Drivers are out of pocket after recent fuel hikes. The Nation In Brief The Nation in Brief Highlights from the business world Moving On, Cautiously The market makes gains, but investors are still jittery following the troubles of 2009 Much Ado About Nothing Business optimism rises as economic fears end up being overblown Mutually Assured Construction Financial crisis survivors Egypt and Poland increaseeconomic cooperation in a bid to temper reliance on the West

By bt Staff

In reaction to recent civil unrest, President Hosni Mubarak, on his birthday, announced that basic salaries for civil servants would increase by 30%.

To cover the wage increase in a budget already stretched by burgeoning food subsidies and the skyrocketing price of oil, the government cut into subsidies on petrol, pushing up prices by around a third: to LE 1.75 per liter for 90-Octane, LE 1.85 for 92-Octane, LE 1.1 for diesel and LE 2.75 for 95-Octane, generating an angry response from motorists.

Microbus and taxi drivers took the situation into their own hands, putting up prices or cutting the length of their routes. This sparked fights with customers, resulting in the arrest of five Cairo drivers, according to local news reports.

Cairo’s governor Abdel-Azim Wazir stepped in to diffuse the situation, increasing microbus fares by LE 0.25 for distances less than 25 kilometers and LE 0.40 for distances more than 25 kilometers.

Despite Finance Minister Youssef Boutros-Ghali claiming the hike in diesel would only affect the tourism industry, the price of flour jumped from LE 3,500 per ton to LE 3,700 as a result of higher transportation charges. The government, still sensitive to bread-led chaos, quickly agreed to pay bakeries the difference to head-off any potential problems.

Looking for less controversial sources of funding, car registration fees on luxury cars were increased to 2% of sticker price. Other registration was also increased: An engine of 1600cc capacity will now cost the driver LE 175, up from LE 25. For the time being, taxi drivers, already angered at higher petrol prices, are exempt from the increase.

Cigarette smokers are also being asked to cough up an average 10% more per pack, while private schools, universities and some free zone activities found their tax exemptions reduced or removed all together.

Consumers weren’t the only ones out of pocket. The government brought forward planned reductions to natural gas subsidies on industry, pushing up costs for high-energy users such as the cement and fertilizer industries almost overnight. Also in the line of fire were tax-free zones, which lost some of their tax exemptions; more details are still forthcoming.

A decision to levy a 20% tax on treasury bills, foreign holdings of which were estimated to be worth $5 billion (LE 26.75 billion) in 2007, was also on the cards, causing some jitters amongst foreign investors. Minister of Investment Mahmoud Mohieldin quickly clamped down on these fears, reassuring investors that a capital gains tax is not part of the budget financing plans.

Despite the increased funding, Boutros-Ghali announced that the government would miss its goal of an annual 1-1.5% point reduction in the budget deficit, meaning that a target for a 3% deficit by FY2010-11 may be out of reach. The FY2008-09 budget deficit will be 6.9% of GDP, or around LE 70 billion, with expenditure increasing by 24.7% to reach LE 331 billion, mainly due to a blow-out in subsidies (making up to 40% of the total budget) as a result of spiraling energy and food prices.

The Central Bank of Egypt (CBE) increased its overnight lending and deposit rates for the third time this year in a move aimed to head-off inflation. The 50 basis point increase sees the overnight deposit rate hit 10% and the lending rate 12%.

“Despite tentative signs of moderation in international wheat prices, the domestic inflation outlook is affected by the latest regulated price adjustments,” said the Bank in its rate announcement. Inflation hit an annualized 16.4% in April, while the rate of inflation in food prices reached 22%.

Inflation is generally expected to increase, or at best remain at its current high-level over the short-term, a fact acknowledged by the CBE. “The consequent second round effects of these price adjustments pose an upside risk to the inflation prospects. This could be intensified by a potential worsening of inflation expectations. These unfolding developments will likely keep annual inflation rates high until the combined effects of price increases related to the international food price shock and the current regulated price adjustments taper off,” stated the CBE.

CBE rates, however, have had little impact on both growth and inflation rates in the past (see “The Slippery Slope,” pg 32), a trend that appears to remain intact as the interest rates offered by the banking sector remain unaffected by the move.

The Consumer Protection Agency (CPA) dropped a case against Sinai Manganese Company that had arisen from a complaint made by Sphinx Mining Company in May 2007.

Sphinx Mining had claimed that a contract between Sinai Manganese and ZD Overseas Mining — which guaranteed Sinai Manganese exclusive usage of the Abou Zinema Port managed by ZD for sand glass import and export — was anti-competitive.

The CPA said that while there was a prior agreement between Sinai Manganese and the Natural Resources Authority signed in 1958 regarding use of the Abou Zinema Port, the contract between Sinai Manganese and ZD Overseas Mining was not made void by the 1958 agreement.

In other CPA news, the consumer watchdog announced that Maritime Transport Holding Company, a government entity that regulates all maritime and river transportation, cannot sell Nile River Transport Company to a major investor that is not involved in the transportation sector. The CPA said that the sale would be in violation of anti-trust and ant-competitiveness regulations as the sale would mean Nile River was used exclusively for the services of one company.

Three tourism companies have been shut down by the Ministry of Tourism, after the their buses failed safety inspections. The move comes in the wake of a recent accident on the Cairo-Sharm road that killed nine people.

The April 29 accident — widely covered by media in Europe and Russia — saw a bus full of tourists overturn and burst into flame after the driver lost control of the vehicle. “I was surprised by the turn and I wasn’t able to control the steering wheel, and I lost control and it rolled over,” the driver Ali Haridi told the Associated Press.

Several tourists on the bus reported that the driver was speeding, not unusual for drivers making the overnight trip between Sharm El-Sheikh and Cairo, along a road renowned for its poor condition and large number of traffic accidents. Egypt has a reputation for poor roads, bad driving and serious accidents. Around 8,000 people were reported killed in 2006, according to the last available data on traffic accidents in Egypt.

To diffuse possible backlash, particularly from large international tour operators, the Ministries of Tourism, Transport and Planning, and Local Development signed a deal to kick-off a LE 7.8 billion project to place new road signs on routes frequented by tourists ­— a move likely to have little impact on the main contributors to traffic accidents: poor road conditions and the behavior of drivers.

Minister of Tourism Zohair Garana said that a mobile task force will also be deployed to randomly inspect tourist vehicles. Inspections will include sobriety tests for the driver and a physical inspection of the vehicle, including brakes and lights. The task force will consist of police officers and engineers appointed by the Ministry and will have the right to inspect and detain violators. Garana said that 80% of road accidents involving tourist vehicles are due to human error.

The Capital Market Authority (CMA) has announced two changes to the rules and regulations for trading on the CASE. The changes will result in tougher monitoring rules, aimed at preventing manipulation of stocks.

The major change will see insider trading rules expanded to prevent individuals who have prior knowledge of the financial status of a listed company from trading its shares under any circumstances, before announcement of the company’s financial results. The modified rules also aim to prevent the dissemination of insider information directly or indirectly to any trader on the floor of the CASE.

As a result of the changes, the minimum par value of stocks could now decrease to LE 0.10 per share, from its current LE 1. According to the CMA this move will make stocks accessible to a wider audience. In 2005 the minimum par value for shares dropped from LE 5 to LE 1.

The CMA also announced that legal entities other than corporations are now able to issue stocks on the CASE, whether they are local or foreign.

The over-the-counter (OTC) market is also due for a rule revamp. The OTC is a largely unregulated market for shares that fail to comply with CASE regulations or for bankrupt companies that still have traded shares.

According to Ahmed Saad, head of the CMA, the settlement period (the time required before someone can sell a newly bought share) will increase from two to four days. In addition, a new session of price scouting would be offered before trading commences, while the closing price of the OTC stock would be determined by the volume traded as well as the last traded price. Saad also said that the number of shares a traders can trade within a session will be decreased.

The OTC changes are an attempt to reduce the amount of liquidity in the OTC market, drawing some shares back onto the CASE, and minimize turnover to decrease the amount of market manipulation taking place.

The People’s Assembly presented a disclosure request to Minister of Investment Mahmoud Mohieldin, over his decision to offer the 21,333-square-meter Al-Soltana Malek property in Luxor to private investors.

The land, held by the Egyptian General Company for Tourism and Hotels (EGOTH), will reportedly be sold to Qatari real estate company El-Diar. The company plans to establish a five-story hotel, with a maximum capacity of 220, to be built with Pharonic-influenced architecture at a total investment of $70 million (LE 375 million).

Hesham Khalil, deputy head of the People’s Assembly Committee for Culture, Media and Tourism, presented the disclosure request. According to Khalil, EGOTH approved El-Diar’s offer in January 2008 and negotiations are ongoing to finalize the sale price, which, according to the latest news from El-Diar, is $12 million (LE 64 million).

Khalil said that despite the decision to sell the land, several reports suggest there are currently two offers on the table from local and Arab investors, about which the People’s Assembly had no details.

Egyptian IT Solutions House Information Technology Systems (ITS) has announced that its new $4 million (LE 21 million) client service center has begun operations in Smart Village.

The new outsourcing center, the first regional Remote Managed Services (RMS) center in Egypt, will serve the company’s current and future regional clients. It is a result of the agreement signed between ITS and the Information Technology Industry Development Agency (ITIDA). Tarek Kamel, minister of communication and information technology, said the center will act as a first-line trouble-shooting facility for ITS clients and will provide the company with the added benefit of lower-than-average operational costs.

The new facility will be 100% run by local experts and engineers, employing 408 staff in total. Hazem Abdel Azim, head of ITIDA, said that the project is part of the general strategy to increase Egypt’s IT services exports to $1.1 billion (LE 5.9 billion) by 2010.

Microsoft, in a joint venture with LinkdotNet, launched a MSN Maghreb portal on April 29. The portal will provide international and local news, entertainment and online services such as instant messaging and e-mail.

The site will target users in Morocco, Algeria and Tunisia; the first phase of the project willonly have French content with plans for an Arabic site to launch in January 2009. LINKdotNET announced that it is planning to include Arabic content in the second phase. The venture expects to attract 3 million users.

MSN Maghreb is the latest addition to MSN’s 42 localized versions of the site. LINKdotNET, a subsidiary of Orascom Telecom, already operates MSN Arabia, which claims its news pages attract 2 million views per day. LINKdotNet would not disclose the value of the investment.

Kuwaiti-based Global Investment House announced plans to expand its operations in the local market by offering a variety of financial services including asset management, investment banking, financial intermediation and real estate financing.

Omar Al-Goka, vice president of Global Investment House, said that local operations would start by financial intermediation, where the company will fully acquire a local brokerage company and change its name to Global Egypt, with branches planned in Cairo and Alexandria. And while Global Egypt will not be listed on CASE, the parent company, Global Investment House, may be listed on the local stock exchange in the near future.

The Central Bank of Egypt announced that five banks have been selected to participate in the due diligence on Banque du Cairo.

With up to 67% of the bank up for grabs, regional and international players have lined up for a slice of the action. The five banks include the National Bank of Greece (Greece), Standard Charter Bank (Britain), Samba Bank (Saudia Arabia), Mashreq Bank (UAE) and a consortium formed by Jordan’s Arab Bank and the Saudi Watany Arab Bank.

Each will present a letter of guarantee valued at $75 million (LE 405 million), as well as a plan for revitalizing the bank, and sources of financing and shareholder structure.

Banque du Caire is the second state-owned bank up for sale. Since the announcement of the cabinet’s intention to sell a stake in the bank, public opinion has been at odds with the decision, resulting in an attempt by left-wing political figures to collect money from the public to place a bid on the bank.

A LE 1.1 billion greenfield float-glass plant is being built by Ianua SPA and PPG Industries in Sadat City for GlassWorks.

The plant, which will produce high-quality glass for export to Europe and North Africa, will provide 2,000 jobs during the construction phase and create 200 permanent jobs once in operation.

GlassWorks, a platform company created by Citadel Capital and leading regional investors, owns 51% of Sphinx Glass, which is building the plant in Sadat City. Dubai Capital Group, the regional investment-management arm of Dubai Group, holds the remaining 49%.

“GlassWorks’ LE 1.1 billion investment in the Sphinx Glass plant reflects our belief in Egypt’s strong competitive advantage in the regional glass industry,” says Hisham El-Khazindar, managing director and co-founder of Citadel Capital, the region’s leading private equity firm. Production at the plant is set to begin in 2010.

The Capital Market Authority (CMA) has approved a tender offer presented by Ismailia Al Arabia to acquire 100% of Ismailia Misr Poultry at LE 70 per share, for a total of 6.1 million shares.

In April 2008, Ismailia Misr Poultry majority stockholder, Al Moltaka Al Arby Investments, announced that it planned to invest LE 50 million in Ismailia Misr Poultry for company renovations. Al Moltaka currently holds a 78% stake in Ismailia Misr Poultry and has said it will establish Ismailia Misr Arab Poultry to acquire the remaining shares of Ismailia Misr Poultry. The acquisition will make Ismailia Misr Arab Poultry the managing entity of the poultry company. The second biggest shareholder of Ismailia Misr Poultry is the workers union of the Suez Canal Authority with a 6.4% stake.

Ismailia Misr Poultry is one of the largest local poultry-producers, with some 24 stations, 10 fully-equipped hangars, with a total production capacity of 15,000 chickens per day. According to the company’s board of directors the LE 18.8 million in losses in 2007 was mainly due to the increased price of chicken fodder — LE 3,000 per ton — and stockholders’ lack of investment in the company.

E-Styrenics received a grant for $434,268 (LE 2.32 million) from the new United States Ambassador to Egypt Margaret Scobey, through the US Trade and Development Agency. The grant will be used to fund a feasibility study for the establishment of a new styrene factory near Alexandria.

The factory will have an annual capacity of 200,000 cubic meters, producing food packaging, TV casing and refrigerator lining, according to Mohamed Zaki, operations manager at E-Styrenics. “We are planning to export 100,000 and use 100,000 in the local market,” he says, adding that the factory will “employ 500 direct labor and 3,000 indirect.”

E-Styrenics is owned by several government entities including the Egyptian Petrochemicals Holding Company, National Investment Bank, Ministry of Finance, Petrojet and Engineering for Petroleum and Process Industries.

“This is the kind of development that is a clear public private partnership,” said Scobey, speaking at the signing. With around 70% of Egypt’s petrochemicals imported, “it will allow Egypt to reduce its dependence on imports and also benefit from exporting excess production,” she added.

Plans by the Canadian company Agrium to build a fertilizer plant in the Damietta governorate were met with protests by local residents, prompting the global fertilizer giant to announce on May 28 that it was temporarily suspending work on the plant.

The LE 10 billion plant, which will produce ammonia and urea, is being constructed on the outskirts of Ras El-Bar, a popular resort town. Residents say they are concerned with the effect the plant will have on both the environment and the local tourism industry.

“All civil society, MPs and local authorities are united against the construction of this project in Ras El-Bar,” Mohammed Khalil Kwaiteh, a member of parliament representing a Damietta district, told local daily The Daily News.

Head of the Egyptian Environmental Affairs Authority Mawaheb Abul-Azm said emissions from the plant would in fact be within statutory limits.

The plant was expected to receive Egyptian gas at $1 (LE 5.35) per million thermal units for the first five years of the contract and is expected to be extremely profitable for Agrium, the third largest North American fertilizer producer by market value.

Rumors surfaced that Canadian Ambassador to Egypt Philip McKinnon sent a letter to the Ministry of Petroleum requesting that the issue be settled in three weeks, something the diplomat has vehemently denied. Agrium is also alleged to have demanded compensation of $500 million (LE 2.7 billion) in the event construction of the plant is indefinitely halted.

Earlier in May, before operations were suspended, Agrium refused to move the plant, after growing speculation that plans were in place to relocate the facility to Ain Sokhna in the Suez governorate. These rumors were heightened when Mohamed Farid Khamis, chairman of the Shura Council Industry Committee, announced that he was ready to donate half-a-million square meters of land to Agrium.

“The company will not move from Damietta, and any talk about an alternative site in Ain Sokhna is not true, as it was the Egyptian partner, namely the Egyptian Company for Petrochemicals, that had suggested Damietta when the Canadian partner [Agrium] requested a proposed site in the initial stages of the project,” Agrium’s Regional Adviser Mona Zaki told local daily Al-Masry Al-Youm.

At press time, despite having all the relevant permits, construction on the factory had halted and Agrium’s future in Damietta remains uncertain.

In last month’s first annual bt100X Ranking of Egypt’s Top Exporters, the following errors were communicated to Business Today Egypt:

Giza Spinning & Weaving Co. (bt100X number 44) was incorrectly named Giza Textiles and Weaving. Additionally, the company communicated to us that its export value for 2007 was LE 281.7 million not LE 229.6 million as stated, resulting in a growth rate of 10%, not -10.4% as stated. Please also note that the company’s main export is ready made garments meaning the company should be ranked in the RMG ranking table not Spinning & Weaving on page 82.

Egyptian International Pharmaceutical Industries (EIPICO, bt100X number 91) also sent a correction to their export value as listed in the bt100X. The correct values should read LE 96 million for 2005, LE 120 million for 2006 and LE 156.10 million for 2007, resulting in a 2006-07 growth rate of 30.1% instead of the -24.9% indicated.

We apologize for errors made; all data used for the bt100X was provided by the Ministry of Trade and Industry. bt

The Nation in Brief was written by Andrew Schurgott, Jeff Neumann, Tamer Hafez, Rebecca Collard and Erin Cunningham