EGYPT WEEKLY NEWSLETTER

APRIL, 2014 (3rd QUARTER)

CONTENT

1. Political Overview………...... 01 2. Economic Overview……..….…..02 3. Finance..…………………………..….03 4. IT & Telecom………………………..03 5. Energy……………………………….…05 6. Petroleum.…..………………………05 7. Automotive..………………………..06 8. Real Estate.…………..……..……...06 9. Laws & Regulations………………07

Compiled by Thai Trade Center,

POLITICAL OVERVIEW

Egypt to hold presidential elections May 26-27 Source: CNN, April 13, 2014

Egypt's presidential elections will take place on May 26 and 27, Egyptian media reported Sunday, citing an announcement by the country's Presidential Elections Commission. Army chief Abdel Fattah el-Sisi announced Wednesday that he would resign and declared his candidacy in the national polls. El-Sisi, 59, Egypt's defense minister, had to leave the army in order to run for president. El-Sisi deposed President Mohamed Morsy of the Muslim Brotherhood, Egypt's first freely elected leader, last year following mass protests against the latter's rule. The officer is popular among who supported the army's decision to remove Morsy from power a year into his term -- seeing el-Sisi as the kind of strong man needed to end the turmoil dogging Egypt since a popular uprising in 2011 ended Hosni Mubarak's three decades of one-man rule. But el-Sisi is reviled by the Islamist opposition, which sees him as the mastermind of a coup against an elected leader and the author of a fierce crackdown on dissent. Egypt has suffered bloody internal strife since Morsy was overthrown. Also on Sunday, unknown gunmen opened fire on a security personnel carrier in Egypt's Sinai region, killing one soldier and injuring three policemen, the state-run Al-Ahram newspaper reported, citing a military source. The security personnel carrier was traveling on a motorway in the North Sinai town of Sheikh Zuweid, the source told the Al-Ahram Arabic news website, without elaborating. Militants based in the Sinai peninsula near the Israeli border have stepped up attacks on soldiers and policemen since Morsy's ouster. Morsy and other Brotherhood leaders were rounded up soon after.

Egypt Weekly Newsletter 1 Thai Trade Center, Cairo April, 2014 (3rd quarter) Sherif Yehya ECONOMIC OVERVIEW

WORLD BANK APPROVES USD300 MILLION TO SUPPORT SMALL BUSINESSES Source: Ahram Online, April 14, 2014

The World Bank has approved a USD300 million loan to Egypt for a project targeting small businesses in more rural and underprivileged areas. The money will optimise Egypt's micro and small enterprises (MSEs), which will open the door for job creation in the private sector. The five-year project is set to reach over 130,000 MSEs, 37% of which are owned by women. “The project will reach out to remote, rural and underprivileged areas in Egypt,” said Sahar Nasr, the World Bank's lead economist and project team leader.

IMF IN TALKS WITH EGYPT REGARDING USD 4.8 BILLION LOAN Source: Ahram Online, April 15, 2014

Egypt will need further international assistance to put its economy back on track despite receiving huge loans from Gulf Arab states, the International Monetary Fund (IMF) said; "Egypt will need financial support which could come from its partners in the Gulf or, if the government wants that, from the IMF and from other international financial institutions," Christopher Jarvis, the International Monetary Fund's Egypt mission chief, told reporters. Despite the influx of cash, Egypt still faces "big challenges" including low growth, high unemployment and an aggravated budget deficit, Jarvis said. Jarvis renewed calls on Egypt to take the politically sensitive step of reducing fuel subsidies, saying that they were painful for the budget. "The sooner the reform is started the better. But we see it as a process that will take several years," Jarvis said, adding that the IMF stood ready to assist.

Egypt to introduce smart card for subsidised bread by July Source: Egypt.com, April 15, 2014

The Egyptian Supplies Minister Khaled Hanafi said Sunday that Egypt will introduce a smart card system for subsidised bread nationwide by July, in an attempt to curb corruption and smuggling. A pilot scheme was launched in the Suez Canal city of Port Said on Sunday and will be implemented in other cities next week. "The new system will ... save the subsidies allotted for bread, which cost 22 billion Egyptian pounds ($3.15 billion) a year, from being wasted and leaked," Hanafi said in a statement. Egypt is the worlds largest importer of wheat, purchasing around 10 million tonnes a year, and provides the poor with subsidised loaves sold for the equivalent of one U.S. cent. Profiteers have exploited the system and many feed bread to livestock because it is cheaper than animal feed. The government is under severe financial pressure and spends around a quarter of its budget on subsidies of food, which also cover rice, sugar and oil, and energy. Egypt has undergone three years of economic and political turmoil since a popular uprising ousted Hosni Mubarak in 2011.

Egypt Weekly Newsletter 2 Thai Trade Center, Cairo April, 2014 (3rd quarter) Sherif Yehya

FINANCE

INFLATION STABLE IN MARCH AT 9.8% Y-O-Y Source: Capmas, April 13, 2014

Urban consumer price inflation was stable at 9.8% Y-o-Y in March. Both food and non-food inflation showed stable annual growth levels, standing at 15.6% Y-o-Y and 5.1% Y-o-Y, respectively. The outturn came in slightly above our forecast of 9.4% Y-o- Y as we expected lower monthly increase in food price inflation. We reiterate our view that the Central Bank of Egypt (CBE) is likely to hold policy rates unchanged when it meets on 24 April. Monthly inflation trends show headline inflation was up 0.6% M-o-M in March, decelerating from 1.4% in January and 1.0% in February. Food prices jumping 1.4% M-o-M driven by higher prices of meat, fruits and vegetables. March’s food price increase brings the cumulative food price inflation in 1Q2014 to 5.2% Q-o-Q, supporting our view that the CBE is likely to leave interest rates unchanged having cut them three times in the last six months. Non-food inflation inched up only 0.1% M-o-M with most non-food items in the consumer basked showing no price movements. Non-food prices rose 1.4% Q-o-Q in 1Q2014. We maintain our forecast for average inflation in 2014 at 9.4% Y-o-Y. Inflation is likely to decelerate further in the coming few months, benefiting from favorable base effects; the EGP was subject to devaluation in 1H2013. We therefore see inflation remaining in single digits for most of 2014. GCC financial and in-kind support will help avoid any inflationary shocks, related to the currency or energy, and so will stable global food prices.

IT & TELECOMMUNICATION

TE TO FINANCE EGP2.5 BILLION UNIFIED LICENCE PAYMENT INTERNALLY Source: Al Borsa, April 14, 2014

Telecom Egypt (TE) will use internal financing for the EGP2.5 billion payment to be made for the unified telecom licence as the company has about EGP6 billion on its balance sheet. TE is to start providing mobile services around the month of Ramadan, which should coincide with the end of June 2014.

VODAFONE EGYPT LODGES APPEAL AGAINST COMPETITION AUTHORITY'S Source: Al Borsa, April 13, 2014

Vodafone Egypt (VFE) has lodged an appeal against Egyptian Competition Authority's (ECA) decision to refer VFE to the Public Prosecutor for imposing a stamp duty on its subscribers. The ECA had issued a decision in December 2013 referring the mobile operators, VFE, Mobinil and Etisalat's subsidiary Etisalat Misr for raising prices and colluding to impose a stamp duty worth EGP6.1 per subscriber. However, the companies had gained written approval from the National Telecommunication Regulatory Authority (NTRA) prior to applying the duties and will not reverse this decision, according to company sources

Egypt Weekly Newsletter 3 Thai Trade Center, Cairo April, 2014 (3rd quarter) Sherif Yehya

Telecom Egypt to Get Mobile License for $359 Million Source: Bloomberg, April 16, 2014

Telecom Egypt Co. will have to pay 2.5 billion Egyptian pounds ($359 million) for a unified license giving the country’s landline monopoly the right to offer services over competitors’ mobile-phone networks. At the same time, mobile operators Vodafone Egypt , Orange SA (ORA) ’s Mobinil and Emirates Telecommunications Corp.’s Etisalat Misr will be charged 100 million pounds each for a unified license giving them the right to use Telecom Egypt landlines, Telecommunications Minister Atef Helmy said at a press Conference in Cairo today. Telecom Egypt’s license will last about two years, until the state sells new 4G mobile spectrum. Under the license regulations, a state-managed company will be started to establish and rent telecommunications infrastructure and the four operators will be allowed to participate in it. Mobile operators are still studying legal and financial conditions of the license, Helmy said. The unified license will be activated before June 30. Under the rules, Telecom Egypt, which is 80 percent owned by the government, will have one year to negotiate an exit from its mobile joint venture with Vodafone Group Plc. (VOD) Telecom Egypt has a 45 percent holding in the unit. Vodafone has expressed interest in buying that holding, while Telecom Egypt has said it wouldn’t be obliged to exit the joint venture and it may buy a controlling stake when 4G spectrum is offered.

Vodafone Threat

On March 4, Vodafone said it would consider international arbitration if the Egyptian government approved the rule giving Telecom Egypt access to the country’s mobile networks. At the time, Etisalat Misr said it would seek negotiations and dialogue, and arbitration would be the last resort if the license were issued without fair and transparent rules. “There will always be different point of views in business,” Helmy said. “However, what we reached today was done with complete fairness and professionalism.” Representatives of Etisalat and Newbury, England-based Vodafone declined to comment when contacted by Bloomberg News today. Tom Wright , a spokesman for Orange, confirmed the company had received the documents. “We are currently looking at these and will establish our position following a complete analysis of the terms and conditions,” he said in an e-mail. Mobile carriers have complained that the unified license only gives them limited access to Telecom Egypt’s older, copper network, rather than its high-speed fiber broadband. Mobile operators will have to rent fiber cables from Telecom Egypt if they want such access or establish their own through the new infrastructure company, Hesham El Alaily, executive president of Egypt’s telecommunications regulator, said today. “I don’t want to hear the language of threats any more,” Helmy said. “We are sure our position is right and of its benefit to both the operators and Egyptian citizens.” He said the new license will double the size of the telecommunications market within seven to 10 years.

International Services Vodafone will have to pay 1.8 billion Egyptian pounds if it wants to provide international gateway services, which connect calls across borders, when they are

Egypt Weekly Newsletter 4 Thai Trade Center, Cairo April, 2014 (3rd quarter) Sherif Yehya offered in June 2016, the regulator said in a statement handed to reporters today. Mobinil will have to pay 1.5 billion pounds, while Etisalat Misr, which already has a gateway, will pay 8 pounds per subscriber. Telecom Egypt rose 2.8 percent in Cairo today before its trading was suspended pending responses to inquiries. The company’s net income rose to 2.96 billion pounds in 2013 from 2.62 billion pounds in 2012, even as home fixed-line subscribers fell to 5.7 million from 6.24 million.

ENERGY

Egypt battles energy crunch with ban on too-cold air conditioners Source: Reuters, April 14, 2014

CAIRO (Reuters) - Egypt, grappling with an energy crunch, will enforce a ban on the production and import of air conditioners that can be set lower than 20 degrees Celsius, aiming to reassure citizens and industry hit with power cuts and fuel shortages. The failure of successive governments in Cairo to develop sound energy policies has discouraged foreign companies from tapping gas reserves needed to meet increasing consumption in the most populous Arab country. Power generation in Egypt is largely dependent on natural gas, now in short supply. The government predicts production will fail to meet surging domestic demand in the next fiscal year, starting in July. Trade, Industry and Investment Minister cast the restrictions on air conditioners as a part of the government plan to cut energy use in order to ease the worsening crisis in the sector. The decision was taken last year but will be implemented starting mid-June, Abdel Nour said in a statement. The ban on air conditioners outside the government's specification will contribute to "easing the burden on Egyptian families," the minister said. Egypt will hold presidential elections late next month, just before the hot summer months when air conditioners are cranked up, adding pressure to an already stretched electricity grid. Chaos in the politically-sensitive energy sector, currently kept afloat by petroleum product handouts from Gulf Arab countries, will be among the biggest challenges facing the country's next president. Long lines at gas stations and power cuts fuelled popular anger against Islamist President Mohamed Mursi ahead of his ouster by the army last summer. Experts say the energy crunch is worsening and will not be resolved until more gas production comes onstream, which is dependent on Cairo encouraging large investments. Such long-term policy decisions have been put off repeatedly. With daily power cuts darkening homes and businesses ahead of the summer, the government is keen to be seen as active in tackling the shortages, though some ministers have acknowledged the problem is insurmountable in the short-term.

PETROLEUM

KUWAIT IN TALKS TO RENEW CONTRACTS ON SUPPLYING OIL TO EGYPT Source: Reuters, April 13, 2014

Kuwait is in talks to renew some of its contracts to supply oil to Egypt and has been looking for potential investments in the energy sector there, the Gulf state's oil minister said. Kuwaiti and Egyptian officials were due to meet to agree on details of

Egypt Weekly Newsletter 5 Thai Trade Center, Cairo April, 2014 (3rd quarter) Sherif Yehya supply contracts. Moreover, Kuwait would supply 2.25 million barrels of oil and 1.2 million tonnes of petroleum products per month starting the beginning of May next year.

AGRICULTURE

EGYPT TO LEASE FARMLAND TO ARAB INVESTMENT FIRM Source: Reuters, April 14, 2014

Egypt plans to lease 60,000 feddans (25,200 hectares) of agricultural land this year to a firm affiliated with an Arab investment body, its agriculture minister said, in a bid to attract more investment from its Gulf allies. "We are discussing some alternative financing plans for our country. We plan to give some 60,000 feddans this year to a company shared with the Arab Authority for Agricultural Investment," Agriculture Minister Ayman Abu-Hadid on the sidelines of an Arab finance ministers summit in Tunis.

AUTOMOTIVE

TWO-AND-THREE WHEELER OWNERS GIVEN 30 DAY GRACE PERIOD TO LICENCE VEHICLES Source: Al Ahram, April 14, 2014

Egypt’s two- and three-wheeler (tuk-tuk) owners will have a 30-day grace period from 1 April 2014 to ensure that their vehicles are licenced once a new presidential decree is issued amending the traffic law. Vehicle owners who do not abide by the grace period will have their vehicles confiscated. While it has always been required to licence tuk-tuks, enforcement has been weak, partly due to their relatively high licencing costs (c10% of tuk-tuk unit price). Two- and three-wheelers are increasingly scrutinised in Egypt as their usage to commit crimes grew, with a one-year-ban currently imposed on their importation. While the licencing enforcement is an expected outcome that could limit the long-term potential of two- and three- wheeler sales for GB Auto, the news signals that the ban could end earlier than expected if vehicle owners abide by the grace period, which poses an upside risk to our near-term numbers for GB Auto.

REAL ESTATE

MINISTRY OF HOUSING TO CHANGE LAND ALLOCATION MECHANISM IN CAIRO Source: Shorouk, April 15, 2014

The Minister of Housing said the land allocation mechanism restricted to bids will be changed, adding that the Ministry of Housing will use the sealed-envelope system to choose the best financial and technical bids. confirmed that the ministry will draft the new real estate regulations of the NUCA Law within two months to attract more investment and reduce disputes. The government is also considering incentivising investors by allowing investments in new areas, i.e. the

Egypt Weekly Newsletter 6 Thai Trade Center, Cairo April, 2014 (3rd quarter) Sherif Yehya planned city in Alameen, in addition to four other new cities to be established from 2014-19.

AL FUTTAIM AIMS TO LAUNCH SECOND PHASE OF CAIRO FESTIVAL CITY Source: Mubasher, April 13, 2014

Majid Al Futtaim for Real Estate Development-Egypt (Al Futtaim) is aiming to launch the second phase of Cairo Festival City with a total investment cost of EGP4 billion. The phase will include the construction of five commercial buildings, 300 standalone units, 600 apartments and a hotel.

MINISTRY OF HOUSING APPROVES FINAL SETTLEMENT ON SODIC’S EASTOWN Source: Al Borsa, April 15, 2014

The Ministry of Housing has approved the final settlement regarding Sixth of October Development and Investment Company’s (SODIC) Eastown land. The agreement requires SODIC to pay EGP900 million to settle its ongoing dispute over Eastown land. The company will pay EGP90 million upon signing the agreement with the rest to be paid over semi-annual installments. In return, the company will be granted a three-year extension period to execute the project. The duration upon which the amount will be settled is not yet disclosed.

LAWS & REGULATIONS

CABINET APPROVES DRAFT LAW BARRING CHALLENGES TO CONTRACTS Source: Reuters, April 13, 2014

Egypt's cabinet approved a draft investment law that prevents third parties from challenging contracts made between the government and an investor, two government officials said. "The cabinet approved today a draft law that limits appeals on contracts between the government and investors to the parties involved only," one of the government officials. Since the 2011 revolt, Egyptian courts have issued at least 11 rulings ordering the state to reverse deals signed by the former president's administration. The lawsuits have been brought by activists and lawyers who allege that companies were sold off too cheaply in deals that were representative of corrupt business practices during the Mubarak era. Gulf Arab businessmen, for instance, have repeatedly cited a lack of guarantees that their money will be safe in Egypt as a reason for holding back investment.

Egypt Weekly Newsletter 7 Thai Trade Center, Cairo April, 2014 (3rd quarter) Sherif Yehya