EXCLUSIVE- Enterprise poll of economists sees CBE leaving interest rates on hold: The central bank is expected to leave its key interest rates on hold when its monetary policy committee meets on Thursday, an Enterprise poll of economists and research houses found. Survey participants expect the CBE will leave its overnight deposit rate and overnight lending at 16.75% and 17.75%, respectively, at the 15 November meeting, 10 economists said.

Look beyond inflation: It’s all about stemming outflows of hot money. Say what you want about higher-than-expected inflation in October: The economists we surveyed see the central bank moving to ease pressure on the EGP by giving hot-money investors more incentive to stay in Egypt. All 10 analysts polled say stemming the tide of outflows in a turbulent period for emerging markets would drive policy this Thursday: EM turbulence and a strong USD will keep interest rates on hold, said Ahmed Shams El Din, head of research at EFG Hermes. Multiples Group’s Omar El-Shenety takes it one step further, saying that protecting the EGP and the exchange rate is now among the CBE’s top policy priorities.

Just to keep it in perspective, foreign holdings in Egypt’s treasuries fell to USD 13.1 bn by the end of September, from a high of USD 21.5 bn in March, said Pharos Holding head of research Radwa El Swaify. Egypt has basically lost USD 8.4 bn in outflows between April and September, she noted.

Spike in inflation should not be cause for concern: Most of the analysts with whom we spoke underplayed the spike in annual headline inflation, which rose to 17.5% in October, up from 16% the previous month on the back of hikes in vegetable prices and school fees, state statistics agency CAPMAS said over the weekend. Despite headline inflation being well above the CBE’s announced target of 13% (+/-3%) by 4Q2018, “the elevated headline inflation readings over the past few months, including October’s, come against a largely benign underlying inflation position,” EFG Hermes said in a research note on Sunday. “We don’t see the rise in annual headline inflation as alarming, as it is driven by seasonal factors that will subside,” said lead economist at Beltone Financial Alia Mamdouh.

Annual core inflation rose to 8.86% in October from 8.55% in September, the CBE said on Sunday.

How much longer will we live with high interest rates? Beltone’s Mamdouh sees corridor rates remaining on hold until 1H2019. Pharos’ El Swaify expects the CBE will keep interest rates on hold until 3Q2019, to ensure that the emerging market turbulence has settled and that the impact of the subsidy cuts widely expected in July 2019 has passed. Capital Economics’ Jason Tuvey wouldn’t be drawn into the guessing game, declining to specify a timeframe, but pointing out that rates will have to come down in the longer term.

EXCLUSIVE- What you’re going to pay under the new Universal Healthcare Act— and when you’re going to pay it: While the state’s EGP 600 bn health insurance plan mandated under the Universal Healthcare Act will be rolled out incrementally throughout Egypt over the course of 11-13 years, the Finance Ministry is starting to collect special taxes designed to fund the scheme during the current fiscal year (2018-19). We took a deep dive into the law and spoke with friends in government to compile a list of the taxes mandated in the act and when each comes into effect

Taxes you will pay this year: Taxes ranging from a new nationwide corporate tax to industry specific taxes and fees are already in effect this fiscal year. Companies that will be impacted by the taxes will have to pay them when tax season rolls around next April or June. Notably, all of the following taxes will not be deductible from your corporate income tax.

The big one: A 0.25% tax on revenues, which the government specifies as a levy of 2.5/1000 of your top line. All companies, whether private or public and regardless of size and location, will have to pay a 0.25% tax on their sales revenues to help fund the system. The tax is payable with your next corporate tax return. This tax will apply to companies operating in Egypt’s freezones, a Finance Ministry source assured us. Freezone companies have been pushing for an exemption.

Other taxes and fees now in effect:

• 0.5% of revenues from food and pharma companies: Companies operating in the food and pharma sectors will have to pay a tax of 0.5% on their revenues to the system. General contractors will also have to pay the 0.5% tax.
• Healthcare industry fees: Hospitals will pay a tax of EGP 1,000 for every bed they have. Clinics and pharmacies will have to pay a set licensing fee of between EGP 1,000 and EGP 15,000.
• Sin taxes and service fees: The law imposes fees on issuing and renewing drivers licenses ranging from EGP 20 to EGP 300. The law also sets a toll fee on highways. An EGP 0.75 sin tax all cigarette packs sold and a 10% tax on all other tobacco products has been mandated. A 5% fee on hospital stays will also be imposed. All of these levies will go directly into funding for the healthcare system.

Mandatory premiums will be paid as the system is rolled out: The premiums that employers and employees have to pay to be part of the system will be paid once the the health insurance scheme rolls out in a particular governorate. The bill will set premiums for employers of 4% of each employee’s monthly salary. Employees will pay premiums equivalent to 1% of their salary into the system. An employee will have to pay a premium of 3% of his or her salary to cover an unemployed spouse and 1% for each child. The state will pay EGP 200 bn to cover those exempt for paying premiums based on their income levels. The state will pay the equivalent of 5% of the standard minimum wage to cover healthcare for each person who cannot afford to pay a premium into the system. The government will decide criteria for exemption.

Who will be the fist guinea pigs paying the premiums? The Canal cities, where the system rolls out in May 2019.

Industry to the FRA: Make clear why Beltone was suspended over the Sarwa IPO or everyone could suffer: The Financial Regulatory Authority needs to make clear why it suspended Beltone Financial’s IPO unit or risk harming the market for capital raisings and for the state’s own privatization program, says Ahmed El Guindy, a veteran investment banker and co-founder of Tanmeya Capital Ventures. Al Mal quotes El Guindy as urging the community not to prejudge Beltone before learning the details of the FRA’s decision and warned that the lack of information surrounding the case may scare both investment banks looking to advise on future listings and companies that are looking to IPO.

Was Beltone informed of the alleged irregularities? The FRA has reportedly sent Beltone a letter detailing the alleged violations, but they were not disclosed publicly, according to the newspaper.

Gov’t could cut citizens earning more than EGP 7,000 per month from welfare rolls: There is a “direction” within government to cut Egyptians earning more than EGP 7,000 per month from the nation’s subsidy rolls, Supply Minister Ali El Moselhy said at a meeting with the House Legislative Committee yesterday, Al Masry Al Youm reports. According to El Moselhy, the EGP 7,000 figure — which Bloomberg notes is double the average monthly wage — is not final and that the wage cap the government settles on will take into consideration expenses such as electricity consumption and taxes. There are currently some 1 mn ration card holders who clearly do not need to rely on food subsidies, the minister said.

Trial balloon as ministry takes to the airwaves: The ministry is in the process of removing high-income citizens from the ration card system, Assistant Supply Minister Ibrahim Ashmawy told Al Hayah Al Youm’s Lobna Assal last night (watch, runtime: 1:05). The process should eliminate some 4-6 mn moochers from the country’s subsidy rolls, he predicted (watch, runtime: 1:36).

Is the switch to cash subsidies coming next year? The Supply Ministry has reportedly formed a committee to determine the price of subsidized bread loaves as it looks to begin switching to a cash subsidy system as early 1Q2019, ministry sources said. The news comes after El Moselhy met last week with bakers of subsidized bread to look into a new system whereby subsidy recipients would receive cash handouts, rather than points on their ration cards with which to purchase bread.

How the system works today: The ministry last looked at changing bread production prices in March. The new system could introduce a separate card specifically for subsidized bread. Subsidy card holders are currently given EGP 50 per family member each month to purchase commodities, in addition to each member being allotted five loaves of subsidized bread per day. Surplus bread points can be used to buy other commodities through subsidy vendors.

Background: Overall spending on commodity subsidies is set to rise 36.6% this fiscal year to EGP 86.18 bn. The government has been considering since July reworking eligibility conditions for the commodity subsidies system as it focuses on reducing the number of beneficiaries that receive subsidized commodities and raising the number of those eligible for bread subsidies instead during FY2018-19.

Banking sector continues to seek large foreign loans to prop up the EGP? Banque Misr is looking to borrow USD 550 mn from foreign lenders before year-end “to improve USD liquidity,” Vice Chairman Akef El Maghraby told Reuters. No details were provided on which foreign lenders the bank was considering, but El Maghraby said Citibank and Emirates NBD will arrange the loan. As we noted last week, Arqaam Capital figures the banking industry has propped up the EGP by providing as much as USD 4 bn to cover outflows as foreign investors have exited Egyptian debt. The system needs an infusion of about that same amount to ensure it can continue to serve as a shock-absorber for the EGP, the bank said, suggesting the CBE should dip into its reserves. Banks, state-owned institutions in particular, have in the meantime sough significant injections of USD from international lenders.

INVESTMENT WATCH- China’s Hanergy looks to invest USD 450 mn in solar industrial park: China’s Hanergy Thin Film Power Group plans to invest at least USD 450 mn in Egypt to build a photovoltaic industrial park, company head Yang Kai said, according to Xinhua. "The project has already got a partner in Egypt and we have begun its feasibility study," Kai said, adding that the project will generate jobs for 3k people. No details on the time frame of the project or the Egyptian partner were provided.

Court begins hearing EUR 150 mn lawsuit against Peugeot: A lawsuit brought by Arabia Investments, Development and Financial Investment Holding Company (AIND) subsidiary Cairo For Development and Cars Manufacturing (CDCM) against Peugeot Citroen for unexpectedly ending their 41 year-old partnership began in a Cairo court on Sunday. The plaintiffs are seeking damages of EUR 150 mn. The Peugeot-Citroen arm of Groupe PSA had selected a consortium of Mansour Group and Dubai-based Scope Investment to be its licensed distributor of Peugeot vehicles in Egypt in November of last year.

EARNINGS WATCH- Ibnsina Pharma reported a 26.6% y-o-y increase in net profit to EGP 113.2 mn in 3Q2018, according to the company’s earnings release (pdf). Revenues grew 31.9% y-o-y during the quarter, coming in at nearly EGP 3.5 bn, with growth being driven by client pharmacies, the company said. “Management’s long-term goal is for Ibnsina to become a leading healthcare supply business provider, and the path to doing so in a structured and profitable manner lies in fostering economies of scale,” according to Co-CEO Omar Abdel Gawad. “As the company expanded its client book and distribution network during the period, Ibnsina Pharma was able to spread its costs over a wider revenue base. Management is confident that the controlled and reduced costs associated with increased operational scale, coupled with Ibnsina Pharma’s other competitive advantages, will bring us closer to our long-term goals,” he added.

Sarwa Capital reported 3Q2018 net income of EGP 100.4 mn in its maiden earnings report, up 104% y-o-y, according to a press release (pdf). The structured finance player said its results “showcase the strong growth and diversified growth dynamics within the business. Going forward, we expect continued strength across our product lines, while keeping a close eye on the macroeconomic and monetary environments to ensure that we remain well positioned to achieve growth while maintaining our unrivalled credit quality and performance.”

LEGISLATION WATCH- Cabinet will introduce a Customs Act in the House within the coming few weeks, Finance Minister Mohamed Maait told the committee yesterday. The bill is meant to bring customs legislation in line with international agreements and raise Egypt’s ranking in a number of global indices, including the World Bank’s Doing Business report. You can read the latest draft of the bill here (pdf) on the Finance Ministry website.

LEGISLATION WATCH- Public Procurement Act to be implemented in FY2019-20? The Public Procurement Act will be implemented in FY2019-20, said Khaled Noufal, assistant to the Finance Minister for administrative reform. The delay would allow government bodies to amend their tendering procedures in accordance with the law, he explained. The law grants preferential treatment in government tenders to products with at least 40% domestic content. The act is meant to support the growth and development of domestic industry. President Abdel Fattah El Sisi had signed the legislation into law last month.

Also approved yesterday: Parliament’s Education and Scientific Research Committee signed off on amendments to the Universities Act, including clauses governing unpaid vacations and hiring precedence for teaching assistants, according to Al Mal.

LEGISLATION WATCH- A bill that would remove the ‘religion’ field from national ID cards is back from the dead: A private member’s bill will seek to remove the religion field from national ID cards and all other official state documents, according to El Watan News. Rep. Ismail Nasr El Din, the backer of the bill, he will be seeking co-signers for his bill. A similar bid in 2016 to strike religion from ID cards went nowhere.

Ex-Food Industries Holding Company head Alaa Fahmy is heading to trial on graft charges. Prosecutor General Nabil Sadek has referred the former chairman of the state-owned Food Industries Holding Company (FIHC) Alaa Fahmy to trial in criminal court on charges of corruption and graft, according to Al Ahram. Fahmy was arrested last May along with an official from his office and two Supply Ministry officials and charged with accepting bribes worth EGP 2 mn in exchange for facilitating payments and purchase orders. A subsequent investigation by the Administrative Control Authority now sees Fahmy facing allegations he accepted bribes and favors worth some EGP 982k.

Delek to sign new gas import agreements with Egypt? “We signed agreements with EMG to supply gas to Egypt, and we believe that additional agreements will be signed for local needs and liquefaction facilities in Egypt,” Delek Group controlling shareholder Yitzhak Tshuva said on Sunday at an investors' conference in Tel Aviv, according to Globes. He did not elaborate on the details on potential agreements with Egypt. Tamar and Leviathan partners Delek Group and Noble Energy bought in September a 39% stake in the East Mediterranean Gas (EMG) pipeline with Egyptian partner East Gas, with an eye to sell Tamar and Leviathan gas to Egypt through EMG. "We are headed for very significant and special year. 2019 will be the year in which we produce gas from Leviathan," he added. “Early in the fourth quarter of 2019, we will begin pumping gas from Leviathan to the Israeli economy and the neighboring countries,” said Delek Drilling CEO Yossi Abu.

What about capacity issues on deliveries? The positive tone set by Tshuva and Abu did not mention concerns noted last week by Bloomberg that Israel does not have the pipeline capacity to send gas to Egypt when the Leviathan field comes online. While both Delek and Noble said they were working on it, no concrete solution has been presented as of yet.