissance Capital, told Bloomberg TV. Badr believes that reforms are buoying the Egyptian market and that it is gaining more depth with a healthy IPO pipeline. Badr also does not see the rising oil prices having a huge effect on Egypt as “reforms counter any impact of rising prices.” He is also positive on the prospects of the EGP during the year. Separately, Badr says he is now bullish on Saudi Arabia on the back of the “reform story” going on at the moment as well as a revitalised consumer spending behaviour and sees the potential for high returns to be made there. Definitely worth a watch this morning, starting from 32:45.

FT makes a case for East Med to export gas to Europe via Egypt: Not recognizing that Egypt is the most obvious (and economical) path for East Mediterranean countries to export gas from the Levantine Deep Marine Basin to Europe would be a waste of opportunity, according to the Financial Times’ editorial board. Egypt is ahead of the curve with its infrastructure, and the swift progress on the development of Zohr makes it the most convenient country to export gas to the EU. “The development of the Israeli, Lebanese and Cypriot fields is more fraught. With limited domestic markets all three will need to find external buyers at a time when world gas markets are close to saturated. The most pragmatic and practical near term path to outside markets would be to build a network of short pipelines and tap into Egypt’s [largely idle] LNG plants.”

The FT also criticised the EU’s preferred method for importing the gas — via a 2,000 km long and 3 km deep pipeline from the eastern Mediterranean to Italy. While being questionable commercially due to the how cumbersome and slow paced the development of such a project would take, the move could also see the EU squander an opportunity for regional integration, says the salmon-colored paper.

In other gas related news, the US has beat Egypt to the punch and become a net exporter of gas for the first time since 1957, Bloomberg reports. Net exports averaged about 0.4 bcf/d last year, flipping from net inflows of 1.8 bcf/d in 2016, according to Victoria Zaretskaya, a Washington-based analyst for the US Energy Information Administration.

The EGX is now allowing for subscription rights in capital increases for unlisted companies to be traded over-the-counter, bourse chairman Mohamed Farid said, according to Al Mal. This would allow unlisted companies to finance expansion without having to list on the market and expand their investor base. One very smart lawyer tells us the regulatory change would allow for the right to subscribe to the capital increase of an unlisted company to be traded separately. He says the change would make it possible to add new investors to recently incorporated companies that have not yet issued two sets of financial statements by allowing the founders to sell their right to subscribe to the capital increase to new investors.

It’s official: the Ruskies are coming back. Moscow’s Domodedovo and Sheremetyevo airports have added Cairo to their February timetable, according to news agency Interfax. Starting 1 February, EgyptAir will be operating three weekly flights to and from both airports on Sundays, Tuesdays, and Thursdays. Russian President Vladimir Putin authorized the resumption of air travel between Moscow and Cairo earlier this week after a more than two-year hiatus following the October 2015 Metrojet flight crash in Sinai. Putin’s nod followed the signing of a civil aviation security protocol between both countries, which came after Egypt implemented a series of security upgrades to its airports at Moscow’s request. Russian Transport Minister Maxim Sokolov said additional security measures would be needed before flights are restored between Russia and other Egyptian airports, such as Sharm El Sheikh and Hurghada. The status of charter flights will be discussed at an April 2018 meeting. The Tourism Ministry said this week that it expects some 2 mn Russian visitors in Egypt in 2018.

As for that totally unrelated power plant: Russia’s Rosatom has reportedly begun the procedures to obtain a license to build and operate the Dabaa nuclear power plant, sources from the Egyptian Atomic Energy Authority (EAEA) tell Daily News Egypt. As we noted last month, the extent of the red tape involved could delay breaking ground on the project. Beyond receiving approval from the EAEA, the project will also need a sign-off from the Environment Ministry before construction can begin.

Emaar signs EGP 2 bn Marassi Marina contracts with OCI, ACC: Emaar Misr signed construction contracts with Arabian Construction Company (ACC) and Orascom Construction Industries (OCI) valued at EGP 2 bn for the first phase of its Marassi Marina project on the North Coast, according to a regulatory filing (pdf). Emaar signed a EGP 800 mn contract with OCI for the construction of the marina basin, which will berth 300 boats. Emaar’s contract with ACC, worth EGP 1.2 bn, includes the construction of 826 fully finished apartments and 4,500 sqm of entertainment and commercial space. Both contracts are scheduled for delivery in 2020. The Marina project will also include a collection of award winning hotels from Emaar Hospitality Group, said Emaar Properties Chairman Mohamed Alabbar. “Our unwavering confidence in the promising Egyptian market and the investor friendly policies of the government drive us to develop unique world class projects in Egypt that compete internationally,” he added.

Dubai’s Union Properties acquired a 5.68% stake in Palm Hills Development (PHD) through its subsidiary UPP Capital Investment in an EGP 64.01 mn transaction, PHD announced in a regulatory filing (pdf) yesterday. UPP acquired the stake an average price of EGP 4.00 per share. Arab African International Securities managed the transaction.

Demystifying what’s going on with Orange Egypt’s EGX listing: To the confusion of many in the market (ourselves among them, if we’re to be frank), there are two things happening at Orange Egypt. A statement to the EGX yesterday (pdf) clears things up. First, Orange is in the implementation phase of an EGP 15.4 bn rights issue at par, the subscription period for which will close on 28 January. The issue of the company raising its free float to a minimum of 5% — against a current float of about 1% — is entirely unrelated, the company said. On that separate front, Orange Egypt says it’s “examining all options and appropriate timings” to increase its free float to at least the minimum. Doing so, it says, is highly dependent on market conditions — and the appetite of potential investors. Orange Egypt could face mandatory delisting if it doesn’t meet the minimum float requirement. Any offering or mandatory delisting would see shares priced on the basis of a fair value study that the company expects would result in something “not be materially different” from the EGP 10.91 per share price posted on EGX screens on 20 December.

MOVES- Vodafone Egypt appointed Rasha Al Azhary as its new chief financial officer yesterday, according to Al Mal. Al Azhary previously served as development director at Vodafone Qatar, where she was spearheaded the launch of fiber and LTE services. An AUC grad, she first joined Vodafone Egypt in 2003 after five years in investment banking.

Our friend Ashraf Mahmoud, group chairman and CEO at Al Nouran, believes he can turn Egypt into an exporter of sugar instead of a net importer. Egypt has a number of advantages to help it become a sugar exporter, particularly if the country manages to cultivate more beets and apply new technologies that allow it to increase productivity per feddan, Mahmoud tells CNN Marketplace Africa (watch, runtime 4:44).

Al Nouran’s current strategy is focused on “using the Egyptian market as a platform to start addressing export markets,” he explains. As an integrated manufacturer with a new production facility in the works, “the sky’s the limit,” Mahmoud says, explaining that the first phase of Al Nouran’s new sugar refinery will house four production lines, each with the capacity to produce and refine 300k tonnes of sugar from beets. Once all four are online, the facility will become “one of the largest sugar production units in Africa,” he adds, noting that he believes Al Nouran can make up to EGP 4-5 bn a year vs. a current average of EGP 1.5 bn.

As a trader who traveled far up the value chain to become a manufacturer and grower of his main raw material, Mahmoud is a firm believer in gradual integration. Once Al Nouran’s new sugar production units are up and running, “we can look at other integrated industries like molasses, alcohol, biofuel, yeast, and fertilizer. There are a lot of opportunities in expanding.”

The World Bank’s Multilateral Investment Guarantee Agency (MIGA) is providing USD 102.6 mn in guarantees for six solar plants in Egypt with a combined production capacity of 250 MW, Renewables Now reports. The funding acts as security “against the risks of expropriation, transfer restriction and inconvertibility, breach of contract and war and civil disturbance.” Around USD 5 mn will be used to cover IB Vogt’s investment for a 15-year period, while another USD 97.6 mn will be provided to the Industrial and Commercial Bank of China for up to 20 years. Three of the plants covered by MIGA’s financing will be constructed by ACWA Power.

The Ismail Cabinet approved establishing a company to supervise and manage the development of public freezones and investment complexes, Al Masry Al Youm reports. The company will have a capital of EGP 300 mn and will be responsible for the infrastructure of new freezones and addressing the needs of existing zones, Investment and International Cooperation Minister Sahar Nasr told the press, according to Al Mal. Ministers also approved amendments to the Unified Building Code focused on insurance against potential damages and injuries during the construction process of new buildings. Also approved yesterday:

• The Housing Ministry’s request to make the New Urban Communities Authority responsible for covering increased costs of social housing projects incurred by the Contractors Compensation Act. These extra costs currently stand at between EGP 5 and 7 bn, according to Mortgage Finance Fund Chairman May Abdel Hamid told the press yesterday;
• Procedures for the Transport Ministry’s tenders for the New Capital-Cairo monorail, the Giza-6 October monorail, and a rail line connecting the new capital with Ain Sokhna, 6 October City, and Alamein;
• The construction of EGP 350 mn worth of wastewater and water treatment plants in Matrouh, to be funded through the governorate’s housing fund;
• Establishing the National Council for Disabled Persons, which will replace the National Council for Disability Affairs and will be mandated with protecting disabled citizens’ constitutional rights;
• Amendments to the Education Law to prioritize qualified and experienced teachers in the hiring process for teaching positions;
• Amendments to the Universities Organization Law to establish new colleges in the Luxor and West Valley universities.
• Contracting state-owned Egyptian Pharma Trading Company to supply EGP 30 mn worth of medications that are currently in short supply;

Railway ticket prices to rise in multiple jumps: The planned increase in railway ticket prices will be implemented in multiple phases, Assistant Transport Minister Amr Shaat tells Al Shorouk. The first price hike will be announced once the ministry completes its study on the issue with the Administrative Control Authority (ACA), and the ministry will set a timeline for further increases necessary to plug the National Railways Authority’s financing gap. According to Shaat, the increase will only come into effect once the rate is approved by the Ismail cabinet and the ACA. Transport Minister Hisham Arafat had said earlier this week that ticket prices will climb 20-25%.

Transport Ministry mulls several proposals for Cairo Metro ticket prices: Meanwhile, the Egyptian Company for Metro Management and Operation presented the Transport Ministry yesterday with two proposals for the planned increase of metro ticket prices, unidentified sources tell Al Masry Al Youm. Both scenarios rely on a tier system for pricing. The first scenario would set a base rate of EGP 2 for eight stations and a maximum rate of EGP 5 for a ticket that would cover all 35 metro stations. The scenario also includes two other tiers, both priced at EGP 3, for an undisclosed number of stops. The second scenario would set a base rate of EGP 3 for nine stations, a second tier at EGP 4, and the maximum tier at EGP 5. The latter scenario is more likely to win approval, according to the sources.