Inflation could rise to 17% this year, “but most of it is transient,” says Goldman Sachs: Inflation could climb as high as 17% this year thanks largely to the depreciation of the EGP and rising food prices

Newsletter

01 May 2022

For our top talks today, first, Inflation could rise to 17% this year, “but most of it is transient,” says Goldman Sachs: Inflation could climb as high as 17% this year thanks largely to the depreciation of the EGP and rising food prices. It is expected that inflation to remain elevated over the next 18 months but the headline rate expected to fall back into the Central Bank of Egypt’s 7% (±2%) target range by the end of 2023. This doesn’t necessarily mean a flood of rate hikes: Goldman doesn’t think the central bank will react to rising inflation with an aggressive tightening cycle — and expects interest rates to rise by only 100 bps over the summer. This will mean that Egypt’s inflation-adjusted policy rate will remain negative, that policymakers will be more concerned with yields on local debt remaining high enough to attract portfolio inflows. The central bank will next meet to review interest rates on 19 May. (Goldman Sachs)

Second, Egypt’s budget deficit narrowed to 4.9% of GDP in the first nine months of FY 2021-2022, from 5.4% in the same period last year.
The government is forecasting the deficit to fall to 6.2% of GDP by the end of the current fiscal year from 7.4% last year. Egypt’s debt-to-GDP ratio is expected to come in at around 85% this year, Finance Minister Mohamed Maait is quoted as saying in the statement. That’s well within FinMin’s previous target of less than 90%, and below the IMF’s latest forecast of 94%. Here, it is worth noting that the news that the government wants to IPO military-owned firms on the EGX this year is a positive step that could help to increase private sector investment in the economy. (Ministry of Finance)
In addition, the International Monetary Fund (IMF) is currently in the technical discussions phase with the Egyptian authorities in terms of the anticipated loan program with the country that aims to address the severe impacts of the Ukrainian war and other ongoing economic challenges, said the IMF’s Director of the Middle East and Central Asia Department Jihad Azour.
Azour said that expanding the role of the private sector in the country’s economy is one of the key pillars the fund is discussing with Egypt under the new expected program. Azour asserted that the Russian-Ukrainian conflict has direct and indirect impacts on the Egyptian economy, including food supply disruptions, impacts on the tourism sector, volatility of capital markets, and tightening of policy conditions, as well rising capital outflows. (Ahram Online)
For Egypt’s debt, Azour noted that it is expected to increase slightly, as is the case of other peers in MENA, however, this rise is not a matter of concern, as the biggest share of this debt is EGP-dominated.
Azour also pointed out that Egypt managed over the past six years to maintain its positive real GDP growth despite the economic challenges it faced. For inflation, Azour praised the procedures the Central Bank of Egypt (CBE) took in terms of raising the key interest rates and devaluating the EGP, saying that it contributes to preserving the stability of prices in the domestic market and the stability of the country’s economy as whole. (Ahram Online)
last Thursday, the Trade Ministry has agreed to release perishable goods from ports to importers who failed to secure the required letters of credit (L/Cs).
Importers must provide a letter of guarantee or cash deposit for the value of the goods in order to secure their release. The central bank has since March required importers to get L/Cs for their purchases instead of the common practice of documentary collection. (Al Mal)
The European Bank for Reconstruction and Development (EBRD) is injecting around 100 million USD into a certified green bond issuance of 334.5 million USD, backed by six solar power plants owned by Norway’s Scatec in Egypt.
This marks the first private green bond issuance in Egypt and the southern and eastern Mediterranean region. Certified as per the Climate Bonds Standard, the issuance is co-financed by the EBRD, the US International Development Finance Corporation (DFC), FMO Entrepreneurial Development Bank, the German Development Finance Institution (DEG), and private institutional investors. The international financial institution is also offering a sum of 30 million USD as a Credit Enhancement Facility (CEF) for participating institutional investors in the issuance.
Cairo-based financial services startup Khazna has obtained the final approval of the Central Bank of Egypt (CBE) to launch Khazna Card. Khazna Card is a Meeza prepaid card issued in partnership with Abu Dhabi Islamic Bank Egypt (ADIB Egypt).
The cards will enable customers to withdraw cash or make a deposit in their accounts, and to purchase items online or in stores. By using Khazna cards, customers can immediately receive their salaries any time throughout the month and pay bills via the app. Customers can link the card with Khazna App to check on their cash balance, as well as to activate or suspend the card. It is worth noting that Khazna recently announced it raised a sum of $38 million in a Series A funding round, led by Quona Capital, in collaboration with Lendable, along with the participation of Nclude and other investors. (Al Mal)
Moving to Elsewedy Electric (SWDY) has signed an agreement with Chinese manufacturer Wolong Electric to trade electrical motors and build a service center, in addition to the localization of the motor industry in Egypt.
Under the agreement, both parties will collaborate to provide the Egyptian market with electrical motors that comply with the standards of the International Electrotechnical Commission (IEC) and the National Electrical Manufacturers Association (NEMA). Products supplied by Elsewedy and Wolong will be used in a host of industries, including home appliances, electric vehicles (EVs), and medium voltage motors. The agreement will also see the establishment of a large-scale service center with a cranage capacity of 50 tons. (Arab Finance)
Egypt has signed an agreement with Norwegian renewable energy systems company Scatec and its partners to refinance six projects in Benban Solar Park in Aswan through the issuance of 19-year green bonds at a value of 334.5 million USD.
The green bonds will be issued by a group of international investment institutions, including the European Bank for Reconstruction and Development (EBRD), the United States International Development Finance Corporation (DFC), the Dutch development bank (FMO), and the German Investment Corporation (DEG), along with other private investors. The six projects are owned by Scatec and its partners and have a production capacity of 380 megawatts. (Arab Finance)
Argentina is set to receive two rare shipments of liquified natural gas (LNG) from Egypt.
Two tankers, namely the BW Brussels and the Stena Clear Sky, are on their way to the Escobar Port in Argentina after getting the LNG shipments from Egypt at the ports of Damietta and Idku. This marks the first LNG cargoes to be imported from the North African country since 2013. The South American country has been looking to secure winter gas supply in a new tender to purchase 12 cargoes, with a target price of 30 USD to 34 USD per million Birtish thermal units (MBtu), head of the state energy firm IEASA Agustín Gerez in charge of the process told Reuters. (Fefinitiv Eikon)
Moving to our EGX and companies talks, Abu Qir Fertilizers and Chemicals Industries Company (ABUK) has reported a 184.87% year-on-year (YoY) surge in net profit after tax during the first nine months of fiscal year (FY) 2021/2022.
The company recorded a net profit after tax of 6.964 billion EGP in the nine-month period ended March 31st, compared to a profit of 2.44 billion EGP in the same period of FY 2020/2021. Revenue soared 91.02% YoY to 12.043 billion EGP at the end of March 31st 2022 from 6.304 billion EGP at the end of March 2021. (EGX)
Juhayna Food Industries (JUFO) has reported a 22.8% year-on-year growth in consolidated profit attributable to the parent company for the full year ended December 31st.
Net profit excluding minority shareholders amounted to 526.197 million EGP in 2021, up from 428.376 million EGP in 2020. The company’s net sales surged to 8.806 billion EGP last year from 7.496 billion EGP in 2020. Moreover, the company’s board of directors has proposed the distribution of EGP 188.28 million in cash dividends for 2021, which is subject to the approval of the upcoming ordinary general meeting (OGM). (EGX)
On the other hand, Arab Drug Company (ADCI) has reported an 84% year-on-year (YoY) decline in net profit after tax for the first nine months of fiscal year (FY) 2021/2022.
The company's net profit after tax reached 68.52 million EGP during the period from July 1st 2021 until March 31st 2022, down from 81.23 million EGP in the same period a year earlier. Revenue dropped to 412.664 million EGP in the nine-month period ended March 31st from 420.123 million EGP in the same period the year before. Arab Drug is an Egypt-based company engaged in the pharmaceutical sector. The company focuses on the manufacture, packaging, and distribution of pharmaceutical products as well as chemical solutions for human and veterinary use. (EGX)