06 Feb

This Stock Is Proof of How Much Egyptians Love Their Cigarettes

If money talks, the relationship between Egyptians and their cigarettes won’t be changing anytime soon.

Shares of Cairo-based Eastern Tobacco, which holds a monopoly on cigarette production in Egypt, have hit successive record highs, in both dollar and local-currency terms, after the company posted an increase of almost 161 percent in first-half profit.

Eastern Tobacco has been on an upward trend since Egypt let its currency float freely in November 2016 and started implementing an economic reform program to end a dollar shortage and narrow its budget deficit.

Since then, the stock has surged 373 percent, compared with 6 percent for the MSCI World Tobacco Index and 70 percent for Egypt’s benchmark gauge.

“The increase in profits is mainly due to pricing,” said Khaled Sadek, head of consumer and healthcare research at CI Capital. “They raised their ex-factory prices by about 40 percent compared to last year and they still have a big part of their inventory of raw tobacco from before the currency float which makes the cost low for them and the margins higher.”

Eastern Tobacco’s revenue in the first half increased 36 percent to 6.8 billion Egyptian pounds ($384 million), and costs rose 23 percent.

While the volume of sales fell between 7 percent to 10 percent since the price of cigarettes climbed in November, Chairman Mohamed Haroon sees them starting to return to normal in March, he said in an interview last week.

Mounting Gains

The new currency regime sent inflation to record levels and diminished the spending power of most Egyptians, but it also spurred the return of investor confidence and foreign inflows into the nation’s assets.

The tobacco producer became one of the most popular names among equity investors; it gained the most among the 30 members of the country’s EGX 30 index after Egypt Aluminium.

“Historically, people don’t stop smoking,” said Ahmed Hafez, the co-head of research at HC Brokerage in Cairo. “What happens usually is that they cut the number of cigarettes they smoke per day, and then they usually divert to the normal habits again. But we haven’t seen a prolonged impact on demand since price increases.”

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19 Sep

Africa: Egypt Knocks SA From Top Investment Spot in Africa – RMB Report

Egypt has knocked South Africa from its long-standing top spot regarding investments in Africa, according to Rand Merchant Bank’s latest Where to Invest in Africa report for 2018, released on Monday.

This is the first time SA has not been in top spot since the report was initiated seven years ago. Nigeria, on the other hand, has for the first time not featured in the Top 10. This is due to its short-term investment appeal having been eroded by recessionary conditions, according to the report.

The report focuses on the main sources of dollar revenues in Africa, which allows it to measure the most important income generators and identify investment opportunities. The 2018 report also balances economic activity against the relative ease of doing business.

Egypt displaced SA largely because of its superior economic activity score, while SA has shown sluggish growth rates, which have deteriorated markedly over the past seven years.

While the report found that SA also faces mounting concerns over issues of institutional strength and governance, there are some things still counting in the country’s favour. These include the rand, equity and capital markets, which the report points out are still “a cut above the rest” compared to many other African nations facing liquidity constraints.

The report also points out that, although Botswana, Mauritius and Namibia are widely rated as investment grade economies, they do not feature in the report’s Top 10 mostly because of the relatively small sizes of their markets. Market size has been a key consideration in the report’s methodology.

“From a global perspective, African countries are still at the lower end of the global-performance spectrum, which continues to be dominated by the US, UK, Australia and Germany,” the report states.

Brink of disaster

One of the conclusions of the report is that Africa could find itself hovering on the brink of disaster if it continues to depend on its current economic fundamentals and does not usher in economic diversification.

Read more: Africa: Egypt Knocks SA From Top Investment Spot in Africa – RMB Report

15 Sep

Egypt is making renewed efforts to reform its economy

Privatisation has a bad reputation in the country but the government is giving it another go for its economy. THE train north from Cairo winds through the lush fields and meandering canals of the Nile Delta, before chugging into Alexandria. The scenery is pleasant on a 180km journey that can drag on for more than four hours. It is slow enough that EgyptAir offers flights on the same route.

Egypt’s state-owned, 6,700km rail network, the oldest in Africa, has seen better days. Stations are dingy; trains are dangerous and often delayed. In August 41 people were killed in one collision. It was the deadliest crash since 2012, but smaller ones are common, with over 1,200 last year alone. (Britain’s rail network, with three times as many passengers, saw about 750.)

Days after the accident the transport minister said that he would bring in the private sector to improve quality and safety. His ministry is drafting a law to allow private firms to run trains and stations. If it passes, it would be the clearest sign yet that Egypt is serious about reforming its top-heavy economy.

The state has played an outsized role in business since the coup in 1952 that created the modern republic. It ran factories, banks, utilities and even newspaper publishing houses. At one point more than half of Egypt’s industrial production and 90% of its banking revenue came from the public sector. This socialised economy helped create an urban middle class. But by the 1970s it had become bloated and inefficient. Anwar Sadat, then president, had limited success encouraging private investment with his infitah (“openness”) policy.

His successor, Hosni Mubarak, oversaw a real shift. In 1991 his government picked 314 public companies to privatise. They employed 1m people and generated more than 60bn Egyptian pounds (then $21.4bn) in annual revenue, about 15% of GDP.

Read more: Egypt is making renewed efforts to reform its economy

 

24 Aug

The African economy: Better than people think

African

Analysis of headline GDP figures in Africa would presuppose a region going through a period of prolonged stagnation, with growth slowing down to 2.2% in 2016 (1) off the back of falling commodity prices and tighter Chinese economic conditions – but this needs to be put into proper context. Nigeria and South Africa are the two biggest regional economies and the main bulwarks behind the continent’s growth, and both markets have contracted. Slowdowns in these two countries tend to have a disproportionate weighting on the overall region’s growth figures.

Nigeria has very specific problems related to the decline in oil price, and this has been exacerbated by various currency and policy decisions.(2) South Africa’s economy is under strain due to a combination of different factors including drought, declining political confidence, reduced business confidence and a commodity slowdown. Just because growth has been sluggish in these two markets though does not mean there is a universal slowdown(3) across the entire Africa region.  A number of other African markets have recorded strong growth presenting opportunities for foreign investors. Côte d’Ivoire’s economy is forecast to expand by 7.5% in 2019(4) while World Bank data stated Senegal was the second fastest growing West African market. East Africa is a strong performer too, with Kenya, Ethiopia, Uganda and Tanzania all forecast to grow 6% and above for the decade.(5)

Flows into Africa

Foreign Direct Investment (FDI) recovered in 2016 after a slight decline in 2015. Ernst & Young (EY) analysis indicates capital investment into Africa increased by 31.9% in 2016.(6) The continent’s share of capital flows grew from 9.4% in 2015 to 11.4% in 2016 while (7) EY added Africa was the second-fastest growing destination when measured by FDI capital.(8) Despite the recent economic uncertainty, South Africa, Egypt and Nigeria still account for significant FDI flows, but there has been a pivot to smaller markets in East and West Africa such as Ghana, Senegal and Côte d’Ivoire.(9) Much of this investment has been in infrastructure, energy, pharmaceuticals and technology and it has been driven by Asian investors, particularly out of China.(10)

Easing access and building infrastructures

African markets were often seen as frontier, and there are problems with investing in such jurisdictions, namely low levels of liquidity, regulatory opacity and a lack of market depth, but this is likely to change. This is because a number of countries in the region are introducing positive market reforms to advance the needs of institutional investors and meet their regulatory obligations and reporting requirements. (11) Institutions need guarantees that when they invest into a market, their money is recoverable in crises, and that the infrastructures are aligned with international standards and best practices. Major efforts have been made across Africa to bring markets in line with these expectations.  Ghana – through the Securities Industry Act – has introduced securities borrowing and lending, and Kenya will do so later in 2017.

Over-the-counter (OTC) derivative trading is gradually being adopted in countries beyond South Africa and Nigeria, namely Kenya. Ghana is also looking at setting up an OTC regime although the Ghana Stock Exchange (GSE) has yet to implement the operational processes.    hese OTC flows are small though, at least relative to US, European or developed Asian markets, and there is sharp industry disagreement as to whether CCPs need to be introduced in these markets.  In a market where OTC volumes are considerable, industry consensus, international best practice and regulation would infer protections in the form of a CCP are necessary.

There is less unanimity around inaugurating CCPs in emerging economies which do not have scalable OTC markets, as it introduces costs that could potentially restrain growth and development.  East Africa through the EAC (East African Community) and West Africa via the ECOWAS (Economic Community of West African States) have both sought to enact regional harmonization programmes of securities markets modelled somewhat on the EU. Efforts have been ongoing to standardize rules around cross-border brokerage activities and dual listings of securities.

A number of market infrastructures across Africa are involved in integration and standardization discussions. CSD linkages, for example, will make account openings and know your customer (KYC) checks simpler, although some markets are disinclined to consolidate into regional exchanges and CSDs, as they view such national infrastructures as a sovereign right. However, efforts around cooperation are making progress.  Securities settlement is one area where progress has been made, particularly through the accentuation of SWIFT connectivity and automation across East African CSDs including Uganda, Rwanda and Tanzania.

Efforts are being made at Kenya’s Central Depository & Settlement Corporation (CDSC) to enable Swift connectivity and this is likely to go live in the second half of 2017.   In Ghana, Swift communication between the CSD and its settlement bank – the Bank of Ghana – is in place but there is presently no MT54X series SWIFT communication for securities between market participants, the exchange and the CSD. Discussions on MT54X Swift connectivity between stakeholders began earlier in 2017, but implementation could take time, and the costs of setting up such a system may be off-putting to some brokers.

Harmonization efforts are also in motion at stock exchanges, where there are ambitious plans to enable connectivity between exchanges in South Africa, Kenya, Nigeria, Côte d’Ivoire, Mauritius and Morocco through the Africa Exchanges Linkage Project (AELP). (12) This initiative will help cement liquidity in these markets, although experts are conscious that divergent regulations across these disparate countries will present issues around governance and best practices.

A lot of work still to be done

Cross-border harmonization initiatives in Africa should be applauded, but there are limitations. Harmonization of settlement in the EU through the Central Securities Depository Regulation (CSDR) and Target2-Securities (T2S) was possible because many of the markets possess a shared currency and have broadly similar regulations, levels of economic development, and common regulators, namely the European Securities and Markets Authority (ESMA). This is not the case in Africa. An absence of a single currency and conflicting regulations and legal systems will make it difficult to drive an African T2S equivalent.  Regulation and change in Africa markets can also be unexpected, arriving without warning or consultation. The Uganda Securities Exchange (USE) switched to an Automated Trading System in July 2015 with a resultant trade settlement time-frame changing to T+3 from T+5.  This decision was executed precipitously and caught a lot of market participants by surprise. Experts have warned that it is essential that regulators give sufficient notice about when they intend to execute market change otherwise it can cause major disruption.  Asset safety is a key criterion for foreign investors, and it is reinforced through regulations such as the Alternative Investment Fund Managers Directive (AIFMD) and UCITS V, which impose sanctions on depositaries which fail to effectively monitor assets in custody. As such, the ability to repatriate funds out of a country is critical. Nigeria has imposed currency controls and restrictions around FX in reaction to its recent market volatility. The situation appears to be calming following the retraction of some of these FX controls and the introduction of Naira non-deliverable FX futures, enabling investors to hedge Naira futures against USD.(13)

Looking towards a bright future

Africa should not be viewed through the lens of South Africa or Nigeria by international investors. Both of these markets have underperformed, but the region – when observed holistically – has a positive growth story to tell. Economic stability – coupled with efforts to implement market infrastructure standardization projects – will help encourage investors and liquidity into the region.

Article from EuroMoney

14 Jul

Egypt set to receive $1.25 bln IMF loan tranche: MENA

CAIRO (Reuters) – Egypt is to receive a second loan installment worth $1.25 billion from the International Monetary fund on Thursday night or Friday at the latest, state news agency MENA said.

Egypt agreed a three-year, $12 billion IMF loan programme in November that is tied to ambitious economic reforms such as subsidy cuts and tax hikes.

The IMF had said in May that there was a staff-level agreement to disburse the second instalment based on Egypt’s reform progress but that its executive board first had to meet to sign off on it.

[via Reuters Africa]

04 Jul

Egypt’s non-oil business activity contracts for 21st month in June: PMI

Egyptian non-oil private-sector business activity contracted for the 21st consecutive month in June as output and new orders continued to decline, a survey showed on Tuesday.

The Emirates NBD Egypt Purchasing Managers’ Index (PMI) for the non-oil private sector dipped to 47.2 points in June from 47.3 points the previous month, the report showed, remaining below the 50 mark that separates growth from contraction.

Egypt’s economy has been struggling since a 2011 uprising, but the government hopes recent reforms that are part of a $12 billion International Monetary Fund programme signed last year will help put the country on the right track.

Output continued to decline for the 21st month in a row, falling to 45.3 points in June from 46 points a month earlier as demand remained low. New orders also fell, but at a slower pace.

New export orders continued to rise for the third month in a row, the survey showed, suggesting demand has grown since the central bank’s decision to float the currency in November, as part of the IMF deal.

The value of Egypt’s pound has fallen by half since the flotation, helping Egyptian exports find new international markets.

Read more: Reuters Africa

30 May

Egypt announces $2.49 billion package to cope with inflation

Egypt on Monday announced a $2.49 billion package of income tax discounts, bonuses for state employees, increased pension payments and cash subsidies for lower and middle income Egyptians to cope with soaring inflation.

The package will go into effect July 1, the start of the fiscal year, according to a Cabinet statement.

The measures are partially designed to defuse discontent over steep price hikes resulting from reforms introduced in November, including floatation of the Egyptian pound, the introduction of value added tax and partial lifting of subsidies on fuel.

The reforms, part of a deal to secure a $12-billion loan from the International Monetary Fund, sent inflation soaring to more than 30 percent. More of the subsidies on fuel and electricity are expected to be lifted this summer.

“This inflationary wave is clearly not demand-driven, it was caused by a sudden increase in costs,” said Omar El-Shenety, managing director at Cairo-based investment bank Multiples Group to Bloomberg. That means that higher interest rates “will do little to contain it,” he said.

President Abdel-Fattah el-Sissi says the reforms, though biting, were the only way to revive the economy, battered by years of turmoil and high-profile terror attacks blamed on Islamic militants waging an insurgency in the north of the Sinai Peninsula.

With presidential elections due a year from now, el-Sissi risked his once sweeping popularity when he introduced the reforms. He has not said whether he would run for a second, four-year term, but he most likely would.

Monday’s package is welcome news to millions of Egyptians because it comes soon after the start of the holy month of Ramadan, when observing Muslims refrain from food and drink from dawn to dusk. During the month, Egyptians spend much more than they unusually do on food, feasting on large sunset meals along with traditional sweets. Food prices usually inch higher in response to Ramadan’s increased demand.

16 Jan

Hong Kong bans import of poultry meat and products from Egypt and areas in Poland and Ukraine

The CFS has contacted the Polish, Ukrainian and Egyptian authorities over the issues and will closely monitor information issued by the OIE on avian influenza outbreaks in the countries concerned

HONG KONG, The People’s Republic of China, January 16, 2017

The Centre for Food Safety (CFS) of the Food and Environmental Hygiene Department announced today (January 16) that in view of notifications from the World Organisation for Animal Health (OIE) about outbreaks of highly pathogenic H5N8 avian influenza in Egypt and Odessa and Chernovtsy Oblasts in Ukraine, and a notification from the Polish authorities about outbreaks of H5N8 avian influenza in Klodzki and Krakowski Districts in Poland, the CFS has banned the import of poultry meat and products (including poultry eggs) from the above places with immediate effect to protect public health in Hong Kong.
A CFS spokesman said that in the first 11 months of last year, Hong Kong imported about 18 700 tonnes of frozen poultry meat and 4.8 million poultry eggs from Poland. Hong Kong at present has established a protocol with Ukraine for the import of poultry eggs but not for poultry meat. About 2.98 million poultry eggs were imported into Hong Kong from Ukraine in the same period. In addition, as Hong Kong has not established any protocol with Egypt for imports of poultry meat and eggs, there is no import of such commodities from Egypt.

“The CFS has contacted the Polish, Ukrainian and Egyptian authorities over the issues and will closely monitor information issued by the OIE on avian influenza outbreaks in the countries concerned. Appropriate action will be taken in response to the development of the situation,” the spokesman said.