EGYPT WEEKLY NEWSLETTER

DECEMBER, 2013 (1st QUARTER) CONTENT

1. Political Overview………...... …01 2. Economic Overview…………....02 3. Finance…………………………..…..03 4. Investment……………..…………..03 5. Tourism…………………………...….04 6. Agriculture.………………………….04 7. Energy..…….………..…..……....…05 8. Industry……………………………….06 9. Construction…..…………………..07 10. Projects………………………..……07 11. IT & Telecom……………………..08 12. Retail Trade……………………...09 13. International Trade…………..09 14. International Relations …….. 10

POLITICAL OVERVIEW

NASL sources say will not take part in constitution referendum Source: Egypt Independent, 4 December, 2013

National Alliance Supporting Legitimacy (NASL) has expressed rejection toward the new constitution saying it instead supports the 2012 constitution. It has refused to participate in the referendum to approve the new amended constitution. During a meeting with European Union delegation, sources from the alliance said it called on the union to take stance against “military coup and massacres committed against people.” They added that European delegation demanded response over the alliance participation within the referendum on constitution. The sources added that the alliance insisted on rejecting calls for political appeasement, participation in referendum or engagement in any political process so as not to give any legitimacy to the current regime. They added that they will sue it internationally. Mohamed Abu Samra, secretary general of the Islamic Party, told Al-Masry Al-Youm , “We agree on meeting with foreign delegations because we have legitimacy. If we belonged to opposition, we would reject meeting the delegation.” He added that the meeting tackled the roadmap proposed by the Muslim Brotherhood which includes forming committee to amend the constitution, forming government that enjoys consensus among all political groups, empowering youth and issuing code of honor. Amr Farouq, Wasat Party Spokesperson, said in a statement, “the meeting tackled possibility of regime opponents’ participation in referendum on constitution.” He added that their participation depends on the atmosphere of the referendum regarding available freedom for media professionals and intellectuals, the referendum publicity and finding constitutional solution for the ongoing crisis. Magdy Qarqar, NASL figure, said “we accepted to meet in order to respond to the inquiries and clarify issues.” He also expressed the alliance’s rejection toward

Egypt Weekly Newsletter 1 Thai Trade Center, December, 2013 (1st quarter) Sherif Yehya intervention within Egypt’s local affairs. Muslim Brotherhood figure Mohamed Ali Beshr said they heard the European delegation’s point of view and expressed the alliance’s view regarding political incidents. He assured that the alliance has not decided yet about participation in the constitution or not.

ECONOMIC OVERVIEW

ITALY PROVIDES USD66 MILLION GRANT TO DEVELOP SUPPLY SECTOR Source: Beltone, 2 December, 2013

Italy has allocated a grant worth USD66 million for Egypt to develop its supply sector, according to an official statement from the Ministry of Supply and Internal Trade. Italy allotted USD45 million to build grain silos in the Giza governorate. The Minister of Supply and Internal Trade noted that USD21 million has been assigned to develop bread bakeries in Sheikh Zayed. Minister Abu Shady met on November 21 with Italy’s ambassador to Cairo Maurizio Massari to discuss joint cooperation projects between the two countries in the field of sustainable development. The parties agreed to create a joint committee made up of the ministry’s experts and embassy’s technical office to develop a plan for the projects’ implementation.

EUROMONEY TO HOLD EGYPT-GCC INVESTMENT FORUM IN CAIRO Source: Ministry of Investment, 1 December, 2013

Euromoney Conferences announced that it will return to Cairo on the 4-5 December for the inaugural Egypt/Gulf Cooperation Council (GCC) Investment Forum. This timely event will bring together key Egyptian and GCC investors, financiers and partners to debate and discuss the significant investment opportunities present in Egypt’s economic restructuring, according to the press release. This unique forum will focus on fostering ongoing strategic partnerships between Egypt and the GCC as both parties look towards a future of continued collaboration and increased economic stability in the region. Through a series of targeted workshops this forum will look closely at the main industry sectors. Topics will include: renewable energy, housing and real estate, agriculture and food, hydrocarbons, IT and telecommunications, transportation, infrastructure, and tourism. The Egyptian Ministry of Investment and the United Arab Emirates in partnership with Euromoney will welcome to Cairo distinguished delegates from across Egypt and the GCC. Together we will provide a platform to establish clear solutions for how to progress amidst the challenges of the current economic environment.

WORLD BANK AGREES ON FINANCIAL PACKAGE Source: Beltone, 3 December, 2013

The World Bank approved a financial aid package for Egypt aimed at funding several projects. The Minister of Finance Ahmed Galal identified four main projects the World Bank will fund in the areas of social development, education, health, infrastructure, as well as fighting poverty. He did not specify the amount, but said a World Bank mission is expected to arrive to Cairo next week to finalize the details. However, unnamed sources said that the loan is expected to be around USD2 billion,

Egypt Weekly Newsletter 2 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya with a grace period of seven years and an interest rate of 1% to be paid over 20 years. Galal also said Egypt is negotiating with Saudi Arabia over a new aid package expected to be finalized by the beginning of next month. The amount will be identified soon. However, the sources revealed that the amount could be around USD5 billion in the form of grants for petroleum products and development projects.

FINANCE

MINISTRY OF FINANCE ISSUES GUIDELINES FOR FY2014/15 BUDGET Source: Beltone, 30 November, 2013

The Ministry of Finance issued guidelines for the FY2014/15 budget. In the guidelines, the Ministry stressed on the importance of social spending in the budget especially on food subsidies, health, and education. It alluded to the importance of abiding by the concept of having the treasury single account (TSA) in the Central Bank of Egypt. It stated that when requesting investment-spending allocation, the ministries should clarify their investment criteria and should abide by these allocations. The guidelines also stated that any new employment in the public sector should be based on actual needs. It reiterated that 10% of monthly revenue of special funds should be transferred to the treasury. It also stressed the importance of rationing government purchases of goods and services and limiting them to only what is extremely necessary. The Ministry of Finance underscored the importance of maintenance work that would save the country’s productive capacity. It finally stated that it is pushing for water and electricity conservation, which will be reflected in spending in the upcoming budget.

INVESTMENT

Investments plagued with low-qualified workers Source: Financial Times, 29 November, 2013

Egypt is suffering a clear lack of investments, which many businessmen who run factories in various industrial zones across the country have blamed on low-qualified with low production rates. Since the 25 January revolution, investors have looked upon Egypt with caution and some have even chosen to set up shop elsewhere. During Morsy’s one-year in office alone, Egypt saw one of the worst falls in the number of millionaires in the world, losing around 3,000, according to the latest report released by the Credit Suisse Research Institute’s (CSR) Global Wealth. Street violence, unrest and turmoil of course played a large role in investor's withdrawal of Egypt, as investment inflows fell slightly by 12.4 percent, from $2.46 billion in the second quarter to $2.16 billion in the third quarter of the 2012/2013 fiscal year. Meanwhile, the number of Egyptian factories which have closed in recent months hit alarming indices, affecting 613 factories who have halted their operations. Though he says the key reason for a decline in investment is instability, Alaa El-Sakty the chairman of Badr Investors Association (BIA) emphasized that lack of labor in the Egyptian market still plays a substantial role in the withdrawal of investors. “How I can launch a new project if there are no well-qualified workers?” asked Hossam El- Hawary, the owner of a wrought iron manufactures at Badr industrial zone. El-

Egypt Weekly Newsletter 3 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya Hawary is a small businessman who owns a small factory producing wrought iron products using high leaser techniques. The factory employs a modest number of workers and designers. “The well-trained workers are mostly not available, and besides those few who are trained are very careless and not disciplined,” El-Hawary said, adding that sometimes workers they skip many days of work due to mere apathy. The well-trained workers are volatile, which means after working for a very short time they could leave their post, which has recently pushed some businessmen to force the newly hired workers to sign contracts for a defined period to guarantee the workers stability. “I've felt the crunch for years with 30 workers, who come and go after a very short time and other works with very poor qualifications,” El-Hawary said. Many business owners agree with El-Hawary on this point. “I’ve been suffering this problem for a long time. Now I am considering halting the operations of my factory,” said Sayed El-Asiouty, the owner of a wood manufacture factory established three years ago. “Unfortunately we do not have the well-trained workers or those who are capable to be trained. Workers in Egypt have lost the concept of living conscience,” said Hatem Serry, owner of furniture factory in 6th of October City. While Serry asserted that he planned to start a new branch of his factory in another region, but he says he is hesitating and uncertain to carry forward due to the absence of workers. “In 6th of October city, there were a number of Turkish businessmen who launched some new projects and factories, but after a while we surprised that they suspended their businesses due to poor quality of workers,” Serry explained.

TOURISM

RUSSIA LIFTS TRAVEL WARNING ON EGYPT Source: Ahram Online, 1 December, 2013

Russia has lifted its travel warning on Egypt, Tourism Minister Hisham Zaazou announced on November 21, saying he received the news from the Russian ambassador in Cairo. 22 countries have lifted their travel warnings on Egypt, following recent decisions by Cyprus, Italy, and now Russia. Zaazou welcomed the decision as a very positive sign. Russia is the biggest source of tourists in Egypt, with around 1.7 million visiting in the first eight months of 2013.

AGRICULTURE

EU AND MINISTRY OF INTERNATIONAL COOPERATION SIGN AGREEMENT Source: Daily News Egypt, 2 December, 2013

The Ministry of International Cooperation signed on November 25 a new agreement, Improved Water and Wastewater Services Program II (IWSP II), with a number of European bodies. Among the signatories with the ministry were the European Union (EU), German Development Bank (KFW), French Development Agency (AFD), European Investment Bank (EIB), and Swiss State Secretariat for Economic Affairs (SECO).The project will be jointly financed, with Germany’s KFW being the lead financing institution, and will cost around EUR 303m. The European development partners will contribute EUR 209m, 69% of the total cost, while the Egyptian

Egypt Weekly Newsletter 4 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya government will provide EUR 94m, the remaining 31%. The EU’s contribution is this project will be EUR 23m, provided as a grant. The new project will be implemented in Qena, Sohag, Assiut and Minya, all in Upper Egypt, and will provide clean drinking water and safe sanitation for about 15.3m people. The program includes rehabilitation projects for existing water and sanitation facilities as well as the construction of new ones with the aim to improve the health of the population in the targeted governorates. The project will be implemented over a period of five years, followed by a 30 month closure phase. The structure of the IWSP II will be similar to the IWSP I, which was implemented in four Nile Delta governorates. The first project cost around EUR 295.1m and was also jointly financed by the KFW, AFD, the EIB, EU and the Egyptian government. Currently, 21 projects are under implementation by Egyptian contractors and consultants. Another cooperation program that was signed the same day was the “Umbrella Agreement”. The EUR 52.3m agreement is between the AFD, the EU and the Egyptian government.

EGYPT SUSPENDS RICE EXPORTS UNTIL FURTHER NOTICE Source: Beltone, 28 November, 2013

Egypt suspended rice exports less than a week after issuing licenses to sell the grain abroad, stated by the head of the rice committee of Egypt's Agricultural Export Council on November 19. Egypt granted licenses allowing exporters to sell 102,000 tons of white medium-grain rice in a tender. The licenses allowed the export of rice for a period until January 15. Egypt has an exportable surplus estimated at 800,000 tons of rice this year. Egypt's local consumption amounts to around 4 million tons of white rice per year, of which around 1.1 million tons are used for its subsidized rice program. The export halt decision was made by the Prime Minister to ensure that citizens' local needs of rice are met and to ensure rice is available for the food subsidy program. The restrictions on Egyptian rice exports are also meant to keep prices in the local market stable, but rice exporters have complained that the ban on free exports has led to the rise of a contraband trade by creating a large price difference between domestic and export markets.

ENERGY

FUEL SUBSIDIES TO BE CUT GRADUALLY OVER FIVE TO SEVEN YEARS Source: Daily News Egypt, 4 December, 2013

Interim Prime Minister Hazem El-Beblawi announced that the cutting of fuel subsidies will be implemented gradually over a period of five to seven years. El- Beblawi added that the plan would not affect the low income citizens and would gradually decrease the subsidies on “those who can handle these cuts,” referring to upper-middle income earners, until the subsidized amount reaches the targeted citizens. The prime minister said the plan to cut fuel subsidies would be initiated in 2014, raising concerns among citizens as to how the decision would increase their share of the economic burden. El Beblawi stated that the subsidies program is currently consuming a fifth of the budget, which he called “unsustainable”. “It is not only high, but it is increasing,” he added. During the Euromoney conference earlier

Egypt Weekly Newsletter 5 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya this month, Minister of Finance Ahmed Galal said that there will be two main stages to the plan, starting with the distribution of smart cards to fight smuggling.

EGYPT TO SIGN NEW DEALS WITH FOREIGN GAS FIRMS Source: Reuters, 1 December, 2013

Egypt is revising the prices it pays to buy gas from foreign energy companies operating in the country and plans to sign new contracts to ‘reassure’ the firms. The Minister of Petroleum said state-run Egyptian Natural Gas Holding Company (EGAS) would sign seven new contracts and modify seven others within two weeks. The effort is aimed at finding the required balance between the interests of the government and the companies, explaining that the price that Egypt pays foreign firms for gas they produce in the country is "no longer appropriate in the current time". The Minister did not say how the prices would change or which companies were involved in the negotiations.

Egypt received fuel from Gulf at $2.48 bn in November Source: Reuter, 2 December, 2013

The Ministry of Petroleum received fuel shipments valued at US$2.48 billion from Saudi Arabia, UAE and Kuwait in November, a Cabinet source said Tuesday. In related news, the Egyptian General Petroleum Corporation (EGPC) put smart cards through a trial run in Shell and Mobil gas stations, starting the second phase of the project. The distibution of fuel through smart cards includes two phases. The first began last June to counter the black market by tightening control on the transfer and distribution of petroleum products from warehouses to gas stations and distribution intermediaries. The second phase has to do with monitoring distribution to customers. The General Division of the Petroleum Products at the General Federation of Chambers of Commerce confirmed that the LPG shipment dispatched by Saudi Arabia was distributed starting Thursday in Cairo, Beni Suef, Minya, and Fayoum. The size of the shipment was 9,500 tons, according to the general division.

INDUSTRY

EGYPT GOVERNMENT TO SPEND EGP4 BILLION TO RESTRUCTURE SPINNING AND WEAVING SECTOR Source: Beltone, 30 November, 2013

The Egyptian government has decided to sell assets belonging to state-owned spinning and weaving companies in an attempt to settle their debt with the National Investment Bank. Cabinet spokesman Hani Salah announced the decision on November 19, citing it as part of a plan to develop the textile sector. Restructuring the sector will cost the state EGP4 billion, which will be financed through selling unused land owned by the companies in addition to governmental aid, chairman of the Spinning and Weaving Holding Fouad Abdel-Aleem said. He added that the development plan is under review by a consultancy firm. Currently there are 32 spinning and weaving public companies employing around 58,000 workers.

Egypt Weekly Newsletter 6 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya MINISTRY OF TRADE AND INDUSTRY DECIDES NOT TO RENEW ANTI-DUMPING FEES ON STEEL Source: Al Mal, 1 December, 2013

The committee in charge of studying the application of anti-dumping fees on steel within the Ministry of Trade and Industry decided not to extend the fees on steel imports. The ministry had applied antidumping fees of 6.8% for a period of 200 days which ended in June 2012.

CONSTRUCTION

BUILDING MATERIALS SOCIETY REQUESTS INDICATIVE PRICES FOR STEEL Source: Al Boursa, 2 December, 2013

The Building Materials Society at the Cairo Chamber of Commerce sent a memo to the Ministry of Supply and Internal Trade requesting the application of indicative prices for steel products, due to the rise of over EGP500/tonne. However, the official spokesman for the ministry announced that it would be unable to set indicative prices on steel as costs are associated with international raw material prices and FX rates. According to the report, steel prices for Ezz Steel came in at EGP4,870 ex- factory price and EGP5,030 to the end customer. Beshay Steel prices recorded EGP5,050/tonne for the end customer.

MNHD TO START CONSTRUCTION OF 66 BUILDINGS IN TAG SULTAN Source: Company Disclosure, 30 November, 2013

Madinet Nasr Housing and Development Company (MNHD) has approved assigning construction work of 66 buildings in its Tag Sultan project to a number of contractors, the company announced in a disclosure. The estimated construction cost for those buildings totals EGP122.5 million, as per the company disclosure.

PROJECTS

TETRA PAK IS TO INVEST 250 THOUSAND EUROS IN RECYCLING Source: Ministry of Investment, 29 November, 2013

Andres Lindgren managing director of Tetra Pak says that "there are about 30 thousand tons of cartoon”. The company recycles about 5-6% of this amount and planning to get the amount of 50% in 2020". Lindgren said " We are working with the Ministry of State for Environmental Affairs (MSEA) and NGOs which help people and youth to work on the beverage recycling which acquires about 90% of the cartoon UBS". Tetra Pak providing the processing and packaging solutions to the Egyptian food industry for the past 32 years and it produce about 3 billion packages if juices, milk and cheese one billion for each.

Egypt Weekly Newsletter 7 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya

IT & TELECOMMUNICATION

TE IN NEGOTIATIONS WITH CHINESE COMPANIES TO EXTEND MARINE CABLE Source: Beltone, December 3, 2013

Telecom Egypt (TE) is currently in negotiations with Chinese companies to extend marine cables to connect Europe and China through Egypt with a total investment of USD600 million, the CEO Mohamed el Nawawy stated. The construction of the cable should start at the beginning of 2014. No further details were disclosed as to TE’s share in the project or the timeline of delivery. The news confirms the company’s guidance that new cable contracts are expected to be signed by 2014 to construct cables. It is expected that the annual cable revenue of EGP660 million from 2014- 2017, in line with the company’s previous guidance, including 50% recurring revenue and 50% of new projects.

INAUGURATION OF THE FIRST E-WASTE RECYCLING FACTORY IN 6TH OF OCTOBER CITY Source: Ministry of Communications and Information Technology (MCIT), 29 November, 2013

The Minister of Communications and Information Technology (MCIT), Atef Helmy and the Minister of State for Environmental Affairs (MSEA), Leila Iskandar inaugurated on November 19 the International Technology Group (ITG) factory for e- waste recycle. The factory, first of its kind in Egypt, is located at the industrial area of the Sixth of October City. The project aims to benefit from the neglected resources and electronic waste, and use them in the best way to extract precious metals which are part of different industries, like copper, gold, silver, platinum, iron, aluminum, tin, plastic and others. The newly established factory recycles laptops, mobile devices, printers, network devices, cables, faxes and photocopiers among many others, relying on the latest technologies and environmental-friendly production lines. The new factory will provide job and training opportunities for youth in new fields like environment technology that aims to protect the ecosystem by recycling e- waste in safe and healthy methods. 340 direct and indirect job opportunities were provided by the factory. According to the factory future prospects, in December 2014, this number will attain 1250 between direct and indirect job opportunities. On the margins of the inauguration events, Helmy and Iskandar signed a cooperation protocol between the two ministries to activate environmental-friendly communications and information technology (ICT). The protocol comes as part of the ongoing efforts aiming to maximize the eco-friendly ICT tools to push forward towards an eco-friendly economy and support different patterns of sustainable development in the field, being a main development pillar locally, regionally and internationally.

Egypt Weekly Newsletter 8 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya RETAIL TRADE

EGYPT LARGEST SUPERMARKET DEAL WITH DUBAI COLLAPSES Source: Ahram Online, 4 December, 2013

Dubai retail firm Majid Al Futtaim (MAF) said on November 25 that talks to buy Egypt's largest supermarket chain from family-owned Mansour Group have collapsed. MAF, which is the sole franchisee of French hypermarket chain Carrefour in the Middle East, was in advanced negotiations to buy Mansour Group's Metro chain and discount grocery store Kheir Zaman. A deal was seen worth between USD 200 million to USD 300 million. MAF said in a statement both parties have agreed to end discussions and will build their businesses in Egypt independently. In September, a senior company official said that it would not pursue investments in Egypt and Syria until stability returns to the two countries. "Egypt is still unstable, we are waiting for it to settle down but we are still in negotiations. As for Syria, any investor will hold back. It's not good to move forward now with the revolution going on," Younus Al-Mulla, MAF's senior vice president for retail international development, told reporters at the opening of a new Carrefour hypermarket near Abu Dhabi in September.

INTERNATIONAL TRADE

Egypt suspends rice exports until further notice Source: Egypt Daily Times, 3 December, 2013

Egypt suspended rice exports less than a week after issuing licences to sell the grain abroad, the head of the rice committee of Egypt’s Agricultural Export Council said on Monday. “We are of course very upset about this decision, which only serves to confuse the market,” Mostafa el-Naggari told Reuters over the telephone. On 19 November, Egypt granted licences allowing exporters to sell 102,000 tonnes of white medium-grain rice in a tender. The licences allowed export of rice for a period until 15 January. The Ministry of Supply has since then suspended exports until all of the domestic needs for the government subsidy programme are met, Naggari said. Egypt has an exportable surplus estimated at 800,000 tonnes of rice this year. “Of course there are still a lot of discussions taking place around this. The decision is strange because we already know we have a surplus for exports, so there shouldn’t be a problem,” Naggari said. Egypt’s local consumption amounts to around 4 million tonnes of white rice a year, of which around 1.1 million tonnes are used for its subsidised rice programme. “The export halt decision was made by the Prime Minister to ensure that citizens’ local needs of rice are met and at reduced prices,” Mahmoud Diablo, the ministry’s official spokesman said, adding that it would help ensure rice is available for the food subsidy program. The Ministry of Supply holds tenders to buy rice for the subsidy programme. Rice is sold at the price of 1.5 Egyptian pounds ($0.22) a kilo to over 60 million under that system. Naggari said that Egypt should rely more heavily on imported lower-priced long-grain rice for its subsidy programme and sell its more pricey medium-grain rice abroad for more profit. “We have to start getting our local consumers used to long-grain rice as it is more profitable to export our medium-grain rice,” he said. The restrictions on

Egypt Weekly Newsletter 9 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya Egyptian rice exports are meant to keep prices in the local market stable, but rice exporters have complained that the ban on free exports has led to the rise of a contraband trade by creating a large price difference between domestic and export markets. ($1 = 6.8877 Egyptian

IINTERNATIONAL RELATIONS

Saudi Arabia will provide Egypt with US$5 billion package Source: Bloomberg, 2 December, 2013

A senior official at the Ministry of Finance said Saudi Arabia would offer a new aid package to Egypt worth US$5 billion. “Negotiations over this package have lasted for nearly one month. It includes grants, a deposit in the Central Bank of Egypt and oil products,” the Anadolu news agency quoted the official. The official reportedly told the Anadolu news agency that the package also includes a non-refundable grant of $1 billion, adding that additional details will be announced soon. “The government tends to use this new aid package to stimulate the economy and revive suspended economic sectors, especially the construction, tourism and investments sectors, in order to reduce unemployment rates and to reduce the deficit of the state budget,” the official said. Saudi Arabia announced last July it would provide an aid package worth $5 billion to Egypt, among other aid packages from UAE and Kuwait totaling $12 billion.

Egypt Weekly Newsletter 10 Thai Trade Center, Cairo December, 2013 (1st quarter) Sherif Yehya