EGYPT WEEKLY NEWSLETTER

AUGUST, 2014 (4TH QUARTER)

CONTENT

1. Political Overview………...... 01 2. Economic Overview……..….…..02 3. Banking………………….…………….03 4. Finance.…………………….……..….04 5. Energy………………………………….06 6. Projects……………………..………..07 7. Tourism…………………………..…..07 8. Industry..….………………………….08 9. IT & Telecom……..…..…………...08 10. Building Materials……………..09 11. Real Estate………………………...09 12. Laws & Regulations…………...09

POLITICAL OVERVIEW

U.S. backs off statement that , UAE were behind Libya air strikes Source: Egypt.com, August 27, 2014

The U.S. State Department on Tuesday backed off an earlier statement that Egypt and the were behind air strikes on Islamist militants in Libya. At a regular State Department briefing, spokeswoman Jen Psaki said: "We understand there were air strikes undertaken in recent days by the UAE and Egypt" in Libya. At the Pentagon, spokesman Rear Admiral John Kirby also said the two countries were believed to be involved in the strikes but declined to give details. However, late on Tuesday the State Department issued a statement saying the comment on Libya was "intended to refer to countries reportedly involved, not speak for them."

Egypt's Sisi to head to U.S. in September Source: Al-Arabia, August 28, 2014

Egyptian President Abdel-Fattah al-Sisi will visit the United States in September to attend a meeting of the U.N. General Assembly, his first trip there as the country's head of state, the country's official news agency reported Wednesday. MENA said Sisi also will attend a United Nations environmental summit on Sept. 25 and deliver a speech. It added that he is expected to hold meetings with other world leaders - but it did not say if he'll meet with U.S. President Barack Obama. Egypt's relations with U.S. have been

Egypt Weekly Newsletter 1 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya strained since the downfall of one-time ally in the country's 2011 uprising. U.S. has refused to fund all of the $1.5 billion in annual military and economic aid that Washington usually sends to Cairo after the military ouster of Islamist President Mohammed Morsi last year. Sisi reportedly turned down a previous invitation to attend an African-American summit in the U.S., with Egyptian daily newspapers saying it was a reaction to receiving a belated invitation from the White House. Prime Minister Ibrahim Mahlab represent Sisi at the summit. The U.S. has supported Egypt's role in mediating the Israeli- Palestinian conflict.

ECONOMIC OVERVIEW

Egyptian pound steady against the dollar at central bank sale Source: Aswat Masria (Egyptian Voices), August 26, 2014

CAIRO, Aug 27 (Reuters) - Egypt's pound held steady at a central bank dollar sale on Wednesday, with the bank saying it sold $37.6 million at a cut-off price of 7.1401 pounds per dollar, unchanged from Monday's rate. The rate for dollar sales has stayed in a very tight range since the beginning of June, after the bank allowed the pound to weaken in May. The central bank offered $40 million on Wednesday. The rates at which banks are allowed to trade dollars are determined by the results of central bank sales, giving the bank effective control over official exchange rates.

Egypt buys 175,000 tonnes Russian and Romanian wheat Source: Egypt Independent, August 26, 2014

Egypt's state grain buyer, the General Authority for Supply Commodities (GASC), on Tuesday bought 175,000 tonnes of Russian and Romanian wheat for shipment on Sept. 21-30, GASC and traders said. Two traders gave the following breakdown of the purchase on a cost and freight basis: 60,000 tonnes of Romanian wheat from Invivo at $257.77 a tonne 60,000 tonnes of Russian wheat from Bunge at $259.29 a tonne 55,000 tonnes of Russian wheat from Bunge at $259.43 a tonne (Reporting by Yasmine Saleh and Michael Hogan; editing by Keiron Henderson)

Finance Minister: Real estate tax bills sent, challenges within 60 days Source: Egypt Daily News, August 27, 2014

Finance Minister Hani Qadri Demian said on Sunday that the Real Estate Tax Authority began sending notification letters for the taxable real estate that was counted and evaluated according to the market value, pointing out that the tax would be enforced as of 1 July 2013. The minister added in a statement that real estate owners can challenge the tax assessment within 60

Egypt Weekly Newsletter 2 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya days of receiving notice for the appeal committees to consider within 30 days. Finance Minister Advisor Tarek Farag explained that property built on farmland in accordance with regulations would be exempted from taxes on agricultural land so as to avoid double taxation. As for food security projects built on agricultural land, such as poultry barns, warehouses and cattle pens, Farag said these would be subject to taxes on agricultural land and not on real estate. He said the tax can be paid on two six-month installments, urging taxpayers not to be late in paying so as to avoid fines.

The Suez Canal could raise Egypt’s future world trade income by 22% Source: Ahramonline, August 25, 2014

Suez Canal Authority Chairman Mohab Mamish said Egypt must take advantage of increased trade with European markets when rising economic giants like China, India and the countries of Southeast Asia come to 'invade' the European markets in 2020. “We must keep up with developments and take advantage of the trade that passes through the canal,” he said. At a conference explaining the Suez Canal Development Project on Tuesday, Mamish said the Suez Canal world trade income is currently 10 percent. “This can rise to 22 percent after the completion of the project,” he said. Meanwhile, military spokesperson Mohamed Samir said the total volume of drilling so far reached 17.5 million cubic meters, with 52 companies and two battalions for road construction.

BANKING

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

Egypt Weekly Newsletter 3 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya 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.

FINANCE

$5.4bn World Bank financing for existing projects in Egypt: Regional Director Source: Bloomberg, August 26, 2014

The total in World Bank (WB) funding across 25 projects in Egypt has now reached $5.4bn, according to the WB Country Director for Egypt, Yemen, and Djibouti Hartwig Schafer. WB-financed projects in Egypt focus on several areas including: managing and developing integrated irrigation systems; improving education; developing wind energy and electric power stations including the Ain Sokhna power plant; controlling pollution; and building infrastructure for integrated sewage systems. These projects also include a plan to develop a new terminal at the Cairo airport, restructure rail lines, and modernise irrigation at farms. Within the WB grant system, there are 54 projects totalling $202m. On Tuesday, the Ministry of International Cooperation signed an agreement with the WB to provide the Egyptian Financial Supervisory Authority (EFSA) and the Egyptian Environmental Affairs Agency (EEAA) with grants worth $4m and $8.1m respectively. Schafer has said that up to 60% of the WB’s funding portfolio for projects to be carried out in Egypt is directly focused on providing support to energy projects. The funding will be given especially to developing new and renewable energy. The Egyptian government intends to finalise a five-year plan for WB-financed projects by the end of this year, according to the Minister of International Cooperation Najla Al-Ahwani. According to Al-Ahwani, the WB has always been a major funder for development projects in Egypt and hopes to continue playing this role. She said that she hopes WB projects will serve Egyptian business development in the coming period, following the development goals set out by the government. According to Sherif Samy, head of the EFSA, his agency will use the WB grant of $4m to fund small and medium enterprises. He added that a proposal for a law to finance small and medium enterprises has been put forth by the Cabinet to the Presidency for approval. Samy said that the law would be the first of its kind in this field. He said he hopes to implement the grant objectives over the next four years, but pointed out that “the goal is not to get money, but what objectives can be achieved and what results come out of them”. Ahmed Abu Al-Saud, head of the EEAA, has claimed that his agency’s WB-grant of $8.1m will be used to dismantle highly toxic organic material in El- Adabiya port. “There are 220 tons of lindane in El-Adabiya port, which the

Egypt Weekly Newsletter 4 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya government wants t o move through the provision of funds from the grant,” he said. He stated that these quantities have been in the port for years and believes their analysis will be completed within a year.

CITADEL CAPITAL COMPLETES INVESTMENT PURCHASES OF EGP3.7 BILLION Source: Beltone, August 25, 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, August 27, 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, August 24, 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

Egypt Weekly Newsletter 5 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya the company's money market funds represented 89% of total outflows during the period.

MOODY'S SAYS EGYPT'S BANKING SYSTEM OUTLOOK REMAINS NEGATIVE Source: Beltone, August 23, 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.

ENERGY

Emirates to finance oil product purchasing to Egypt worth $9 billion Source: Egypt Impendent, August 25, 2014

Egypt to receive more aids from Emirates for one year starting September to be reimbursed on 4 years according to Al-Ahram daily newspaper. The United Arab Emirates will extend its aid to Egypt providing LE63 billion ($9 billion) for one year starting in September for oil product purchasing, a source in the petroleum ministry told Al-Ahram’s daily newspaper. The source added that Egypt will pay back the sum in four years with an interest rate of two to three percent and a grace period of one year. The reimbursement will be made both in Egyptian Pounds and US Dollars according to an agreement that will be signed in the coming days. Al-Ahram also reported that oil product aid from Saudi Arabia will end in August. Saudi Arabia, the United Arab Emirates and Kuwait rushed to provide aid to Egypt shortly after the ouster of the Islamist President after mass protests in July 2013. A report issued

Egypt Weekly Newsletter 6 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya last February by the finance ministry indicates that the three countries have sent Egypt LE73.5 ($10.5 billion) between July and December with LE29.4 billion ($4.2 billion) coming from the UAE, LE25.2 billion ($3.6 billion) from Saudi Arabia and LE18.9 ($2.7 billion) from Kuwait.

PROJECTS

OCI NV SELECTS AIR LIQUIDE TECHNOLOGY FOR NEW NATGASOLINE PROJECT Source: Beltone, August 27, 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.

EL SEWEDY ELECTRIC TO DELIVER FIRST WIND TURBINE IN JORDAN Source: Company Discourse, August 27, 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, August 26, 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

Egypt Weekly Newsletter 7 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya 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, August 26, 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.

IT & TELECOMMUNICATION

MOBILE SUBSCRIBERS APPROACHED 100 MILLION THRESHOLD BY YEAR-END 2014 Source: Al Borsa, August 27, 2014

Egypt’s mobile market reached 99.7 million subscribers as of year-end 2014, 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.

Egypt Weekly Newsletter 8 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya BUILDING MATERIALS

SUEZ CEMENT INAUGURATES WASTE PROCESSING PLANT FOR ELECTRICITY GENERATION Source: Shorouk, August 25, 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, August 26, 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.

LAWS & REGULATIONS

TAX AUTHORITY CANCELS BAND-ROLL IMPLEMENTATION ON CIGARETTES Source: Beltone, August 24, 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

Egypt Weekly Newsletter 9 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya would cause the company to incur EGP120 million per annum in additional costs.

INVESTMENT LAW PROHIBITS THIRD PARTY CHALLENGE TO CONTRACTS Source: Reuters, August 25, 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.

Al-Sisi exempts army institutions from real estate tax Source: Middle East Monitor, August 25, 2014

Observers said that the decree means only the defence minister has the authority to identify which parties are exempt from paying estate taxes, despite the fact that all units of the armed forces make a profit. Clubs, hotels, complexes and medical centres owned by the armed forces will be exempt from the property tax following a decree issued by Egyptian President Abdel Fatah Al-Sisi yesterday. The law was approved by the government last July and provides "exemptions from taxes for clubs and hotels belonging to the armed forces, as well as complexes, medical centres, hospitals, military clinics, real estate and other units to be specified by the secretary of defence, with the agreement of the respective minister." Observers pointed out that this will increase the limit of exemptions and privileges obtained by the army in spite of the huge budget allowance the military has from the State Treasury, which amounts to about 48 billion Egyptian pounds ($6.7 billion) during the current fiscal year (2014/2015). The president, who previously held the role of minister of defence, agreed to the article without modification, throwing out observations proposed by the Legislative Department of the Council of State on the bill during the review in April where they objected to the exemptions. The article says that "in all cases, none of these military units are subject to the limited assessment of the committees and the limited appreciation, despite the required considerations of the defence and national security that are given." Observers said that the decree means only the defence minister has the authority to identify which parties are exempt from paying estate taxes, despite the fact that all units of the armed forces make a profit. Western estimates claim the Egyptian Army controls 40 per cent of the economy.

Egypt Weekly Newsletter 10 Thai Trade Center, Cairo August, 2014 (4th quarter) Sherif Yehya