EGYPT WEEKLY NEWSLETTER

MARCH, 2014 (1ST QUARTER)

CONTENT

1. Political Overview………...... 01 2. Economic Overview……..….…..02 3. Banking………………….…………….03 4. Finance.…………………….……..….04 5. Projects……………………..………..05 6. Tourism…………………………..…..06 7. Industry..….………………………….06 8. IT & Telecom……..…..…………...07 9. Building Materials………………..07 10. Real Estate………………………...07 11. Laws & Regulations…………...08

Compiled by Thai Trade Center,

POLITICAL OVERVIEW

Egypt: El-Sissi Gives Sign of Presidential Run Source: ABC News, March 3, 2014

Egypt's military chief, Field Marshal Abdel-Fattah el-Sissi, gave his strongest indication yet that he intends to run for president, saying Tuesday that he "can't turn his back" to public demands. In a campaign-style speech, he said Egyptians must unite and end street turmoil to tackle the country's mounting economic and security woes. El-Sissi is considered almost certain to win if he runs for president, riding on a wave of popular fervor since he ousted the country's first freely elected president, Islamist Mohammed Morsi, who had faced massive protests demanding his removal after a year in office. Since the ouster last summer, a heated anti-Islamist and nationalist media campaign has fanned support for el-Sissi, touting him as the nation's savior. For weeks, pro-military media have been saying the field marshal will announce his candidacy imminently. El-Sissi's speech to military cadets and their families during a graduation ceremony, later aired on state TV, appeared aimed at explaining to nervous supporters why he has not yet made an official announcement amid the widespread expectations — while laying out what is likely to be a theme of his campaign, that Egyptians must take responsibility for restoring stability and rebuilding the economy. He virtually confirmed he intends to run. "Don't imagine that anyone who truly loves his country and loves the Egyptians, can ever turn his back on them when he finds there is a desire by many of them. No one can do that," he said, to applause from the audience. He said he could not openly declare his candidacy since he still holds the post of defense minister. "Let us leave things for the coming days," he said, hinting that he was waiting for the interim president to issue a law governing the presidential vote. The vote is to be held by the end of April.

Egypt Weekly Newsletter 1 Thai Trade Center, Cairo March, 2014 (1st quarter) Sherif Yehya "I spoke in signs so that people don't get confused" amid much speculation, el-Sissi said. "I hope you all got the sign." His call for unity reflected the daunting problems he would face if he becomes president. Morsi's Islamist supporters have been protesting for months demanding his reinstatement, though the protests have waned in the face of a fierce police crackdown that has killed an estimated 2,000 people and arrested thousands of members of Morsi's Muslim Brotherhood. Also, Islamic militants have been waging a campaign of bombings and assassinations. The economy has been wrecked since the 2011 ouster of autocratic President Hosni Mubarak. "Don't imagine that any one person can solve the problems in Egypt, regardless of who it is you select. No, it will be solved by all of us," he said. "Don't imagine that the problems accumulated for over 30 years, can be solved without us joining hands." In an implicit call to Morsi supporters to end their protests, he said, "Maybe eight months (since Morsi's ouster) is a time to start to review and reconsider. ... Look around you to see if what is happening pleases God." "Egyptians, you need to put your hands together to avert a real danger for Egypt," he said. Over the past weeks, the 59-year-old U.S.-trained army chief has been increasingly acting in a presidential fashion, most notably a visit last month to Russia, where he secured the Kremlin's blessing for his likely presidential bid. Last week, his wife made her first public appearance: Intisar el-Sissi was seated next to him during a ceremony honoring senior officers.

ECONOMIC OVERVIEW

UNEMPLOYMENT STABLE AT 13.6% IN 4Q2013 Source: Ahram Online, March 01, 2014

Egypt’s unemployment rate remained unchanged in the fourth quarter of 2013 at 13.4% of a labor force of 27.3 million people. Unemployment among young people aged 15-29 hit 69% of the labor force in the last quarter of 2013. More than 82% of them hold diplomas and university degrees. Since the 2011 revolution, the number of the unemployed increased by 1.3 million to 3.65 million people in the last quarter of 2013. According to CAPMAS, the unemployment rate among male workers reached 10%, while among females it was 25%. Urban areas experienced a modest rise in unemployment rate to 17.6%as compared to 16.7% in the previous quarter. Unemployment in rural areas shrunk to 10.1% from 10.8% in the previous quarter.

PRIME MINISTER IBRAHIM MEHLEB APPOINTS NEW MINISTERS Source: Beltone, March 2, 2014

Newly appointed Prime Minister Ibrahim Mehleb formed Egypt’s new cabinet met with each minister, addressing what their ministry will focus on in the next stage. Doria Sharaf El-Din, who was reappointed minister of information, said Mehleb tasked her with upholding a slogan for the media: Reconciliation with the people. Mehleb merged a total of 12 ministries, amongst are: 1) the Ministries of Trade and of Investment, headed by , 2) the Ministries of Higher Education and of Scientific Research, headed by Ashraf Mansour, 3) the Ministries of

Egypt Weekly Newsletter 2 Thai Trade Center, Cairo March, 2014 (1st quarter) Sherif Yehya Transitional Justice and of the House of Representatives, headed by Amin Al- Mahdi,4) the ministries of Planning and of International Cooperation, headed by Ashraf El-Araby, and 5) the Ministries of Local Development and of Administrative Development, headed by . Khaled Hanafi was also appointed as new minister of Supply and Mohamed Shaker replaced Ahmed Imam as minister of Electricity. Nahed Al-Ashry was appointed as the new minister of Manpower, replacing Kamal Abu Eita. Ghada Wali, the new minister of Social Solidarity. Other ministers who dodged the latest reshuffle include: Minister of Agriculture Ayman Abu Hadid, Minister of Petroleum , Minister of Communication , and Minister of Education Mahmoud Abul Nasr.

BANKING

Egypt's central bank expected to keep main rates on hold Source: Yahoo, February 28, 2014

Egypt's central bank is expected to keep interest rates unchanged at a monetary policy meeting on Thursday, a Reuters survey shows, as officials seek to balance the need to stimulate the economy while curbing high inflation. Egypt's economy has endured more than three years of political instability after the overthrow of autocrat Hosni Mubarak in 2011 deterred tourists and foreign investors. The bank is under pressure to keep interest rates high to attract funds out of foreign currencies and into the Egyptian pound. In its last monetary policy meeting Egypt kept its deposit rate at 8.25 percent and its lending rate at 9.25 percent. It also kept its discount rate and the rate it uses to price one-week repurchase and deposit operations at 8.75 percent. Five of six economists surveyed by Reuters expect the bank to keep rates unchanged on Thursday, while one expected it to cut them by 50 basis points. "The central bank cut interest rates three times and we haven't seen the impact on credit growth, so they might want to take a breather. Inflation is decelerating but still remains high," said EFG-Hermes economist Mohamed Abu Basha. Egypt's annual urban inflation rate slowed to 11.4 percent in January from 11.7 percent in December. Core annual inflation slid to 11.7 percent in January from 11.9 percent in December. Supported by more than $12 billion in aid from Gulf states, Egypt launched two stimulus packages worth around 30 billion Egyptian pounds ($4.3 billion) each to spur growth in its ailing economy. Unlike other analysts surveyed by Reuters, Jason Tuvey, assistant economist at Capital Economics, expects the central bank to cut rates on Thursday by 50 basis points as the Egyptian economy continues its recovery. "Aid from the Gulf means that the central bank doesn't need to keep interest rates high in order to attract foreign capital inflows," Tuvey said.

Egypt Weekly Newsletter 3 Thai Trade Center, Cairo March, 2014 (1st quarter) Sherif Yehya

FINANCE

CITADEL CAPITAL COMPLETES INVESTMENT PURCHASES OF EGP3.7 BILLION Source: Beltone, March 01, 2014

Citadel Capital has completed its planned purchases of additional stakes in its platform companies totaling EGP3.7 billion as part of its ongoing transformation into an investment company that will hold majority stakes in its subsidiaries in five core industries: energy, transportation, agrifoods, mining, and cement. The asset purchases cover the platform companies and subsidiaries outlined in the group's submitted forms as approved by the EFSA. Citadel Capital's board accepted a report by its independent auditor (KPMG) certifying the EGP3.7 billion in liabilities to co- investors and shareholders arising from these securities purchases. These liabilities will be capitalized during the second subscription round for the capital increase, thereby resulting in full subscription to the share issuance. The closing date for the first round of subscriptions was February 13, 2014 with hardly any coverage, and the second round is expected to be completed in March 2014.

CENTRAL BANK EARMARKS USD1.44 BILLION FOR LOW-COST HOUSING Source: Reuters, March 04, 2014 The Central Bank of Egypt (CBE) announced it would allocate EGP10 billion (USD1.44 billion) for low-cost housing projects. The money will be deposited to banks for 20 years at a low interest rate to lend it to citizens who qualify to buy houses at a yearly interest rate of 7-8%.

EFG-HERMES SEEKS TO INCREASE EGYPT AUM BY 25% Source: Beltone, March 03, 2014

EFG-Hermes is seeking to expand its assets under management in Egypt by 25% in 2014, said the head of asset management; Nabil Moussa. EFG-Hermes has USD3.0 billion in assets under management (AUM), with USD1.9 billion managed from Egypt, while the rest from Dubai. Moussa said the return on the company's equity funds in Egypt was between 25% and 30% in 2013, compared with 45% in 2012. We imagine the targeted growth will be mostly driven by improved market performance given the regulations introduced by the central bank in May 2013 that capped the size of money market funds to 1.5% of the sponsoring banks' LCY deposits (or 2% of their Tier-1 capital, whichever is lower) and limiting new subscriptions and therefore growth in this area. In the nine-month period ending September 2013, the company's AUMs dropped 13% on net outflows to EGP3.0 billion, where redemptions on the company's money market funds represented 89% of total outflows during the period.

Egypt Weekly Newsletter 4 Thai Trade Center, Cairo March, 2014 (1st quarter) Sherif Yehya MOODY'S SAYS EGYPT'S BANKING SYSTEM OUTLOOK REMAINS NEGATIVE Source: Beltone, March 01, 2014

The outlook for Egypt's banking system is negative, unchanged since 2011, says Moody's Investors Service. Moody's acknowledges the recent steps taken toward political stabilization; yet attribute the negative outlook to continuing political and social tensions and the government's strained finances, which in Moody's view will continue to undermine investor and consumer confidence. Furthermore, the banks' exposure to Caa1-rated Egyptian government debt poses a significant credit risk and ties the system's solvency to sovereign default risk. Moody's forecasts GDP growth of 2.6% in 2014, well below the historical average of 4.9% between 2001 and 2010. However, Moody's acknowledges the economy is relatively large and diversified, and could — in the medium-term — regain strength once structural and fiscal issues are addressed. On a positive note, Moody's expects Egyptian banks to remain well funded because of their strong deposit bases. Customer deposits accounted for more than three quarters of banking assets as of September 2013, supported by remittances from Egyptians working abroad. The large pool of deposits enables Egyptian banks to operate with minimal reliance on riskier market and/or foreign funding. In November 2013, S&P raised its rating on four Egyptian banks and assigned them a stable outlook from negative, following a similar action on Egypt's sovereign rating. Fitch has taken a similar decision on Egypt and three Egyptian banks in January 2014.

PROJECTS

OCI NV SELECTS AIR LIQUIDE TECHNOLOGY FOR NEW NATGASOLINE PROJECT Source: Beltone, March 02, 2014

OCI NV announced that it’s wholly owned subsidiary Natgasoline LLC has signed license and engineering design agreements with Air Liquide, a world leader in gases, technologies, and services for industry and health. The company expects to sign the engineering, procurement, and construction contract by the end of March 2014, with commercial methanol production scheduled to begin in 4Q2016. Natgasoline’s design capacity stands at 1.75 mtpa. On a different note, OCI NV announced the extension of the second period during which all eligible shareholders of Orascom Construction Industries S.A.E. may accept an exchange offer to exchange their shares into OCI NV shares or a cash alternative of EGP255.00/share. The first extension period was held on September 29, 2013 to October 3, 2013 and the second extension period was held between January 19, 2014 and January 23, 2014. The second period will be reopened between February 16, 2014 and February 27, 2014.

Egypt Weekly Newsletter 5 Thai Trade Center, Cairo March, 2014 (1st quarter) Sherif Yehya EL SEWEDY ELECTRIC TO DELIVER FIRST WIND TURBINE IN JORDAN Source: Company Discourse, February 28, 2014

El Sewedy Electric is delivering its first wind turbine in Jordan for EUR3 million, the company announced in a press release. El Sewedy Electric is also bidding for a number of projects in Egypt including: i) 100MW wind project; and ii) two power projects for MW 2,250 each. These projects are still in the tendering process and have not yet been awarded.

TOURISM

BOMB ATTACK KILLS FOUR ON TOURIST BUS NEAR ISRAELI BORDER Source: Bloomberg, March 01, 2014

A bomb struck a bus packed with South Korean tourists near Egypt’s border with Israel, killing four people, signaling that militants may be expanding a deadly campaign against security forces to the vital tourism industry. Three Koreans and the Egyptian driver were killed in the blast in the Sinai Peninsula town of Taba, and 13 people were wounded, according to government statements. The Interior Ministry said the bus had been in a parking lot after returning from St. Catherine’s Monastery, a popular tourist destination. It was not clear where the bomb had been planted, and no one claimed responsibility. The Tourism Ministry condemned the “lowly and despicable act,” spokeswoman Rasha El-Azzaizi said.

INDUSTRY

SAUDI AUJAN COCA-COLA PLANS USD100 MILLION FRUIT-JUICE FACTORY IN EGYPT Source: Reuters, February 28, 2014

Saudi Arabia's Aujan Coca-Cola Beverages Company plans to spend USD100 million building a fruit-juice factory in Egypt over the next few years, a senior executive said on Monday, despite the challenges facing there after three years of political turmoil. Meshal Alkadeeb, vice president of strategy and business development, said the money would cover buying the land and setting up the factory in Egypt, which Aujan sees as a North Africa hub, mainly for Algeria and Libya. "The plant will be commissioned between 2016 and 2017. We just started working on it," Alkadeeb said. "Right now, the biggest challenge for investing in Egypt would be infrastructure. They've realized this and them working seriously on addressing the gaps," said Alkadeeb.

Egypt Weekly Newsletter 6 Thai Trade Center, Cairo March, 2014 (1st quarter) Sherif Yehya IT & TELECOMMUNICATION

MOBILE SUBSCRIBERS APPROACHED 100 MILLION THRESHOLD BY YEAR-END 2013 Source: Al Borsa, March 03, 2014

Egypt’s mobile market reached 99.7 million subscribers as of year-end 2013, with net additions of 3 million subscribers during the year. On a monthly basis, December witnessed the strongest growth with net additions of 300,000 users. Vodafone Egypt, 45%-owned by Telecom Egypt reached 41.9 million subscribers (5% growth Y-o-Y, 41% market share), Mobinil registered 34.7 million (2.7% growth Y-o-Y, 34.8% market share), and UAE-based Etisalat’s subsidiary Etisalat Misr recorded 23.04 million (-0.9% growth Y-o-Y, 23.1% market share). In addition, aggregate ADSL subscribers reached 2.63 million by year-end 2013, adding 390,000 users throughout the year.

BUILDING MATERIALS

SUEZ CEMENT INAUGURATES WASTE PROCESSING PLANT FOR ELECTRICITY GENERATION Source: Shorouk, February 28, 2014

Suez Cement has inaugurated its waste processing plant to generate electricity. The plant had an investment cost of EUR5 million and will generate 20% of the Katamiyya facility’s energy needs. The company also plans to add another line to the facility that would doubles the electricity generated by waste processing to 40%.

REAL ESTATE

HDB TO PUMP USD57 MILLION IN SMALL REAL ESTATE PROJECTS Source: Zawya, March 02, 2014

Housing and Development Bank plans to pump EGP400 million (USD57.42 million) into small- and medium-sized projects in Egypt in the next three years, in addition to extending low-interest loans for real estate projects. HDB was playing a large role in providing financing for real estate projects in Egypt, with the real estate sector accounting for 40% of the bank's total loan portfolio last year at around EGP2 billion. "The Central Bank of Egypt, together with other Egyptian banks, is studying a new initiative to support real estate financing and medium- and low-cost housing programs, in addition to resolving the problem of registering property for projects being developed under the New Urban Communities Authority." Property linked to these developments cannot be registered until the project is completed and paid up in full.

Egypt Weekly Newsletter 7 Thai Trade Center, Cairo March, 2014 (1st quarter) Sherif Yehya LAWS & REGULATIONS

TAX AUTHORITY CANCELS BAND-ROLL IMPLEMENTATION ON CIGARETTES Source: Beltone, March 04, 2014

The Egyptian Tax Authority cancelled the band-roll implementation on box cigarette packs until further notice due to technical malfunctions. The authority explained that international bidders approached to amend Eastern Tobacco’s machinery to be compatible with the implementation of the band roll failed to meet required specifications, leading the authority to call off the plan. It remains unclear whether the recently applied implementation of the band roll to 50% of soft-pack production will be cancelled. It is believed that the cancelation of the band roll is positive for Eastern Tobacco, especially since management noted earlier that the band-roll implementation program would cause the company to incur EGP120 million per annum in additional costs.

INVESTMENT LAW PROHIBITS THIRD PARTY CHALLENGE TO CONTRACTS Source: Reuters, March 01, 2014

Egypt's draft investment law contains provisions to prevent third parties from challenging contracts made between the government and an investor; a cabinet source said on Monday, a move designed to attract much-needed investment. The clauses are intended to reassure investors unnerved by previous legal challenges to such deals, some of which have left companies sold by the government in legal limbo.

Egypt Weekly Newsletter 8 Thai Trade Center, Cairo March, 2014 (1st quarter) Sherif Yehya