EGYPT WEEKLY NEWSLETTER JANUARY, 2014 (4th QUARTER) CONTENT 1. Political Overview………..........01 2. Economic Overview……..….…..01 3. Banking…………………….……..….04 4. Subsidy………………………………..05 5. Investment……………………..…..06 6. Food Industry………………....….06 7. Energy..….……………………………07 8. IT & Telecom……..…..…………...08 9. Construction..………………………09 10. International Trade..….………10 Compiled by Thai Trade Center, Cairo POLITICAL OVERVIEW Egypt Police General Killed as al-Seesi Weighs Presidency Source: Egypt Indepdent, January 27, 2014 Gunmen killed a senior Egyptian police official a day after the military endorsed a possible presidential run by Defense Minister Abdelfatah al-Seesi. Assailants on a motorcycle shot Major General Mohamed al-Saeed, director of the Interior Ministry’s technical office, said Ahmed Dawoud, an officer at the Giza investigations unit. A day earlier, the Supreme Council of the Armed Forces said that the public wants al-Seesi, who hasn’t announced his plans, to run for election and it’s up to him to “shoulder the responsibility.” The assassination spotlights the security woes that have fueled calls for al-Seesi, who ousted Islamist President Mohamed Mursi in July, to run for the top job. His critics accuse him of leading the bloodiest crackdown against Islamists in decades since Mursi’s ouster, and say the country is turning back into a police state. Mursi went on trial today in the second of four criminal cases against him. “Al-Seesi has a strong support base pushing for him to run,” said Islam Al Tayeb, a research analyst at the International Institute for Strategic Studies in London . “And if he runs, he will highly likely win.” ECONOMIC OVERVIEW Egypt Central Bank receives additional $2 billion from Saudi Arabia Source: Egypt Economist, January 28, 2014 Egypt's Central Bank (CBE) received $2 billion from Saudi Arabia, the Egyptian daily Al-Mal reported on Wednesday. The funds were mostly used in the exceptional Egypt Weekly Newsletter 1 Thai Trade Center, Cairo January, 2014 (4th quarter) Sherif Yehya FOREX auction worth $1.5 billion at the beginning of the week, added Al-Mal, quoting an unnamed source. Official sources at the CBE declined to comment, saying that “Hisham Ramez, head of CBE will soon clarify the issue.” Foreign reserves held at the CBE were not affected by the auction and will remain current levels of $17.03 billion, Ramez said in a telephone interview with an Egyptian talk show. By the beginning of 2013, reserves had fallen below what the IMF considers a safe point for Egypt – about $15 billion. Last September, Ramez said that Egypt received $7 billion out of the $12 billion pledged by Gulf countries, adding that he expected further support from the United Arab Emirates, Saudi Arabia and Kuwait. The emir of Abu Dhabi pledged an additional $2 billion including deposits and grants, reported Ahram Arabic in September. Army-Backed Election Plan Spurs Egypt Bond Rally: Arab Credit Source: Bloomberg, January 29, 2014 Egypt’s bonds are rallying in the face of rising violence and militant attacks as speculation builds that the army chief who ousted Mohamed Mursi will succeed the former president, restoring order and luring foreign aid. The yield on Egypt’s $1 billion of Eurobonds due April 2020 dropped in the past four weeks to 6.02 percent on Jan. 24, near the lowest level in a year, according to data compiled by Bloomberg. That compares with 5.9 percent on the same day for higher-rated Turkish dollar bonds maturing three years later. The top army council yesterday gave a green light for Defense Minister Abdelfatah al-Seesi, who hasn’t declared his intentions, to run for president. Thousands poured into Cairo’s Tahrir Squareon Jan. 25 to support his candidacy, and voters backed a new constitution in a referendum this month. Investors are betting that as president, al-Seesi will seek to revive a struggling economy, even as militants escalate bombings and supporters of Mursi stage protests. “Protests and clashes, as long as they don’t cause a full fledged revolution, are tolerated by investors,” said Sergey Dergachev, who helps oversee about $9 billion, including Egypt’s Eurobonds, at at Union Investment Privatfonds in Frankfurt. “They key triggering event is the restoration of some sort of political framework.” Credit Risk Egypt’s financial markets have rallied since Al-Seesi’s intervention in July to remove Mursi. The nation’s credit risk, as measured by five-year credit default swaps, plunged more than 400 basis points since Mursi’s ouster to 483 at 10:36 a.m. in Cairo. The yield on the 2020 bond tumbled from a high of 10.77 percent, while the benchmark stock index has jumped more than 45 percent. “The hope is that the army-backed transition has better prospects of completion,” Raza Agha, chief Middle East and Africa economist at VTB Capital Plc in London, said by e-mail yesterday. “The prospects of a strong, secular presidency that is backed by key institutions, political parties and regional donors, is also helping sentiment.” Mursi’s removal triggered about $15 billion in aid pledges from Saudi Arabia, the United Arab Emirates and Kuwait, countries that opposed the former president’s brand of political Islam. The government is in talks to receive more aid from Gulf Cooperation Council countries, Finance Minister Ahmed Galal said Jan. 23. Egypt Weekly Newsletter 2 Thai Trade Center, Cairo January, 2014 (4th quarter) Sherif Yehya Egypt to return $3 billion to Qatar by end of 2014 Source: Aharamonline, January 28, 2014 Egypt’s Central Bank plans to return a total of $3 billion to Qatar by the end of 2014 as the bonds mature, reported Reuters Thursday. The Central Bank is to return $500 million in October and $2.5 billion in November. Qatar had backed Egypt with $7.5 billion during the year Muslim Brotherhood ousted president Mohamed Morsi was in power. However, as Morsi was ousted following popular uprising on 30 June, 2013 Cairo's relations with Doha deteriorated. By the end of 2013, Egypt returned $3 billion to Qatar as the bonds matured. Central Bank Governor Hisham Ramez said last month that the move slightly influenced a decline in net international reserves. Egypt's Central Bank is currently working on a stimulus package to boost the stuttering domestic housing sector through mortgage financing, particularly to help the construction of mid-level houses. When the cash liquidity of Egypt's banking sector stands at a high and stable level, banks will do business and fund projects, Ramez said. Government has spent EGP 18bn of first stimulus package Source: Egypt Daily News, January 29, 2014 The government has spent EGP 18bn of the EGP 29bn of the first stimulus package, Minister of Finance Ahmed Galal stated on Tuesday. However, according to Al-Borsa, Galal said that the second stimulus package would be spent after an agreement is finalised with the Ministry of Petroleum to develop a programme for energy subsidies for the next fiscal year. Galal made these statements during a Tuesday conference, organised by Beltone Financial Company, titled “Egypt on the right track”. The conference was attended by 40 international investment funds. The government’s stimulus package will yield results by the end of Q1 2014, Galal said. The interim government adopted two stimulus packages after it came to power in July. The first package, announced in August, was valued at EGP 29.6bn; however, the value of the second one was announced in January, totalling EGP 30bn. Galal said the budget deficit is expected to be reduced to 9.5% in the 2014/2015 fiscal year, and to 8% within the coming three years, according to Al-Borsa newspaper. The minister also expects internal debt to be cut from 92% to 80% in the same period. In the 2012/2013 fiscal year, the government’s budget gap registered 14% of GDP; the interim government aims to reduce it to 10% in the current fiscal year. Galal said the government is seeking to boost tax revenues to represent 25% of the GDP in the coming years, an increase from the current 15%. “This could be achieved through imposing a value-added tax and income tax,” he said, adding that this cannot be achieved for the time being, as “the government is adopting an expansionary economic policy to increase growth rates.” The Tax Authority reserved funds provided to public petroleum companies, as the latter have not paid their tax dues, Galal said, highlighting that he is currently working on resolving this dispute. According to state-run news agency MENA, Galal revealed that negotiations are currently underway between Egypt and Gulf countries, as the former seeks to obtain cash and in-kind assistance programmes. Following the ouster of deposed president Mohamed Morsi in July, Saudi Arabia, Kuwait and United Arab Emirates pledged a Egypt Weekly Newsletter 3 Thai Trade Center, Cairo January, 2014 (4th quarter) Sherif Yehya total of $12bn in assistance to Egypt. Meanwhile, Minister of Investment Osama Saleh said, during the same conference, that the government aims to obtain $4bn in foreign investments by the end of the 2013/2014 fiscal year. The total value of foreign investments during the past three years reached $9.2bn, he said, adding that it has increased by 20% after 30 June. Saleh said economic laws, particularly investment laws, are currently being revised “in order to fit the current phase” and facilitate reconciliation with investors. BANKING IFC expands partnership with Ahli United Bank Egypt Source: IFC, January 27, 2014 The International Finance Corporation (IFC), a member of the World Bank Group, announced on Tuesday that it has expanded its partnership with Ahli United Bank Egypt (AUBE).