A New Chapter in Egypt`s History

Transcription

Economic and Social Reform
A New Chapter in Egypt’s History
A Popular Leader with an Entrepreneurial Vision
A Technocrat Prime Minister to Execute the Vision
Egypt, pre & post‐revolution … then what’s next!
FY20
6%
FY09
POVERTY
INFLATION
REAL GDP GROWTH
FY20
FY09
8%
16.5%
4.7%
UNEMPLOYMENT
FY20
below
20%
FY09
FY20
FY09
9%
9.2%
21.6%
FY14
FY14
FY14
FY14
2.1%
10.7%
24%
13.3%
FDI (USD BN)
FISCAL DEFICIT/GDP
FY20
FY09
14‐15
8.1
FY14
4.1
FY20
Below 10%
FY09
NEWLY ESTABLISHED CO.
FY20
FY09
Xxxx
6292
6.4%
IMPLEMENTED INVS. (EGP BN)
PS SHARE(%)
FY14
FY14
12.2%
8246
FY09
197
58%
FY20
Xxx
75%
FY14
265
62%
2
Aggressive targets, yet achievable with Egypt’s new formula…
SOLID
FUNDAMENTALS
“NEW EGYPT”
CATALYST
Location
Moves towards stability
Inherit sizable demand
Structural adjustment
High youth contribution
Investment Stimulus plan
Diversified economy
Legislative reform
Clear Governance
Growing investor Confidence
Rising Investment
STRONG & SUSTAINABLE GROWTH
3
… especially as Egypt already kicked‐off with its checklist
9 Commitment to Political Roadmap
9 Constitution referendum
9 Presidential election
9 Parliamentary election kicking‐off March 2015
9 Consensus building, moves toward stability and improved security
9 Structural Adjustment 9 Taxation reform
9 Phasing out oil subsidies
9 Investment stimulus plan
9 Legislative reform
9 New regulations and amendments
9 settling investors disputes 9 Payment of dues to oil companies
9 Full coverage of FX backlog
9 Social welfare program
4
9 Commitment to political timeline with a more inclusive scene ‐
a conductive investment climate
Commitment to political roadmap
Long‐standing cabinet
Parliamentary election
Cabinet reshuffle
President Elect El Sisi took office
Presidential election
PM Mehleb appointment
May‐15
Apr‐15
Mar‐15
Jul‐14
Jun‐14
Jun‐14
May‐14
Constitution Referendum
Feb‐14
• With recent announcement of running parliamentary election
by March 2015, commitment to political roadmap is confirmed
ensuring a full‐fledged political system by 1Q15.
• With President‐elect Abdel Fatah El‐Sisi gaining 97% of votes
with a considerably high turnout ratio of 47.1% suggests
consensus building, a key factor in achieving stability – already
evident in the reduced number of strikes.
• A recent poll, conducted by Baseera, assessing President El‐Sisi
100‐day performance shows that 82% approves his
performance which further confirms public consensus.
Source: Official sources and Ministry of Investment database
Source: Supreme committee for elections
May‐14
Apr‐14
Mar‐14
Feb‐14
Jan‐14
Dec‐13
Presidential
Elec 2014
Constitution
Ref 2014
Constitution
Ref 2012
Presidential
Elec ‐1st round
2012
Presidential
Elec ‐2nd
round 2012
Parliamentary
Elec 2011
Ref Mar‐11
0.0%
Nov‐13
10.0%
Oct‐13
20.0%
Sep‐13
32.9%
30.0%
Aug‐13
40.0%
Jul‐13
47.1%
38.9%
Jun‐13
41.2%
51.9%
May‐13
46.4%
Apr‐13
50.0%
Mar‐13
58.7%
60.0%
…which reduced strikes, helping reinstate stability
Feb‐13
70.0%
1000
900
800
700
600
500
400
300
200
100
0
Jan‐13
High turn out ratio confirms consensus building…
Source: ECESR
5
9 Adoption of long‐standing policies to restore confidence…
PHASING OUT OIL SUBSIDIES
The massive increase in energy prices in July 2014 – a 73%
increase in transport cost; a 26% hike in electricity prices;
and a 59% rise in petroleum products extended to the
industrial sector ‐ confirms the government commitment
to reform.
New oil prices
A move that show serious steps towards fundamental
budget restructuring; which is reflected in the targeted
EGP30.1bn slash in oil subsidies in FY15 budget, bringing
down the fiscal deficit to 10% of GDP.
It is worth highlighting that the drop in international oil
prices should reflect favorably on the state budget.
Octane 92
1.85
2.60
40.54%
Octane 80
0.90
1.60
77.78%
Diesel
1.1
1.8
64%
NG for Vehicles
0.4
1.1
175%
Av. gasoline Price increase, 41.7%
Source: Official sources
17.9%
15.9%
15%
16%
300
13.7%
250
10%
100
5%
20
Source: Ministry of Finance
FY15B
FY14
FY13
FY12
FY11
FY10
0%
FY09
0
12%
10.0%
9.8%
8.1%
10%
8%
6.4%
6%
4%
50
2%
0
0%
FY09
40
14%
12.8%
10.8%
200
150
60
Fiscal Deficit % GDP
FY15B
20%
80
Fiscal deficit
FY14
20.4%
16.8%
6.84%
FY13
18.2%
6.25
FY12
25%
17.8%
5.85
FY10
100
Octane 95
EGP bn
140
20.3%
% increase
FY11
Oil subsidies/expenditure
EGP bn
120
New tariff (EGP/Liter)
…and a narrowed fiscal deficit
Targets a reduced oil subsidies bill…
Oil subsidies
Old tariff (EGP/Liter)
Gasoline
6
9 …more of long‐standing policies to restore confidence EXPANDING THE POOL OF REVENUES
New tax reform
With Egypt’s budget revenues/GDP 22.9% falling far
below its regional peers average of 39%, expanding the
country’s taxation pool (averaging 67% of total budget
revenues over the past five years) remains key to
reduce the high fiscal deficit.
Imposing cash dividend and capital gain tax (CGT); the
real estate tax law; and an additional 5% temporary tax
on wealthy individuals with annual income above
EGP1mn are vivid examples – which are expected to
add EGP13.5bn to revenues.
Low tax revenue/GDP
Tax revenues
EGPbn
Tax Rate
Details
Capital gain & Dividends taxation
10%
*10% capital gain tax on realized profit at the
end of each year; while losses will be carried
over for 3 years.
* Investors with a minimum of 25% stake will
be charged 5%.
* Cash dividend tax of 10%; while those
investors below EGP15k are exempted.
* Foreign investors are charged 10% for the
transaction with 6% to be taxed instantly.
* CGT will be calculated based on the
difference between exit price and the higher of
either; historic buying price or price at time of
law implementation.
* Bonus shares are tax‐exempt.
Additional Income tax
Increment of 5% ‐ for 3 years *30% on individuals with annual income
exceeding EGP1mn.
*25% for corporate income below EGP10mn.
*30% for corporate income at EGP10mn and
above.
Real Estate
10%
* Residential units with market value up to
EGP2mn will be exempted; while tax will be
applicable above this threshold.
* Non‐residential units will be tax‐exempt if net
annual rental value is below EGP1.2k, after
deducting 32% maintenance expense.
Tax revenues/GDP
400
16%
15.1%
350
300
New tax
14.0%
13.9%
250
14.3%
13.4%
15%
14%
13%
13.0%
FY15B
10%
FY14
100
FY13
11%
FY12
150
FY11
12%
FY10
200
Source: Official Sources
7
9 …more of long‐standing policies to restore confidence

Legislative reform involves Investment Law; Bankruptcy Chapter 11; Labor Law; Title Registration; Industrial Law; Commercial Law; and
removing red tape. It is worth noting that a law has been issued that prohibits a third party to file an appeal to contracts between the
government and investors, as it restricts it to the parties involved only.

Settling investor’s disputes; which increased 22% since last committee meeting – reaching 411 resolution.

With the Egyptian Tax Authority’s (ETA) independent appeals committee ruling in favor of OCI N.V.’s subsidiary — Orascom Construction
Industries (OCI S.A.E.) — in the tax dispute dating back to 2012 (EGP7.1bn paid on installments until 2017), this confirms the government
positive stance to support investments. It is worth highlighting that following that statement, Sawiris announced a commitment to
maintain the company's presence in Egypt through construction services and large‐scale investments in infrastructure.

Settling dues to international oil and gas companies to boost investors’ confidence – as already Egypt settled USD2.1bn (40% of its dues to
oil companies). Likewise, settling dues with contractors.

CBE covered the backlog of FX owed to foreign investors seeking to repatriate funds through the repatriation scheme which started in
March 2013.
Contracts reconciliation committee Contracts
25
No of disputes
Ministerial dispute settlement committee solved
23
20
15
3
1
3
4 3
3
1
1 0
2
3
0
0
others
5
Mining & Fert
10
10
9
Source: Ministry of Investment
Total
logistics
Oil, Gas &
Petrochemcials
Agriculture
Tourism
Real‐estate & const
0
Authority
Resolution
Governorates and affiliates
198
Ministry of Finance and affiliates
126
New Urban Communities Authority 56
General Authority for Reconstruction Projects and Agricultural Development 17
Tourism Development Authority
8
Others
6
Total Settlement
411
8
9 Investment stimulus plan to support growth

The government already allocated EGP50bn in Investments – 47% YoY increase.

The government allocated an investment stimulus of EGP29.7bn in 2013, mainly targeting the labor‐intensive
infrastructure projects (c56%). An off‐balance sheet spending should help alleviate high unemployment and achieve the
targeted GDP growth of 2% in FY13/14.

Another stimulus of EGP34bn was introduced in early 2014.

This is beside the huge flow of Mega projects.
First stimulus package ‐ EGP29.7bn
Projects
Upgrading roads and transportation network
Supporting and developing national industry program
Upgrading water, sanitation, and natural gas networks
Social housing program
Supporting power networks Settling contractors’ arrears with the government
Upgrading health services network
National land reclamation program
Investment stimulus
Social justice stimulus
Total Source: Ministry of Planning & Ministry of Finance
Second stimulus package – EGP34bn
EGP bn Projects
6.74
Construction of 50 k housing units
4.35
Government investments
Government contribution in Suez Canal corridor project
4.06
3.05
2.92
2.2
0.63
0.52
24.48
5.26
29.74
EGP bn
10.40 5.60 2.00 Others Investment stimulus
4.60 22.60
Minimum wage implementation
10.00 Allocation to subsidies and social grants
Social justice stimulus
Total Mega Projects– EGP401bn
Projects
EGP bn
1 million housing unit 280
New Suez Canal
60
3600 KM of roads infrastructure 36
1 million Feddan project Total 25
401
Source: Ministry of Planning & Ministry of Finance
1.40 11.40 34.00
Source: Ministry of Planning & Ministry of Finance
9
9 Social welfare program to ensure sustainable growth
The government embarked upon several social measures including: High unemployment rate
High poverty rate
30%
14.0%
25%
13.5%
13.0%
20%
12.5%
12.0%
15%
11.5%
10%
11.0%
10.5%
5%
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
10.0%
3Q11

2Q11

A one‐time hike in the minimum wage for public sector workers starting January 2014; the launch of labor‐intensive projects to address unemployment ushering for stability; the government plans to allocate cash transfers to the needy – which was raised from EGP450/month/household to EGP300/individual with around 2‐3 mn families benefiting from such distribution;
expanding the contribution of health, education and social support spending to an aggregate of 35% of total budget expenditure in FY15 up from 32% a year earlier; and a housing program to fill the supply gap of 2.5mn apartments, costing EGP250bn over 10 years.
1Q11

0%
FY05
FY07
FY09
FY11
FY13
FY14e
Source: CAPMAS & Ministry of Planning
10
Signs of improved investment indicators started to show

FDI inflows recorded USD4.1bn in FY14 up from USD3.8bn a year earlier, driven by the rise in the net inflow for oil sector
investments from USD1bn to USD1.6bn. 1QFY15 saw 138%YoY increase driven by the rise in the net inflow for oil sector
investments from USD377.6mn to USD948.1mn. Net inflow for greenfield investments also picked up to USD734.9mn (from
USD339.5mn).
Recent figures show monthly average number of established companies picking up to 808 companies over August and
September compared to 2014 monthly average of 730 companies .
Loans continued to increase – growing at an average of 8.4% since July compared to 5.2% since the beginning of 2014.
Net portfolio investment and FDIs
Newly established companies
Loans growth
YoY
USD mn
15,000
FDI
Net Portfolio investments
1000
12%
900
12,500
800
10,000
10%
700
7,500
8%
600
5,000
500
2,500
6%
400
Source: Central Bank of Egypt
4%
2%
Jul‐12
Sep‐12
Nov‐12
Jan‐13
Mar‐13
May‐13
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
Jul‐14
Sep‐14
Nov‐14
1QFY15
1QFY14
FY14
FY13
0
FY12
‐10,000
FY11
100
FY10
‐7,500
FY09
200
FY08
‐5,000
FY07
300
FY06
‐2,500
Source: GAFI
0%
Jul‐12
Aug‐12
Sep‐12
Oct‐12
Nov‐12
Dec‐12
Jan‐13
Feb‐13
Mar‐13
Apr‐13
May‐13
Jun‐13
Jul‐13
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
0
11
Announced FDI include,
Sector Food/Infrastructure/financial services
Company
Country of Origin
Project Targeted Investment (USD)
EBRD
EU
Development projects
EUR1.25bn
Almarai
KSA
Beverage Facilities
345mn
Aujan
KSA
Beverage Facilities
100mn
Beyti
KSA
Beverage Facilities
4bn
Pepsi Co USA
Beverage Facilities
34mn
Coca Cola
USA
Beverage Facilities
500mn
Trans Energy Corp
Canada
Oil and Gas
115.5mn
Snopec
China
Exploration
8bn
Gaz de France
France
Exploration
300mn
Dana Gas
UAE
Exploration
270mn
Oil & Gas
British Petroluem
UK
Gas Fields
10bn
Real Estate
Arabtec Holding
UAE
Housing Projects
39.83bn
Retail
Al Futtaim
UAE
Carrefour
2.3bn
Shipping
DP World
UAE
Logisitics Zone
500mn
Food & Beverages
Source: Official sources
12
External sector showed some improvement, stabilizing FX

International tourist arrivals
Net international reserves stabilized
USDbn
Imports coverage
Months
4.0
35
30
25
20
15
10
5
0
3.5
3.0
2.5
2.0
1.5
1.0
A stable NIR supports FX market
k arrivals
1,800
1,600
1,400
1,200
1,000
800
600
400
200
‐
NIR
NIR
EGP/USD
USDbn
8.0
35
7.5
30
EGP

Thanks to GCC support (USD10.6bn in FY14), which managed
to maintain net international reserves at above the 3M
imports coverage. With the recent USD1bn grant from Kuwait
and the pledged USD5bn from UAE should further support
reserves – especially with USD2.5bn payment of Qatari
deposit this month.
Improved security resulted in 28 countries lifting their travel
ban; which raised monthly ITA to cross 1mn in October, a
level that was not reached since May 2013. ITR increased
more than 2x over 1QFY15 to USD2.1bn compared to
USD0.9bn in 1QFY14.
A stable NIR supports FX market.
Jul‐12
Aug‐12
Sep‐12
Oct‐12
Nov‐12
Dec‐12
Jan‐13
Feb‐13
Mar‐13
Apr‐13
May‐13
Jun‐13
Jul‐13
Aug‐13
Sep‐13
Oct‐13
Nov‐13
Dec‐13
Jan‐14
Feb‐14
Mar‐14
Apr‐14
May‐14
Jun‐14
Jul‐14
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14

7.0
25
20
6.5
15
6.0
10
5.5
Source: Central Bank of Egypt and CAPMAS
0
5.0
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan‐10
Mar‐10
May‐10
Jul‐10
Sep‐10
Nov‐10
Jan‐11
Mar‐11
May‐11
Jul‐11
Sep‐11
Nov‐11
Jan‐12
Mar‐12
May‐12
Jul‐12
Sep‐12
Nov‐12
Jan‐13
Mar‐13
May‐13
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
Jul‐14
Sep‐14
5
Source: Bloomberg and Central Bank of Egypt
13
…and default risk subsided

USD 5‐year CDS has reached its 46‐month low of 266.4 on 29 October 2014 and relatively stabilized around
that level since then.

Fitch upgraded Egypt’s credit rating one rank to “B” with a “stable” outlook; which supports a positive fiscal
and macro outlook.

With Moody’s seeing a better credit prospects for Egypt as parliamentary elections approach following its
upgrade of Egypt’s outlook to stable from negative, affirming Caa1 rating, reflects Moody's expectations of
an improving fiscal and economic environment.
USD 5‐year CDS 800
700
600
500
400
300
200
100
7‐Jan‐15
18‐Dec‐14
8‐Nov‐14
28‐Nov‐14
19‐Oct‐14
9‐Sep‐14
29‐Sep‐14
31‐Jul‐14
20‐Aug‐14
11‐Jul‐14
1‐Jun‐14
21‐Jun‐14
12‐May‐14
2‐Apr‐14
22‐Apr‐14
13‐Mar‐14
1‐Feb‐14
21‐Feb‐14
12‐Jan‐14
3‐Dec‐13
23‐Dec‐13
13‐Nov‐13
4‐Oct‐13
24‐Oct‐13
14‐Sep‐13
5‐Aug‐13
25‐Aug‐13
16‐Jul‐13
26‐Jun‐13
6‐Jun‐13
17‐May‐13
7‐Apr‐13
27‐Apr‐13
18‐Mar‐13
6‐Feb‐13
26‐Feb‐13
17‐Jan‐13
28‐Dec‐12
8‐Dec‐12
18‐Nov‐12
9‐Oct‐12
29‐Oct‐12
19‐Sep‐12
30‐Aug‐12
10‐Aug‐12
1‐Jul‐12
21‐Jul‐12
11‐Jun‐12
0
Source: Bloomberg
14
Yet, stagflation remains a major risk – however subsiding
Over 2H14, monthly CPI reading reached an aggregate of 5.9%; which is 74% of the total increase in FY14. This comes on the
back of the first and second round effects of energy hikes that took place in July 2014. Since the beginning of FY15 annual
headline CPI registered an average of 10.8% compared to 10.9% over the same period last year.
Unless FDI starts to flow into the country, given the low saving to GDP ratio, the risk of stagflation will escalate.
Energy is a key target sector to invest in, especially with aggravated power cuts during the summer season. It is worth
mentioning that power cuts, risks a smooth business operation further adding to inflationary pressure ‐ given disrupted
production ‐ and restricting potential investment from being materialized. A risk that is subsiding given the recent agreement
signed with Algeria for six LNG cargoes in late December in addition to the UAE announcement of extending petroleum support
to Egypt for 12 months, in addition to the energy mix strategy and the new 4.3 GW that was announced by the government in
renewable energy.
Stagflation risk subsides
Annual headline CPI
Unemployment
6.8%
13.0%
5.8%
12.5%
13.3%
13.2%
13.4%
8.7%
1.5%
1.0%
4QFY13
3QFY13
2QFY13
1QFY13
5.2%
13.0%
11.0%
10.0%
3.7%
2.4%
6.4%
14.0%
12.0%
9.0%
8.4%
8.0%
1.4%
7.0%
6.0%
3QFY14
2.2%
7.4%
2QFY14
2.2%
1QFY14
2.6%
6.8%
13.1%
11.20%
10.3%
10.1%
1.8%
-0.2%
13.3%
4QFY14
3.8%
0.8%
13.4%
11.7%
4.8%
2.8%
13.4%
1QFY15
GDP YoY growth
5.0%
Source: Ministry of Investment, Central Bank of Egypt and CAPMAS
15
16