EGYPT WEEKLY NEWSLETTER

November, 2014 (2nd QUARTER)

CONTENT

1. Political Overview………...... 01 2. Economic Overview……..….…..02 3. Finance..…………………………..….05 4. IT & Telecom………………………..05 5. Energy……………………………….… 06+ 6. Agriculture.…..……..………………07 7. Building Materials……..…………08 8. Real Estate.…………..……..……...08 9. Laws & Regulations…..…………. 08 10. Hot Issue……………………….……09

Compiled by Thai Trade Center,

POLITICAL OVERVIEW

Parliamentary polls to be held before end of March, says El-Sisi Source: Impendent, November 13, 2014

Egypt's president Abdel-Fattah El-Sisi said in a meeting with a delegation of American businesspeople on Monday that Egyptian parliamentary elections will take place before the end of March 2015. The statement is the closest estimate given by an official regarding the date of the polls, which has been shrouded in mystery for quite some time. A statement by presidential spokesman Alaa Youssef said El-Sisi mentioned that the third objective of Egypt's transitional roadmap, following a new constitution and presidential elections, "will be achieved before the International Economic Summit which Egypt will host in the first quarter of 2015." The delay of a date for elections was criticised by politicians and observers who have argued the delay is unconstitutional; Egypt's January 2014 constitution says electoral procedures for parliamentary elections must commence after 6 months following the constitution’s ratification. The meeting included representatives from the Egypt-US Business Council and the American Chamber of Commerce in Egypt. Egypt Prime Minister Ibrahim Mahlab attended the meeting along with many members of cabinet including the industry and trade, planning, investment, electricity and renewable energy and petroleum ministries.

Largest US Business Delegation Ever Visits Egypt Source: Ahramonline, November 10, 2014

Representatives from over 60 U.S. companies wrapped up Tuesday a two-day visit to Egypt described as the largest such delegation in history that aimed to explore

Egypt Weekly Newsletter 1 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya potential businesses to boost the country's ailing economy. But critics say the visit strikes the wrong tone amid a government crackdown on freedoms. Delegates to the conference, organized by the U.S. Chamber of Commerce, stayed clear of politics. During a two-hour meeting with President Abdel-Fattah el-Sissi, they listened to his vision for improving the economy and the pressures he faces from a disgruntled and demanding population. The delegation includes a personal envoy from U.S. Secretary of State John Kerry, Ambassador David Thorne. Ahead of the visit, Kerry said a critical component of Egypt's success is economic growth driven by policy reform, a message the delegation will deliver to Egyptian authorities. The visit coincided with an ultimatum by authorities given to civil groups to register under a restrictive law that was drafted under the regime of , or face shutdown and prosecution. The deadline passed with authorities taking no immediate action. The groups say the deadline still hangs over their head, and is a threat to their work which deals mostly with government violations and crackdown. "Egypt is suffering the most ruthless crackdown in decades but John Kerry is busy promoting US business there," Kenneth Roth, executive director of the New-York based Human Rights Watch, wrote on Twitter ahead of the visit. His organization closed its offices in Cairo earlier this year, citing concerns over the crackdown, after failing to register. Egyptian authorities have also rounded up thousands of protesters and supporters of Islamist President Mohammed Morsi, who was ousted last year by the military led by el-Sissi, after popular protests accusing him of monopolizing power. "We all recognize that this country has been through turmoil and we recognize that the economy is challenged," said Gregori Lebedev, a senior member of the Board of the Directors of the Chamber of Commerce and co-leader of the delegation. "I think the size of the delegation reflects the fact there was a prospect of change and reform and let's go see for ourselves what those prospects are because we would like to be a part of that solution if we can and we certainly want to be part of (Egypt's) long term growth."

ECONOMIC OVERVIEW

Egyptian exports fall 12.52% month-on-month Source: Egypt Economist, November 12, 2014

The total value of Egyptian exports in October has reached $1.309bn, recording a 12.52% decrease compared to September levels that stood at $1.497bn, the Ministry of Industry and Foreign Trade monthly report showed. The total value of exports between January and the end of October recorded $18.218bn, representing an increase of 1.29% compared to the corresponding value last year. The targeted value of exports in 2014 is $25bn, compared to $21.5bn in the previous year according to the ministry’s report. Minister of Industry and Foreign Trade told Daily News Egypt in September that the government is working to reduce the balance of trade deficit. Abdel Nour said this would be achieved through increasing exports and decreasing imports to fill the gap. Speaking about the procedures the government has taken, Abdel Nour said the law granting preferential treatment to local products will significantly reduce imports and address the trade deficit. Egyptian exports have increased despite the high energy prices that resulted in high production costs and the closure of many potential markets including in Syria,

Egypt Weekly Newsletter 2 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya Libya, Iraq, and Sudan, Abdel Nour said. Egypt’s main exports include furniture, leather, agricultural products, engineering and electrical products, foods, readymade garments, and handicrafts, according to the report.

PepsiCo Egypt imports $20m in agricultural supplies Source: Egypt Daily News, November 13, 2014

PepsiCo has put forward a request to the Ministry of Agriculture for land to cultivate potatoes, according to General Manager of PepsiCo North East Africa and Egypt Ahmed El-Sheikh. The company put forward the request to be able to produce locally instead of importing. He announced that the cost of importing seeds will be approximately $20m, and that the ministry is considering the project and will offer technical assistance through ministry laboratories. El-Sheikh added the company is currently cultivating 5,000 acres and will cooperate with small farmers and 4,000 farms during the next phase. PepsiCo will also buy these farmers’ potato production in accordance with the company’s technical specifications. Al-Sheikh added that the company’s investments for the year 2014 reached approximately $270m, which included the development of a number of factories, sales and production lines, and new distribution refrigerators. A number of job opportunities were provided as well, he said. Al-Sheikh said that through company’s social responsibility efforts, 100 small companies were developed via company contributions to training and financial support. He explained that a recent meeting between US companies and the Egyptian government was also attended by a number of ministries and eight ministers from the economic group. All were careful to emphasise the removal of all penalties for investors and improvements in the investment climate. Al-Sheikh added: “The economy is on the right path, and this is easily observed right now. We are feeling tangible movement in growth rates.” Regarding new and renewable energy, Al-Sheikh said that his company is currently working to utilise new energy in company storage, although the process is a difficult one to implement in factories due to high costs. He said that the government has promised to provide the energy supplies required by factories to ensure that stoppages do not take place.

Wheat stock sufficient until March: Supply minister Source: Al Mal, November 12, 2014

Minister of Supply and Internal Trade Khaled Hanafy told Reuters that Egypt’s stocks of wheat for the subsidised bread programme will last until the end of March. Hanafy added that the country bought 235,000 tonnes of French and Ukrainian wheat last Wednesday to be shipped to the country between 11 and 20 December. The world’s largest wheat exporter, Russia, has pledged, following a meeting between President Abdel Fattah Al-Sisi and Russian President Vladimir Putin in August, that Moscow will supply the country with 5m tons of wheat over the coming period. Egypt, the world’s largest wheat importer, consumes around 11m tonnes of wheat per year, of which 4m tonnes are obtained from local farmers. The remainder is imported from Russian, Ukraine, Romania, United States, France and other countries, according to chairman of the Grain Industry Chamber within the Federation of Egyptian Industries Hesham Abou El-Dahab. Wheat imports from Russia and other countries were suspended in 2013 by former president Mohamed

Egypt Weekly Newsletter 3 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya Morsi with then supply minister Bassem Auda announcing relying on the country’s domestic harvest. However, after Morsi’s removal from power in July 2013, the interim government returned to importing wheat, saying that the Islamist president had depended on “false and misleading” data regarding local rates of production.

EMIRATES NDB EGYPT ARRANGES EGP711 MILLION LOAN FOR CAIRO INTERNATIONAL AIRPORT Source: Amwal Al Ghad, November 11, 2014

The Emirates NBD – Egypt, is arranging an EGP711 million (USD101.1 million) loan for the Cairo International Airport upgrading project, which represents 30% of the total syndicated loan, the bank said in a statement. The project is estimated to cost EGP3 billion. In this respect, Managing Director Giel-Jan Van der Tol said the loan would help boost tourism, which represents an important part of the Egyptian national economy. “We diversify our investment portfolio to cover various sectors,” he said, expressing confidence in Egyptian economy's ability to achieve high growth rates in the next few years.

NEW ABBASIYA-HELIOPOLIS METRO LINE OPENS IN CAIRO Source: Ahram Online, November 13, 2014

A long-anticipated new metro line linking Cairo's Abbasiya and the northeastern suburb of Heliopolis -- the second phase of Cairo's third underground line -- was inaugurated on Wednesday May 7th in a ceremony attended by Egypt's interim President . The new phase, which was due for completion in 2013, contains four tunnel stations: Exhibition Grounds, Cairo Stadium, Kolleyet Al-Banat and Al-Ahram. According to Transport Minister Ibrahim El-Demery, who was present at the inauguration along with Prime Minister Ibrahim Mahlab, the new route is 7.7 kilometers long and will be operated through seven air-conditioned and Egypt- manufactured trains. It is expected to transport around 600,000 passengers daily along with the first phase, which links two of Cairo's busiest squares: Ataba, just south of Downtown Cairo, and Abbassiya, several kilometers to the northeast. The phase is worth LE4.3 billion and will employ 124 workers from the Egyptian Co. for Metro Management & Operation. In September 2012, Egypt’s government agreed 940 million Euros worth of loans with the French Development Agency and the European Investment Bank to help fund an extension to Cairo's third metro line (the third phase). The European Investment Bank (EIB) has, meanwhile, contributed 600 million Euros to be repaid over 25 years within the same grace period. When complete, Cairo's third metro line will stretch 43.5 kilometers from Cairo airport to Imbaba in Giza. The third phase of the line will be 18 kilometers long and include 15 stations, according to a transport ministry statement. A fourth line is due to be completed by 2019. A sprawling metropolis with well over 16 million inhabitants, according to latest figures, Greater Cairo has for years wrestled with a growing traffic congestion problem.

Egypt Weekly Newsletter 4 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya FINANCE

TAX HIKE ON WEALTHY TO LAST THREE YEARS Source: Reuters, November 12, 2014

A new 5% surtax on the incomes of individuals and companies earning more than EGP1 million a year will last for three years, the finance minister said. Hany Dimian said the tax, approved by the cabinet last week, would apply in 2014, 2015 and 2016. He said the first payment would be due in January 2015. Those subject to the tax would be given the choice of whether their funds should go towards public projects in education, health, agriculture, housing or infrastructure.

EGYPT SEEKS FUNDS FOR PUBLIC PROJECTS IN STOCK MARKET Source: Ahram Online, November 13, 2014

"Governmental plans include improving the management of public funds and their efficiency, as public assets belongs to the people," said Ibrahim Mahlab, introducing the plan during the “Initial Public Offering Conference” organized by Egypt’s Stock Exchange. Mahlab had announced soon after he was appointed late February that privatization was no longer an option. The government plan to revive public sector is based on private sector partnership. "It becomes a necessity to separate the management of public enterprises from ownership, to promote our institutions and let loyal honest people manage those assets with new visions,” said Mahlab. Mounir Fakhry Abdel-Nour, minister of industry, foreign trade and investment, gave further details, explaining that the government is studying the creation of an investment fund to manage public sector companies. "The restructuring process for state-owned businesses requires huge funding and is an ambitious and costly plan that the state budget cannot bear," he said during the conference. "Commercial banks have reached the ceiling. The Central Bank financed the government intensely during the last two years. The remaining source for local finance is the people," explains Hani Guenena, head of research in Pharos Investment Bank. The government did not reveal whether it will fix a limit for private ownership in public companies. The government plan to launch an initial public offering (IPO) in the stock market is not limited to public sector business but will include new infrastructure projects as new regulations for companies listed on the stock exchange implemented in February allow new projects to launch IPOs while old regulations required companies to present financial statements of three years before being listed.

IT & TELECOMMUNICATION

EGYPT APPROVES $426M MAADI TECHNOLOGY PARK Source: Human IPO, November 9, 2014

The Egyptian government has approved the EGP3 billion (US$426 million) Maadi Technology Park for ICT services, with the investment phase of the project to be launched in the second quarter of 2014. The approval was given at a meeting presided over by Premier Ibrahim Mehlb and attended by ministers, with the project to cover a total surface area of about 39,000m2 and involve Egyptian and foreign

Egypt Weekly Newsletter 5 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya investors. “The project aims to position Egypt on the global map of ICT services, provide a US$1.2 billion value-added export annually, in addition to providing 40,000 direct job opportunities and 100,000 indirect job opportunities once completed,” Egypt’s Ministry of Communications and Information Technology (MCIT) said. “MCIT has already launched the infrastructure work in cooperation with the private sector and established, operated and managed the basic phase of the project including 11 buildings.”

NTRA AND OPERATORS TO CONTINUE UNIFIED LICENCE NEGOTIATIONS THIS WEEK Source: Al Borsa, November 11, 2014

The National Telecommunication Regulatory Authority (NTRA) will meet Egypt’s mobile operators this week to continue negotiations regarding certain terms and conditions presented in the unified telecommunication licence. The meeting will focus on the mobile operators’ feedback regarding the licence terms, as well as negotiating the national roaming rates to be charged to Telecom Egypt (TE) to provide its mobile services. The regulator will also request that the operators sanction the official award of the licence and set dates for the payment of EGP100 million by the mobile operators for fixed-line services, and the EGP2.5 billion payment by TE for the unified licence.

ENERGY

GOVERNMENT SIGNS LOI FOR IMPORTING NATURAL GAS Source: Reuters, November 10, 2014

The Egyptian government, represented by state-owned Egyptian Natural Gas Holding Company (EGAS), signed yesterday a Letter of Intent (LOI) with the Norwegian company, Hoegh LNG, for the use of one of the company’s Floating Storage and Regasification Units (FSRU). The LOI is for a five-year FSRU contract. No details on quantities or pricing were declared. The LOI is subject to board approval on both sides as well as Egyptian authorities. The to-be-rented FSRU, currently under construction, will be put in use at the port of Ain Sokhna, located in the Red Sea’s Gulf of Suez. The FSRU is scheduled to start operations in 3Q2014. ICIS notes that the FSRU is due for delivery from the shipyard in June, meaning that Egypt is likely to make use of it starting September, in our view. Tthe head of EGAS said that the government wants to raise USD2.5 billion to cover natural gas imports until the end of December. The funds were needed to secure supplies for power stations and cover other costs. We believe this amount includes imports of natural gas, in addition to those of fuel oil and diesel to bridge the gap during the summer.

CONTINUED SUCCESS WITH EGYPT’S NW GEMSA Source: Petroleum Africa, November 13, 2014

Sea Dragon Energy Inc. announced that the Al Amir SE 21 development well, located in the Northwest Gemsa Concession encountered significant oil bearing reservoir sections and will be completed as a producer in the Shagar. The well was drilled to a depth of 9,400 ft encountering Shagar and Rahmi oil reservoirs at 19 ft of net and 4

Egypt Weekly Newsletter 6 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya ft of net respectively. The Al Amir SE 21 flowed on test light 42.2⁰ API oil at a rate of 3,005 bopd with 3.288 Mmscfd of associated gas. The well will be placed in production as soon as the completion rig is moved off location. Sea Dragon’s CEO Paul Welch said: “The AASE-21 well is the last of the producers to be drilled in the field in 2014. The currently budgeted program includes only one additional well, AASE-22, which is now drilling and is planned as a Rahmi water injector. The drilling rig will then be released, markedly reducing CAPEX, and allowing the field to be significantly cash generative for the remainder of 2014 and beyond. The technical results from the recent development activity will be incorporated into an updated geologic model which will then be calibrated by field production performance over the next year. Future development activity will be based upon the results of this new model. Field production is anticipated to remain at the current plateau rate of approximately 11,500 bopd and 12 Mmscfd as the full impact of the waterflood program is realized.” Sea Dragon has a 10% working interest in the North West Gemsa Concession with operator Vegas Oil and Gas at 50%, and Circle Oil plc with 40%.

AGRICULTURE

EGYPT'S MINISTER OF AGRICULTURE RAISING EARLIER ANNOUNCED PROJECTIONS OF WHEAT DELIVERIES OF THE NEW WHEAT CROP TO 4.3 MILLION TONS Source: Al Masry Al Youm, November 10, 2014

Egypt's Minister of Agriculture has raised earlier announced projections on wheat deliveries of the new wheat crop to 4.3 million tons claiming about 1 million tons have already been delivered to government & public silos. Figure compares with 3.5 million tons delivered from the last year's crop. Figures mark almost 800,000 tons surplus to consolidate the country's subsidized bread production. A report submitted very recently to the Minister of Agriculture predicting that wheat delivery affected since the start of the season (4/15/2014) till date reached 1,174,000 tons of wheat and that compares with 729,000 tons delivered during the same period in 2013. It is greatly hoped that strict measures are taken by the Cabinet & all concerned authorities to make sure that minimum quantities of wheat are wasted during storage or transport, that delivered wheat of the high quality local production not of imported stock (in an attempt to benefit from price difference), wheat is transported to Upper Egypt Governorates by river transport means whenever applicable, also that distribution of flour to bakeries goes under minimum handling waste. On top comes the need to continue and complete an earlier initiated renovation and rehabilitation plan of the flooring of all wheat warehousing yards both at the PDAC and at flour milling companies, also of strict measures to continue hard lining on the use of wheat as fodder for animal & poultry production. On the other hand Egyptians are still keen to know any positive developments on wheat crop results depending on rain at both Sinai & the North Coast.

Egypt Weekly Newsletter 7 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya BUILDING MATERIALS

EZZ STEEL ANNOUNCES 2013 NET INCOME OF EGP134 MILLION Source: Company Disclosure, November 10, 2014

Ezz steel has announced its 2013 financial statements, showing a net income of EGP134 million compared to EGP8.3 million during 2012. Consolidated sales grew 7.5% Y-o-Y to come in at EGP21.29 billion compared to EGP19.8 billion in 2012. According to the earnings release, consolidated sales volumes were flat Y-o-Y, reaching 4.7 million tonnes of long and flat products.

REAL ESTATE

US INVESTOR TAKES STAKE IN EGYPTIAN DEVELOPER PALM HILLS Source: Reuters, November 11, 2014

U.S private equity firm Ripplewood has acquired a 2.3 percent stake in Egyptian developer Palm Hills, adding that it hopes to increase its stake. "We believe Palm Hills is well-positioned as one of Egypt's leading real estate developers and hope that we can help enhance the company's efforts in its development of new projects," said Timothy Collins, Ripplewood's founder and CEO. "We are also confident in the future prospects of the company as we expect to increase our stake over time after this initial investment," he added. Hills is the country's second largest listed property developer. It struggled in 2012 after it faced investigations into previous state land sales and client cancellations following an uprising that toppled autocrat Hosni Mubarak in 2011. But in 2013 it turned a profit, making 236.8 million pounds ($402.38 million) compared with a net loss of 134.6 million in the previous year. The firm said it is in talks with the Arab African International Bank (AAIB) over a 2.4 billion pound loan which it will use to finance projects and refinance around 640 million pounds from its current bank loans.

LAWS & REGULATIONS

GB AUTO BOD TO PROPOSE EGP500 MILLION IN SHAREHOLDER LOANS Source: Al Borsa, November 10, 2014

Ghabbour Auto (GB Auto) board of directors (BoD) is considering two loans worth a total of EGP500 million from the company’s CEO and managing director Dr. Raouf Ghabbour, to be proposed to shareholders at a meeting slated for 2 June 2014. The loans are: i) cUSD32 million (cEGP224 million) at an interest rate of 4.5%; and ii) EGP275 million at an interest rate of 10.5%.

Egypt Weekly Newsletter 8 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya

HOT ISSUE

Egypt's Salafist Front to protest on 28 November to 'impose Islamic identity' Source: ABC News, November 9, 2014

Egypt's ultra-conservative Islamist "Salafist Front" is calling on its allies to protest on 28 November to "impose the Islamic identity without disguise." According to statements of leadership member Mohamed Galal to the Turkish Anadolu Agency Monday, the protests will also "refuse the dominance of political and economic decisions and end military rule." He said the protests on 28 November are just the beginning of a "new revolutionary movement of Muslim youth." In a statement on its Facebook page, the Salafist Front has called on other Islamist groups and parties to participate in their protests. However, no groups have responded to their calls yet. The Salafist Front is calling for protests as a separate party for the first time in two years. It has always been part of the largest Islamist coalition supporting ousted president Mohamed Morsi, National Alliance to Support Legitimacy (NASL). Galal stressed that it is the first time that the front clearly highlights its demands. He added that they will keep calling for those demands even if former president Morsi were to return to power. Morsi was ousted 3 July 2013 following three-day mass protests across the nation. The Salafist Front is one of a number of Egyptian Salafist movements to emerge after the 2011 revolution. It includes several prominent preachers and activists. The group identifies itself as an association of independent Islamic and Salafist figures and proselytising blocs across Egypt's governorates. Late Sunday, an unnamed leader of the Salafist Front was arrested, according to witnesses from the group. A security crackdown on Islamist forces has been launched since Morsi's ouster. However, the Salafist Call – one of the largest Salafist groups in Egypt – and its political arm the Nour Party have supported the roadmap that included Morsi’s ouster.

Egypt Weekly Newsletter 9 Thai Trade Center, Cairo November, 2014 (2nd quarter) Sherif Yehya